Under the I-T Act, two key sections — section 54 and 54-F — provide for an exemption from long-term capital gains arising on sale of an asset (this original asset can be shares, tenancy rights or residential property) if an investment is made in a house property.
If the investment in the new house property exceeds the price obtained on sale of the original asset, then there is no residual sum that can be subject to tax as long-term capital gains.
In the case before the ITAT, the taxpayer held ‘tenancy rights’ in a residential apartment in the tony area of Warden Road in South Mumbai. She surrendered these rights for a sum of about Rs 4. 8 crore. This entire sum, along with an additional amount of Rs 56. 8 lakh, was invested by her towards purchase of a new residential flat in Lower Parel. She was entitled to exemption under section 54-F, which is available when the sale consideration of assets (other than a residential house) is invested in a house property. However, in her I-T returns, for the financial year 2016-17, she claimed exemption under section 54. Under this section, if the entire long-term capital gains arising on sale of a residential property are invested in another house property, there is no tax incidence. Thus, her claim was denied by the I-T officer. While the Commissioner (Appeals) issued an order in her favour, the I-T officer filed an appeal with the tax tribunal.
The ITAT bench — composed of judicial member Anikesh Banerjee and vicepresident Pramod Kumar —stated in their order that, in this case, a claim for exemption was rightly made, but only a wrong section was quoted while making such a claim. “This is qualitatively different from making a fresh claim during the course of assessment,” they explained. The members of the ITAT held, “The investment that the taxpayer has made in the new flat is much more than the entire sale consideration of the tenancy rights.
Therefore, whatever be said to be the nature of the long-term capital asset (the original asset that was sold), the investment of the sale proceeds in the house entitles the taxpayer to the exemption of the long-term capital gains. ”