Exemption u/s 54F-Bar of holding more than one residential house applies to whole day of transfer

Exemption u/s 54F – Bar of holding more than one residential property applies on start of day or at the end of the day of transfer of capital asset, ITAT answers

ABCAUS Case Law Citation:
ABCAUS 3821 (2023) (11) ITAT

Important Case Laws relied upon by parties:
Smt. Maya A Ajwani vs ITO
ITO vs Shri Samir Jasuja
Rachit V Shah vs ITO

In a recent judgment of ITAT an interesting question arose as to for grant of exemption u/s 54F of the Income Tax Act, 1961 (the Act), the limitation of holding not more than one residential property applies “on the date of transfer” or it should be considered as at the end of the date of transfer of the capital asset.

In the instant case, the assessee owned two residential properties and two plots of land. The assessee sold a plot of land giving rise to Long Term Capital Gains (LTCG). On the same date, the assessee gifted one of the house properties to his sister who was already staying for nine months on the said house. 

The assessee utilised the proceeds of the sale of the plot for construction of a residential house at his remaining plot and claimed deduction/exemption u/s 54F towards capital gain tax.

However, the Assessing Officer (AO) was of the view that the assessee owned more than one residential house as on the date of sale, and hence the assessee was not entitled to claim exemption u/s.54F.

Accordingly, the AO denied the exemption u/s 54F and the denial of exemption was upheld by the CIT(A).

Before the Tribunal, the assessee submitted that at the start of the date of transfer, the assessee, in fact, had two residential houses and two vacant plots. However, at the end of the specified date i.e. date of transfer, the assessee remained with only one residential house and one vacant plot.

It was the submission that consequently, as on the date of transfer, the assessee did not own more than one residential house, the proviso to section 54F did not apply. It was the submission that as the assessee did not own more than one residential house on the date of transfer of the property/asset, which gave rise to the long term capital gains, the assessee was entitled to claim of exemption u/s.54F.

To support its proposition, the assessee placed reliance on the decision of the Co-ordinate Bench of Tribunal.

On the contrary, Income Tax Department submitted that the document number of the sale deed was prior to document number of gift deed, which clearly showed that when the vacant plot was transferred, the assessee owned more than one residential house and consequently, the proviso to section 54F came into play and the assessee was not entitled to exemption u/s.54F. The Revenue also place relienace on the Co-ordinate Bench of the ITAT in which it was held that from the conduct of the assessee and in view of the circumstances prevailing at the time of the agreement of sale, more particularly giving gift to his father just before the date of agreement, it was clear that the act of the assessee to gift the house was nothing but a concerted effort to avoid the due payment of taxes to the Government.

The Tribunal observed that admittedly, the assessee did hold two residential properties. However, at the end of the specified date, the assessee owned only one residential house.

Meaning of term “on the date of transfer” is the whole day and not at the end of the day.

The Tribunal further observed that a perusal of the proviso to section 54F shows that the wording used is “on the date of transfer of the original asset”.

The Tribunal stated that though the assessee vehemently argued that the meaning of the term “on the date of transfer” should be considered as the end of the specified date of transfer, the Bench was unable to accede to it because the date of transfer starts at 00 hours and ends at 23.59 hours. On the date means any time during the date and at the beginning of the date of intended transfer of the original asset, the assessee did own more than one residential house.

The Tribunal opined that the interpretation brought out by the assessee would lead to substantial question of law as to what exactly is the interpretation of the term “on the date of transfer”. Therefore, It was held that the interpretation given though plausible was not acceptable to this Tribunal.

Accordingly, the ITAT opined that the Assessing Officer and CIT(A) was right in denying the assessee the benefit of exemption u/s. 54F of the Act.

In the result, appeal of the assessee was dismissed.

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