ITAT Pune rules denial of exemption under section 54 unjustified for non-resident individual

The ITAT Pune allowed the appeal in favor of the assessee, ruling that the denial of exemption under section 54 of the Income Tax Act was unjustified. The court held that the assessee, a non-resident individual, was not the owner of the properties sold but his father was, making him ineligible for the exemption. The ITAT Pune directed the Assessing Officer to delete the addition of long term capital gain in the assessee's hands, emphasizing that taxability should be based on ownership.

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Issues:
1. Denial of exemption u/s.54 of the Income Tax Act to the assessee regarding long term capital gain on sale of 4 flats.

Analysis:

Issue 1: Denial of exemption u/s.54 of the Income Tax Act

The appeal was filed by the assessee against the order of the CIT(A) confirming the determination of long term capital gain in the hands of the assessee for the Assessment Year 2009-10. The Assessing Officer noted that the assessee, a non-resident individual, sold 4 flats during the year under consideration for a total consideration of &8377;1,74,00,000, claiming long term capital gain of &8377;1,40,96,583 as exempt under section 54. However, the Assessing Officer rejected the claim as the assessee failed to offer house property income from the 4 flats previously, rendering the exemption inapplicable. The CIT(A) also denied the exemption, stating that the assessee was not entitled to claim exemption u/s.54 as he was not the owner of the properties sold. The CIT(A) emphasized that the properties belonged to the father of the assessee, and only the father could claim the exemption. The CIT(A) dismissed the appeal, upholding the denial of exemption u/s.54.

The assessee contended that the flats sold did not belong to him but to his father, and he erroneously declared the long term capital gain based on wrong advice from a Chartered Accountant. The ITAT Pune agreed with the assessee, noting that the Assessing Officer should determine the taxability of income as per relevant tax provisions, irrespective of the assessee's declaration in the return of income. The ITAT Pune held that taxing the long term capital gain in the hands of the assessee was not justified since he was not the owner of the flats. Therefore, the ITAT Pune set aside the CIT(A)'s order and directed the Assessing Officer to delete the addition made on account of long term capital gain in the hands of the assessee. The appeal was allowed in favor of the assessee.

In conclusion, the ITAT Pune ruled in favor of the assessee, highlighting that the denial of exemption u/s.54 was unjustified as the properties sold did not belong to the assessee, but to his father. The ITAT Pune emphasized that the taxability of income should be determined based on ownership, and the assessee, not being the owner, was not liable for the long term capital gain tax on the sale of the flats.

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