House Transfer within 3 years under family arrangement, sec. 54F relief can’t be denied

By | September 16, 2016

Held

The assessee’s claim for exemption u/s 54F of the Act was rejected on the ground that the assessee was having two flats and one of the flat was transferred within a period of three years. This Tribunal is of the considered opinion that even though two flats were allotted, this has to be construed as one single unit therefore, the assessee is eligible for exemption u/s 54F of the Act. The so-called transfer of one of the flats is not by sale. The property was settled in favour of assessee’s son and daughter. This Tribunal is of the considered opinion that a settlement made by the assessee in favour of her son and daughter is only a family arrangement in the family and it cannot be construed as transfer of property. There may be various reasons for settling the property in favour of the assessee’s son and daughter. The fact remains that the property was settled by way of family arrangement for convenient enjoyment and the property remains with assessee’s son and daughter. Therefore, the exemption u/s 54F/54 cannot be denied. In view of the above discussion, while confirming the transfer of property during the year under consideration, we hold that the assessee is eligible for exemption u/s 54/54F of the Act. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to allow the claim of exemption u/s 54/54F of the Act to the assessee.

IN THE ITAT CHENNAI BENCH ‘C’

Smt. Rukmani Santhanam

v.

Income-tax Officer, Business Ward IV (4), Chennai

N.R.S. GANESAN, JUDICIAL MEMBER
AND A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER

IT APPEAL NO. 597 (MDS.) OF 2015
[ASSESSMENT YEAR 2006-07]

JULY  22, 2016

J. Prabhakar, CA for the Appellant. A.V. Sreekanth, JCIT for the Respondent.

ORDER

 

N.R.S. Ganesan, Judicial Member – This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-15, Chennai, dated 28.1.2015 and pertains to assessment year 2006-07.

2. The only issue arises for consideration is computation of capital gains on exemption claimed by the assessee u/s 54/54F of the Act.

3. Shri J. Prabhakar, ld. Representative for the assessee submitted that this is second round of litigation before this Tribunal. In the first round of litigation, this Tribunal by an order dated 31.1.2012 remitted the matter back to the Assessing Officer with the direction to re-examine the same. The Assessing Officer, after examining the matter, found that the property was transferred on 20.1.2006 when the development agreement was executed. According to the ld. Representative, the possession of the property was not handed over on 20.1.2016. The ld. Representative further submitted that the assessee along with her father and mother continued to live in the property till 12.4.2006, therefore, handing over the possession on 20.1.2006 is impossible. Since there was no transfer of property on 20.1.2006, the capital gain, if any, can be assessed only in the next assessment year i.e. 2007-08 and not 2006-07. The ld. Representative further submitted that the assessee claimed exemption u/s 54 of the Act. For the purpose of claiming exemption u/s 54 of the Act, the assessee has to transfer a residential house. In this case, what was transferred is only a residential house, therefore, the assessee is eligible for exemption u/s 54 of the Act. Referring to the claim of the assessee u/s 54 of the Act, the ld. Representative submitted that the Assessing Officer disallowed the claim of the assessee on the ground that what was transferred was land and not the residential house. According to the ld. Representative, the assessee has transferred only residential house and land therefore, the assessee is liable for exemption u/s 54 of the Act. The Assessing Officer has also disallowed the claim of the assessee u/s 54F of the Act on the ground that the assessee has invested in more than one flat. The Assessing Officer has also found that the assessee has transferred the house in which the investment was made within three years from the date of purchase. According to the ld. Representative, the assessee was allotted two residential units in the same block, therefore, it has to be construed as one residential unit. The transfer of the asset was not for sale but it was settled in favour of the assessee’s son and daughter. When the assessee settled one of the flat in favour of her son and daughter, it cannot be construed as sale of the plot. Therefore, according to the ld. Representative, the CIT(A) is not justified in confirming the order of the Assessing Officer.

