Sec. 54 relief is available even if expenditure is incurred for making new house habitable

Facts

a)  Assessee earned capital gain on sale of his tenancy rights in a residential house property. He invested the sale proceeds to purchase another house property which was in a dilapidated condition.

b)  In order to make the said house fit for residential purpose, assessee incurred certain expenses on repairs and painting work etc. Assessee claimed deduction under section 54 in respect of expenses so incurred to make the new house property habitable.

c)  Assessing Officer (AO) contended that only the cost paid for acquiring new residential house is to be taken for the purposes of granting benefit under section 54 and not cost incurred towards the improvement of the same. Thus, the claim of the assessee towards cost of making a new house property habitable was disallowed.

d)  The CIT(A) confirmed the order of the AO. Aggrieved by the order of the AO, assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

No denial of sec. 54 relief if house is purchased within 2 years, though occupancy certificate is received later on

Facts

a) Assessee earned capital gain on sale of a residential house property. He claimed exemption under section 54 in respect of investment made for purchase of a flat.

b) Assessing O􀁹icer (AO) disallowed the claim of the assessee on ground that the assessee didn’t get the occupancy certificate of said flat with in the period of 2 years from the date of transfer of residential house property.

c) Appellate authorities allowed exemption to assessee. Aggrieved revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

Cancellation of agreement on non-completion of construction of house won't effect sec. 54 relief

Facts

a)  Assessee earned capital gain on sale of a residential house property. Thereafter, he paid certain amount to one 'M' for purchase of another residential house property and, accordingly, claimed exemption under section 54.

b)  In terms of agreement, 'M' had to transfer house property to assessee after getting it constructed. However, in view of failure of 'M' to complete construction of property, purchase agreement was cancelled and amount was refunded to assessee.

c)  Assessing Officer (AO) taking a view that assessee neither purchased nor constructed a new house property within the time-limit stipulated in section 54, rejected his claim for exemption.

d)  The CIT(A) confirmed the order of AO. Aggrieved assessee filed the instant appeal before the tribunal.

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.

Sec. 54(4) contemplates investment in house before due date of filing of belated return

When capital gains is utilized for purchase or construction of new asset before due date for furnishing return of belated return, assessee is entitled to claim deduction in respect of amount so utilized under section 54F.

The disputed issue is as under:

Whether Section 54 exemption would be available if capital gain is invested before due date of filing of belated return even if he no amount is deposited in capital gain account scheme before due date of filing of return under Section 139(1)

Held

The Tribunal relied upon the judgment of co-ordinate bench of the ITAT, Bangalore in the case of Nipun Mehrotra [2008] 110 ITD 520 (BANG.) and held that if the sale consideration/capital gains is utilized for the purchase or construction of the new asset before the date of filing the return under Section 139(4), the assessee is entitled to exemption under Section 54F.  - ITO v. R. Srinivas [2015] 63 taxmann.com 101 (Bangalore - Trib.)

Sec. 54 relief allowed on cap gain from land, viz, long-term asset, though flat that existed on it was short-term asset

Where assessee constructed a building on land, which was long-term capital asset even though said building was short-term capital asset, assessee was entitled to claim benefit of section 54 to the extent capital gain attributable to land.

Facts:

a)Assessee transferred a building (used for residential purposes) within 3 years of its purchase which was constructed on a land, viz, long-term capital asset.

b)Assessee claimed exemption under Section 54 in respect of investment made by him in another residential house to the extent capital gain attributable to sale of land.

c)The Assessing Officer (AO) opined that capital gain as was attributable to long-term capital asset, viz, land would not qualify for relief under section 54 as the building which existed on the same was a short-term capital asset.

d)The appellate authorities upheld the order passed by the AO. Aggrieved-assessee filed the instant appeal before the High Court. The High Court held in favour of assessee as under:

1)The legislature has defined the meaning of house property as ‘building or land appurtenant thereto’. In view of the aforesaid definition of house property, a land appurtenant to a residential house is entitled to benefit under Section 54. Therefore, if a land appurtenant to a residential house could be entitled to benefit under Section 54, it was difficult to accept that the land on which the residential building was constructed would not be entitled to the said benefit.

