Question And Answer
Subject: SEC.54F of Income Tax Act.
Querist: Kulkarni P.S
Answered by:
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Date: May 23, 2022
Query asked by Kulkarni P.S

Assessee is an individual and partner in partnership firm engaged in the business of advertising.  In the A.Y. 2008-09. Assessee received a amount of Rs. 1 cr against his right in the property,  which is liable for longterm capital gain. Assessee invested the amount of Rs. 1.25 cr for purchase of residential bungalow alongwith the land appertatnent their to by executing the Development Agreement and power of attorney  by paying full stamp duty and also taken the possession of the said property.  The assessee has not carried out any Development on said property and after holding for period of 42 months sold the said property as it is and offered the LTCL in A.Y. 2012-13, which is accepted U/sec. 143(1)(a) of the Act.

Assessing Officer rejected the claim of the appellant made U/Sec.54F on following grounds

1. Assessee has entered in to Development Agreement and the rights were granted to assessee for Development and sale of flats on the said property. The assessee has not purchase the property for getting deduction u/Sec.54F.

2. When the assessee sold the said property in the A.Y. 2012-13, he has to obtain the consent of original owner. Which means assessee was never the owner of the property and property  was not transfered to assessee.

3. Development Agreement was executed just to avail unreasonable deduction u/Sec. 54F of the Act.

4. Purchase of property is necessary condition for claiming deduction u/Sec. 54F and acquiring property through Development Agreement does not tantamount to purchase of property.

5. By executing  Development Agreement assessee do not became the owner of property.

6. Subsequent acceptance of Long term capital loss on sale of said property in A.Y.2012-13 does not mean assessee has complied with conditions of sec. 54F in A.Y. 2008-09.

Is the action of AO is justified in Law.

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As we infer, the assessee claimed deduction under section 54F of the Income-tax Act, 1961 on the Capital Gains accrued from sale of interest in the Partnership Firm. The assessee has not fulfilled the conditions for availing deduction under section 54F of the Act and hence the same has been denied.

As the assessee never purchased a house property, the deduction has been rightly disallowed.

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One comment on “SEC.54F of Income Tax Act.
  1. Kulkarni P.S says:

    Sir, capital gain is not on account of sale if Interest in partnership. facts about the assessee is for knowing the business that the assessee is not the developer of properties.
    Capital gain is in respect of his rights in property which has no connection with the partnership. the gain is Long term only.
    The issues is which assessee has invested the said amount for purchase of house U/Sec.54F he has paid the entire consideration for purchase of bungalow and land apperantant there to. However instead of executing the Purchase deed he has executed the Development Agreement.
    Assessee has not carried out any development activity on the said house property.
    AO has denied the claim only on the ground that since assessee has executed the development agreement he not entitled for exemption U/SEc.54F. Even though department has accepted the LTCG on sale of same property after period of 3 years.
    the issue is it is an undisputed fact that the assesse has purchased the property which is residential property but because the assessee has executed Development agreement whether his claim can be denied

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