NEELUFER YUSEF,BANGALORE V. DCIT, INTERNATIONAL TAXATION CIRCLE-2(1) , BANGALORE

ITITA 650/BANG/2025

AI Insights

Neelufer Yusef, a non-resident, sold an immovable property and claimed exemption under Section 54 of the Income Tax Act for reinvesting the sale proceeds into another residential property. The Assessing Officer (AO) denied the exemption on grounds that the assessee did not register the sale deed or take possession of the new property within the required timeframe. The Tribunal, referencing various judicial precedents, concluded that the mere investment of the sale proceeds into a new property, even if the transaction was not completed in all respects, suffices to claim the exemption under Section 54. The Tribunal emphasized that the assessee had made substantial payments towards the new property within the same month as the sale, establishing a clear nexus between the sale proceeds and the new investment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 785733 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 31-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 26-03-2025
• Other Referred Cases: CIT, Bangalore Vs. Ms. Shakuntala Devi, Commissioner of Income-tax v. T.N. Aravinda Reddy, Balraj v. Commissioner of Income-tax, CIT v. Sambandam Udaykumar, Sanjeev Lal v. Commissioner of Income Tax, Chandigarh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIVYA K.J.
• Assessee Lawyers: SANDEEP CHALAPATHY
• Keywords: Capital asset; Depreciation; Fair market value; Cost of acquisition; Capital Gains; Valuation report
• Section: 147; 148; 143(3); 142(1); 54; 54F; 139

Judgement Text

"IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(IT)A No.650/Bang/2025 Assessment Year: 2018-19 Neelufer Yusef 402, Tucson Way Vancovver Washington 999999, Foreign United States C/o MSSV & Co. 2nd Floor, No.63/2, Railway Parallel Road, Kumara Park West Bangalore 560 020 PAN NO : AUZPY0472H Vs. DCIT International Taxation Circle 2(1) Bangalore APPELLANT RESPONDENT Appellant by : Sri Sandeep Chalapathy, A.R. Respondent by : Dr. Divya K.J., D.R. Date of Hearing : 06.08.2025 Date of Pronouncement : 31.10.2025 O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of the ld. DCIT International Taxation, Circle 2(1), Bengaluru dated 06.01.2025 vide DIN No. ITBA/AST/M/147/2024- 25/1071949592(1) passed u/s 147 r.w.s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2018-19. 2. The assessee has raised the following grounds of appeal: Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 2 of 14 3. Brief facts of the case are that the assessee being a non- resident did not file her return of income u/s. 139 of the act for the AY 2018-19. The case of the assessee was flagged as per risk management strategy (RMS) formulated by the CBDT in insight portal under the head “NMS Cases” as the assessee has earned income from sale of immovable property and failed to file the return of income. The AO after obtaining the prior approval of the CIT (Intl. Taxation), Bangalore passed an order u/s. 148A(d) of the Act & served with a notice u/s. 148 of the Act. Further, in response to notice u/s. 142(1) of the act the assessee submitted his reply along with the purchase deed dated 22.07.1972, sale deed dated 17.02.2018, tax residency certificate-USA, return of USA, visa copy, Bank statement, computation of income, guidance value, agreement to sale /construction agreement dated 30.01.2018. The assessee, Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 3 of 14 thereafter filed her return of income for the AY 2018-19 on 30.08.2023 in response to notice u/s 148 of the Act. Subsequently, notice u/s. 143(2) of the act was issued to the assessee and accordingly, the assessment was completely based on the submissions made by the assessee. 3.1 During the course of assessment proceedings, from the sale deed produced, the AO seen that the immovable property is in the joint ownership of the assessee and four other co-owners of the property. Accordingly, the sale consideration is adopted at Rs.1,44,20,000/- (1/5th share of the total sale consideration of the property). Further, with regard to cost of acquisition the assessee has furnished the valuation report dated 18.02.2018 from the Government approved register valuer. As per the valuation report, the fair market value of the land and building and other works as on 01.04.2001 was Rs.1,19,38,000/- which had been accepted by the AO. From the computation of income filed by the assessee, the AO noticed that the assessee had claimed exemption u/s. 54 of the Act amounting to Rs.80,02,976/- on purchase of new residential house property. Further, the AO noted that the assessee has entered into agreement to sale along with construction agreement dated 30.01.2018 for a total consideration of Rs.1,38,60,000/-. The assessee had sold the property jointly on 17.02.2018 and had claimed to have purchased another property and claim deduction/s. 54 of the act. When questioned by the AO about the purchase deed of the new property, the assessee submitted that the property has not yet been handed over to her and registered deed has not been executed. The AO held that the assessee is not eligible for deduction u/s. 54 of the Act for the following reasons: - 1. The assessee has not furnished the registered sale deed of the property during the assessment proceedings. Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 4 of 14 2. The assessee has also not submitted any payment proofs like payment receipt from builder, bank account statement or statement of account from builder. 