Article 54F Residential property obtained using a method other than a sale deed is exempt and cannot be refused
Fact and issue of the case
The facts in brief are assessee filed return of income declaring total income of Rs. 16,94,792/- and the assessment was completed u/s 143(3) on 28.03.2016 at an income of Rs. 1,40,69,502/- after computing taxable capital gain at Rs. 1,23,01,476/-. The Ld. PCIT was of the view that assessee has made a wrong calculation of the capital gains primarily for reason that he considered property to be not held for 36 months, accordingly, had directed Ld. AO to examine the issue afresh and withdraw the deduction claimed and granted to the assessee u/s 54F of the Act. Ld. AO vide fresh assessment dated 31.12.2018 had concluded that the gain that has arisen was long term capital gain however, disallowed the same for the reason that AO was not satisfied with the three properties which assessee claimed to have purchased out of long term capital gain and Ld. AO held they were not covered for the ‘purchase’ u/s 54F.
The ITAT, New Delhi in ITA No.1274/Del/2020 held as under:
Noted that, the Appellant had discredited the purchase of three properties on the basis of documents other than sale deeds.
Observed that, the execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell.
Opined that, the acquisition of the three properties by the Respondent, other than through registered sale deeds, falls within the ambit of the word “purchase” used in Section 54/54F of the IT Act.
Stated that, the Appellant did not doubt the payments made by the Respondent out of LTCG for the purchase of three properties, then for not having the sale deed executed in the Respondent’s’ favour does not mean that the Respondent did not ‘purchase’ the properties as per statutory compliance.
Relied on the judgement of ITAT, Jaipur in ACIT V. Om Prakash Gyal [ITA NO. 647/JP/2011 dated February 2, 2012] wherein, it was held that only requirement for claiming exemption under Section 54F of the IT Act is construction of residential house and it does not matter that house constructed is on agricultural land.
Held that, the three properties of the Respondent are considered as a residential property as nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is neither a commercial property nor is an agricultural property.
Upheld the decision of the Appellate Authority.
Observation of the court
Further the order of Ld. CIT(A) shows that after taking into consideration various judicial pronouncements for purposive interpretation of Section 54 and 54F of the Act concluded that acquisition of the three properties by the assessee, otherwise then by the registered sale deeds fall in the ambit of word ‘purchase’ used u/s 54/54F of the Act.
The Bench is of considered opinion that execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘ legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell. The ‘purchase’ of immovable property involves acquiring all those interests in the property. Same may be by some inchoate instruments in favour of the purchaser. Non execution of a registered document of transfer of title may have civil consequences in regard to his title, qua rights between the seller and purchaser but for the purpose of benefits of Section 54/54F, the assessee shall be deemed to have ‘purchased’ the properties. As for the purpose of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee, before the end of statutory period, for claiming exemption. When the Ld. AO had not doubted the payments out of LTCG made by assessee for purchase of three properties with inchoate documents executed in favour of the assessee. Then for not having the sale deed executed in his favour, assessee cannot be said to have not ‘Purchased’ the properties as a statutory compliance. Thus, the findings of Ld. CIT(A) in this regard require no interference.
As with regard to the residential nature of these three properties Ld. CIT(A) has thoroughly examined the issue. The 1stproperty situated lies in Tehsil Mehrauli, New Delhi. It is claimed by the assessee to be farm house and the house tax receipt issued by South Delhi Municipal Corporation mentioning that property is used for ‘residential purpose’ was rightly relied by Ld. CIT(A) to hold that property purchased was residential property. Ld. CIT(A) has also examine expenditures made in cash and supported with cash withdrawals from the bank for the construction to make the property habitable.
As with regard to 2nd property situated village Atmalpur in Haridwar. Ld. CIT(A) had rightly examined the fact of expenditure of Rs. 2,23,500/- on the construction raised for using it as a residence.
As with regard to 3rd property at Atmal in Haridwar. Ld. CIT(A) has considered the fact that it is admitted to have a construction cottage.
The bench is of considered opinion that the nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is not a commercial property and is not an agricultural property. They all convey residential house property. How it is inhabited should not interest the revenue. Ld. AR has also impressed this by citing a judgment of Jaipur bench in ACIT V. Om Prakash Gyal  24 taxmann.com67(JP) where it has been held that only requirement for claiming exemption under Section 54F is construction of residential house and it does not matter that house constructed is on agricultural land. Thus Ld. CIT(A) has rightly taken into consideration all the aspects of the matter while partly allowing the appeal of assessee and no interference is called for in the same. The remaining grounds no. 6 to 13 are also decided against the revenue on the basis of aforesaid findings. The appeal of revenue is dismissed.
Order pronounced in the open court on 23 January, 2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee