Exemption u/s 54F allowed when two sales deed executed to avoid TDS as insisted by vendor

Exemption u/s 54F allowed as vendor insisted for execution of two  sale deeds to avoid TDS as agreement for purchase of property was not disputed 

ABCAUS Case Law Citation:
ABCAUS 3319 (2020) (06) ITAT

In the instant case, the appeal was filed by the assessee against the  order passed by the Commissioner of Income Tax (Appeals)

The assessee had claimed exemption u/s. 54F of the Income Tax Act, 1961  (‘the Act’).  The return of the assessee was selected for scrutiny for verification of sale of  property.   

The assessee had purchased a residential house by means of two registered documents. According to the assessee, initially he entered into an agreement for purchase of new property. However, two registered sale deeds were executed in a time span of two weeks to avoid deduction of tax at source as insisted by the vendor. 

The Assessing Officer (AO) found that since the assessee purchased the new property by means of two registered sale deed, the property relating to second registered document may not be appurtenant to the building which was purchased through the original registered sale deed. 

Accordingly, the AO denied the exemption claimed u/s 54F of the Act. The CIT(A) upheld the addition.

Before the Tribunal, the assessee submitted that merely because two sale deeds were executed at the insistence of the vendor probably with an intention to avoid deduction of tax, the land portion relating to second document could not be construed to be a land not appurtenant to the building.

Referring to the copy of the initial agreement of sale deed it was submitted that the intention of the assessee and the vendor was very clear that the vendor intended to sell the entire property to the assessee. There may be various reasons for the vendor to execute a registered sale deed twice.  However, factually the assessee intended to purchase the residential house together with the land appurtenant thereto. 

On the contrary, the Department submitted that the assessee purchased the residential house by means of registered sale deed.  Subsequently, the assessee had purchased the vacant site which was adjacent to the residential house purchased earlier.    Therefore, the vacant land purchased adjacent to the existing residential house could not be construed to be the land appurtenant to the building or the assessee was not eligible for the exemption u/s. 54 of the Act.

Exemption u/s 54F allowed when two sales deed executed to avoid TDS 

The Tribunal noted that agreement for purchase of property was not disputed. The agreement was for purchase of the entire property which was purchased by the assessee by means of two sale deed within a span of two weeks.

The Tribunal opined that an harmonious reading of the agreement for sale of the property and the registered sale deed clearly indicated that the assessee intended to purchase the entire property including the vacant land from the vendor. However, two registered sale deeds were executed.

The Tribunal stated that there can be various reasons for executing two sale deeds including the reason presumably that the vendor might have insisted for execution of two sale deeds in order to avoid deduction of tax at source. However, whatever may be the reason the existing residential building as well as the vacant land adjacent to were appurtenant to each other. 

The Tribunal opined that the vacant site purchased by the assessee which was adjacent to the residential house was necessary for convenient enjoyment of the building. Therefore, for all practical purpose, the vacant site adjacent to the existing building which was purchased by the assessee through the second sale deed also had to be construed as land appurtenant to the residential house. Hence the assessee was eligible for exemption u/s. 54 of the Act.  In view of the above, the Tribunal set aside the orders of both the  authorities  below  and  the  Assessing  Officer was directed to allow the claim of the assessee u/s.54 of the Act. 

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