INCOME TAX ACT, 1961

Section 54

Capital gains - Exemption under section 54 - AO considered 1/3rd of presumed cost of construction as capital gains and added the same in the income of the assessee -

AO observed that assessee was found to have entered into a collaboration agreement with second party for dismantling of old building and construction of Ground Floor, First Floor and Second Floor. As per the collaboration agreement assessee would keep rights of ground floor and second floor with roof rights of first floor. After reducing the indexed cost of acquisition, declared long term capital gain and claimed exemption under section 54. The claim of exemption under section 54 could not be accepted fully as assessee sold the rights of first floor to the builder, and kept ground and second floor to himself under collaboration agreement, therefore, long term capital gain on proportionate sale value of first floor i.e., 1/3rd of long term capital gain as calculated by assessee. Accordingly, addition was made to the income of assessee on account of deemed long term capital gain. Held: Exactly similar issue was already adjudicated and decided in favour of the assessee by High Court in the case of CIT v. Geeta Duggal [ITA No. 1237/2011 : 2013 TaxPub(DT) 0960 (Del-HC)] where it was held that it was unable to find how or why physical structuring of the new residential house, whether it was lateral or vertical, should come in the way of considering the building as a residential house. Residential house consisting of several independent units could be permitted to act as an impediment to allowance of the deduction under Section 54/54F. Thus, addition made by AO was deleted.

REFERRED : CIT v. Gita Duggal ITA No. 1237/2011 : 2013 TaxPub(DT) 0960 (Del-HC)

FAVOUR : In assessee's favour

A.Y. :

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