Section 54F r.w.s. 45, 2(29B) and 2(42B) – Assessee having acquired rights in a flat vide allotment letter dated 26.02.2008 issued by the builder which was an unconditional allotment, and since the agreement to sell executed by the builder in assessee’s favour subsequently on 25.03.2010 was mere improvement in assessee’s existing rights to acquire a specific property, the gains arising on the sale of the said flat on 04.04.2012 were long term capital gains; assessee was entitled to exemption u/s. 54F

13 [2019] 199 TTJ (Mumbai) 388

ACIT vs. Keyur Hemant Shah

ITA No. 6710/Mum/2017

A.Y.:  2013-14

Dated: 2^nd April, 2019

Section 54F r.w.s. 45, 2(29B) and 2(42B) – Assessee having acquired rights in a flat vide allotment letter dated 26.02.2008 issued by the builder which was an unconditional allotment, and since the agreement to sell executed by the builder in assessee’s favour subsequently on 25.03.2010 was mere improvement in assessee’s existing rights to acquire a specific property, the gains arising on the sale of the said flat on 04.04.2012 were long term capital gains; assessee was entitled to exemption u/s. 54F

FACTS

The assessee filed return of income on 31.07.2013 declaring income of Rs. 185.33 lakhs. During the assessment proceedings it was found by the A.O. that the assessee had sold a flat for a consideration of Rs. 1.20 crores in which he had a 50% share. The long term capital gain was computed at Rs. 288.73 lakhs out which Rs. 109.4 lakhs was claimed exempt u/s. 54F and the balance was offered to tax. It was observed by the A.O. that the agreement for purchase of the flat was executed on 25.03.2010 and was sold subsequently on 04.04.2012. Hence the period of holding for the original property was less than 36 months and hence the capital gains arising out of the same cannot be claimed for exemption u/s. 54F.

The assessee defended the claim by submitting the letter of allotment of the flat dated 26.02.2008 and asserted that substantial payments for the flat were made by that time and therefore the period of holding exceeds the required period of 36 months to classify the flat as long term capital asset.

Aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) allowed exemption of Rs. 109.40 lakhs u/s. 54F as claimed by the assessee.

HELD

The Tribunal held that on perusal of the facts of the case, it emerged that the assessee had acquired rights in the flat on 26.02.2008. The letter of allotment was not conditional and did not envisage cancellation of the allotted property. The agreement of sale was executed on 25.03.2010 which was nothing but a mere improvement of the assessee’s right over the same transaction.

There was nothing to suggest that the construction scheme promised by the builder was materially different from the terms of allotment. Considering the same, it confirmed that the resultant gains were long term capital gains in nature. The assessee had made payments for the new property within the stipulated time and obtained the new property by 14.04.2012.

Therefore, all conditions of section 54F were fulfilled. There was no reason to deny benefit of section 54F in this case.