PR COMMISSIONER OF INCOME TAX INCOME TAX-2 vs. C A BADRINATH (HUF)

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ITA/129/2021HC KarnatakaKAHC01004753202115 October 2026Bench: S.G.PANDIT,CHILLAKUR SUMALATHA10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial questions of law raised by the Revenue were to be answered against the Revenue and in favour of the assessee. The Court noted that the agreements for sale were entered into between January 2014 and November 2014, possession was delivered between April 2014 and November 2014, and sale deeds were executed between July 2014 and July 2015. It was also undisputed that the assessee purchased a new property on 10.1.2014, and the Revenue accepted the capital gains offered for taxability for AY 2015-16. The Court reasoned that when the capital gains for AY 2015-16 were accepted, the Revenue could not deny the benefit under Section 54 of the Act. The Court further emphasized that Section 54 is a beneficial legislation to be construed liberally in favour of the assessee. Citing its own decision in Shri Lahar Singh Siroya, which relied on the Supreme Court's decision in Sanjeev Lal, the Court found the facts of the present case to be identical to Sanjeev Lal. The Court also referred to the Gujarat High Court's decision in Kishorbhai Harjibhai Patel, which followed Sanjeev Lal and Shri Lahar Singh Siroya, holding that the CIT (Appeals) was wrong in denying the deduction under Section 54. Therefore, the Court found no error or perversity in the ITAT's order.

What were the facts?

The Revenue (Pr. Commissioner of Income Tax and Assistant Commissioner of Income Tax) filed an appeal before the High Court of Karnataka against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had upheld the order of the CIT (Appeals) which allowed the assessee, C.A. Badrinath (HUF), the benefit of Section 54F of the Income Tax Act, 1961, for Assessment Year 2015-2016. The assessee had entered into agreements for sale of 23 flats between January 2014 and October 2014, with possession handed over between April 2014 and November 2014, and sale deeds executed between July 2014 and July 2015. The assessee claimed Section 54F benefit on capital gains arising from these transactions. The Assessing Officer had disallowed the claim, but the CIT (Appeals) allowed it, directing the AO to assess capital gains and examine the applicability of exemption for AY 2014-15 and 2015-16. The ITAT relied on the Supreme Court decision in Sanjeev Lal vs. CIT.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled to the benefit under Section 54F by considering the date of the Joint Development Agreement (JDA) as the date of transfer, even though the right to the built-up area was acquired more than 36 months prior, and that the assessee only acquired a recognized share in the project until the sharing agreement dated 12/12/2012 allotted specific flats, vilaments, and row houses, giving them the right to transact? 2. Whether, on the facts and in the circumstances of the case and in law, the orders of the Tribunal and CIT (Appeals) were perverse in holding that the assessee is entitled to the benefit under Section 54F, given that the assessee acquired a new asset on 10/1/2014, while the original asset was sold after 16/1/2015, thus making the assessee ineligible for the benefit on ₹9.6 crores? Assessee's contentions: The assessee argued that the CIT (Appeals) and ITAT rightly granted the Section 54 exemption by referring to the Agreement of Sale and the immediate possession given. They relied on the definition of 'Sale' under Section 2(47) of the Act, which includes allowing possession. They cited Gujarat High Court's decision in Kishorbhai Harjibhai Patel and this Court's decision in Shri Lahar Singh Siroya, which followed Sanjeev Lal, holding that the assessee is entitled to the Section 54 benefit in identical situations. They also contended that since the AO accepted the taxability of capital gains for AY 2015-16, the benefit under Section 54F could not be denied. Revenue's contentions: The Revenue contended that the Tribunal erred in blindly following Sanjeev Lal and confirming the CIT (Appeals) order. They argued that Sanjeev Lal was decided on peculiar facts involving litigation and subsequent execution of sale deeds. They further submitted that the benefit under Section 54 is available only with strict compliance of its conditions, relying on Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Ors.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 54F,Section 2(47),Section 54

