TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 823
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....house property at Nizampet as transferred to the daughter of assessee based on an unregistered Sreedhan Agreement dated 30.11.2017, contrary to the requirement of registration of an immovable property under the transfer of property Act, 1982 and ignoring the assessee's own return filed for the A.Y. 2021-22 where in such said property continued to be shown as owned by the assessee. 4. Whether on the facts and circumstances of the case and in law, the CT(A) has erred is not considering the residential house purchased on 19.01.2021 in A.Y 2020-21, where in another 54F claim was made. 5. Without prejudice to the above contentions, CIT(A) ought to have considered the residential house in My Home Bhuja Apts registered in the name of assessee on 7th July 2021 which is subsequent to the sale of original asset (16 June 2021) and thereby violating the provisions of 54F as per the proviso a(i) of sec 54F(1). 6. Any other ground(s) that may be urged at the time of hearing." 3. Briefly stated facts of the case are that, the assessee is an individual and filed return of income for the assessment year 2022- 2023 on 07.11.2022 declaring total income of Rs. 42,52,70,700. The case was sel....
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....entitled for claiming exemption under section 54F of the Act towards capital gain derived from transfer of equity shares because, the assessee is having more than one residential house as on the date of transfer of original asset i.e., unquoted equity shares as on 16.06.2021 and in view of proviso to section 54F of the Act, the assessee is not eligible for claiming exemption when he had more than one residential house as on the date of transfer of original asset. The Assessing Officer has further observed that, although the assessee claimed to have gifted one residential house property i.e., Flat at Gayatri Gardens, Balaji Hill, Nizampet, Hyderabad to his daughter viz., Sahiti Duthala way back in the year 2015 on the occasion of her marriage with Shri Mohan Reddy, but, the fact remains that, the assessee claimed to have executed Gift without any formal gift deed registered by paying relevant stamp duty and, therefore, in view of provisions of section 123 of the Transfer of Property Act, 1882, for making a gift of immovable property, the transfer must be executed by a registered instrument signed by donor and attested by at least two witnesses. Therefore, the Assessing Officer obser....
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....see has purchased 4153.57 square metres of land, however, constructed residential house only on 291.52 square metre, which means, the assessee has utilised roughly 6% of the land area for the purpose of construction of residential house property leaving behind 94% vacant land. Therefore, the Assessing Officer observed that, the assessee is not eligible for claiming exemption under section 54F of the Act. In other words, the Assessing Officer rejected exemption claimed by the assessee under section 54F of the Act on three grounds including having more than one residential house as on the date of transfer of original asset i.e., shares of companies and further, no investment was made in capital gain account on or before the due date provided under section 139(1) of the Act and further, investing capital gain amount only in purchase of land and constructing residential house in less than 6% of land area. The relevant observations of the Assessing Officer are as under. "Part V - Conclusion : 42. In the case of the assessee, the following conclusions are drawn : A. The assessee, as per his own I.T. R. furnished for AY. 2021-22, claimed that he owned more than one residential house....
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....ate provided under section 139(1) and also invested the amount of capital gain before the said date for purchase of residential house and also investment in capital gain deposit account scheme. The Assessing Officer never disputed these facts, however, disallowed exemption claimed under section 54F of the Act only on technical ground of not satisfying the conditions of proviso to section 54F(1) of the Act, even though, the assessee has filed relevant evidences to prove that, as on the date of transfer of original asset i.e., shares of the two companies, the assessee is not having more than one residential house property. The assessee had also negated the observations of the Assessing Officer with regard to the due date for filing return of income and utilisation of land for construction of residential house property by filing relevant evidences including construction agreement with the contractor, occupancy certificate issued by the Municipal Authorities for completion of house construction on or before the due date. 7. The learned CIT(A) after considering relevant submissions of the assessee and also taken note of various facts and also taken note of provisions of section 54F of ....
