2022 (10) TMI 373 - AT - Income Tax

ITAT rules in favor of assessee, treats surplus as LTCG, allows Section 54F exemption

Smt. Parthiban Kalavathi Versus The Asst. Commissioner of Income Tax, Non Corporate Circle-11, Chennai

Smt. Parthiban Kalavathi Versus The Asst. Commissioner of Income Tax, Non Corporate Circle-11, Chennai - TMI Issues Involved:1. Classification of surplus arising from Joint Development Agreement (JDA) as business profit versus Long Term Capital Gains.2. Eligibility for exemption under Section 54F of the Income Tax Act for multiple units obtained under the JDA.Issue-wise Detailed Analysis:I) Classification of Surplus from JDA:The primary issue was whether the surplus arising from the JDA should be treated as business profit or as Long Term Capital Gains. The assessee entered into a JDA with a builder, selling a plot of land and receiving four flats and monetary consideration in return. The Assessing Officer (A.O) treated this transaction as an 'adventure in the nature of trade,' thus classifying the surplus as business profit. The CIT(A) upheld this view, noting that the assessee's activities were commercial in nature.However, the ITAT observed that the assessee's intent was to sell ancestral land and receive residential flats and monetary consideration, not to engage in a commercial venture. The ITAT noted that the assessee lacked the knowledge or capability for property development and had merely given a General Power of Attorney (GPA) to the builder. The transaction was deemed to be a sale of ancestral land, resulting in Long Term Capital Gains, not business income. The ITAT directed the A.O to treat the transaction as Long Term Capital Gains.II) Eligibility for Exemption under Section 54F:The second issue was whether the assessee could claim exemption under Section 54F of the Act for the multiple residential units received. The A.O denied this exemption, arguing that the assessee received four distinct flats, each with a different address, and thus did not qualify for the exemption under Section 54F, which allows for only one house property.The ITAT referred to the Hon'ble Madras High Court's decision in the case of Tilokchand & Sons Vs. ITO, which held that the term 'a residential house' could include multiple units. The ITAT noted that the amendment restricting the exemption to one residential house was effective only from 01.04.2015 and was not applicable to the assessment year in question (2013-14). Consequently, the ITAT directed the A.O to allow the exemption under Section 54F for the multiple units, following the precedent set by the Madras High Court.Conclusion:The ITAT ruled in favor of the assessee on both issues. It directed that the surplus from the JDA be treated as Long Term Capital Gains and allowed the exemption under Section 54F for the multiple residential units received. The appeal of the assessee was allowed, and the order was pronounced on 21st September 2022.