AI-generated summary — verify with the full judgment below

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF OCTOBER, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA INCOME TAX APPEAL NO. 129 OF 2021 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX INCOME TAX-2 BMTC COMPLEX, KORAMANGALA, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2 (2)(1) BENGALURU. …APPELLANTS (BY SRI. E. I. SANMATHI, ADVOCATE) AND: C. A. BADRINATH (HUF), NO.57 AND 57/4, IST MAIN, MALLESHWARAM, BANGALORE-560003. PAN-AADHC3044B. …RESPONDENT (BY SRI. A. SHANKAR, SR.COUNSEL FOR SRI. ANAMALAI S., ADVOCATE)

THIS ITA / INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29/01/2020 PASSED IN ITA NO. 3362/BANG/2018, FOR THE ASSESSMENT YEAR 2015-2016 PRAYING TO Digitally signed by AASEEFA PARVEEN Location: HIGH COURT OF KARNATAKA

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 29.01.2020 (ANNEXURE-A) PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BENGALURU IN APPEAL PROCEEDINGS NO. ITA NO. 3362/BANG/2018 FOR ASSESSMENT YEAR 2015-2016, AS SOUGHT FOR IN THIS APPEAL.

THIS APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE S.G.PANDIT) The above appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961, is directed against the order dated 29.01.2020 in ITA No.3362/BANG/2018 for the assessment year 2015-16 passed by the Income Tax Appellate Tribunal 'C' Bench, Bengaluru.

2.

The above appeal was admitted on 12.08.2021 to examine the following two substantial questions of law: 1. "Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding the assessee is entitled for section 54F benefit by

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 holding that the right to the built up area was acquired on the date of entering Joint Development Agreement which is more than 36 months and as such it is transfer of capital asset without observing that by entering into JDA, assessee was conferred a right in super built up area and it did not get a right which the assessee could transact in but only recognized share of assessee in project, it was only vide the sharing agreement dated 12/12/2012, that the assessee was allotted 23 Flats, vilaments and row houses which gives title to assessee to transact with other parties"? 2. "Whether on the facts and in the circumstances of the case and in law, the Tribunal and CIT's orders can be said as perverse in holding that assessee entitled for benefit under section 54F of the Act ignoring that assessee acquired a new asset on 10/1/2014 whereas assessee original asset was sold after 16/1/2015, therefore assessee was not entitled for benefit under section 54F of the Act on 9.6 crores"?

3.

Heard learned counsel Sri.E.I.Sanmathi for the appellants-Revenue and learned Senior Counsel Sri.A.Shankar for learned counsel Sri.Anamalai.S for respondent- Assessee.

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021

4.

It is seen that the respondent-Assessee is a HUF. The respondent-Assessee entered into Agreement of Sale in respect of 23 flats on various dates i.e., January- 2014 to October-2014 and possession of those flats was handed over between April-2014 to November-2014. The Sale Deeds were executed subsequently between July- 2014 to July-2015. It is stated that the respondent- Assessee offered the income for assessment for the Assessment year 2015-16, claiming benefit under Section 54 of the Act. However, the Assessment Officer (AO) disallowed the claim of the respondent-Assessee under Section 54 of the Act by order dated 29.12.2017 (Annexure-C). The respondent-Assessee filed appeal before the CIT Appeals and the CIT Appeals by order dated 28.09.2018 (Annexure-B) allowed the appeal and directed the AO to assess the capital gains and examine the applicability of exemption claimed under Section 54 of the Act for the assessment year 2014-2015 and assessment year 2015-16. The appellants-Revenue approached the

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 ITAT against the appellate order of the CIT (Appeals). The ITAT placing reliance on the decision of the Hon'ble Apex Court in SANJEEV LAL VS. COMMISSIONER OF INCOME TAX, CHANDIGARH reported in [2014] 46 Taxmann.Com 300 (SC) rejected the Revenues' appeal holding that the date of Sale Agreement has to be considered as date of sale. Questioning the said order of the ITAT, the Revenue is before this Court in this appeal.

5.

Learned counsel Sri.Sanmathi.E.I mainly contends that the Tribunal could not have blindly followed the decision in Sanjeev Lal and confirmed the order of the CIT (Appeals). Learned counsel Sri.Sanmathi.E.I made an effort to distinguish the said decision by contending that the Sanjeev Lal's case was decided in a peculiar facts of the said case and moreover, he submits that it involved litigation and therefore, the Sale Deed was executed subsequently. Learned counsel Sri.E.I.Sanmati would further submit that the benefit under Section 54 would be

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 available with the precondition, strictly complying with the conditions therein, placing reliance on the decision of the Hon'ble Apex Court in COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI V. M/S.DILIP KUMAR AND COMPANY AND ORS.

