2014 (3) TMI 1017 - AT - Income Tax

Non-granting of deduction u/s. 54F - Held that - Smt. Samyukta Bullayya had already given possession of property to the assessee vide the first sale agreement dated 21st July 2004. Due to the reasons beyond the control of the parties the vendor lost that property and got allotted alternate plot in exchange of the first plot. Being so the perusal of the facts shows that there is no fault from the side of the assessee and it is beyond its control and the payment for which original plot made was adjusted towards sale consideration of the second property as the cheque issued for purchase of second property was not at all encashed as certified by the Bank as above we are of the opinion that the date of the second sale agreement relates back to the date on which the agreement of sale was originally executed in favour of Smt. Samyukta Bullayya. Therefore the assessee is deemed to be the owner of the property with effect from the date of first sale agreement dt. 21.7.2004 and period of holding the asset is to be computed from 21.07.2004 and the capital gain so arrived is not short term capital gain and it is long term capital gain as the assessee held the property for more than 36 months. In view of this we are inclined to hold that the assessee is entitled for deduction u/s. 54F of the Act as claimed by him and the same is to be granted to the assessee - Decided in favour of assessee

Summary

Issues Involved:
1. Non-granting of deduction under Section 54F of the Income-tax Act, 1961.
2. Levy of interest under Sections 234A and 234B of the Income-tax Act, 1961.

Detailed Analysis:

1. Non-granting of Deduction under Section 54F:
The primary issue revolves around the assessee's claim for deduction under Section 54F of the Income-tax Act, 1961, which was denied by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] on the grounds that the property in question was not held for the requisite period to qualify as a long-term capital asset.

Facts and Arguments:
- The assessee claimed deduction under Section 54F for the Assessment Year (AY) 2008-09, asserting that the capital gains from the sale of a plot were used for constructing a new residential house.
- The plot in question was claimed to be purchased in 2004, but the AO contended that the purchase occurred in 2007 based on a registered Agreement of Sale cum Irrevocable General Power of Attorney dated 24.07.2007.
- The AO's stance was that the asset was held for less than 36 months, making it a short-term capital asset, thus ineligible for Section 54F benefits.
- The CIT(A) upheld the AO's decision, emphasizing that the actual transfer involved a different plot (No. 28A/2) than initially intended (No. 259A/A), and the possession was not handed over in 2004 as claimed.

Assessee's Contentions:
- The assessee argued that the original agreement in 2004 and the subsequent possession should be considered for determining the holding period.
- The AR cited various judicial precedents, including the Gujarat High Court's decision in CIT vs. Mormasji Manchjarji Vaid (250 ITR 542) and the jurisdictional High Court's ruling in M. Syamala Rao vs. CIT (234 ITR 140), to support the claim that possession and payment of consideration in 2004 constituted a transfer under Section 2(47) of the Income-tax Act and Section 53A of the Transfer of Property Act, 1882.

Tribunal's Findings:
- The Tribunal observed that the assessee had indeed entered into an agreement and taken possession in 2004. Due to subsequent issues, an alternative plot was allotted in 2007.
- The Tribunal noted that the cheque issued in 2007 as part of the new agreement was never encashed, indicating that the payment made in 2004 was adjusted towards the new property.
- The Tribunal held that the date of the second sale agreement (2007) relates back to the original agreement (2004), making the asset a long-term capital asset.
- The Tribunal relied on the jurisdictional High Court's judgment in Shyamal Rao vs. CIT and other relevant case laws to conclude that the assessee was entitled to the deduction under Section 54F.

2. Levy of Interest under Sections 234A and 234B:
The issue of levying interest under Sections 234A and 234B was deemed consequential and dependent on the primary issue of the deduction under Section 54F.

Tribunal's Findings:
- Given the Tribunal's decision to allow the deduction under Section 54F, the matter of interest under Sections 234A and 234B was rendered consequential and did not require separate adjudication.

Conclusion:
The Tribunal allowed the assessee's appeal, granting the deduction under Section 54F of the Income-tax Act, 1961, and deemed the levy of interest under Sections 234A and 234B as consequential. The Tribunal's decision was based on the interpretation that the original agreement and possession in 2004 constituted a valid transfer, making the asset a long-term capital asset.