Exemption u/s 54 of Income Tax Act includes more than one residential house

Smt. Parthiban Kalavathi Vs ACIT (ITAT Chennai)

ITAT Chennai held that capital gain exemption under section 54 of the Income Tax Act includes investment in purchase or construction of one or more than one residential house

Facts- The assessee sold a plot of land to a builder by entering into an agreement of sale dated 11.02.2013 by entrusting by way of GPA to the sale 10832 Sq.ft. of land fully developed on her behalf and in return, the assessee withheld fully developed land of 3973 Sq.ft. The assessee also entered into a construction agreement dated 12.08.2013 with a builder for a total sale consideration of Rs.1,43,97,600/- and the builder, in turn, to give constructed four Flats No.1A, 1B, 2A & 2B at first floor and second floor, respectfully of Block C-1.

According to A.O, the activity is adventure in nature of trade and this venture entered into by the assessee is of a commercial purpose. The A.O assessed this as business profit amounting to Rs. 1,44,31,642/- and made a protective assessment and also treated the income from the sale of the house property as Long Term Capital Gain, but denied the claim of deduction u/s. 54F of the Act for the reason that the assessee has invested the sale consideration in the purchase/construction of four Flats. The CIT(A) confirmed the action of the A.O. Being aggrieved, the present appeal is filed.

Conclusion- According to us, as per records assessee neither had any knowledge or capability about the business or property development nor had any intention to do so as the assessee gave a general power of attorney in favour of the builder accordingly. All the activities were done by builder through GPA dated 10.07.2013, whereby builder was authorized to do all such things as is necessary to enable construction of flats and also to sell the same. The GPA was restricted to the extent of builder’s right at 73.33% of the land and that portion allotted as builder’s share and the balance 26.67% was retained by the assessee. In our view, the entire above transaction is purely sale of plot to the builder and in turn received monetary consideration of Rs.2.85 Crore and balance 4 Flats valued at Rs. 1,44,31,642/-. Hence, according to us, this is a transaction of capital gains and assessee’s transaction is that of Long Term Capital Gain. Hence, we direct the A.O to treat the transaction as LTCG and assess the same accordingly.

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