2013 (1) TMI 905 - AT - Income Tax

Reconsidering eligibility for deduction under Section 54F and interpretation of 'transfer' under Section 2(47)

Assistant Commissioner of Income-Tax-21 (3) Versus Dilip Manhar Parekh

Assistant Commissioner of Income-Tax-21 (3) Versus Dilip Manhar Parekh - [2013] 56 SOT 487 Issues Involved:1. Denial of exemption under Section 54F of the Income Tax Act, 1961.2. Eligibility of co-owners to claim deduction under Section 54F.3. Interpretation of 'transfer' under Section 2(47) of the Income Tax Act.Detailed Analysis:1. Denial of exemption under Section 54F of the Income Tax Act, 1961:The primary issue in the appeals was the denial of exemption under Section 54F of the Income Tax Act, 1961, concerning the investment made by the assessee in a new residential property (Juhu Bungalow). The Assessing Officer (AO) denied the exemption on the grounds that the old asset was held in the name of M/s. Parekh Brothers, while the new asset was not. Additionally, the AO observed that the new asset was demolished within two years of purchase, which he argued violated Section 54F(3) of the Act, as the new asset should not be transferred within three years.2. Eligibility of co-owners to claim deduction under Section 54F:The assessee contended before the CIT(A) that the property was held as co-owners and not as an Association of Persons (AOP). The CIT(A) agreed, noting that the income from the property was assessed in the hands of the co-owners individually in previous years. The CIT(A) directed the AO to allow the deduction under Section 54F, considering that the demolition of the bungalow took place in a subsequent year and should not affect the current year's claim. However, the CIT(A) also set aside the matter to the AO to verify if the house existed at the time of claiming the deduction.3. Interpretation of 'transfer' under Section 2(47) of the Income Tax Act:The Tribunal examined whether the demolition of the new asset amounted to a 'transfer' under Section 2(47) of the Act. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Grace Collis, which overruled the earlier decision in Vania Silk Mills, stating that the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer could still be considered a transfer. The Tribunal noted that the demolition was a voluntary act by the assessee and not an act of God, thus potentially falling within the definition of 'transfer.' The Tribunal set aside the matter to the CIT(A) for fresh consideration in light of these observations.Conclusion:The Tribunal directed the CIT(A) to reconsider the eligibility for deduction under Section 54F and the interpretation of 'transfer' under Section 2(47) comprehensively. The appeal by the revenue and the cross-objections by the assessee were disposed of accordingly. The Tribunal emphasized that the demolition of the bungalow, being a voluntary act, might amount to a transfer, and the purchase of the bungalow should be real and not symbolic to qualify for the deduction under Section 54F.