2012 (8) TMI 547 - AT - Income Tax

Tribunal confirms exemption under Section 54F for residential house purchase

Assistant Commissioner of Income-tax, Circle-2, Ajmer Versus Om Prakash Goyal

The Tribunal upheld the assessee's eligibility for exemption under Section 54F of the Income Tax Act. It found that the purchase of land and construction ... Long term capital gain – purchase of agriculture land – denial of benefit of section 54F of the Act – Held that:- There is no prohibition regarding construction of a residential house on agriculture land - house constructed on agricultural land or on other land does not matter, but the fact that house should be constructed and from the report it is very much clear that a residential house was constructed – CBDT Cir. No. 667 has clarified that for the purpose of computing exemption u/s. 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. Therefore, AO is not justified to disallow deduction u/s 54F - CIT was justified in allowing the claim of the house - appeal of the department is dismissed. Issues Involved:1. Eligibility for benefit under Section 54F of the Income Tax Act.2. Consideration of agricultural land as a capital asset.3. Requirement of property registration for claiming exemption.4. Proof of construction of a residential house within the stipulated period.Detailed Analysis:1. Eligibility for benefit under Section 54F of the Income Tax Act:The department objected to the allowance of the benefit of Section 54F amounting to Rs. 1,20,50,000/- for the purchase of agricultural land, arguing that no evidence of the construction of a residential house was provided. The Assessing Officer (AO) disallowed the exemption, stating that the investment was in agricultural land, which is not a capital asset as per Section 2(14) of the IT Act. The AO also noted that the property had not been transferred to the assessee's name and that no residential house had been constructed within the stipulated three-year period.The assessee contended that the land was purchased for constructing a residential house and that possession was taken immediately despite some legal disputes. The assessee cited several judicial precedents to argue that the purchase of agricultural land for constructing a residential house qualifies for exemption under Section 54F.2. Consideration of agricultural land as a capital asset:The AO argued that agricultural land is not a capital asset under Section 2(14) of the IT Act, and thus, the investment did not qualify for exemption under Section 54F. However, the CIT(A) held that there is no prohibition against constructing a residential house on agricultural land for the purpose of claiming exemption under Section 54F. The CIT(A) referenced several judicial decisions, including CIT v. Vishnu Trading & Investment Co. and Addl. CIT v. Narendra Mohan Uniyal, to support this view.3. Requirement of property registration for claiming exemption:The AO disallowed the exemption partly because the property was not registered in the assessee's name. The CIT(A) refuted this by citing judicial precedents such as Balraj v. CIT and CIT v. T.N. Aravinda Reddy, which state that registration of the property is not necessary for claiming exemption under Section 54F. The CIT(A) emphasized that possession and investment in the property are sufficient for claiming the exemption.4. Proof of construction of a residential house within the stipulated period:The department argued that there was no proof of construction of a residential house within the three-year period. The CIT(A) found that the assessee had indeed constructed a house on the purchased plot, as evidenced by a valuation report dated 17.03.2011, which valued the construction at Rs. 16,29,600/-. The CIT(A) concluded that the conditions for claiming exemption under Section 54F were satisfied, including the completion of construction within the stipulated period.The Tribunal upheld the CIT(A)'s decision, stating that all conditions for claiming exemption under Section 54F were met. It was noted that the assessee had purchased a plot of land and constructed a house on it, fulfilling the requirements of Section 54F. The Tribunal confirmed the order of the CIT(A) and dismissed the department's appeal.Conclusion:The Tribunal concluded that the assessee was eligible for the exemption under Section 54F, as all the necessary conditions were satisfied, including the purchase of land and construction of a residential house within the stipulated period. The appeal by the department was dismissed.