3. The assessee does not possess any right to the said property nor does the seller extinguished of its rights. Thus, there is no transfer in the instant case. 4. Going by the provisions of section 54 of the Act, the assessee neither purchased a residential house nor constructed a residential house within the timelines as per section 54 of the Act and accordingly, the assessee become ineligible to claim deduction u/s. 54 of the Act. 3.2 The Ld. D.R.P upheld the variation proposed in the draft assessment order by holding that the occupancy certificate for the project was obtained by the builder on 27.07.2017 which itself says that construction work was complete in all aspects by the date of agreement to sale entered by the assessee. Hence the instant case is not a case of construction of new asset and it is rather a case of purchase of new asset. The ld. D.R.P further held that the original asset was sold on 28.02.2018 and as admitted by the assessee, the purchase of new asset was purportedly completed on 04.01.2021 i.e. day of getting possession and hence this is a case where the purchase had not been affected within the period of 2 years from the date of sale of original assets. Lastly, the panel observed that the assessee never acquired the said apartment and never obtained the possession or enjoyed it. Hence, it is not a case of genuine investment rather the assessee has devised a colorable transaction of entering into an agreement of sale and making payments only with an aim to claim exemption u/s. 54 of the act. As the D.R.P has upheld the variations proposed in the draft assessment order, the AO disallowed the claim of exemption u/s. 54 of the Act amounting to Rs. 80,02,976/- and added back the same to the returned income. The AO, thus Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 5 of 14 completed the assessment proceedings on a total assessed income of Rs. 80,02976/- u/s. 147 r.w.s. 143(3) r.w.s 144C (13) of the Act. 4. Aggrieved by the assessment completed u/s. 147 r.w.s. 143(3) r.w.s 144C (13) of the Act dated 06.01.2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed paper books comprising 416 pages in support of her case. 5. Before us, the ld. A.R. of the assessee Sri Sandeep Chalapathy, CA vehemently submitted that the assessee has entered into agreement to sale/ construction agreement with the builder namely Prestige South City Holdings on 30.01.2018 for construction and purchase of apartment for a total sale consideration of Rs.1,38,60,000/-. The assessee had sold the immovable property which was in joint ownership of the assessee on 17.02.2018 and received her share in sales consideration amounting to Rs.1,44,22,000/-. The assessee had paid total amount of Rs.1,42,75,000/- to the builder, i.e. Prestige South City Holdings within the same month of the sale, which was far more than amount required to be invested amounting to Rs.80,02,976/-. The builder had also issued intimation letter dated 17.05.2018 to the assessee stating that the unit no. 4033 in Prestige Misty Waters is ready for handover, however as the assessee was residing in United States, the assessee could neither registered the sale deed nor took possession of the same in spite of having invested far more then as required u/s 54 of the Act. The assessee had however complete control over the property and there is no requirement under the provisions of Act for taking possession and registration. Further, the ld. A.R. of the assessee submitted that the Jurisdictional High Court in the case of CIT, Bangalore Vs. Ms. Shakuntala Devi reported in (2016) 389 ITR 366 (Karnataka) vide judgement dated 28.09.2016 has held that once the consideration received from sale of property has been paid by the Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 6 of 14 assessee for purchasing another property and the reimbursement has been made within 2 years as contemplated u/s. 54 of the Act which fully covered the capital gain portion is liable to be exempt u/s. 54 of the Act. 6. The ld. Department representative Dr. Divya K.J., CIT vehemently submitted that once the handover intimation was given by the builder on 17.05.2018, the assessee was required to register the apartment in her name in order to complete the purchase of the property within the time limits. In the present case, the assessee also perse decided to take possession and registration only after 3 years. Hence it is not a case of genuine investment, rather the assessee has devised a colorable transaction of entering into an agreement of sale and making payments only within an aim to claim deduction u/s. 54 of the Act. Lastly, the ld. D.R. submitted that no rights, interest or title in immovable asset can be transferred under an unregistered agreement to sale. 7. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee being a non-resident had sold the immovable property on 17.02.2018 which was in joint ownership and accordingly she received her share of sale consideration amounting to Rs.1,44,20,000/- (1/5th of Rs.7,21,00,000/-). It is also an undisputed fact that with regard to cost of acquisition the assessee had furnished the valuation report dated 18.02.2018 from the government approved registered valuer wherein the fair market value of land and building and other works as on 01.04.2001 was valued at Rs.1,19,38,000/- which also accepted by the AO. Therefore, there is no dispute on the amount of the long-term capital gain arrived by the assessee. The only dispute in present case is with regard to the claim of exemption u/s. 54 of the Act. Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 7 of 14 7.1 The main contention of the assessing officer in denying the exemption of u/s. 54 of the act is that the assessee had neither executed and registered the purchase deed nor taken the possession of the property claimed to have purchased. Before proceedings further, it is apposite here to extract the relevant provisions of section 54 of the Act which is reproduced below for ease of reference and convenience:- Profit on sale of property used for residence. 