No extension of time-limit under Sec. 54F in absence of genuine hardship: HC

Facts:

a) The assessee filed application before the CBDT for extension of time-limit to complete construction of house property for availing of Section 54F relief. The CBDT rejected the said application on the ground that the assessee had failed to demonstrate compliance of Section 119.

b) The aggrieved-assessee filed the instant writ petition wherein he seeks quashing of such order of CBDT.

The High Court held as under:

1) As per Section 119(2)(c), on a genuine hardship shown by any assessee, the CBDT can order relaxation in any requirement contained in any of the provisions of Chapters IV or VI-A of the Income Tax Act. Such power is subject to two riders. Firstly, that the default in complying with such requirement was due to circumstances beyond the control of the assessee and secondly, that the assessee had already complied with such requirements before the completion of assessment in relation to the previous year in which such deduction is claimed.

Usage of second residential property as office won't lead to denial of sec. 54F relief

Facts:

a) The assessee sold his Gurgaon Flat and earned long term capital gains. He invested the same in a residential property and claimed deduction under section 54F.

b) The AO disallowed such claim as he was of the view that property of assessee (located at New Delhi) was a second residential property. The AR was of the view that such property was only used by assessee for his own profession.

c) The DR submitted that such premises was undisputedly a residential house as per the municipal corporation and thus it will not change the character.

d) The CIT(Appeals) upheld the order of the Assessing Officer.The aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

No denial of Sec. 54F relief if taxpayer is unable to get possession of flat due to builder’s fault

Section 54F relief cannot be denied to assessee when he has invested entire sales consideration in purchase of residential house but he is unable to get possession of flat, which is under construction, due to fault of builder.

The issue before the ITAT was:

Whether Section 54F relief could be denied when assessee was not able to get the title of the flat or unable to get possession of the flat, which was under construction, due to fault of the Builder?

The ITAT held as under :

Investment in house property need not be sourced from capital gains only for availing of sec. 54F relief

Section 54F does not put any restriction on source of investment in new asset. Therefore, exemption couldn’t be denied on ground that investment was made out of loan and not from sale consideration received on transfer of original capital asset.

Issue

Whether it is mandatory for availing of benefit of section 54F that investment in new asset should be entirely sourced from capital gain?

No denial of sec. 54F relief just because part of investment was made out of housing loan

If assessee had fulfilled condition of making investment of entire capital gain in purchase of residential house, she would be entitled to exemption under section 54F even if part of investment was made out of borrowed money.

Facts:

a)   The assessee had invested entire capital gains to purchase residential house. She had utilised housing loan to make part of the investment in house property. She claimed exemption under section 54F in respect of total investment.

b)   The Assessing Officer completed assessment accepting assessee's claim.

Sec. 54F: Mother can’t be deemed as owner of house purchased by minor-daughter out of her own income

Facts:

a)   Assessee had sold a capital asset and invested a part of sales consideration in a new residential house so as to claim exemption under section 54F.

b)  She owned more than one residential house on date of transfer of original asset. However, one residential house was owned by her minor daughter.

c)   Commissioner denied Section 54F exemption on the ground that assessee would be deemed as owner of house owned by her minor daughters. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  By virtue of fiction created by Section 64(1A), the incomes of properties owned by the two minor daughters were clubbed in the hands of the assessee since the date of purchase of the said properties.

2)  The investment for purchase of said properties has come from the independent sources of these daughters, which has been accepted by the department.

3)  Simply by virtue of inclusion of rental income of minor daughters under Section 64(1A) in the income of assessee, it could not be presumed that the assessee was owner of property purchased by minor daughters. Thus, the findings of the learned CIT were factually incorrect and legally unsustainable. Hence, assessee would be eligible for exemption under Section 54F. - SMT. S. UMA DEVI v. COMMISSIONER OF INCOME-TAX [2015] 62 taxmann.com 64(Hyderabad - Trib.)

Cost of additions or improvements on habitable house is also eligible for sec. 54F relief

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F

Facts

a)  Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.

b)  The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.

c)  Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court

The High Court held in favour of assessee as under-

1)  As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".

2)  In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.

3)  On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.

4)  The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.

