Yogesh Sunderlal Shah v. ACIT [2013] 21 ITR 97 (Mum.) (Trib.)

S.54: Capital gains-Property used for residence--Exemption-Deemed owner-Tenancy rights-Sale of residential

property and investment of gains in acquiring tenancy rights in perpetuity in another residential property,

Assessee is not entitled to exemption under section 54. (Bombay Stamp Act 1958)

The assessee sold his bungalow and purchased tenancy rights in two flats in the third floor. The assessee computed the long-term capital gains from sale of residential bungalow which he claimed as exempt because of the investments made in acquisition of the tenancy rights in the new two flats. The Assessing Officer rejected the claim of the assessee of exemption under section 54 of the Income-tax Act, 1961, in respect of tenancy rights acquired in the new flat. Accordingly, the claim under section 54 was disallowed. This was confirmed by the Commissioner (Appeals). On appeal to the Tribunalheld that the exemption under section 54 from capital gains is available to an assessee, who invests the capital gains in a similar asset being a residential house which would obviously mean that acquisition of the house should be as an owner, as the capital gains covered under section 54 are the capital gains arising from transfer of a residential house owned by the assessee. The principle that in case of ambiguity a taxing statute should be construed in favour of the assessee would not apply to the construction of an exception or an exempting provision; these have to be construed strictly. That the person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the provision. In case of doubt or ambiguity, benefit must go to the State. In section 54 there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant. The argument of deemed ownership was relevant only in connection with computation of income from house property and not in relation to exemption under section 54. Similarly, treating the tenancy as conveyance under the Bombay Stamp Act, 1958, was only for the purpose of payment of stamp duty and cannot be considered as conveyance of the title of the property to the assessee as an owner. Taking possession could not be considered as ownership as possession had been taken as a tenant and not as an owner of the flat. The assessee was permitted to sub-let the flat, to bequeath it and to raise loan but such powers were

only in relation to tenancy rights of the assessee and not as an owner of the flat. All these facilities to which the assesse was entitled were only against right of the assessee as tenant in the flat and not as owner. Further the agreement provided that the tenant was not entitled to make any structural changes in the flat which showed that the assessee was not the owner because an owner had full right in relation to his property. The assessee was not entitled to exemption under section 54. (A, Y. 2008-2009 )