Revenue Could Not Accept HUF’s 23-Flat Capital Gains For 2015–16 Yet Deny Section 54 Relief, Karnataka HC Holds

In brief

The question

1. Whether the Tribunal was correct to allow the exemption claim by treating the date of the Joint Development Agreement as the date on which the assessee acquired the relevant right, notwithstanding the Revenue’s contention that the right to transact in the allotted units arose only under the later sharing agreement.

The court held

The High Court answered both substantial questions of law against the Revenue and in favour of the assessee.

It also directed

It found no merit in the appeal and upheld the ITAT’s order confirming the CIT (Appeals)’ decision.

01Facts

The respondent-HUF entered into agreements to sell 23 flats between January and November 2014, delivered possession between April and November 2014, and executed sale deeds between July 2014 and July 2015.

pp. 4–5, 7–8

It declared the resulting capital gains in Assessment Year 2015–16 and claimed an exemption under Section 54 of the Income-tax Act, 1961.

pp. 4–5, 7–8

The Assessing Officer disallowed the claim; the CIT (Appeals) allowed the appeal and directed assessment of the capital gains and examination of the exemption claim for Assessment Years 2014–15 and 2015–16.

pp. 4–5, 7–8

The ITAT rejected the Revenue’s appeal, relying on *Sanjeev Lal v. Commissioner of Income Tax, Chandigarh*.

pp. 4–5, 7–8

The Revenue appealed under Section 260A.

pp. 4–5, 7–8

02Issues

i.1. Whether the Tribunal was correct to allow the exemption claim by treating the date of the Joint Development Agreement as the date on which the assessee acquired the relevant right, notwithstanding the Revenue’s contention that the right to transact in the allotted units arose only under the later sharing agreement.

pp. 2–3

ii.2. Whether the Tribunal and CIT (Appeals) were correct to allow the exemption when the assessee acquired the new property on 10 January 2014 and the original asset was sold after 16 January 2015.

p. 3

03Law Applied

The Court considered the exemption provisions of Sections 54 and 54F of the Income-tax Act, 1961, referring to them in its discussion of the assessee’s claim.

pp. 6–10

It relied on *Sanjeev Lal v. Commissioner of Income Tax, Chandigarh* ([2014] 46 Taxmann.com 300 (SC)), applied by the Court to support treating the sale agreement as relevant to determining the date of sale in the circumstances of the case.

pp. 6–10

It also relied on *Shri Lahar Singh Siroya v. Assistant Commissioner of Income-Tax* (ITA No. 169/2010, 15 December 2015) for the principle that beneficial capital-gains provisions should be construed liberally in favour of the assessee, and on *Kishorbhai Harjibhai Patel v. Income Tax Officer, Ward 1(2)(4)* ([2019] 107 Taxmann.com 295 (Gujarat)), which followed *Sanjeev Lal* in an identical fact situation.

pp. 6–10

The Court also noted the assessee’s reliance on the definition of “transfer” in Section 2(47), which includes certain transactions involving possession of immovable property.

pp. 6–10

Provisions in the judgment · 4

Income Tax Act, 1961 Section 2Section 54Section 54FSection 260A

04Reasoning

The Court found that the agreements with the purchasers and delivery of possession were not in dispute, and that the sale deeds were executed later.

pp. 8–10

It considered those circumstances, together with the Revenue’s acceptance of the capital gains as taxable in Assessment Year 2015–16, and held that the Revenue could not deny the associated exemption claim.

pp. 8–10

Applying *Sanjeev Lal* and the principles in *Lahar Singh Siroya* and *Kishorbhai Harjibhai Patel*, the Court concluded that the ITAT’s decision disclosed neither error nor perversity.

pp. 8–10