54. (1) “[Subject to the provisions of sub-section (2), where , in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from House property” (hereafter in this section referred to as the original asset), and the assessee has within a period of [ one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date [ constructed, one residential house in India], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) If the amount of the capital gain [is greater than the cost of the residential house] so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three year of its purchase or construction, as the case may be, the cost shall be nil’ or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain: Provided that……….” Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 8 of 14 On reading of the above section would make it explicitly clear that the capital gain on the sale of the property is to be utilized by the assessee within a period of one year before or two years after the date on which the transfer took place towards the purchase of residential house or within a period of three years after that in the construction of the residential house. 7.2 The jurisdictional High Court of Karnataka in the case of Commissioner of Income Tax, Bangalore v. Mrs. Shakuntala Devi reported in [2016] 389 ITR 366 has very thoroughly analyzed the provision of section 54 of the Act and held that utilization of capital gains in purchase/construction of residential house would suffice to claim the benefit of section 54 of the Act. The relevant paragraph are reproduced below for ease of reference & convenience :- “11. A reading of the above Section would make it explicitly clear that proceeds of sale of the property is to be reinvested within a period of two years, which would not be chargeable to tax. The intention of Legislature was to encourage the investment in the acquisition of residential house or construction thereof. The condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested either in purchasing a residential house or utilised for constructing a residential building. If it is established that consideration so received on alienation of property has been invested in either purchasing a residential building or spent on construction of residential building, an assessee would be entitled to the benefit flowing from Section 54 of the Act irrespective of the fact that transaction not being complete in all respects. In other words, it has to be examined or discerned from the facts of each case as to whether the assessee had undertaken such an exercise or not? 12. The main purpose of Section 54 of the Act is to give relief in respect of profits on the sale of a residential house. Necessary conditions to be fulfilled for the applicability of Section 54 are: (i) Assessee should be an individual or a Hindu Undivided Family; (ii) Capital assets should result from the transfer of a long term capital asset; (iii) Capital gain must arise from transfer of building which is chargeable as 'income from house property'; (iv) Property should be a residential house; (v) Assessee must have within a period of two years after that date purchased another property; (vi) Property purchased must be residential; (vii) Exemption would be available only to the extent the sale proceeds are utilised; Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 9 of 14 (viii) Where re-investment in a residential property is not made before due date for filing report, amount not so utilised till such date is required to be deposited in Capital Gain Account Scheme. Thus, if the above conditions are satisfied, assessee is entitled to claim benefit of the provision of Section 54. 13. Facts on hand would disclose that assessee had owned a flat at Mumbai and sold the same on 04.02.2003 for a total consideration of 1,70,00,000/-. Subsequent to such sale she entered into an agreement for purchasing another property for a total consideration of 3,25,00,000/- by agreement dated 08.09.2003. Said agreement came to be entered into within six months from the date of sale i.e., 04.02.2003 and assessee had paid a total consideration of 2,40,00,000/- between April' 2003 to September' 2003. After making the payment, a registered sale deed had not been executed in favour of the assessee before completion of two years period pursuant to Memorandum of Understanding dated 08.09.2003. The consideration received by her under sale dated 04.02.2003 has been paid by the assessee for purchasing another property and reinvestment has been made within two years as contemplated under Section 54 of the Act. These facts are not in dispute. Thus, long- term capital gains computed by virtue of sale deed stood adjusted by virtue of payment made by assessee for purchasing another property under Memorandum of Understanding dated 08.09.2003. As such, Tribunal has rightly held that date of purchase was to be taken as the basis for reckoning the period of two years prescribed under Section 54 of the Act for extending the benefit flowing therefrom. In the instant case consideration paid by assessee under Memorandum of Understanding dated 08.09.2003 would fully cover the consideration of capital gains portion for being eligible to claim exemption under Section 54 of the Act. 14. Coordinate Bench of this Court in the case of PRINCIPAL COMMISSIONER OF INCOME-TAX vs. C. GOPALASWAMY reported in [2016] 384 ITR 307 (KAR) has held that utilization of capital gains in construction of residential house would suffice to claim the benefit of Section 54 of the Act.” 7.3 Further, it is worthwhile here to mention that the Hon’ble Supreme Court of India in the case of Commissioner of Income-tax v. T.N. Aravinda Reddy reported in (1979) 120 ITR 46 has held that the ordinary meaning of word “purchase” is buying for a price or equivalent of price. The relevant para is reproduced below for ease of reference & convenience:- “3. We find no reason to divorce the ordinary meaning of the word \"purchase\" as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in section 54(1). If you sell your house and make a profit, pay Caesar what is due to Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 10 of 14 him. But if you buy or build another subject to the conditions of section 54(1) you are exempt. The purpose is plain ; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on \"cash and carry.