6.

Learned Senior Counsel Sri.A.Shankar would submit that in the instant case, the CIT (Appeals) as well as the ITAT has rightly granted the benefit of Section 54 exemption referring to the Agreement of Sale entered into between the respondent and the purchasers and also referring to the fact that possession has been delivered immediately on entering into the Sale Agreement. Learned Senior Counsel refers to the definition of 'Sale' under Sub- section 47 of Section 2 of the Act and submits that the transfer in relation to a capital asset includes any transaction involving the allowing of a possession of any immovable property to be taken. Learned counsel would further submit that the decision of Division Bench of Gujarat High Court in KISHORBHAI HARJIBHAI PATEL V.

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 INCOME TAX OFFICER, WARD 1(2)(4)* in [2019] 107 TAXMANN.COM 295 (GUJARAT) as well as decision of Co- ordinate Bench of this Court in SHRI LAHAR SINGH SIROYA vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX (ITA No.169/2010 dated 15.12.2015) following the decision in Sanjeev Lal, have held in identical fact situation that the Assessee would be entitled for benefit under Section 54 of the Act. Further, learned Senior Counsel would submit that the AO accepted the taxability of the capital gain for the assessment year 2015-16 and when the taxability for the assessment year 2015-16 is accepted, they could not deny the benefit under Section 54F of the Act. Thus, he would pray for dismissal of the appeal.

7.

Having heard the learned counsel for the parties and on perusal of the entire material on record including the decisions cited by the learned counsels for the parties, we are of the considered opinion that the Substantial Questions of Law raised by the appellants-Revenue is to

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 be answered against the appellants-Revenue and in favour of the respondent-Assessee.

8.

The transaction entered into between the respondent-Assessee and purchasers as noted by the CIT Appeals at paragraph 5.1 of the order is not in dispute. The agreements are entered into by the respondent and purchasers as stated above between January-2014 and November-2014. Possession of those flats are delivered to the purchasers between April-2014 to November-2014 whereas the Sale Deeds are executed between July-2014 and July-2015. It is also not in dispute that the assessee purchased new property on 10.1.2014. The income offered by the respondent-Assessee for taxability for the assessment year 2015-16 is accepted by the Revenue. When the appellants-Revenue has accepted the capital gains offered for the Assessment Year 2015-2016, the appellants-Revenue could not have denied the benefit under Section 54 of the Act to the respondent-Assessee.

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021

9.

Be that as it may, this Court in Shri Lahar Singh Siroya supra has made it clear that providing for short- term and long-term capital gains is a beneficial piece of legislation, whereby certain benefits in taxation is given to the Assessee on fulfilment of certain conditions. Further, it observed that every such legislation is to be construed liberally in favour of the Assessee, as it is for the benefit of the Assessee. This Court in the said case while allowing the benefit of Section 54 of the Act places reliance on the decision of the Hon'ble Apex Court in Sanjeev Lal, though the decision of the Hon'ble Apex Court indicates that the decision was arrived at the peculiar facts of the said case. The facts of the present case are also identical to the facts involved in Sanjeev Lal.

10.

Thus, we do not find any error or perversity in the order passed by the ITAT in confirming the order passed by the CIT (Appeals). Moreover, the Division Bench of Gujarat High Court in Kishorbhai Harjibhai Patel Supra

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HC-KAR CNR: KAHC010047532021 NC: 2026:KHC:58199-DB ITA No. 129 of 2021 in an identical fact situation following the decision of the Hon'ble Apex Court in Sanjeev Lal supra as well as the decision of Co-ordinate Bench of this Court in Shri Lahar Singh Siroya supra held that CIT (Appeals) therein was not right in denying the deduction under Section 54 of the Act.

Thus, for the reasons recorded above, we are of the considered opinion that there is no merit in the appeal and accordingly, the Substantial Questions of Law are answered against the appellants-Revenue and in favour of the respondent-Assessee. Sd/- (S.G.PANDIT) JUDGE Sd/- (DR.CHILLAKUR SUMALATHA) JUDGE DS CT:TSM List No.: 1 Sl No.: 6

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