Capital gains from sale of flat owned by a co-operative housing society on a piece of land which was granted under a long-term lease is eligible for deduction under section 54.
Facts
The father of the assessee was allotted a flat in a residential complex in a co-operative housing society. The complex was constructed on land which was not owned by the society but was being enjoyed on long-term lease.
After death of father, the assessee received half a share, the other half going to his mother. Co-owners sold. The assessee, invested a part of the sale consideration for purchase of a new residential unit. The Assessee claimed exemption u/s 54 of the Act.
The AO rejected his claim on the ground that the assessee had not transferred the building and the land appurtenant thereto. The CIT(A) and ITAT upheld the claim.
Decision
Before HC, the Revenue submitted that for availing benefit of section 54 of the Act, the assessee has to sell a capital asset in the nature of building and land appurtenant thereto. In the present case, the complex was situated on land which itself was granted on lease. The co-operative housing society was not the owner of the land. Therefore, what the assessee had transferred under a registered sale deed was a mere building and not the land appurtenant thereto. In support of his contention that in the context of section 54 of the Act the word ‘or’ should be read as ‘and’, the Revenue relied on the commentaries of certain renowned authorities on income-tax law.
The HC dismissed the Department appeal. The HC observed that there is no such prescription u/s. 54(1) of the Act. The HC further observed that such a rigid interpretation would disallow every claim in case of transfer of a residential unit in a co-operative housing society. The very concept of such a society is that the society is the owner of the land and continues to be so irrespective of the coming and going of members. A member of such a society has a possessory right over the plot of land which is allotted to him. In case of a constructed building of a co-operative housing society, the member owns the constructed property and along with other members enjoys the possessory rights over the land on which the building is situated. In either case, a member of the society, even when he sells his house, never transfers the title in land to the purchaser. The present case is no different. Merely because the housing complex in the present case is situated on a piece of land which is occupied by the cooperative housing society under a long-term lease, would make no difference.