Deduction under Section 54F allowed despite property registration delay when payment and possession completed within 24 months

The ITAT Visakhapatnam allowed deduction under Section 54F despite house property registration occurring beyond the 24-month statutory limit. The assessee had paid full consideration and taken possession within the prescribed timeframe on 14/11/2016, subsequently earning rental income from the property. The tribunal held that mere delay in registration cannot deny exemption when complete payment and possession occur within the stipulated period. Following precedents from Delhi HC and Karnataka HC, the tribunal ruled that fulfilling the substantive requirement of investing capital gains in residential property within time limits satisfies Section 54F conditions, regardless of registration delays.

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Issues Involved:

1. Condonation of delay in filing the appeal by the Revenue.
2. Eligibility of the assessee to claim exemption under Section 54F of the Income Tax Act, 1961.
3. Determination of the date of "purchase" for the purpose of Section 54F exemption.
4. Consideration of rental income as evidence of ownership.
5. Legal interpretation of property transfer and ownership under the Transfer of Property Act.

Detailed Analysis:

1. Condonation of Delay:

The Revenue filed the appeal with a delay of 24 days. The delay was attributed to the new Assistant Commissioner of Income Tax (ACIT) taking charge and the time required for allocation of RSA token and role on the ITBA portal. The Tribunal found the explanation reasonable and sufficient, thus condoning the delay and allowing the appeal to be adjudicated on merits.

2. Eligibility for Exemption under Section 54F:

The core issue was whether the assessee was eligible for exemption under Section 54F of the Income Tax Act, which allows exemption from capital gains tax if the proceeds are invested in a residential property within two years. The Assessing Officer (AO) disallowed the exemption, arguing that the property was registered beyond the stipulated period. However, the Commissioner of Income Tax (Appeals) [CIT(A)-NFAC] allowed the exemption, considering that the payment and possession occurred within the stipulated period.

3. Determination of Date of "Purchase":

The Revenue contended that the "purchase" date should be the registration date (17/12/2019), which was beyond the two-year period. The assessee argued that the purchase was completed on 14/11/2016 when the payment was made and possession was taken. The Tribunal sided with the assessee, noting that the entire consideration was paid, and possession was taken within the stipulated period, thus qualifying for the exemption under Section 54F.

4. Consideration of Rental Income:

The Revenue argued that mere submission of rental income should not be grounds for claiming ownership and exemption. The Tribunal noted that the assessee offered rental income in the return for AY 2017-18, supporting the claim that the property was effectively in possession and used, reinforcing the claim for exemption.

5. Legal Interpretation of Property Transfer:

The Revenue cited legal precedents arguing that ownership is conferred only upon registration. However, the Tribunal differentiated the present case from the cited precedents, emphasizing that the critical factor for Section 54F is the investment of capital gains in a property, not necessarily the registration. The Tribunal referred to various judicial pronouncements, including the Delhi High Court and Karnataka High Court, which supported the view that payment and possession within the stipulated period suffice for exemption.

Conclusion:

The Tribunal upheld the decision of the CIT(A)-NFAC, allowing the exemption under Section 54F, and dismissed the Revenue's appeal. The Tribunal emphasized that the payment and possession within the stipulated period were sufficient for claiming the exemption, irrespective of the registration date. The Cross Objection raised by the assessee, being supportive of the CIT(A)-NFAC's decision, was dismissed as infructuous.

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