2)When a property, i.e., residential house is sold, the sale consideration includes the value of the land and the value of the construction. The AO treated the capital gain on sale of land (on which the residential house was constructed) as a long-term capital gain while the capital gain on sale of building was treated as a short-term capital gain. Therefore, if, for levying tax under the Act, such a distinction could be made, one failed to understand why that distinction would not be kept in mind in extending the benefit under section 54.

3)Therefore, the assessee was entitled to the benefit of section 54 to the extent capital gain attributable to land. - C.N. ANANTHARAM V. ASSISTANT CIT [2015] 55 taxmann.com 282 (Karnataka)

No TDS liability of buyer when capital gain arose to NR wasn't taxable due to sec. 54 relief

Where on date of purchase of house property from non-resident vendor, assessee was aware of fact that capital gain was not taxable in vendor's hands due to availability of deduction under section 54, he was not required to deduct tax at source while making payment of sales consideration

Facts:

a)Assessee had purchased a residential property from a non-resident (‘NR’) and made payment to him without deducting tax at source.

b)He argued that that he was not required to deduct tax at source while making payment to NR since NR was eligible to claim relief under section 54 in respect of capital gain arising out of sale of residential property.

c)The Assessing Officer (‘AO’) opined that capital gain tax would be chargeable in the hands of the recipient on sale of the house property. Hence, assessee was required to deduct tax while making payment irrespective of fact that recipient was entitled to deduction under section 54. Consequently, the AO raised demand under section 201 by treating assessee as assessee-in-default.

d)The CIT(A) affirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)The ultimate levy of taxes depends upon many circumstances like exemption, deduction etc. In the instant case assessee did not deduct tax on payment as he was aware that such payment to NR did not require deduction of tax due to availability of Section 54 relief to NR.

2)If facts of the instant case were to be examined in the light of instruction No. 2/2014 dated 26-02-2014, it would indicate that the AO is required to determine the appropriate proportion of the sum chargeable to tax to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201.

3)The facts on record indicated that from the date of payments, parties were aware that these payments would not be subject to taxes, because of exemption, hence, there was no need to deduct the taxes. Thus, assessee could not be treated as assessee in default under section 201. - A. MOHIUDDIN V. ADIT(INTERNATIONAL TAXATION) [2015] 53 taxmann.com 102 (Bangalore - Trib.)

Deemed transfer of property in development agreements if right to sell a few flats was transferred to builders

Where assessee had entered into development agreement under which developer had constructed a building on property of assessee and, in turn, developer had right to sell some of the flats, grant of development right to that extent was to be treated as transfer.

Facts:

a) The assessee entered into a development agreement with the developer under which the developer agreed to construct a building on property of assessee. The major part of the building was to be transferred to the assessee. However, the developer was entitled to sell the remaining flats.

b) The Assessing Officer (‘AO’) held that capital gain arose on account of grant of development rights by the assessee. The alternate contention of assessee was that he was entitled to sec. 54 relief in respect of three floors of building.

c) The AO party allowed assessee’s claim of exemption under section 54 in respect of one residential floor. On appeal, the CIT (A) upheld the order of the AO as regards the transfer of property, however, he partly allowed the exemption claimed by the assessee under section 54.

The Tribunal held as under:

1)  The developer had the right to sell the said flats on account of the additional FSI. To that extent the rights, title and interest in the said plot of land had been transferred. Hence, it was a clear case of transfer envisaged both under the income-tax  Act and Transfer of Property Act;

2)  The High Court of Delhi in the case of CIT v. Gita Duggal [2013] 30 taxmann.com 230  held the fact that residential house consisted of several independent units couldn’t be permitted to act as an impediment to allow the deduction under section 54;

3)  In the case of CIT v. D. Anand Basappa [2009] 180 Taxman 4 (Kar.), the High Court has held that 'a residential house' as mentioned in section 54(1), had to be understood in a sense that the building had to be of a residential nature and the word 'a' had not be understood to indicate a singular number;

4) Therefore, the assessee was entitled to exemption under section 54 as regards the investments/cost of construction claimed by the assessee in respect of all the flats. – Dy. CIT v. Jai Trikanand Rao [2014] 41 taxmann.com 453 (Mumbai - Trib.)