Case Law Details
Case Name : CIT Vs Kapil Nagpal (Delhi High Court)
Appeal Number : ITA 609/2014
Date of Judgement/Order : 11/09/2015
Related Assessment Year :
Courts :
All High Courts Delhi High Court
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Brief about the case:
In the case of CIT vs Kapil Nagpal, it was held by the Delhi High Court that purchase of an agricultural land used for agricultural purposes did not violate 54F conditions. Further the exclusive ownership of the residential house on the date of transfer is required to prove violation of Section 54F.
In the given case the assessee claimed exemption u/s 54F after transfer of long term shares on 08.11.2007.On the date of transfer the Assessee had one house at Village Fatehpur Beri which he had purchased on 22.07.2006 and only 15% share in the house property at Gadaipur. It was clear that the Assessee had purchased 85% share in Gadaipur house on 10.04.2007, thus becoming the full owner of the said house. It is accordingly claimed on the sale of share, i.e., 08.11.2006 the Assessee did not have the full ownership of the residential house at Gadaipur and was only a co-owner along with his father. The ownership of 15% in the Gadaipur house would not constitute the exclusive ownership of a residential house under Section 54F of the Act.
Facts of the case:
- For AY 2007-08, the assessee claimed deduction u/s 54F against LTCG on sale of shares. The AO concluded that the Assessee was having more than one residential house, i.e., both the property at Gadaipur and the property at Village Fatehpur Beri on the date of transfer of shares i.e.08.11.2006.
- The assessee asserted that he owned only one residential property and the other property is merely an agricultural land in which he is co-owner with his father having 15% share in the income from let out land.
- The AO also had another ground for not allowing the deduction u/s 54F being the manipulation to qualify the shares as long term capital asset.
- The assessee submitted additional evidence to CIT(A) consisting of Balance sheets for the years ending 31.03.2006 and 31.03.2007 showing a steady balance of Rs.60000 of the property hence proving there was no construction done on this land. The copies of sale deeds in favour of Sh. Prem Nath Nagpal, the father of the Appellant to prove that the portion of land bearing Khasra Nos. 75, 76 and 90 were purchased by his father and the constructed portion existed on such land.
- The CIT(A) concluded that the nature of the sale of shares was genuinely long term and the assessee was not a fractional owner of the property at Gadaipur and therefore, eligible for deduction under Section 54 F of the Act.
- The ITAT confirmed the order of CIT (A).
- The High Court observed that the nature of sale was factually of long term nature. Besides with regard to ownership, the HC observed in P.K. Vasanthi Rangarajan v. CIT (2012) 252 CTR 336 the Assessee and her husband were co-owners to the extent of 50% share in a building that had a clinic and a residential house. It was held that since the entire property was not an exclusive residential property and 50% of the ownership was with reference to the clinic on the ground floor, the harshness of the proviso to Section 54 F cannot be applied “unless and until there are materials to show that the Assessee is the exclusive owner of the residential property.”
- The conclusion that the house was in fact purchased on 10.04.2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10.04.2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him.
Contention of the Revenue:
- The revenue contended that the assessee was the owner of more than one residential house on the date of transfer of long term capital asset and therefore has violated the conditions for availing deduction u/s 54F.
- It was not ascertainable whether the construction was on the parcel of land belonging to the Assessee or whether the land belonging to father remained vacant or vice versa or the structure occupied parts of the land belonging to both.
- The revenue alleged that it appears that the date of purchase of shares by the Assessee from Mr. Shyam Kumar Bagga had been “manipulated to qualify the shares as long term capital asset.
Contention of the Assessee:
- The Assessee asserted that he had only one house at Village Fatehpur Beri which he had purchased on 22nd July 2006 and only 15% share in the house property at Gadaipur.
- The ownership of 15% in the Gadaipur house would not constitute the exclusive ownership of a residential house under Section 54F of the Act. Thereby he has fulfilled the stipulations of Section 54F as on the date of transfer of long term shares.
- The agreement of co-ownership 15% to 85% with father was only for the sole purpose of sharing the rental income in this proportion.
Held by High Court:
- The explanation by the Assessee that only the rental income from letting out the constructed portion property was being shared between him and the father in the ratio of 15%: 85% appears to be a plausible one. Unless there is document to show that the Assessee was a co-owner of the said building to the extent of even 15%, there cannot be an inference in that regard.
- The Delhi High Court held that the assessee was eligible for deduction u/s 54F as he was not the owner of 2 house properties as on the date of transfer and hence had not violated the stipulations u/s 54F.
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Good decision if an assessee is co-owner in property then it will not consider as holding residential house (ie one house as on date of house) for claiming 54F exemption