Case Law Details
Viswanathan Padmanabhan Vs ITO (ITAT Bangalore)
U/s 54F Relief Allowed Despite Sale Deed After Two Years- ITAT Holds Flat Booking & Substantial Payment Satisfy the Law
The Bangalore ITAT granted deduction under Section 54F to an assessee who had sold a property on 07.01.2015 and invested the capital gains in a flat booked with a builder, even though the registered sale deed for the new flat was executed after the expiry of two years from the date of transfer. The Tribunal held that substantial investment and acquisition of rights in the property within the prescribed period are more important than the date of registration of the sale deed.
The assessee had sold an immovable property for ₹75.40 lakh and claimed deduction of ₹29.22 lakh under Section 54F. He had booked a flat, paid the booking amount and subsequently paid almost 90% of the total consideration in January 2015 itself, while the final sale deed was registered only on 06.03.2017. The Assessing Officer denied the exemption on the ground that the purchase was completed beyond the two-year period prescribed under Section 54F. The CIT(A) upheld the disallowance.
The Tribunal observed that where a flat is booked with a builder and payments are made in stages linked to construction, such transactions can be regarded as construction of a residential house rather than a simple purchase. Referring to CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993, the ITAT held that such cases are to be treated as cases of construction for the purposes of Sections 54 and 54F, thereby making the three-year time limit applicable. Since the flat was registered within three years of the original transfer, the claim was eligible.
The Tribunal further held that even if the transaction were viewed as a purchase, the claim could not be denied merely because registration took place later. Relying on the Supreme Court decision in T.N. Aravinda Reddy and the Delhi High Court rulings in R.L. Sood and Balraj, the ITAT reiterated that the word “purchase” should receive a practical interpretation and that registration of the document is not imperative where substantial consideration has already been paid and the assessee has acquired effective domain over the property.
Accordingly, the Tribunal reversed the orders of the lower authorities and allowed the deduction under Section 54F.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No. 1187/Bang/2025 is filed by Viswanathan Padmanabhan (the assessee/appellant) against the appellate order passed by National Faceless Appeal Centre, Delhi (the learned CIT-A) on 27th March 2025 for assessment year 2015-16 wherein the appeal filed by the assessee against the re-assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961 (the Act) dated 12th February 2024 passed by the National Faceless Assessment Centre, Delhi (the learned AO) , was dismissed. The assessee is aggrieved and is in appeal before us.
2. The solitary ground of appeal before us is denial of deduction under Section 54F of the Act amounting to Rs. 29,22,097/- for the reason that assessee sold property on 7/1/2015, assessee should have purchased new property by 6/1/2017 , but assessee acquired a flat by registered sale deed in assessee’s favour only by 6/3/2017, though substantial payment and booking is made within the two years period, by holding that the assessee has failed to meet the conditions as laid down under Section 54F of the Act denying the date of booking as a valid proof of purchasing the house.
3. The brief fact of the case shows that the assessee did not file any return of income but has sold an immovable property on 7/1/2015 for Rs. 75,40,000/-. The case of the assessee was re-opened by issuing a notice and subsequently assessee filed a return of income on 3rdJune 2022 at total income of Rs. 13,96,560/-. In return of income the assessee has claimed an amount of Rs. 29,22,097/- as deduction under Section 54F of the Act by booking a flat at Bangalore South on 11.01.2015. The learned Assessing Officer noted down the facts that assessee has purchased a flat by paying a booking advance of Rs. 1,00,000/- on 17.04.2014 by generating a booking form on 11.01.2015. The assessee paid Rs. 4,28,450/- and Rs. 34,28,500/-on 11th and 12th January 2015. Subsequently sale deed was executed of the impugned purchased property on 6/3/2017 in favour of the assessee and balance amount of Rs. 6,94,500/- was paid. The AO noted that assessee is not eligible for deduction under Section 54F of the Act as assessee should have purchased a property within two years of the sale i.e. 7/1/2015 up to 6/1/2017 but sale deed of new flat is made on 6/3/2017 which is beyond 6/1/2017 , so assessee has not fulfilled the necessary condition of the purchase of new residential property and hence not eligible for exemption u/s 54 F of the act and therefore the assessment order denying the above deduction was passed on 12th February 2024.
4. The assessee preferred an appeal wherein assessee submitted that as assessee has booked the flat and therefore the assessee should be granted deduction under Section 54F of the Act. The learned CIT-Appeal did not considered that booking of the flat amounts to purchase of new flat and hence the denial of deduction under Section 54F was confirmed.
5. The assessee submitted a paper book containing 141 pages and relied upon the decision of the Hon’ble Bombay High Court in case of Humayun Suleman Merchant dated 18thAugust 2016. Thus, the claim of the assessee was that the date of acquisition of the new property should be related to the date of booking of the flat and payment of substantial consideration.
6. The learned DR vehemently supported the orders of the learned Lower Authorities and submitted that the assessee has purchased a new flat beyond the prescribed period and therefore the denial of deduction under Section 54F of the Act is correct. He further relied up on the decision of Honourable Bombay High court in case of Humayun Suleman merchant V The CCIT ITA 545 of 2002 dated 18/8/2016.
