2015 (9) TMI 613 - HC - Income Tax

Tax exemption granted under Section 54F for lack of second home. Shares sale gains deemed long-term. Appeal dismissed.

The Court held that the Assessee was eligible for the exemption under Section 54F of the Income Tax Act as he did not own another residential house on the ... Sale of shares - whether constitute long term capital gain? - Held that:- After analysing the documentary evidence produced by the Assessee, the CIT (A) fairly concluded that the actual transfer of the shares took place only on 8th November 2006 and that therefore, the Assessee had held shares for more than one year. The further consequential finding that long term capital gains resulted cannot be said to be perverse. Question is answered in favour of the Assessee and against the Revenue. Exemption u/s 54F - Held that:- The evidence produced by the Assessee showed that the house was purchased by him on 10th April 2007 within the time allowed under Section 54F of the Act, after making payment and by obtaining the possession thereof. A substantial part of the consideration of ₹ 2 crores was paid on the date of the agreement to sell itself. The balance payment of ₹ 22 lakhs was made on 17th April 2007 when the possession was handed over. The conclusion that the house was in fact purchased on 10th April 2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10th April 2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him. - Decided in favour of the Assessee. Issues Involved:1. Eligibility for exemption under Section 54F of the Income Tax Act.2. Determination of the nature of capital gains from the sale of shares.Issue-wise Detailed Analysis:1. Eligibility for Exemption under Section 54F of the Income Tax Act:Background Facts:The Respondent-Assessee filed his return of income for the AY 2007-08, declaring an income of Rs. 2,78,53,090. The Assessee claimed a deduction under Section 54F against long-term capital gains from the sale of shares by investing in residential properties.Proceedings before the AO:The AO concluded that the Assessee owned more than one residential house, thus violating the conditions for claiming exemption under Section 54F. Specifically, the Assessee had properties at Village Fatehpur Beri and Gadaipur. The AO issued a notice questioning the Assessee's eligibility for the exemption.Explanation by the Assessee:The Assessee argued that on the date of the transfer of shares, he only had one residential house at Village Fatehpur Beri and a 15% share in the Gadaipur house, which did not constitute exclusive ownership. The Assessee provided an Abhibhog Certificate and cited several legal precedents to support his claim.Order of the AO:The AO did not accept the Assessee's explanation, concluding that the Assessee owned two residential houses and disallowed the exemption under Section 54F. Penalty proceedings were also initiated.Additional Evidence before the CIT (A):The Assessee presented additional evidence, including sale deeds, balance sheets, and Khasra Girdawri, to prove that the land at Gadaipur was agricultural and the constructed house was owned by his father.Order of the CIT (A):The CIT (A) admitted the additional evidence and concluded that:- The Assessee owned only agricultural land at Gadaipur.- The constructed house was exclusively owned by the Assessee's father.- The Assessee was eligible for the exemption under Section 54F as he did not own another residential house on the relevant date.Impugned Order of the ITAT:The ITAT concurred with the CIT (A)'s decision, affirming that the Assessee was not a fractional owner of the property at Gadaipur and was eligible for the deduction under Section 54F.High Court's Analysis:The Court referred to precedents, including CIT v. Podar Cements (P) Limited and Balraj v. CIT, emphasizing that registration of the sale deed is not necessary for claiming exemption under Section 54F. The Court concluded that the Assessee's ownership of agricultural land did not disqualify him from the exemption, and the property was purchased within the allowed time frame.Conclusion:The Court held that the Assessee was eligible for the exemption under Section 54F, answering Question (i) in favor of the Assessee and against the Revenue.2. Determination of the Nature of Capital Gains from the Sale of Shares:Background Facts:The Assessee sold shares of VPPL and claimed the resulting gains as long-term capital gains.Proceedings before the AO:The AO questioned the date of acquisition and sale of shares, suggesting that the shares were not held for more than 12 months and the gains should be treated as short-term.Explanation by the Assessee:The Assessee provided evidence, including share transfer registers and certificates, showing that the shares were acquired on 25th October 2005 and sold on 8th November 2006.Order of the AO:The AO did not accept the explanation, arguing that the transfer of shares occurred earlier than claimed, based on the receipt of a substantial part of the sale consideration before 8th November 2006.Additional Evidence before the CIT (A):The Assessee provided further documentation, including annual returns and balance sheets, to substantiate the dates of acquisition and sale.Order of the CIT (A):The CIT (A) concluded that the shares were indeed held for more than 12 months, based on the evidence provided, and the gains were long-term.Impugned Order of the ITAT:The ITAT agreed with the CIT (A), affirming that the shares were held for more than 12 months and the gains were long-term.High Court's Analysis:The Court referred to the legal distinction between the title to get on the register and the full property in the shares, concluding that the shares were held for more than 12 months. The Court found no inconsistency in the CIT (A)'s findings and upheld the classification of the gains as long-term.Conclusion:The Court held that the gains from the sale of shares were long-term capital gains, answering Question (ii) in favor of the Assessee and against the Revenue.Final Judgment:The appeal was dismissed, with no orders as to costs.