· During the year under consideration, assessee sold the first floor of a property in Sundar Nagar. Out of the total capital gain earned, assessee invested certain amount in the capital gain scheme and offered the balance amount towards tax.
· The AO, however, was of the view that the said property was not a residential property, and hence, did not allow the assessee the benefit of section 54 of the Act. The action of the AO was further confirmed by the CIT(A).
· The Tribunal took note of the fact that during the year the assessee has only sold the first floor, which is a residential property, and not the ground floor, which is a shop. The Tribunal further observed that the lease agreement clearly stated that the ground floor was to be used as a shop and the first floor as a residence. The Tribunal was also of the view that the photographs forming a part of the assessment order were of the shop on the ground floor, and the assessee has sold the first floor during the year, which was a residential property only.
· The Tribunal has further set out that the subsequent change in the end use, even if it is there, cannot disentitle the seller from claiming the exemption in the absence of any evidence that the seller has been using the property before sale for any commercial purposes.
· The Tribunal also took note of the fact that the mandate of Section 54 is that the property should be residential and there is no condition that such property should have been occupied for the purpose of residence at the time of sale so as to claim the benefit. The Tribunal further referred to the provisions of section 54B of the Act which specifically provide for exemption in respect of agriculture land in case such agriculture land was being used for agricultural purposes. In the absence of any such specific condition in Section 54, the Tribunal has held that no such condition can be read.
· The Tribunal, therefore, concluded that the use of the property is not the relevant criteria to consider the eligibility of the benefit of section 54 of the Act, and thus, directed the AO to allow the deduction as claimed by the assessee u/s 54 of the Act.
For further reading, refer the attachment.