I-T - Inception of construction of new residential property, even before transfer of existing one, will not debar investor from seeking benefit of Sec 54 : ITAT
By TIOL News Service
NEW DELHI, MAR 05, 2018: THE issue is - Whether formation of construction agreement prior to transfer of old property, is no basis to deny benefit of exemption u/s 54F, if construction was completed within three years from date of transfer of old residential property. YES is the answer.
Facts of the case:
The Assessee, an individual, had sold a flat owned by him vide agreement to sale. As per the assessee, he had entered into sale cum construction agreement with M/s Skyline Construction and Housing Pvt. Ltd. for purchase of a flat at Bangalore and had made payment amounting to Rs. 57,14,699/- towards the purchase of new residential house. It was assessee’s contention this residential property was acquired within a period of three years from the date of sale of old residential property, and since the construction of new house had been completed within the period of three years from the date of transfer of old residential property, requirements of section 54 were fulfilled. The AO however, was of the view that the case of assessee did not fall within the precincts of section 54 as no allotment or agreement was made within the stipulated period of one year from the date of sale of the old property and further no substantial payments were made towards the cost of new asset and only an amount of Rs 34,54,371/- was paid during the year under consideration. The AO therefore proceeded to add back the amount of exemption claimed by assessee u/s 54 amounting to Rs. 33,18,000/- to the income of assessee.
On appeal, the FAA noted that the amount of capital gain not utilised for the construction of new house upto the due date of filing of return u/s 139(1) should have been deposited in the notified capital gain account scheme before filing of return of income which was not so done by the assessee. The FAA further noted that the assessee had appropriated Rs. 7,62,674/- only towards the construction of new flat after date of transfer of old asset and, therefore, the assessee was entitled to deduction u/s 54 only in respect of payment of Rs. 7,62,674/-.
Tribunal held that,
++ it is found that Delhi High Court in the case of Commissioner of Income Tax vs Bharti Mishra, has observed that section 54F(4) prescribes appropriation of sale consideration of original asset towards provision of new asset made within one year before the date of transfer of original asset, two years from the date of transfer or construction of new in-house property, within three years from the date of transfer of original receipt but the Act does not prescribe any condition as to the date of commencement of construction of house property which may be commenced even before the date of transfer of original receipt. Similarly, Karnataka High Court in the case of Commissioner of Income Tax vs J.R. Subramanya Bhat, had expressed similar view and had held that investment made towards construction of house property prior to the date of transfer should also be eligible as deduction for the purpose of section 54;
++ accordingly, respectfully following the ratio laid down by Delhi High Court and Karnataka High Court, the provisions of section 54F do not prescribe any condition as to the date of commencement of construction of new house property, meaning thereby that the construction of house property may be commenced even before the date of transfer of original asset. However, it should be completed within three years after the date of transfer of original asset. On the facts of this case, it is found that the construction of house property had been completed within three years from the date of transfer and accordingly, the assessee is eligible for exemption u/s 54F in respect of the two disputed amount, which were expended prior to the date of transfer of original asset.
(See 2018-TIOL-330-ITAT-DEL)
