Benefits of Section 54F Cannot Be Denied Even Property Transferred Without Registered Sale Deed

In a recent judgment, the Delhi Income Tax Appellate Tribunal (ITAT) dismissed the appeal filed by the Revenue and upheld the Commissioner of Income Tax (Appeals) order, which granted the Section 54F benefit to the Assessee. The case pertained to the assessment year 2013-14 when the Revenue computed the long-term capital gains of Rs. 1,23,01,476/-. However, pursuant to revisionary proceedings, the Revenue withdrew the exemption granted under Section 54F, holding that the three properties which the Assessee claimed to have purchased out of LTCG, were not covered for the ‘purchase’ under Section 54F.

The ITAT observed that the two properties sold by the Assessee were received by him as part of a family settlement with his brother. It also noted that the General Power of Attorney was in the name of the Assessee’s sister-in-law, who executed the sale deed for such sale. The ITAT remarked that there was no document of title in favour of the Assessee, and the GPA holder transferred the sale consideration upon execution of the sale deed, which was considered to be a sale of capital asset by the Assessee.

The Revenue discredited the purchase of three properties by way of documents other than sale deeds by the Assessee, which was rightly corrected by CIT(A) observing “If the sale consideration has been accepted for the purpose of computing LTCG on the registered POA, then the purchase of land/house on the basis of regd. POA cannot be considered a default for the purpose of exemption under section 54F.”

CIT(A) after considering various judicial pronouncements for purposive interpretation of Section 54 and 54F, concluded that acquisition of the three properties by the Assessee, otherwise than by the registered sale deeds fall in the ambit of word ‘purchase’ used under Section 54/54F. The ITAT opined that “execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘legal title’ for the purpose of civil consequences.”

Accordingly, the ITAT concluded that for the purposes of Section 54/54F, money out of LTCG should be paid/spent by the Assessee before the end of the statutory period. When the Ld. Assessing Officer had not doubted the payments out of LTCG made by the Assessee for the purchase of three properties with inchoate documents executed in favour of the assessee, then for not having the sale deed executed in his favour, the Assessee cannot be said to have not ‘Purchased’ the properties as a statutory compliance.

The ITAT also noted that CIT(A) thoroughly examined the issue of the residential nature of the properties and held 2 of the 3 properties to be residential in nature relying on the house tax receipt issued by South Delhi Municipal Corporation mentioning the property as residential and accordingly upheld CIT(A) order.

The judgment highlights the importance of a purposive interpretation of the relevant provisions for determining the tax liability of an Assessee. The ITAT has emphasized that the non-execution of a registered document of transfer of title may have civil consequences in regard to the title of the property between the seller and purchaser. Still, for the purpose of the benefits of Section 54/54F, the Assessee shall be deemed to have ‘purchased’ the properties.

The judgment provides relief to the Assessee and reiterates the principle that a technical approach cannot be adopted in interpreting tax provisions, and instead, a purposive approach should be taken to achieve the legislative intent.

[ACIT v. Sanjay Choudhary [TS-35-ITAT-2023(DEL)] – Date of Judgement : 23.01.2023 (ITAT Delhi)]

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