By TIOL News Service

NEW DELHI, APR 29, 2019: THE ISSUE IS - Whether exemption u/s 54 is to be denied to the assessee if he could not obtain the possession and fails to execute the purchase deed within the period of three years due to reasons beyond his control. NO IS THE ANSWER.

Facts of the case

The assessee an Individual, had filed return for relevant AY. During the year under consideration, the assessee sold a property for a total consideration of Rs.98,00,000/- and claimed deduction of Rs. 81,44,608/- u/s 54 of the Act after claiming indexed cost of acquisition of Rs.16,13,187/-. The assessee had invested a sum of Rs.62,68,311/- in the residential flat and deposited Rs. 19,00,000/- in the capital gain account. The AO disallowed the deduction of Rs. 62,68,311/- on the premise that assessee had not taken possession nor the purchase deed had been executed within the period of three years. Therefore, the AO disallowed the deduction of Rs.19,00,000/- deposited in the capital gain account on the ground that assessee had not utilised the same within the prescribed period. The AO also reduced the indexed cost of acquisition by Rs. 1,20,152 stating that the assessee had not been able to produce evidences in respect of the expenses of Rs.20,450/- incurred at the time of the purchase and also did not allow deduction of Rs.52,867/- claimed by the assessee on account of cost of improvement on the ground that the assessee had failed to provide documentary evidence in support thereof. On appeal, CIT(A) confirmed the action of the AO. Aggrieved, the assessee filed appeal before the Tribunal.

On appeal, Tribunal held that,

++ assessee has made payment of for the purchase of flat to the developer of Rs.62,68,311/-. The fact of payment of the same and the transaction of purchase of flat are not in dispute. The only issue is that assessee could not obtain the possession and got the purchase deed executed within the period of three years. The delay was on account of developer and not on account of the assessee. It was found that there is a complaint filed by La Tropicana, Resident Welfare Association against the developer with National Consumer Disputes Redressal Commission. Thus, the fact that delay in obtaining possession and getting purchase deed executed was on account of the developer and was by reason beyond the control of the assessee. The assessee has made substantial payment of Rs.62,68,311/-. In such peculiar facts and circumstances, it was decided to agree with the contentions of the assessee that exemption under section 54 cannot be denied to the assessee. The assessee has done all what he could have done. There is no failure on the part of the assessee. This view is supported by judgment of the Delhi High Court in the case of Balraj vs CIT 254 ITR 22 wherein a similar issue of purchase deed having not been executed had come up for consideration and the Court after analyzing the facts and provision of section 54 has held as under " The question now is no longer res integra having regard to the decision of the apex court in CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 = 2002-TIOL-445-SC-IT-LB . The apex court categorically held that section 22 of the Income-tax Act, 1961, 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 775 = 2002-TIOL-1495-SC-IT and this court in CIT v. B. L. Sood [2000] 245 ITR 727 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 of the Act.";

++ further support was taken on the issue of possession not being delivered within the period of three years, from decision of jurisdiction Delhi High Court in the case of CIT vs R.L. Sood 245 ITR 727 where the Court has held as under "Tribunal was justified in declining to make a reference on the proposed question to this court. Admittedly, the assessee had paid a sum of Rs. 2,39,850 out of the total sale consideration of Rs. 2,75,000 for the purchase of the flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dated September 25, 1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of section 54 of the Act. Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of section 54 of the Act." In view of the Jurisdictional High Court, we are of the considered opinion that CIT(A) was not justified in denying the exemption of Rs.62,68,311/- claimed by the assessee u/s 54 and direct the AO to delete this addition.

(See 2019-TIOL-857-ITAT-DEL)