4. On the contrary, Shri A.V. Sreekanth, ld. Departmental Representative submitted that the development agreement clearly shows that the physical possession of the property was handed over to the developer on the date of the development agreement. Therefore, the CIT(A) has rightly found that the property was transferred under the provisions of the Income-tax Act, 1961 on 20.1.2006. Therefore, the capital gain has to be assessed only during the year under consideration. Referring to the development agreement, the ld. DR submitted that the assessee has to execute the power of attorney agent authorizing the developer to transfer 40% of the undivided share of the land in favour of the proposed purchaser of the property. Unless the power of attorney agent/developer took possession of the property on 20.1.2006, he cannot execute any sale deed in favour of the proposed purchaser. A combined reading of the development agreement clearly shows that the property was handed over to the developer for development and the physical possession was handed over to the developer on 20.1.2006. Therefore, it is not correct to say, according to the ld. DR, that physical possession of the property was not handed over to the developer. The ld. DR further submitted that what was transferred by the assessee is a vacant land and not a residential house, therefore, the assessee is not entitled for exemption u/s 54 of the Act. Referring to the claim of the assessee u/s 54F of the Act, the ld. DR submitted that the assessee was having two flats on the date of investment. Moreover, one of the flat was transferred by way of settlement in favour of her son and daughter within three years, therefore, the assessee is not eligible for exemption u/s 54F also.

5. We have considered the rival submissions on either side and also perused the material available on record. The assessee admittedly entered into a development agreement on 20.1.2006 with Doshi Housing Ltd. The assessee has executed two power of attorney nominating agents one for making applications for building approval and another for sale of the property. The assessee in fact nominated one Shri Mohul H. Doshi as her power of attorney agent to execute the sale deed in pursuance to the development agreement. Therefore, it is obvious that the property was handed over to the developer on 20.1.2006 when the development agreement was executed. A copy of the letter which is available at page 117 of the paper book shows that Doshi Housing Ltd took physical possession of the property on 20.1.2006. When the assessee entered into an agreement with Doshi Housing Ltd allowing them to retain 40% of the undivided share in the property for a consideration of 60% of the super built-up area, this Tribunal is of the considered opinion that there was a transfer of property to the extent of 40% of the undivided share in the land. The assessee has executed a power of attorney enabling the developer to sell 40% of the undivided share in the land to the proposed purchasers. Therefore, this Tribunal is of the considered opinion that there was a transfer of property within the meaning of sec. 2(47)(vi) of the Act on 20.1.2006. Hence, the capital gain arising out of the transfer has to be assessed during the year under consideration.

6. Now coming to the exemption claimed by the assessee, the Revenue claims that what was transferred by the assessee is a vacant land and not a residential house. The copy of the development agreement available on record clearly shows that what was sold by the assessee is land and building and not vacant land. The schedule to the development agreement clearly shows that what was transferred by the assessee is a residential house and not the vacant land, therefore, the contention of the ld. DR is misconstrued. When the assessee has transferred the residential house along with the land, this Tribunal is of the considered opinion that the assessee is eligible for exemption u/s 54 of the Act.

7. Now coming to the claim of the assessee u/s 54F of the Act, even assuming that what was transferred is only a vacant land, the assessee is eligible for exemption u/s 54F of the Act. The assessee’s claim for exemption u/s 54F of the Act was rejected on the ground that the assessee was having two flats and one of the flat was transferred within a period of three years. This Tribunal is of the considered opinion that even though two flats were allotted, this has to be construed as one single unit therefore, the assessee is eligible for exemption u/s 54F of the Act. The so-called transfer of one of the flats is not by sale. The property was settled in favour of assessee’s son and daughter. This Tribunal is of the considered opinion that a settlement made by the assessee in favour of her son and daughter is only a family arrangement in the family and it cannot be construed as transfer of property. There may be various reasons for settling the property in favour of the assessee’s son and daughter. The fact remains that the property was settled by way of family arrangement for convenient enjoyment and the property remains with assessee’s son and daughter. Therefore, the exemption u/s 54F/54 cannot be denied. In view of the above discussion, while confirming the transfer of property during the year under consideration, we hold that the assessee is eligible for exemption u/s 54/54F of the Act. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to allow the claim of exemption u/s 54/54F of the Act to the assessee.

8. In the result, the appeal of the assessee is partly allowed.

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