No withdrawal of sec. 54 relief if new house was transferred to daughter within 3 years

Facts of case:

a) Assessee sold his residential property and invested sale proceeds in another residential property. He claimed exemption under section 54 in respect of capital gains arising on sale of property.

b) Later on, he had settled the new property to his daughter out of love and affection.

c) He submitted that the settlement of property in favour of the daughter was a gift falling under section 47(iii) and was not taxable.

d) Assessing Officer held that settlement did not cover under section 54(i) or 54(ii) and accordingly denied exemption.

e) Commissioner (Appeals) allowed assessee’s claim for exemption. Aggrieved-revenue filed instant appeal before tribunal.

Tribunal held in favour of assessee:

1) After availing exemption the assessee had settled the property in favour of his daughter by duly following the process of law.

2) Assessee transferred the immovable property out of love and affection without consideration to his daughter. The same was a gift and didn’t attracted capital gains as per the provision of section 47(iii) of Income tax act. 

3) Assessee had complied with the provisions and conditions laid down under section 54. It couldn’t be said that assessee had violated provisions of Section 54 just because he settled the property in favour of his daughter within 3 years of acquisitions.

4) However, it is made clear that during the restriction period, the daughter shall not transfer the property by any means. ITO v. Abdul Hameed Khan Mohammed - [2016] 65 taxmann.com 211 (Chennai - Trib.)