Limited scrutiny and joint development capital gains issues upheld, with section 54F relief confined to one residential unit.
Limited scrutiny confined to capital-gains issues did not lose jurisdiction merely because the assessee claimed an expansion into complete scrutiny; the addition remained within the selected scrutiny reason, so the challenge failed. In a joint development arrangement, capital gains were held taxable in the year when the arrangement was completed and the constructed flats were actually received, not merely in the year of execution of the agreement, so tax in the relevant year was sustained. Section 54F relief was restricted to one qualifying residential unit because the flats received were separate independent units, and further exemption was not allowed.
Issues: (i) whether the assessment travelled beyond the scope of limited scrutiny without administrative approval; (ii) whether capital gains arising from the joint development arrangement were taxable in the year of execution of the agreement or in the year when the constructed flats were received and sold; (iii) whether deduction under section 54F was allowable in respect of more than one residential unit.
Issue (i): whether the assessment travelled beyond the scope of limited scrutiny without administrative approval.
Analysis: The selected reason for scrutiny covered capital gain or loss on sale of property. The addition made by the Assessing Officer related to the capital gains issue itself and, therefore, remained within the ambit of the limited scrutiny parameters. No jurisdictional infirmity arose merely because the assessee sought to characterise the assessment as having expanded into complete scrutiny.
Conclusion: The objection to jurisdiction failed and was decided against the assessee.
Issue (ii): whether capital gains arising from the joint development arrangement were taxable in the year of execution of the agreement or in the year when the constructed flats were received and sold.
Analysis: The assessee had executed a joint development agreement and later received four independent flats as consideration for transfer of land. The transfer was not treated as taxable in the year of execution alone because the factual completion of the arrangement and receipt of the constructed share occurred in the year under appeal. The assessment was therefore sustained on the basis that the capital gains arose in the relevant assessment year and had to be brought to tax accordingly.
Conclusion: The capital gains were held taxable in the year under appeal and the assessee's contrary contention was rejected.
Issue (iii): whether deduction under section 54F was allowable in respect of more than one residential unit.
Analysis: Section 54F grants exemption where the net consideration is invested in a residential house, and the proviso restricts the benefit where the assessee owns or acquires additional residential houses within the prescribed period. The four flats received by the assessee were treated as separate independent residential units. In those circumstances, the allowance of deduction could not extend beyond one qualifying unit, and the relief already granted by the lower authorities on one flat was not disturbed.
Conclusion: Deduction under section 54F was confined to one flat and the assessee's claim for further relief was rejected.
Final Conclusion: The assessment was upheld substantially, the legal challenge on limited scrutiny failed, the capital gains taxability in the relevant year was sustained, and the additional exemption claim was restricted to one residential unit only.
Ratio Decidendi: Where a joint development arrangement culminates in receipt of separate residential units as consideration, capital gains may be taxed in the year in which the transfer becomes complete on the facts, and section 54F relief cannot be extended beyond the statutorily permitted residential unit.
TaxTMI 
AI Drafter ✕
TaxTMI 
