Ramautar Saraf (HUF) Vs ITO (ITAT Kolkata)
ITAT Kolkata Allows Section 54 Exemption Despite Incomplete Construction Within 3 Years
The Kolkata Bench of the ITAT allowed the appeal of Ramautar Saraf (HUF) for AY 2016-17, holding that deduction under section 54 cannot be denied merely because construction of the new residential house was not completed within three years from the date of transfer. The Tribunal reiterated that section 54 is a beneficial provision and must be interpreted liberally to advance its object of encouraging investment in residential housing.
The assessee had invested the long-term capital gains in purchase of land, architect fees, and deposits under the Capital Gains Account Scheme for construction of a residential house. Although the building plan was sanctioned by the municipal authority after expiry of the three-year period and the construction was not completed within the statutory window, the Tribunal found that the assessee had commenced construction within the stipulated period and had utilised the capital gains for the intended purpose.
Relying on decisions of the Karnataka High Court in CIT v. B.S. Shanthakumari and the Chandigarh High Court in Bhavna Cuccria v. ITO, the ITAT held that completion of construction is not a mandatory condition for claiming exemption under section 54, so long as the capital gains are invested towards construction within the prescribed period. The Tribunal also observed that the question of non-utilisation, if any, can arise only in the year in which the three-year period expires.
Accordingly, the order of the CIT(A) was set aside, the addition was deleted, and the assessee was held entitled to deduction under section 54.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
