By TIOL News Service

MUMBAI, JAN 14, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether sale of an 'under construction property' can be regarded as sale of residential unit, so as to deny benefit of exemption u/s 54F which was accrued to the seller upon such sale. NO IS THE VERDICT.

Facts of the case:

The assessee, an individual, had filed her return claiming exemption u/s 54F. During the course of assessment, the AO however objected to the assessee's claim of exemption u/s 54F on the ground that the assessee had sold a flat which was in the nature of residential unit and therefore, Section 54F would not apply. On appeal, the Commissioner gave relief to the assessee upon which the issue reached the Tribunal. The Tribunal appreciated the findings of CIT(A) that the property transferred by assessee could not be termed to be a residential house and the provisions of section 54F were beneficial provisions enacted for the purpose of promoting the construction/purchase of residential houses.

High Court held:

++ a perusal of sub-section (1) of Section 54 would show that the exemption would be available to an assessee being an individual or Hindu Undivided Family where the capital gain arises from the transfer of a long-term capital asset, not being a residential house provided the remaining conditions of the said provisions are satisfied. In this context, as noted, the Revenue's objection is that the assessee had sold a flat which was in the nature of residential unit. The Tribunal, however, found that the facts of the case are somewhat peculiar. The assessee had booked a flat on Jan 15, 1981 whereas the builder failed to complete the construction and the scheme ran into multiple legal disputes. These disputes travelled to the Bombay High Court, which appointed a committee in the nature of Receiver and was asked to observe the completion of the construction. Under such circumstances, the construction was completed sometime on February, 2011. In the meantime, the assessee had sold the flat in the year 2005 which she had booked. The same was still under construction. The same resulted into long-term capital gain. It was in such peculiar facts that the Tribunal held that assessee cannot be said to have transfered a capital asset in the nature of residential house. In the peculiar facts of this case, there is no error in the view of Tribunal.

(See 2019-TIOL-113-HC-MUM-IT)