Section 54F relief couldn't be withdrawn if residential property was subsequently put to use for commercial purpose

Shyamlal Tandon v. ITO [2014] 43 taxmann.com 155 (Hyderabad - Tribunal)

Subsequent change in usage of property does not disentitle assessee to relief under section 54F, if what was acquired was originally a residential property.

Facts:

• The assessee had purchased a piece of land. He gave property to a developer to construct a residential property. The municipal permission had also been obtained for such purposes. 
• The assessee had received possession of such residential property but said property was subsequently used for commercial purposes.He claimed exemption under section 54F. 
• The Assessing Officer (‘AO’) noticed that the income chargeable to tax had escaped assessment and completed assessment by working out-long term capital gains. 
• The CIT (A) denied exemption under section 54F to assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The intention of the parties was to construct a residential property when the development agreement was entered. The municipal permission had also been obtained only for construction of a residential complex; 
• The assessee had received possession of such residential property but the said property was subsequently used for commercial purposes; 
• Merely because of change in the use of such property for non-residential purposes, it could not be held that what was acquired was not a residential property, but a commercial one; 
• The assessee was entitled to relief under section 54F, if what was originally acquired was a residential property. Thus, the impugned order of the CIT (A) was set aside, and the matter was restored to the AO, with a direction to consider the assessee's claim for exemption under section 54F.