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....shares, and found that the purchase of shares was duly reflected in their financial statements, and the source of funds in their hands was adequately explained. The appellant has computed LTCG of Rs. 92,28,20,193/- arising on sale of these shares (after taking indexed cost of acquisition at Rs. 2,21,72,590/-) during the year. AO has examined the Share Register and noted that the appellant has followed the First-In First-Out (FIFO) method for the purpose of computation of Capital Gains. Out of the total LTCG, the appellant has claimed exemption under section 54F to the tune of Rs. 53,22,48,667/-, and has offered the remaining LTCG of Rs. 39,05,71,526/-for taxation. The claim of exemption under section 54F has been made by the appellant, in proportion to the investment made towards construction of residential house (the new asset), and partly towards amount deposited in Capital Gains Account Scheme. These investments have been made by the appellant in October 2022. In his return of income for the year, the appellant has declared total income of Rs. 42.52 Crore (including LTCG to the tune of Rs. 39.05 Crore) and has paid the due taxes thereon (including Rs. 11.76 Crore by way of Self-....
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....uction of residential house (new asset) for total consideration of Rs. 2.02 Crore; 8 Copy of Revised Construction Contract dated 03.01.2023 with the Builder in respect of construction of residential house (new asset) for escalated consideration of Rs. 11 Crore; 9. Copy of Occupancy Certificate dated 18.06.2024 issued by the Municipal Authority in favour of the appellant. 6.10 On a careful perusal of evidence brought on record, I find that the appellant has satisfactorily discharged the primary onus cast upon it to produce sufficient material to establish the fact of investment made in construction of residential house (the new asset) and also the deposits made in Capital Gains Account Scheme, within the prescribed time period, for the purpose of claiming exemption under section 54F, by furnishing all the relevant and material evidence. In respect of investment made towards construction of residential house (the new asset); the qualifying amount, date and genuineness of investment are duly evidenced by- (i) sale deed of land dated 18.10.2022; (ii) construction agreement with Builder dated 08.12.2022; (iii) revised construction agreement dated 03.01.2023; and (iv) the Occupancy....
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....nsfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".] Explanation-For the purposes of this section,- [****] [***] "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of subsection (1), shall be deemed to be income chargeable under the head "Capital gains" relating t....
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....b-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid." 6.12. On a plain reading of the above provisions, and in the light of evidence brought on record, it is evident that the appellant has fulfilled all the eligibility criterion prescribed therein to claim the benefit of exemption from chargeability of Capital Gains (arising from sale of shares in his hands). The quantum and date of qualifying investments made towards construction of residential house (and deposit of unutilized net consideration in the Capital Gains Accounts Scheme) by the appellant are not disputed by the AO. The peculiar feature of the present case is that the AO has denied the benefit of exemption, mainly on grounds of technical breach of certain disqualification criterion laid down therein; and not for failure to fulfil the substantive criterion of having made the qualifying investment towards construction of new residential house, or having d....
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....s, however, denied the benefit of exemption purely on certain technical grounds. The material facts relating to each such ground of denial of exemption are discussed in detail, in the succeeding paragraphs. The due date applicable to the appellant 6.15. Sub-section (4) of Section 54F stipulates that the net sale consideration should be invested in the new asset, or the unutilized sale consideration should be deposited in the Capital Gains Account Scheme, within the due date for furnishing return of income under section 139(1). There is no dispute on the fact that the appellant is one of the partners in the partnership firm M/s Duthala Pharma, having fifty percent share in profits thereof. The said partnership firm submitted its Tax Audit Report, required under section 44AB of the Act, for the Financial Year ending 31st March 2022 in Form 3CB on 7th October 2022. The Explanation below sub-section (1) of section 139 lays down that "due date" for the said sub-section, in case of partner of a firm, whose accounts are required to be audited under the Act, or under any other law, shall be 31st October' 2022. On these facts, it is evident that the "due date" for furnishing return ....