5)  Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption- Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka)

No denial of sec. 54F relief on pretext of two houses when assessee had gifted one of them orally under Muslim law

Facts:

a)The assessee had sold a vacant site and purchased another vacant site. She deposited the balance capital gain in the Capital Gains Account Scheme to claim deduction under section 54F.

b)The Assessing Officer (AO) denied relief under Section 54F on the ground that the assessee was owner of two residential houses at the time of sale of vacant land.

c)The assessee contended that she was not owner of two houses as she had made an oral HIBA by which one of the properties was given as a gift to her daughter before the date of transfer of land.

d)The AO rejected the explanation taking a view that gift had not been executed by a registered document.On appeal, the CIT (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:


2)However, the assessee herein was a Muslim andunder the Mohammedan Law, essentials of a gift are declaration of gift by the donor and acceptance of the gift by the donee and delivery of possession. This rule of Mohammedan Law was unaffected by the provision of section 123 of the Transfer of Property Act, 1882.

3)Thus,oral gift made by the assessee could not be disregarded by the revenue authorities.The requirements of a valid gift as per Mohammedan Law were duly satisfied inasmuch as there had been a declaration of gift by the donor and acceptance of gift by the donee and delivery of possession. The delivery in this case would only be constructive.

4)Since the gift satisfied all the requirements of Mohammedan law it had to be held as valid in law. Assessee could not be regarded as owner of two properties as one of themwas gifted by him before the transfer of vacant land. Thus, restriction placed under the proviso to section 54F(1) would not be attracted in the instant case - SMT. SAJIDA BEGUM V. ITO[2015] 56 taxmann.com 269 (Bangalore - Trib.)

HC denies sec. 54F/54B relief to mother for buying properties in name of her married daughters

In the instant case assessee had made investment in purchase of an agricultural land and residential flat in name of her two married daughters. While computing long-term capital gain she claimed exemption in respect of such properties under sections 54B and 54F.

The AO and as well as Tribunal denied the deduction under Sections 54F and 54B. The learned Counsel submits that his client was entitled to benefit of sections 54B and 54F as the intention of the legislature was to extend the benefit to the members of the family which includes married daughters. The aggrieved assessee filed the instant appeal.

The High Court denies to grant benefit of Sections 54F and 54B to assessee on purchase of properties in name of her married daughters as it did not find any infirmity in the order of Tribunal.

GANTAVIJAYA LAKSHMI V. ITO[2015] 54 taxmann.com 301 (Andhra Pradesh)

Editor’s Note:

We have witnessed many judicial precedents in the recent past on the issue that whether Sections 54F and 54B relief would be available to assessee in respect of properties acquired in name of his/her family members. In certain judicial precedents it was held that purchase of properties in blood relation, viz, spouse, minor daughter/son would provide Sections 54F and 54B relief to assessee. Still this issue is unresolved and now we have to wait and see whether Government will touch upon this controversy in the ensuing budget 2015-16.

Even joint ownership in second house at the time of sale of capital assets would lead to denial of sec. 54F benefits

Where assessee owns a residential house even jointly with another person, on date of sale of long-term capital asset, his claim for deduction under Section 54F would be rejected.

Facts:

a)During relevant assessment year, assessee had sold his undivided interest in land. He claimed deduction under 54F in respect of long-term capital gain arising from sale of land.

b)The revenue authorities rejected assessee's claim for deduction under sections 54F on the ground that assessee was having two residential houses having one half share each therein on date of sale of land.

c)The Tribunal, however, allowed assessee's claim under Section 54F on the ground that 'a residential house' means complete residential house and would not include shared interest in a residential house. The aggrieved revenue filed the instant appeal.

The High Court held in favour of revenue as under:

1)Section 54F provides that if the assessee has a residential house he cannot seek the benefit of long-term capital gains. Under this provision, merely because the words residential house were preceded by word 'a' would not exclude a house shared with any other person.

2)Even if assessee shared the residential house, his right and ownership in the house, to whatever extent, was exclusive and nobody could take away his right in the house without due process of law.

3)Even if right of assessee, was one half in the residential house, it could not be taken away without due process of law or it would continue till there was a partition of such residential house. 4)Thus, the view expressed by the Tribunal on this issue could not be accepted. Hence, the assessee was not eligible to claim Section 54F benefit.- CIT V. M.J. SIWANI [2014] 46 taxmann.com 170 (Karnataka)

Sec. 54F stipulates deposit of unutilized sum within due date specified under sec. 139(1) and not sec. 139(4)

'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:

a)The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.

b)On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.

c)Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?

The Tribunal held as under:

1)The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.

