Section 54F – Acquisition of “transferable tenancy rights” which constitute substantial rights over the property and were almost identical to ownership of property qualify for exemption u/s. 54F.
Facts:
The assessee earned long term capital gains on transfer of shares. She claimed the capital gain so arising to be exempt u/s. 54F on the ground that she had purchased a residential flat.
In the course of assessment proceedings, on examination of the transfer deed, the Assessing Officer (AO) noted that the assessee had acquired “transferable tenancy rights” and not “ownership” of the flat. He, disallowed the claim made by the assessee u/s. 54F of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held: The Tribunal noted that the assessee had purchased rights in one of the flats from the developer, which under the agreement were allotted to him (developer) for selling to the intended purchasers. The assessee had paid a sum of Rs. 78,10,001 as consideration/premium to the developer for obtaining the tenancy rights in the flat in question. Though under the agreement in question, the assessee was liable to pay a monthly rent of Rs. 4,000 to the owner, the Tribunal was of the view that considering the overall facts and circumstances of the case and amount of rent being a meager amount when compared to the amount of rent otherwise payable on such a property in the area, it is apparent that the assessee is not the mere tenant in the house. The Tribunal concluded that she has purchased substantial rights in the flat in question. It observed that a perusal of clause 7 of the agreement reveals that the assessee is entitled to carry out repairs and renovation in the said flat except the changes which could be detrimental to the basic structure of the building. The owner was not entitled to terminate the tenancy of the assessee on any ground, whatsoever, except for nonpayment of rent. In the event of destruction of the said building or construction of a new building, the assessee/ tenant was entitled to obtain tenancy in respect to the new flat having the same carpet area on the same floor without any payment or consideration or premium to the owner under the agreement. The assessee had absolute rights to transfer or assign the tenancy rights in respect of the flat in favor of any person of her choice and to charge such consideration/premium for such transfer/assignment and the tenant/assessee would not be required to obtain any permission from the owner and will not be required to pay any premium for consideration to the owner for such transfer/assignment of tenancy rights. The tenant is also entitled to create mortgage in respect of the tenancy rights in the said flat and also bequeath the tenancy rights in respect of any person.
The Tribunal held that the rights of the assessee in the flat were not the mere tenancy rights but were substantial rights giving the asseseee dominion, possession and control over the property in question with transferable rights, which were almost identical to that of an owner of the property. There was no denial that the assessee has purchased the rights in the said flat for residential purposes.
The provisions of s. 54F having regard to its beneficial objects are required to be interpreted liberally. The coordinate Bench of the Tribunal, in somewhat similar circumstances, in the case of Smt. Meena S. Raheja vs. Dy. CIT (ITA No.3941(Mum) of 2009), dated 22.9.2010 in a case of 99 year leasehold rights has held that the assessee is entitled to the benefit of deduction u/s. 54F of the Act.
The Tribunal held that the assessee qualified for deduction u/s. 54F of the Act. The appeal filed by the assessee was allowed.
