Deemed Income treatment of contractual rebates rejected; residential investment exemption upheld where purchase and prior gifts were bona fide.

Contractual rebates given by a builder, evidenced in the buyer's agreement as scheduled concessions and reflected in payment records, were treated as part of agreed sale consideration and therefore not taxable as deemed income under the deeming provision; the addition on that ground was set aside. Investment in a new residential flat qualified for the residential-investment exemption where payment, possession and acquisition rights were established within the statutory timeframe and prior transfers to the spouse were bona fide registered gifts rather than a colourable device; denial of exemption was set aside.

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Issues: (i) Whether rebates/discounts received by the assessee in connection with purchase of an apartment can be treated as deemed income under Section 56(1) of the Income-tax Act, 1961; (ii) Whether the assessee is eligible for exemption under Section 54F of the Income-tax Act, 1961 in respect of investment in a residential flat when registration of sale deed was not completed within two years and whether prior transfers by way of gift rendered the claim ineligible.

Issue (i): Whether the rebate/discount of Rs. 9,81,39,230/- given by the builder is taxable as deemed income under Section 56(1) of the Income-tax Act, 1961.

Analysis: The rebate components were shown in the apartment buyer's agreement as contractual concessions (down payment rebate, move-in rebate, special rebate, timely payment rebates) and formed part of the agreed terms of sale. The stamp duty value/circle rate for the property was lower than the actual consideration paid by the assessee, and the assessee produced the collector rates list and payment schedule evidencing that the consideration paid exceeded stamp duty value. The rebates flowed as per the contractual schedule and were not shown to be a post hoc adjustment or an arrangement to transfer cash/value outside the contract. The tax authorities did not establish that the rebate constituted an external quid pro quo or an adjustment in cash/value beyond the contractual concessions.

Conclusion: Addition of Rs. 9,81,39,230/- as deemed income under Section 56(1) is not sustainable and is ruled in favour of the assessee.

Issue (ii): Whether the assessee is entitled to claim exemption under Section 54F of the Income-tax Act, 1961 for the investment in the apartment at The Camellias despite non-registration of sale deed within two years and prior gifts/transfers of interest in other residential properties.

Analysis: The assessee demonstrated payment, possession letters, and that the purchase was completed within the statutory time frame for Section 54F. The transfers of undivided half shares in earlier properties to the spouse were executed well before the sale of the original capital asset and converted co-ownership into sole ownership of the spouse, supported by registered gift deeds and affidavits. The nature of co-ownership and timed gifts did not amount to a colourable device in the factual matrix; possession and acquisition of rights in the new asset were established despite sale deed registration formalities. The tax authorities did not follow specific anti-avoidance procedural steps under Chapter X-A before treating the gifts as colorable; factual distinctions from precedent relied upon by the authorities were present.

Conclusion: Denial of exemption under Section 54F is not sustainable and is ruled in favour of the assessee.

Final Conclusion: The appeal is allowed; the additions and disallowance impugned before the Tribunal are set aside and the assessee's claims under the relevant provisions are upheld, resulting in relief to the assessee.

Ratio Decidendi: Where contractual rebates form part of the agreed terms of purchase and the actual consideration paid exceeds stamp duty/circle value, such rebates are not to be treated as deemed income under the deeming provisions; and where acquisition of a new residential asset with possession and payment falls within the statutory timeline and prior transfers were bona fide and antecedent, denial of exemption under the residential-investment exemption provision is not warranted.

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