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....mple reason for allowing partner of a firm extended time to furnish his return of income, is that the details of remuneration, interest etc. paid by the partnership firm are required to be audited by the Tax Auditors of the firm. These details are necessary for the partner to finalize his return of income. In the instant case, the partnership firm M/s Duthala Pharma has got audited its books of accounts for the year, as the Turnover was in excess of Rs. One Crore, and the firm has claimed losses for the year. Therefore, it is only logical that the appellant being partner in such firm, must be allowed extended time up to 31st October of the relevant assessment year (i.e. 31st October' 2022), to finalise his return of income. The argument of the AO is that the aggregate cash payments by the said partnership firm does not exceed five percent of the total payments, and therefore by virtue of Proviso, the partnership firm was not required to get the books audited. Firstly, the fact whether or not the cash payments/receipts exceed five percent of total payments/receipts, is a question which can scarcely be answered with any certainty, in absence of detailed audit of books of accounts....
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.... constructs another residential house (other than the new asset) within a period of three years of transfer. This is subject to further condition that the income from such other residential house is chargeable to tax under the head 'Income from House Property'. 6.16.1. In the instant case, AO has noted from the ITR filed by the appellant for the earlier years i.e. for Assessment Year 2021-22, that the appellant already owned two house properties. Therefore, AO has taken a view that the appellant was not eligible to claim exemption under section 54F, as he had violated either of the first two conditions, namely (i) the appellant was owning more than one residential house (other than the new asset) as on the date of transfer of original, or (ii) the appellant had purchased another residential house, other than the new asset, within a period of one year. The relevant and material facts relating to these house properties are discussed below. 6.16.2. In respect of the residential House Property at Plot No. 7, Gayatri Gardens, Balaji Hills, Nizampet, Hyderabad- 500090, the appellant has contended that the said property was gifted by him to his daughter Ms. Sahithi Duthala, at....
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.....3. In respect of the other residential House Property being Flat No. 1605, Block G, My Homes Bhooja, Gachibowli Raidurgam Village, Hyderabad-500036, the appellant has contended that booking amount for the said house property was paid by his daughter in 2020 (Rs.50,000/- on 30.09.2020 and Rs. 79,11,500/-on 18.12.2020), and the remaining amount was paid by the appellant. The total consideration for the said flat was to the tune of Rs. 4.17 Crore. The appellant has stated that substantial part of the sale consideration (to the tune of Rs. 3.30 Crore) was paid prior to the date of transfer of original asset (i.e sale of shares on 16.06.2021). On these facts, the appellant has argued that this cannot be considered a case of purchase of new residential house, after the date of transfer of original asset. The appellant has stated another fact in support of his plea that the Proviso does not apply to his case. The sale of deed of the said flat (Flat No. 1605, My Homes Bhooja) was executed and registered later on 07.07.2021, and possession of the flat was taken from the builder. As on the date of transfer of the original asset (i.e. sale of shares on 16.06.2021), the said flat was under co....
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.... of Smt. Sajida Begum Vs ITO (2015) (56 taxmann.com 269) (Bangalore Trib.) has held that exemption under section 54F cannot be denied on pretext of two houses, when assessee had had made an oral gift in respect of one such property in favour of her daughter. In that case also, the Assessing Officer had rejected assessee's claim taking a view that gift had not been executed by a registered document. This view was confirmed by CIT (Appeals), but overruled by the Tribunal. Exemption not admissible on purchase of vacant land 6.17. AO has also denied the claim of exemption on the ground that intention of legislature is to allow exemption for purchase or construction of new residential house, and not towards purchase of vacant plot of land. Brief facts on this issue are that the appellant has purchased land for construction of new house, as per the sale deed executed on 18.10.2022, for total sale consideration of Rs. 40.73 Crore. The appellant has paid Stamp Duty and Registration Charges to the tune of Rs. 3.09 Crore thereon. Thereafter, the appellant has entered into an agreement for house construction, with the builder M/s Advitha Infra on 08.12.2022 for construction of residen....
