Characterisation of property transfers as residential flats or undivided land interest; AO ordered to verify and recompute capital gains.

Whether the transfers were of constructed residential flats or merely undivided interests in land determined entitlement to the capital gains exemption for residential property. The Tribunal found inconsistency between sale deeds describing undivided land interests and the assessee's return treating the transactions as flat sales and claiming the exemption; factual record was unclear. Because material factual uncertainty prevented a conclusive determination, the Tribunal remitted the matter to the Assessing Officer to verify the nature of the asset transferred and to recompute capital gains afresh. Appeal was partly allowed for statistical purposes to permit AO verification and de novo computation.

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Issues: Whether the assessee sold two residential flats or only undivided interests in land and consequently whether the assessee is entitled to exemption under Section 54 of the Income-tax Act, 1961.

Analysis: The Tribunal examined the sale deeds, the return and computation of income, and the orders of the Assessing Officer and the CIT(A). The sale deeds describe the transactions as transfers of undivided interests in land while the assessee's return and computations treat the transfers as sale of residential flats and claim exemption under Section 54. The factual record before the Tribunal is inconsistent and unclear on whether the asset transferred was a constructed residential house (or flats) or only undivided land interest. Given these material factual uncertainties, the Tribunal could not conclusively determine entitlement to the Section 54 exemption on the existing record and found it necessary to have the Assessing Officer verify the nature of the asset transferred and recompute capital gains afresh.

Conclusion: The issue is restored to the file of the Assessing Officer for verification of whether the transfers were of residential flats or undivided land interests and for de novo computation of capital gains in accordance with law; the appeal is partly allowed for statistical purposes.

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