Sec. 54F relief couldn't be withdrawn if residential property was subsequently put to use for commercial purpose

Subsequent change in usage of property does not disentitle assessee to relief under section 54F, if what was acquired was originally a residential property.

Facts:

a)  The assessee had purchased a piece of land. He gave property to a developer to construct a residential property. The municipal permission had also been obtained for such purposes.

b)  The assessee had received possession of such residential property but said property was subsequently used for commercial purposes. He claimed exemption under section 54F.

c)  The Assessing Officer (‘AO’) noticed that the income chargeable to tax had escaped assessment and completed assessment by working out-long term capital gains.

d)  The CIT (A) denied exemption under section 54F to assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  The intention of the parties was to construct a residential property when the development agreement was entered. The municipal permission had also been obtained only for construction of a residential complex;

2)  The assessee had received possession of such residential property but the said property was subsequently used for commercial purposes;

3)  Merely because of change in the use of such property for non-residential purposes, it could not be held that what was acquired was not a residential property, but a commercial one;

4)  The assessee was entitled to relief under section 54F, if what was originally acquired was a residential property. Thus, the impugned order of the CIT (A) was set aside, and the matter was restored to the AO, with a direction to consider the assessee's claim for exemption under section 54F. -  Shyamlal Tandon v. ITO [2014] 43 taxmann.com 155 (Hyderabad - Trib.)