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....d to delete the addition of Rs. 43,22,48,667/- made on this account. These grounds of appeal are allowed." 8. Shri Mohd. Afzal, Advocate-Learned Counsel for the Assessee referring to the provisions of sec.54F of the Act submitted that, the provisions of said section deals with exemption from capital gain, in case the assessee invests the amount of capital gain derived from transfer of any asset other than the residential property for purchasing/ construction of a new residential house property, a deduction towards the entire amount of capital gain or proportionate amount of capital gain as the case may be, depending upon the amount of investment made by the assessee. Further, provisions of sec.54F is a benevolent provision provided by the statute to encourage investment in residential house by an assessee and, therefore, same needs to be interpreted to achieve the objects of the Legislature. Learned Counsel for the Assessee further referring to various evidences including date of sale of shares by the assessee submitted that, as on the date of sale of shares i.e., on 16.06.2021 the assessee does not own more than one residential house. Although, the assessee has considered the hou....
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.... the said Firm is required to be audited u/sec.44AB of the Act is 31st October, but, not 31st July as claimed by the learned Assessing Officer. The Assessing Officer without appreciating the relevant facts, on his own imagination and understanding of law, interpreted that, the due date for the assessee for filing return of income is 31.07.2022 by bringing proviso to sec.44AB of the Act, even though, the material placed on record clearly shows that the books of accounts of the Firm is audited by an Accountant and the assessee has filed his return of income as per the due date provided u/sec.139(1) of the Act. Learned Counsel for the Assessee further referring to the third observation of the Assessing Officer with regard to utilization of land for the purpose of construction of residential house property submitted that, there is no prohibition for purchase of land for the purpose of construction of the residential house property. The only condition is that on or before three years from the date of transfer of an asset, the assessee should complete the construction of residential house property. In the present case, the assessee has purchased the land and also constructed house proper....
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.... on record all the relevant facts and also relied on relevant provisions of the Act, but, the learned CIT(A), without appreciating the reasons given by the learned Assessing Officer, deleted the addition made by the Assessing Officer. Therefore, she submitted that the order of the learned CIT(A) should be set aside and the addition made by the Assessing Officer should be confirmed. 10. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has sold unquoted equity shares of two companies for a consideration of Rs. 94,49,92,783/- and computed long term capital gains of Rs. 92,28,29,193/- after deducting indexed cost of acquisition of Rs. 2,21,72,590/-. The assessee has claimed exemption u/sec.54F of the Act to the tune of Rs. 53,22,48,667/- which consists of investment made for purchase of land to the tune of Rs. 43,83,37,000/- and investment made in capital gain deposit account scheme of Rs. 10,67,00,000/-. The Assessing Officer never disputed these facts. However, disallowed the claim u/sec.54F of the Act on the ground that assessee has not satisfied the con....
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.... the due date and also IDBI Bank A/c statement in support of capital gain account deposit scheme. In fact, the Assessing Officer never disputed these facts. Therefore, it is necessary for us to understand the reasons given by the Assessing Officer to deny exemption on technical grounds. Admittedly, there is no dispute that the assessee has satisfied substantive provisions of sec.54F of the Act by investing capital gain for purchase of residential house property. The provisions to sec.54F of the Act deals with exemption from capital gain for re-investment of the amount of capital gain for purchase/construction of residential house property. Sec.54F is a benevolent provision allowing exemption from chargeability of capital gain in certain cases, where the net sale consideration is invested in purchase/construction of residential house property. The provisions of sec.54F has been interpreted by various Courts and held that, once an assessee falls within the ambit of benevolent provision, then, the said provision should be liberally interpreted and this view is supported by the decision of Hon'ble High Court of Gujarat in the case of Kishorbhai Harjibhai Patel vs., ITO [2019] 107 taxma....
