2014 (6) TMI 40 - AT - Income Tax

Assessee qualifies for tax exemption under Section 54F for new house purchase, successful appeal removes Assessing Officer's addition.

The Tribunal determined that the assessee qualified for exemption under Section 54F of the Income Tax Act as he did not own more than one residential ... Claim of exemption u/s 54F of the Act – Long Term Capital Gains – as per AO at the time of acquisition of land, the assessee owned more than one residential house. - further as per AO advance payment made for the purchase of residential flat has not been treated as investment/utilization of the capital gain in the purchase of a residential house - Held that:- Investment & ownership are two distinct terms which have their meanings and connotations in different ways - The investment of capital gains is a beneficial provision and 'ownership' at the time of transfer of the original asset is to be interpreted strictly as per law - both the stages cannot be dealt with in the same manner - the proviso 54F(1)(b)(b) to the section postulates that such residential house, other than the residential house owned on the date of transfer of the original asset is chargeable under the head 'income from house property' - Section 54F is a beneficial provision for promoting the construction of residential houses and requires an assessee to construct houses and for achieving that purpose to intent of the Legislature is to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of the law – the assessee cannot be treated owner of Noida/Chandigarh flats on 05/06/2010 - he to be allowed benefit of section 54F because he has invested the capital gain as per the requirement of the Act. The intention of the Legislator is to encourage investment in the acquisition of residential houses and section 54F of the Act prescribes and proscribes the conditions for availing its benefit - The terms/words used in this section have been very selectively & prudentially used by the legislature - the benefit is against the capital gain arising out of transfer of any long term capital asset not being a residential house and which has been referred to as an 'original asset' subject to a condition that if the 'net-sale-consideration' is invested either in purchasing/constructing a residential house or in constructing the same within the period prescribed - if the assessee owned more than one residential house other than the new asset on the date of transfer of the original asset, this benefit is not available to him - the assessee had sold a capital asset in the form of land on 03/10/2008 and earned long term capital gain as there was some error in the computation filed by the assessee with the return because in the indexing of the cost of land in F.Y. 1991-92, the assessee's half share was not considered - The assessee has claimed exemption u/s 54F (1)(b) of the Act - the assessee did not own more than one residential house on the date of transfer of the original asset. Relying upon Sardarmal Kothari [2008 (6) TMI 15 - MADRAS HIGH COURT] - Owning of a residential house at the time of transfer of the original asset has different meaning and connotation and acquisition of new asset 'which is equivalent to purchase of new residential house' has entirely different meaning and connotation - CIT(A) has misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as 'new asset' in the Act - any payment made towards acquisition of a new residential house by way of making payment in advance even by booking or by paying installments within the prescribed has to be is treated as investment towards purchase / construction of a new house - the assessee is entitled for exemption u/s 54F of the Act of LTCG – Decided in favour of Assessee. Issues Involved:1. Eligibility for exemption under Section 54F of the Income Tax Act, 1961.2. Ownership status of the properties at the time of transfer of the original asset.3. Compliance with the conditions prescribed under Section 54F regarding investment in a new residential house.Detailed Analysis:1. Eligibility for Exemption under Section 54F:The primary issue was whether the assessee was eligible for exemption under Section 54F of the Income Tax Act, 1961. The assessee claimed exemption for the long-term capital gain (LTCG) earned from the sale of land, asserting that the amount was invested in a new residential house. The Assessing Officer and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the exemption, arguing that the assessee owned more than one residential house at the time of the transfer of the original asset, which disqualified him from claiming the exemption under Section 54F.2. Ownership Status of the Properties:The assessee contended that he did not own more than one residential house on the date of the transfer of the original asset (05/06/2008). The properties in question were:- A self-occupied house at S-225, Mahaveer Nagar, Jaipur.- A business office at Heritage City, Gurgaon, with a 50% share.- Bookings of flats at ATS-Noida and ATS-Chandigarh, which were not yet possessed or owned by the assessee.- A new residential house booked at Emaar-MGF, Gurgaon, after the date of transfer.The Tribunal found that the assessee did not possess ownership or title of the flats at ATS-Noida and ATS-Chandigarh on the relevant date, as these were merely bookings and not completed residential houses. Thus, the assessee owned only one residential house on the date of transfer, fulfilling the condition under Section 54F.3. Compliance with Section 54F Conditions:The Tribunal examined whether the assessee had complied with the conditions of Section 54F regarding the investment in a new residential house. The assessee had invested Rs. 89.66 lakhs in a residential flat at Emaar-MGF, Gurgaon, and deposited Rs. 40 lakhs in a Capital Gain Account Scheme. The Tribunal noted that the investment in the new residential house was made within the stipulated period, and the payment to the builder was considered sufficient compliance for claiming exemption under Section 54F, as clarified by CBDT Circulars No. 471 and 672.Conclusion:The Tribunal concluded that:- The assessee did not own more than one residential house on the date of transfer of the original asset.- The investment in the new residential house was made in compliance with the provisions of Section 54F.- The assessee was entitled to the exemption under Section 54F for the LTCG of Rs. 2,04,37,654/-.The appeal of the assessee was allowed, and the entire addition made by the Assessing Officer was deleted.