\" ……….” 7.4 The Hon’ble High Court of Delhi in the case of Balraj v. Commissioner of Income-tax reported in (2002) 254 ITR 22 has held that the section 54 speaks of purchase only and for availing benefit under this section it is not necessary that the assessee should become the owner of property by evidencing the registration thereof. The relevant findings are reproduced below for ease of reference & convenience- “3. The Assessing Officer, the appellate authority as well as the Tribunal rejected the claim of the assessee in respect of the assessment year 1975-76 on the ground that he did not become the owner of the property, as the said transaction was not evidenced by registration thereof as provided under section 17 of the Registration Act. For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property. Section 54 speaks of purchase. Moreover, the ownership of the property may have different connotations in different statutes. The question which arises for consideration appears to be squarely covered by a decision of the Apex Court in CIT v. T.N. Aravinda Reddy[1979] 120 ITR 461 where it has been held that the word ‘purchase’ occurring in section 54(1) of the Act had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor’s share for consideration to the release and the transferee, the assessee, \"purchased\" the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1). The question now is no longer res integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 6252. The Apex Court categorically held that section 22 of the Act does not require registration of sale deed. The meaning of the word ‘owner’ in the context of section 22 has been held to be a person who is entitled to receive income in his own right. The Apex Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751 and this Court Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 11 of 14 in CIT v. R.L. Sood [2000] 245 ITR 7272 have held that registration of the document is not mandatory for claiming depreciation on the property. In this view of the matter, we have no doubt in our mind that the learned Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative. We, therefore, answer the question in the negative, i.e., the assessee is entitled to exemption in terms of section 54.” 7.5 Further, the Hon’ble High Court of Karnataka in the case of CIT v. Sambandam Udaykumar reported in (2012) 345 ITR 389 has held that the provision of section 54 of the Act has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are purchased or constructed. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said prevision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 12 of 14 or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit. 7.6 Further, the Apex Court in the case of Sanjeev Lal v. Commissioner of Income Tax, Chandigarh reported in [2014] 365 ITR 389 has held that in normal circumstances by executing an agreement to sale in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of agreement to sell some right is given by vendor to vendee. Further the Apex Court held that looking at the provisions of section 2(47) of the act which defines the word “transfer” in a relation to the capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sale, the capital asset can be deemed to have been transferred. 7.7 After taking into considerations the above judicial precedents & the present fact of the case, we can safely conclude that for the purpose of claiming exemption under section 54 of the Act, it is not necessary that the assessee should take possession of the property or should have registered the purchase deed. What is important to avail the exemption is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 13 of 14 from the said benefit. We also cannot brush aside the fact that the assessee has invested far more than capital gains arising from the sale of residential house towards the purchase of another residential house within the time prescribed under the section 54 of the act. Further, we also take the note of the fact that the assessee has made almost full payment of the new property within the same month of the sale which clearly established the nexus that the sales consideration received were utilized for the purchase of new residential house. We are of the considered view that the inability to obtain the registration of purchase deed and take physical possession within two years was due to the reasons beyond the control the assessee as she was residing in United Staes and she could not come to India for the registration and taking possession of the immovable property and therefore, we are of the considered opinion that failure of the assessee to get registration and possession was not attributable to any failure on the part of the assessee. In view of the Judicial precedents and the liberal interpretation of “purchase” in section 54 of the act, the exemption claimed u/s. 54 is justified and accordingly we direct the AO to grant exemption u/s 54 of the Act as claimed by the assessee. 8. In the result appeal filed by the assessee is allowed. Order pronounced in the open court on 31st Oct, 2025 Sd/- (Prashant Maharishi) Vice President Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 31st Oct, 2025. VG/SPS Printed from counselvise.com IT(IT)A No.650/Bang/2025 Neelufer Yusef, United States Page 14 of 14 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. Printed from counselvise.com "