2)The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);

3)When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;

4)Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the AO. – ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Trib.)

ITAT deals with ‘booking’ amount paid to acquire a new house; distinguishes between Ownership and Investment

Booking of two residential houses before the date of transfer would not provide ownership rights to assessee, thus, he could not be deemed to be owning two residential houses on date of transfer.

Investment in new house by payment of booking amount would be deemed as valid investment for purposes of Section 54F relief.

The issues that arose before the Tribunal were as follows:

a)Whether assessee could be deemed to own two residential houses on date of transfer if he had only booked two residential houses?

b)Whether booking of residential flats could be deemed as investments for purposes of exemption under section 54F?

The Tribunal held in favour of assessee as under:-

1)Proviso to Section 54F(1) provides that if assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset then he will not be entitled to exemption.

2)The meaning of term ‘owns’ used in proviso to section 54F has a different meaning. The owner here, means a legal owner who is entitled to receive income from the property in his own right. In the absence of possession, registration, title, etc., question of assessing ‘income from house property under section 22 of Income-tax Act (the Act) doesn’t arise.

3)When a flat is booked assessee has a ‘right to acquire’ and this right is not equivalent to ‘own’ a house. Therefore, by mere booking of flats, it could not be said that assessee had ownership of the flats. Thus, assessee did not own more than one residential house on the date of transfer of original asset.

4)With regard to purchase of new residential house, the provision does not lay down a condition that a new house should either be complete or it should be purchased as a complete habitable house. The aim is to direct the minds of the society towards purchasing new residential houses so that the menace of shortage of houses is tackled to some extent.

5)CBDT vide circular No. 471 dated 15/10/1986 and circular No. 672 dated 06/12/1993 had also clarified that the amount paid towards booking is to be treated for ‘construction’ for the purpose of section 54/54F.

6)Hence, owning of a residential house at the time of transfer of the original asset has different meaning and acquisition of new asset ‘which is equivalent to purchase of new residential house’ has entirely different meaning. The CIT(A) had misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as ‘new asset’ in the Act. Therefore, investment in new residential house by payment of booking amount only had to be allowed.- RAM PRAKASH MIYAN BAZAZ V. DY. CIT [2014] 45 taxmann.com 550 (Jaipur - Trib.)

Sec. 54F doesn’t stipulate approval from Municipal Corporation for construction of residential house; says ITAT

Provisions of section 54F mandate construction of a residential house within period specified, however, there is no condition that building plan of residential house should be approved by Municipal Corporation.
Facts:

a)During relevant year, the assessee earned long-term capital gain on sale of shares. He claimed deduction under section 54F in respect of construction of a new residential property.

b)The Assessing officer denied benefit under section 54F to assessee and made additions. On appeal, the CIT(A) upheld the order of AO on the ground that since there was no approval plan for new construction the assessee was not entitled to section 54F benefit.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The provisions of section 54F mandate construction of a residential house within the period specified, however, there is no condition that the building plan of the residential house should be approved by the Municipal Corporation.

2)If any person constructs a house without approval of building plan, he will be raising construction at his own risk and cost. As far as for availing of exemption under section 54F was concerned, approval of building plan was not necessary. The approved building plan, certificate of occupation, etc., are sought to substantiate the claim of new construction.

3)In the instant case, the fact that the assessee had raised new construction was evident from the interim order issued by the Municipal Corporation. It was evident that the assessee had put up a new construction in place of old residential building; thus, he was entitled to claim exemption under section 54F. – B. SIVASUBRAMANIAN V. ITO [2014] 45 taxmann.com 74 (Chennai - Trib.)

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.)

Sec. 54F relief can’t be denied if assessee merely pays booking amount one year prior to date of transfer

Mere booking of flat one year prior to date of transfer of asset did not vest assessee with ownership of new asset and it was only by virtue of registered sale deed executed within prescribed time period under section 54F assessee became owner of flat. Thus, assessee's claim for deduction under section 54F was to be allowed

Facts:

a)  The assessee received compensation on acquisition of his land by State Industrial Area Development Board (SIADB). The assessee had declared long term capital gains after claiming deduction under section 54F in respect of investment made in purchase of a flat.

b)  The Assessing Officer found that assessee had availed housing loan and booked said flat one year prior to date of receipt of compensation, and accordingly, he rejected assessee's claim for deduction. 

c) On appeal, the CIT (A) held against the assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  The authorities were not justified in holding that the investments were made one year prior to the date of receipt of compensation for the asset as the amounts paid by the assessee on booking of the asset had not vested the assessee with ownership of the new asset;

2)  The assessee had been vested with the ownership of the new flat only by virtue of the registered sale deed executed within prescribed time period under section 54F;

3)  Thus, the assessee's claim for deduction was to be allowed. The Assessing Officer was to be directed to allow the assessee’s claim of exemption under section 54F accordingly. - Gopilal Laddha v. ACIT [2014] 42 taxmann.com 390 (Bangalore - Trib.)