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....z., Sahiti Duthala at the time of her marriage way back in the year 2015. The Assessing Officer disputed the gift of the property in absence of registered Gift Deed at the time of gift of the property. In other words, there is a gift deed executed in the year 2022. However, there was no gift deed when the property was gifted in the year 2015. The assessee contended that as per the Hindu Customs and Traditions, oral gifts are common that too at the time of marriage of their children. In the present case, the assessee claims to have gifted one residential house property as promised in favour of her daughter on the occasion of her marriage out of natural love and affection which was solemnised by executing a registered Gift Deed dated 25.06.2022 and further verified by the 'Streedhan Agreement' between the daughter of the assessee and her husband, as per which, both parties have agreed that the property has been gifted by her father in the year 2015 and the benefits of the property is for the daughter. Further, the assessee had also proved the gift of the property by filing the income tax return filed by the daughter of the assessee for the relevant assessment year where she claimed h....
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....ssessee is not gifted the property in favour of his daughter. Admittedly, the gift is between father and daughter. Going by the relationship between the parties, it is not surprised for us that, the property belong to daughter has been used by the father to avail Bank loan because, it is common in our society that, a related-party property has been given as collateral for availing loan with the consent of the other party. In the present case, it was the claim of the Learned Counsel for the Assessee that, the property has been mortgaged by the appellant-assessee to Kotak Mahindra Bank for availing loan with the consent of his daughter and further, as per the No Objection Certificate issued by the Bank, the appellant-assessee and his daughter both have consented to give the property as security for availing loan. From the above, it is undisputedly clear that, the assessee not as a owner of the property has mortgaged the property, but, mortgaged the property with the consent of his daughter. Therefore, we are of the considered view that, the said facts does not alter the fact with regard to entitlement of the assessee for claiming exemption u/sec.54F of the Act. Thus, we reject the ar....
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.... paid the substantial consideration on 25.05.2021 which means, he has paid substantial amount of consideration before the date of transfer of original asset dated 16.06.2021 and, therefore, the argument of the Assessing Officer that the assessee has purchased new residential house property within one year from the date of transfer is incorrect. Further, going by the argument of the assessee that he has received physical possession of the property in June, 2022, then, also the observation of the Assessing Officer is incorrect that, assessee has purchased one more residential property within one year from the date of transfer of the original asset because, if we consider date of transfer of original asset dated 16.06.2021 and actual possession of the property in June, 2022, then, it is more than one year from the date of transfer of original asset and, therefore, in our considered view, the assessee did not purchase another residential house property in violation of proviso to sec.54F of the Act and thus, eligible to claim exemption u/sec.54F of the Act. 15. Coming back to the second observation of the Assessing Officer in light of "due date" for filing return of income and investme....
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....e said audit report, the Auditor's specified the "due date" of filing audit report is 31.10.2022. Once, there is no dispute with regard to the fact that, the assessee is a partner in a firm, whose accounts are required to be audited and in fact, the assessee has filed relevant audit report in prescribed Forms to prove it's case, in our considered view, the Assessing Officer ought not to have artificially inserted a "due date" as per his own understanding of law, even though, the evidences clearly shows that actual "due date" for filing return of income in the present case is 31.10.2022. In our considered view, the observation of the Assessing Officer without any factual details with regard to transaction of the assessee that the assessee cash payment is less than 5% is also not based on any evidence and only a suspicion. Therefore, in our considered view, the observation of the Assessing Officer in light of proviso to sec.44AB of the Act and the relevant reasons with respect to the due date is 31.07.2022 and that the investment made by the assessee towards capital gain for purchase of residential house on 18.10.2022 and investment made in capital gain account scheme on 28.10.2022 i....
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....essee has used part of land for construction of house property. In the present case, going by the facts available on record, we find that, the assessee has purchased land and also constructed residential house property within the "due date" provided under the Act. Therefore, the assessee is eligible for exemption u/sec.54F of the Act. 16.1. At this stage, it is relevant to consider certain judicial precedents, where it was held that, the cost of land includes the cost of new residential house property which is eligible for exemption u/sec.54F of the Act. In this regard, it is relevant to consider the Judgment of Hon'ble Madra High Court in the case of C. Aryama Sundaram vs., CIT [2018] 107 ITR 1 (Mad.) wherein the Hon'ble Madras High Court held as under : "20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of ma....