2026 (4) TMI 48 - AT - Income Tax

Section 54F claim in reassessment can cover allotted residential units under a development agreement

In reassessment proceedings, a taxpayer may raise a section 54F claim where it is directly connected to the escaped capital gains, and the claim is not ... Scope of reassessment - addition made as undisclosed income under the head Long Term Capital Gains' on entering into development agreement - assessee raised a claim for deduction under section 54F in reassessment proceedings - whether or not the sale consideration to be received by the assessee (land owner) in lieu of transfer of his land to the developer as per the terms of the “Joint Development Agreement” (JDA), i.e., share in the bungalows to be constructed on the said land (agreed to be allotted to him) can be brought within the meaning of “investment in construction of the new residential house” as provided in section 54F of the Act? Scope of reassessment - Claim relatable to escaped income - HELD THAT: - The Tribunal held that proceedings u/s 147 cannot be converted by the assessee into a review of concluded matters or a vehicle for seeking unrelated reliefs, following the principle in Sun Engineering Works (P) Ltd. [1992 (9) TMI 1 - SUPREME COURT]. At the same time, where the reassessment itself was undertaken to tax the long-term capital gain arising from the transfer of the property, a claim u/s 54F bearing directly on that very escaped income remained open to be urged. Tribunal further held that once such a claim had been raised before the appellate authority, it ought to have been considered even if it was absent from the return, provided the relevant material was available on record. [Paras 11, 15] Exemption u/s 54F in joint development agreements - Investment in construction of a residential house - Developer-allotted residential units - assessee's agreed share in the bungalows to be constructed and allotted under the development agreement could fall within the meaning of investment in construction of a residential house for purposes of section 54F - HELD THAT: - The Tribunal held that the controversy was covered by the decisions in CIT Vs. K.G. Rukminiamma [2010 (8) TMI 482 - KARNATAKA HIGH COURT] and CIT vs. Sambandam Udaykumar [2012 (3) TMI 80 - KARNATAKA HIGH COURT] - Respectfully following those authorities, it accepted the legal position that consideration receivable by a landowner under a joint development arrangement in the form of residential units to be constructed and allotted by the developer can qualify as investment towards construction of a residential house under section 54F. As the lower authorities had not examined the assessee's claim on that footing or with reference to the other statutory conditions, the matter required fresh adjudication by the Assessing Officer. [Paras 16, 17] The matter was restored to the Assessing Officer to readjudicate the section 54F claim in light of the Tribunal's legal findings and subject to fulfilment of the other statutory preconditions. Final Conclusion: The Tribunal held that the assessee was entitled to raise the section 54F claim in reassessment since it was directly connected with the escaped capital gains brought to tax. Following the judicial position on joint development agreements, it restored the matter to the Assessing Officer for fresh adjudication of the exemption claim subject to satisfaction of the statutory conditions, and the appeal was allowed for statistical purposes. Issues: Whether, in reassessment proceedings, the assessee could raise a claim for deduction under section 54F of the Income-tax Act, 1961, and whether the consideration receivable under a joint development agreement, in the form of allotted residential units, could qualify as investment in the construction of a new residential house for the purposes of section 54F.Analysis: Reassessment proceedings under section 147 are confined to escaped income and do not permit an assessee to reopen concluded matters unrelated to the escapement. However, a claim that is directly relatable to the income brought to tax in reassessment may be examined, even if it was not raised in the original return, where the relevant material is already on record or can be considered in appeal. On the substantive exemption issue, the share in the residential units agreed to be allotted under the development arrangement was treated as consideration invested in construction of a residential house. The agreed allotment of constructed residential units under the development arrangement was held to fall within the scope of section 54F.Conclusion: The assessee was entitled to raise the section 54F claim in relation to the reassessed capital gains, and the allotment under the development agreement could qualify for exemption under section 54F, but the matter required fresh adjudication by the Assessing Officer on the remaining conditions.Final Conclusion: The addition was not finally sustained on the exemption issue, and the matter was sent back for reconsideration with directions to examine the assessee's claim under section 54F.Ratio Decidendi: In reassessment, an assessee may raise a claim that is directly connected to the escaped income, and consideration receivable as allotted residential units under a development agreement can constitute investment in construction of a residential house for section 54F purposes.