Amount of investment and not extent of construction is relevant to compute relief under sec. 54F

Section 54F relief was available if sale consideration was invested in purchase of residential building as per provisions; in such a case extent of construction of residential building was irrelevant.

The High Court held in favour of assessee as under:

1)  What the law (i.e., section 54F) contemplates is, after selling the property, if the assessee invests the sale consideration in purchase of a residential property, he is entitled to exemption under section 54F;

2)  What should be the extent of construction of residential building, what facilities should be provided in such constructions to be eligible for the exemption, have not been set out in the Act;

3)  The Authorities have ensure, whether what is purchased is a residential construction or not?;

4)  If the material on record showed that prior to the sale, the vendor lived there and had sold the site along with the residential construction, merely because the property was not suitable to the assessee and construction materials were kept there, would not be a valid grounds to deny exemption under section 54F;

5) Thus, assessee was entitled to avail of relief under section 54F – CIT v. Dr. R. Balaji [2014] 41 taxmann.com 411 (Karnataka)

Investment of sales consideration provides sec. 54F relief even if construction isn't completed within 3 years

Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not completed in all respects within stipulated period, benefit of section 54F, could not be denied.

The Tribunal held in favour of assessee as under:

1)  It was clear from the order of the CIT (A) that the assessee had commenced construction of the building within a period of three years from the date of transfer of property. The construction, however, could not be completed by the assessee within three years;

2)  The Karnataka High Court in case of CIT v. Sambandam Udaykumar [2012] 19 taxmann.com 17 had taken a view that under the provisions of section 54F, the condition precedent was that the capital gain realized from sale of capital asset should have been parted by the assessee and invested in construction of a residential house;

3)  Benefit of section 54F couldn’t be denied to assessee if the money was invested in constructing the residential house, even if the construction was not completed in all respects and house was not in a condition to be occupied within the stipulated period;

4)  There is no particular stage of completion of construction that is contemplated by the provision. Therefore, the benefit of deduction under section 54F was to be allowed to the assessee – ITO v. Smt. B.S. Shanthakumari [2014] 41 taxmann.com 325 (Bangalore - Trib.)

De-facto ownership of asset to be considered for computing holding period of capital assets, rules HC

Facts:

a)  The assessee, a Chartered Accountant, sold the property on 29.05.2008 for certain consideration. He worked out long-term capital gain and claimed exemption under section 54EC and section 54F;

b)  The assessing authority was of the view that the sale deed executed in favour of the assessee was on 27.02.2008 and he sold the property on 29.05.2008, i.e., within four months from the date of purchase and, therefore, the capital gains arising therefrom could not be construed as long-term capital gain;

c)  Accordingly, he disallowed the exemption claimed under Sections 54EC and 54F. On appeal the CIT(A) upheld the order of AO. Further, the Tribunal set aside said order. Aggrieved revenue filed the instant appeal

The High Court held in favour of assessee as under:

1)  For the purpose of computing 36 months holding period of a capital asset under section 2(42A), there is no requirement in section that holding period should only include the period for which assessee was the owner of the asset with a registered deed of conveyance conferring title on him;

2)  The words "held by the assessee" in section 2(42A) does not mean vesting of legal title in the property to the assessee;

3)  As Bangalore Development Authority allotted plot to assessee in 1988, due to legal disputes between it and the original owners of site, it cancelled the booking and allotted another plot in 2007 and that was also cancelled for same reason and fresh plot was allotted in 2008 and same was registered in assessee's name;

4) The consideration paid in 1988 was to be treated as consideration for the sale deed and capital gains resulting from plot sold in 2008, was long-term capital gains and eligible for benefits under sections 54F and 54EC – CIT v. A. Suresh Rao [2014] 41 taxmann.com 475 (Karnataka)