Assessee's Appeal Partly Allowed: Deduction under Section 54F Granted, Fair Market Value and Indexation Benefits

The appeal by the assessee was partly allowed. The Tribunal directed the allowance of deduction under Section 54F, adoption of Rs. 150 per sq.ft. as the fair market value as on 01.04.1981, and indexation benefits from 01.04.1981 for the entire property. The other grounds of appeal were deemed academic and not adjudicated.

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Issues Involved:
1. Entitlement to deduction under Section 54 of the Income Tax Act.
2. Entitlement to alternative claim for deduction under Section 54F of the Income Tax Act.
3. Determination of the cost of acquisition as on 01.04.1981.
4. Eligibility for indexation from 01.04.1981.

Detailed Analysis:

1. Entitlement to Deduction under Section 54:
The assessee initially claimed deduction under Section 54 of the Income Tax Act, asserting that the property sold was a residential house. However, the Assessing Officer (A.O.) found that the property sold was vacant land based on information from Bruhat Bengaluru Mahanagar Palike (BBMP). Consequently, the A.O. denied the exemption under Section 54, as it applies only to residential houses.

2. Entitlement to Alternative Claim for Deduction under Section 54F:
The assessee subsequently claimed exemption under Section 54F, which applies to the sale of any long-term capital asset other than a residential house. The A.O. denied this claim, stating that the assessee owned more than one residential house, disqualifying her from the benefits under Section 54F. The CIT(A) upheld this view, noting that the assessee declared income from three properties as house property income in the previous year, contradicting her claim that two of the properties were vacant lands. However, upon appeal, it was revealed that the properties at Dhobi Ghat, Thalgatpura, and Nagadevanahalli were indeed vacant lands, and the rent received was for land lease, not buildings. Therefore, the Tribunal concluded that the assessee did not own more than one residential house at the time of the asset transfer, entitling her to the exemption under Section 54F.

3. Determination of Cost of Acquisition as on 01.04.1981:
The assessee claimed the fair market value (FMV) of the property as Rs. 150 per sq.ft. as on 01.04.1981, supported by a registered valuer's report. The A.O. and CIT(A) adopted a lower value of Rs. 100 per sq.ft., based on guideline values from the sub-registrar. The Tribunal, referencing the Karnataka High Court's decision in Late Smt. Krishna Bajaj Vs ACIT, acknowledged that FMV is generally higher than guideline values. Given the valuer's report and the legal precedent, the Tribunal directed the adoption of Rs. 150 per sq.ft. as the FMV.

4. Eligibility for Indexation from 01.04.1981:
The assessee sought indexation benefits from 01.04.1981 for the entire property. The CIT(A) allowed indexation from 2004-05 for the 2/3rd share inherited from her father and from 2009-10 for the 1/3rd share released by her mother. The Tribunal held that since the property was acquired by the previous owner (the father) before 01.04.1981, and the assessee opted to adopt the FMV as on 01.04.1981, she was entitled to indexation from 01.04.1981 for the entire property, including the share released by her mother.

Conclusion:
The appeal by the assessee was partly allowed. The Tribunal directed the allowance of deduction under Section 54F, adoption of Rs. 150 per sq.ft. as the FMV as on 01.04.1981, and indexation benefits from 01.04.1981 for the entire property. The other grounds of appeal were deemed academic and not adjudicated. The order was pronounced in the open court on 26th August 2020.

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