Saroj Goenka Vs ITO (ITAT Kolkata)
Section 54F Exemption Allowed Despite Joint Ownership, Prior Construction Gifted Shares: ITAT Kolkata Grants Full Relief
The Kolkata Bench of the ITAT allowed the assessee’s appeal and directed deletion of the entire addition of ₹26.77 crore by granting exemption under section 54F in respect of long-term capital gains arising from sale of shares of Emami Ltd.
The Assessing Officer and CIT(A) had denied exemption on multiple grounds—(i) the assessee allegedly owned more than one residential house, (ii) construction of the new residential house had commenced prior to sale of shares, (iii) sale proceeds were not directly utilised for construction, and (iv) the transaction was alleged to be a colourable device since shares were received by way of gift.
The Tribunal rejected each objection. It held that the property at BT Road was merely vacant land leased to a tenant who owned the factory structure and therefore did not constitute a residential house. The Southern Avenue property was jointly owned and, following settled law, joint ownership does not trigger the bar under the proviso to section 54F.
On the timing of construction, the ITAT reiterated that section 54F does not require construction to commence after sale of the original asset; what is relevant is completion within three years, which was admittedly satisfied. The Tribunal further held that there is no statutory requirement that capital-gain proceeds must be directly utilised for construction, so long as equivalent investment is made within the prescribed period.
The allegation of colourable device was also rejected after noting that the shares were gifted by the assessee’s brother-in-law (not spouse), clubbing provisions were inapplicable, and similar exemption had already been accepted in the case of another family member for the same property.
Considering the beneficial nature of section 54F and consistent High Court jurisprudence, the ITAT held that the assessee fulfilled all statutory conditions and was entitled to full exemption. Accordingly, the CIT(A)’s order was set aside and the AO was directed to allow exemption under section 54F in entirety. The appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
