The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that a contractual rebate or discount provided by a builder as per the terms of a buyer’s agreement, for reasons such as timely payment or early move-in, does not constitute taxable income in the hands of the property purchaser under Section 56(1) of the Income Tax Act. No deemed income can be assessed when the actual purchase consideration for an immovable property is higher than its stamp duty value.
For the purpose of claiming exemption under Section 54F of the Income Tax Act, the ITAT explained that the condition of ‘purchase’ of a new residential house is satisfied when the taxpayer (appellant) acquires substantial domain over the property, including the right of possession and enjoyment, upon payment of consideration. The registration of the conveyance deed is not a mandatory pre-condition for the claim.
The ITAT therefore ruled that a gift of property by a husband (taxpayer) to his spouse, executed well before the date of transfer of the original capital asset, cannot be treated as a ‘colourable device’ or ‘camouflage’ to circumvent the eligibility conditions of Section 54F, particularly when there is a significant time gap between the gift and the transfer. Further, co-ownership in a residential property does not disentitle a taxpayer from claiming the exemption under Section 54F.
The Division Bench comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) observed that the appellant’s actual purchase price for the flat was Rs. 23.13 Crores, whereas the stamp duty value (circle rate) for the property was Rs. 14.68 Crores. It noted that under the scheme of the Income Tax Act, specifically Section 56(2)(x), deemed income can only arise if an immovable property is purchased for a consideration less than its stamp duty value. Since the purchase consideration was significantly higher than the stamp duty value, the Bench found that no deemed income could be said to have arisen.
The Tribunal examined the nature of the rebate and found that it was not an arbitrary or sudden benefit. It was composed of a down payment rebate, move-in rebate, special rebate, and timely payment rebates, all of which were contractually stipulated in the apartment buyer’s agreement. The Tribunal therefore held that these rebates were not uncommon, but are standard commercial practices used by builders to encourage timely payments and early occupation of high-value properties.
The Tribunal also rejected the reasoning of the lower authorities, stating that questioning the business prudence of the builder for giving such rebates cannot be a subject matter of inquiry at the end of the purchaser.
On the issue of owning more than one house, the Tribunal observed that the appellant had gifted his half undivided share in two residential properties, and these transfers occurred much before the sale of shares. The Tribunal noted that the appellant was only a co-owner in the two properties, and the gift to his wife, who was already a co-sharer, merely changed her status to a full owner.
Hence, the Tribunal opined that the gift of a property to a wife, especially a co-sharer, could be part of a family arrangement and cannot be considered a camouflage transaction to claim a tax benefit. Further, the Tribunal stated that co-ownership in other properties itself makes it doubtful that it can be an embargo for a Section 54F claim.
Regarding the non-registration of the new property, the Tribunal held that the term ‘purchase’ for the purpose of Section 54F has a broader perspective and is not solely dependent on the execution of a sale deed. What is material is whether the taxpayer has acquired a right and interest superior to the seller, including the right of possession and enjoyment, which was established by the possession letter and payments made.
Briefly, the appellant filed a revised return declaring a total income of Rs. 1.94 Crores, after claiming a deduction of Rs. 9.65 Crores under Section 54F of the Income Tax Act, against long-term capital gains arising from the sale of shares of an unlisted private company. The investment was made towards the purchase of a new residential apartment in Gurugram, for a total consideration of Rs. 32.95 Crores.
The Assessing Officer (AO) and subsequently the National Faceless Appeal Centre (NFAC) disallowed the Section 54F deduction, concluding that the appellant owned more than one residential house on the date of the transfer of the shares. The authorities contended that the appellant’s act of gifting his share in two residential properties to his wife was a ‘camouflage’ or a ‘colourable device’ to become eligible for the exemption. Further, the authorities noted that the purchase deed for the new property was not registered.
Additionally, the AO observed that the appellant had received a rebate of Rs. 9.81 Crores from the developer, DLF. The AO treated this rebate as income from other sources under Section 56(1) and added it to the appellant’s income. The NFAC upheld this addition, terming the rebate ‘absurd’ and suggesting it was an arrangement to adjust cash or value in kind.
Appearances:
Advocates Dr. Rakesh Gupta and Ashok Garg, along with CAs Shilpa Gupta and Saksham Agrawal, for the Appellant/ Taxpayer
CIT-DR Pooja Swaroop, for the Respondent/ Revenue
