Introduction
In a recent decision by the Income Tax Appellate Tribunal, Delhi Bench ‘A,’ New Delhi, dated April 5, 2023, the case of Smt. Anu Gera against the Income Tax Officer, Ward 22(1), New Delhi, was considered. The appeal, filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10, raised crucial issues related to the categorization of capital gains and the computation of cost of acquisition on the sale of residential properties. This article provides an in-depth analysis of the tribunal’s decision, shedding light on the key arguments, facts, and legal principles involved.
Background
Smt. Anu Gera had initially declared a total income of Rs. 5,38,341 for the relevant assessment year, including income from business, other sources, and Long-Term Capital Gains (LTCG). The LTCG, amounting to Rs. 29,28,945, was claimed as exempt under Section 54 of the Income Tax Act, 1961. The Assessing Officer (AO) initiated proceedings, challenging the claim of exemption for multiple residential properties acquired by the assessee.
Key Issues Raised by the Assessee
The appeal raised three substantive grounds challenging the Commissioner of Income Tax (Appeals)’s decision:
- The classification of the gain arising from the sale of a residential property as “short-term capital gain” instead of “long-term capital gain” as claimed by the appellant.
- The computation of the cost of acquisition for a specific property at Rs. 3,44,000, rather than the claimed Rs. 16,75,000.
- The determination of the cost of acquisition for another property at Rs. 2,06,000, as opposed to the claimed Rs. 6,70,000.
Analysis of Grounds 1 and 2
The tribunal upheld the AO’s decision regarding the classification of the gain arising from the sale of the ground floor property in Kalkaji, Delhi, as a “short-term capital gain.” This was based on the holding period, as the property was held for less than 36 months. The tribunal accepted the AO’s reliance on the registered General Power of Attorney, dated 26.05.2006, which indicated the property’s purchase price as Rs. 3,24,000. The assessee’s claim that this amount was for stamp duty calculation and the actual cost was Rs. 16.75 lakhs, as per an unregistered agreement, was not accepted.
The tribunal emphasized that the unregistered gift deed, dated 30.06.2005, was not legally valid, and therefore, the holding period for the property was less than 36 months, leading to the classification of the gain as a short-term capital gain. Consequently, grounds 1 and 2 were dismissed.
Analysis of Ground 3
The third ground related to the denial of exemption under Section 54 for the basement floor property. The AO had restricted the exemption to Rs. 20,00,000, arguing that the assessee could claim the benefit only for one residential property. However, the tribunal referred to precedents, including a decision by the Karnataka High Court, holding that the term “a residential house” includes plural numbers as well.
Citing cases where taxpayers had purchased more than one residential property and were still eligible for exemption under Section 54, the tribunal ruled in favor of the assessee. It noted that the legislative amendment in 2014 was prospective, and the word “a” in Section 54 could include multiple residential properties.
Judicial Precedents
The tribunal cited decisions by various High Courts to support its interpretation of Section 54. The Karnataka High Court’s ruling in Arun K. Thiagarajan vs. CIT and the Madras High Court’s decision in Tilokchand & Sons vs. ITO were pivotal in establishing that the term “a residential house” can encompass plural units. The tribunal also referenced the Karnataka High Court’s decision in CIT vs. Khoobchand M. Makhija, reiterating that acquiring more than one residential house does not disentitle an assessee from availing the benefits under Section 54.
Conclusion
In conclusion, the Income Tax Appellate Tribunal partially allowed the appeal filed by Smt. Anu Gera. While upholding the classification of short-term capital gain for one property, the tribunal favored the assessee regarding the denial of exemption under Section 54 for the basement floor property. The decision aligns with previous judicial interpretations and emphasizes that the term “a residential house” encompasses plural units. This case serves as a significant precedent for taxpayers seeking exemptions under Section 54 in cases involving multiple residential properties.
