2025 (1) TMI 1114 - AT - Income Tax

ITAT remands case for fresh determination of JDA property ownership and Section 54 deduction eligibility verification

ITAT remanded the case to AO for fresh determination of assessee's share in JDA property and Section 54 deduction eligibility. The tribunal rejected AO's ... LTCG - Deduction u/s 54 - share of the assessee in the Joint Development Agreement (JDA) - entire sale consideration received are invested in the construction of the new property - DR contended that the Katha stood in the name of the assessee as well as his brother and therefore the assessee is entitled for 50% share in the land given to the builder. HELD THAT:- We are in agreement with the argument that the title of the property cannot be decided on the basis of Khatha as held by the various Courts, when the assessee was able to establish the ownership of the lands by way of JDA and Partition Deed. Mere reliance on the Khatha issued by the authorities is not legally correct. AO has also not produced any documents to show that the assessee and his brother are the owners except the Khatha. The ownership of the immovable property could not be transferred without executing any registered document. There is no such documents were available to show that the assessee as well as his brother are the owners. We do not accept the reasoning given by the AO for arriving the share of the assessee at 50%. Assessee was also not able to explain why he has adopted a lesser area of land while computing the long term capital gains. If the assessee’s contention that his share is 25% and therefore long term capital gains should be computed on his share alone, some more enquiry is to be conducted by the authorities. One such enquiry may be carried out with the sister of the assessee as well as his father and if they are able to show that they have sold their respective shares to various buyers, the dispute arose in this appeal would be solved. We therefore restore this matter to the file of the AO to call for the details from the assessee as well as his father and sister to prove that they sold their respective shares separately in favour of the buyers which they got based on the partition deed. Whether entire money received by him were utilised in the construction of the building and therefore he is eligible for deduction u/s. 54? - The assessee is entitled to claim deduction u/s. 54 of the Act if the assessee is able to establish the fact that the construction was commenced within the period prescribed under the Act. If the assessee is able to establish the said fact, then as per section 54 assessee is entitled for said deduction. Based on the records filed by the assessee, we are not able to ascertain the said facts. In order to ascertain the said facts, we are remitting this issue also to the AO to decide the issue afresh based on the documents produced by the assessee and if the AO is found that the construction was commenced within the period of 3 years, but the same was completed after the period of 3 years, then the assessee is entitled for deduction irrespective of the completion of the construction. With the above directions, we are remitting both the issues to the AO for deciding the issues in accordance with law and also based on the findings given above. Appeal filed by the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment addresses the following core issues:What is the share of the assessee in the Joint Development Agreement (JDA) for computing Long Term Capital Gains (LTCG)Rs.Is the assessee entitled to a deduction under Section 54 of the Income Tax Act on the grounds that the entire sale consideration received was invested in the construction of a new propertyRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Share of the Assessee in the JDA for Computing LTCGRelevant Legal Framework and Precedents: The computation of LTCG is governed by the provisions of the Income Tax Act, particularly in relation to the ownership and transfer of property. The central question is the determination of the assessee's share in the property under the JDA.Court's Interpretation and Reasoning: The Tribunal examined the JDA and subsequent partition deed, both of which indicated that the land was owned by four individuals, including the assessee. The Tribunal found that the assessee and his brother were authorized to manage formalities for development purposes, but this did not equate to sole ownership.Key Evidence and Findings: The JDA and partition deed were crucial, as both were registered documents indicating joint ownership among four parties. The Tribunal also noted inconsistencies in the assessment of the assessee's brother, where a 25% share was recognized.Application of Law to Facts: The Tribunal concluded that the property was owned by four individuals, and the assessee's share should be considered as 25% for LTCG computation. The AO's reliance on the Khatha was deemed insufficient to alter this conclusion.Treatment of Competing Arguments: The Tribunal considered the AO's argument that the Khatha indicated ownership by the assessee and his brother, but found it unconvincing against the backdrop of the JDA and partition deed.Conclusions: The Tribunal remitted the issue back to the AO for further inquiry, directing verification of sales by the other co-owners to ascertain the correct share of the assessee.Issue 2: Entitlement to Deduction under Section 54 of the ActRelevant Legal Framework and Precedents: Section 54 of the Income Tax Act provides for exemption from LTCG if the gains are reinvested in a new residential property within a specified period. Precedents from various High Court judgments were considered.Court's Interpretation and Reasoning: The Tribunal acknowledged that if the assessee could demonstrate that the investment in the new property was made within the statutory period, the deduction under Section 54 could be justified.Key Evidence and Findings: The Tribunal noted the absence of concrete evidence in the presented documents to confirm timely investment in the new property. However, it recognized the potential for such evidence to exist.Application of Law to Facts: The Tribunal determined that further examination was necessary to verify the timing of the investment relative to statutory requirements.Treatment of Competing Arguments: The Tribunal considered the assessee's reliance on precedents where delays in construction completion, beyond the assessee's control, did not negate eligibility for Section 54 benefits.Conclusions: The Tribunal remitted the issue back to the AO for re-evaluation, instructing the AO to verify the timeline of investments and determine eligibility for Section 54 deductions.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The ownership of the immovable property could not be transferred without executing any registered document. In the present case on hand there is no such documents were available to show that the assessee as well as his brother are the owners.'Core Principles Established: The determination of property ownership for tax purposes should be based on registered legal documents, not merely administrative records like the Khatha. Additionally, eligibility for Section 54 deductions hinges on the timing and nature of property investments, with precedents allowing for flexibility if delays are beyond the taxpayer's control.Final Determinations on Each Issue: The Tribunal remitted both issues back to the AO for further investigation. For the first issue, the AO must verify the actual ownership shares among the co-owners. For the second issue, the AO must confirm the timing of the assessee's investment in the new property to assess eligibility for Section 54 deductions.The judgment emphasizes the importance of registered documentation in determining ownership and the need for thorough examination of facts when considering tax exemptions under Section 54. The Tribunal's decision to remit both issues for further inquiry underscores the necessity of a comprehensive fact-finding process in tax adjudication.