INCOME TAX ACT, 1961

Section 54F

Capital gains - Exemption under section 54F - AO alleged ownership of more than one residential house as on date of transfer of original asset - Assessee having transferred one of the residential houses to his son through unregistered agreement

Assessee claimed exemption under section 54F as regards long-term capital gain on sale of certain piece of land. AO denied exemption on the reason that assessee on date of transfer of original asset had more than one residential house, i.e., at Defence Colony, Gurgaon and Malibu Town, Gurgaon, although, both the assets were jointly owned by assessee with his wife Smt. Savita Bhasin. Assessee contended that assessee sold his share in the property at Malibu town, before the sale of land to his son, Shwet Ketu Bhasin, having in USA, by virtue of Agreement to Sale, executed on the same date. As the said agreement was unregistered AO negated existence of said Agreement to Sale and thereby denied deduction by holding the same to be a colourable device to avoid tax. Assessee contended alternatively that even if it was assumed that assessee continued to be owner to property at Malibu Town, Gurgaon, assessee was joint owner of property with 50% share and as such could not be considered as owning residential house in terms of proviso to section 54F. Held: A review of the sale deed executed between assessee and his son would reveal that said agreement, albeit unregistered, has the effect of transferring property to Shwet Ketu, rendering him the owner of said property for all practical purposes and enabling him to enjoy complete fruits and benefits there from and in particular was similar to a Power of Attorney arrangement. It was not in dispute that part of rent was received by assessee and subsequently part of the rent had been offered for taxation by son of assessee. Also, assessee paid capital gains tax on sale consideration of property at Malibu Town which had been accepted by AO. Similarly, part of share of wife of assessee was also transferred. Accordingly, assessee entered into genuine transaction of sale and purchase of property through Agreement to Sell which was later on supported by Registered Purchase Deed and proviso (a)(i) to section 54F seeks to cover only those residential properties of which assessee is exclusive owner which is in conformity with intention and spirit of section 54F. As assessee was having only 50% of share in property and, therefore, assessee would not be having more than one residential house at the time of claiming exemption from capital gains and as such, AO was not justified in rejecting claim of exemption under section 54F. Moreover, residential property was sold to the son of assessee, therefore, assessee would be entitled for exemption under section 54F on sale of land.

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