7. We have carefully considered the rival contentions and perused the orders of the learned Lower Authorities. There is no dispute that assessee has sold a property for consideration of Rs. 75,40,000/-situated at Yelahanka at Bangalore. Against this the assessee has claimed to purchase a flat AT B-205 MahagharVajra at Bangalore. The assessee booked the flat on 17.04.2014 by paying Rs. 1,00,000/- and on 11thJanuary 2015 assessee paid a further sum of Rs. 4,28,450/- and on 12th January assessee paid Rs. 34,28,500/-. On 6th March 2017 the sale deed was registered in the name of the company of the new flat and the balance consideration of Rs. 6,94,500/- was paid. The assessee therefore claimed the deduction under Section 54F of the Act. The learned AO was of the view that the property was sold for assessment year 2015-16 and the assessee purchased a new flat only on 6th March 2017 and therefore assessee has failed to fulfill the acquisition of new house property within a specified time limit i.e. two years from the date of transfer of original property i.e. 5/1/2015. Thus, the deduction was denied. The sale of the property for which capital gain is chargeable to tax was made on 7th January 2015.
8. According to Section 54F of the Act the net consideration chargeable to tax on transfer of a long-term asset is eligible for deduction if the assessee purchases within 2 years after the date of the transfer of one residential house and then proportionate capital gain is exempt. The provision is admittedly a beneficial one, designed to promote investment in residential housing, and on the settled canon attracts liberal construction.
9. In this case the property was sold on 7thJanuary 2015 and therefore within 2 years the assessee should have purchased the new house property, but assessee purchased it on 6th March 2017.
10. On the facts as stated above booking of a flat with a builder and payment of 90% of the consideration in instalments — the transaction is, in substance, capable of falling under the construction limb rather than the purchase Where a flat is booked with a builder while under construction and the price is paid in stages linked to construction, the CBDT itself has, by Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993, where The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board’s Circular No. 471, dated 15-10-1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act , directed that such cases be treated as cases of construction for the purposes of Sections 54 and 54F, the circulars operating as contemporanea expositio. If so characterized, the relevant period is three years, not two, and the belated execution of the sale deed beyond two years is immaterial so long as the investment was made and the residential house came into existence within three years. Thus, the timeline available to the assessee would be three years from the date of transfer i.e. 5/1/2015 and sales deed in favour of assessee of new flat is 6/23/2017, the case falls within the conditions of section 54 F of the act.
11. Even on the narrower assumption that the transaction is one of “purchase” governed by the two-year limit, the registered sale deed executed beyond two years does not defeat the claim. The locus classic us is Commissioner of Income-tax vs. T.N. Aravinda Reddy [1979] 2 Taxman 541 (SC)/[1979] 120 ITR 46 (SC)/[1979] 12 CTR 423 (SC)[05-10-1979] (1979) 120 ITR 46 (SC), where the Hon’ble Supreme Court held that “purchase” in Section 54(1) carries its ordinary meaning of buying for a price, with no statutory insistence on a “cash and carry” or registered-conveyance basis. Honourable Sc held that: –
” In plain English, the transferee purchases the share of each of his brothers. It is for a price of Rs. 30,000 each. Had this been taken from non-fraternal owners of shares or from one stranger-owner, plain-spoken people would have called it a purchase. Why, then, should legalese be allowed to play this linguistic distortion ? The reason, supposedly supported by an English decision, is that purchase primarily means acquisition for money paid, not adjusted. Upjohn, J. in Bobshaw Brothers Ltd. v. Mayer [1956] 3 All ER 833, 835 has circumspectly said :
“There are no doubt to be found authorities and statutes which have extended that meaning. In Mr. T. Cyprian Williams’ book, the Contract of Sale of Land, at p. 3, he says : ‘Sale,’ in the strict and primary sense of the word, means an agreement for the conveyance of property for a price in money ; but the word ‘sale’ may be used in law in a wider sense and so applied to the conveyance of land for a price consisting wholly or partly of money’s worth other than the conveyance of some other land.’
Apparently he considered that a sale for something other than money can in a wider sense be properly described as a sale.”
We agree. The signification of a word of plural semantic shades may, in a given text, depend on the pressure of the context or other indicia. Absent such compelling mutation of sense, the speech of the lay is also the language of the law.
3. We find no reason to divorce the ordinary meaning of the word “purchase” as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in section 54(1). If you sell your house and make a profit, pay Caesar what is due to him. But if you buy or build another subject to the conditions of section 54(1) you are exempt. The purpose is plain ; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on “cash and carry.” The point pressed must, therefore, be negatived. We have declined to hear Shri S.T. Desai’s artillery fire although he was armed cap a pie with Mitakshara lore and law. A point of suffocating scholarship sometimes arrives in court when one nostalgically remembers the escapist verse :
”Where ignorance is blist ;
‘Tis is folly to be wise’ “
Amen !
A passing reference to avoidance and evasion of tax was made at the bar, a dubious refinement of a dated legal culture sanctified, though, by judicial dicta. The Court is not the mint of virtue and one day, in our welfare State geared to social justice, this clever concept of “avoidance” against “evasion” may have to be exposed. Enough unto the day is the evil thereof.
Dismissed.”
12. The Honourable High Courts have consistently applied this to hold that what matters is whether the assessee acquired substantial domain over the property by making substantial payment within the statutory period, not the date of registration in (i) Commissioner of Income-tax vs. R.L Sood [2000] 108 Taxman 227 (Delhi)/[2000] 245 ITR 727 (Delhi)/[2001] 165 CTR 458 (Delhi)[24-09-1999] holding that the assessee having been allotted the flat, he having paid a substantial amount towards its cost within the stipulated period of one year, he could not be denied the benefit of the said section because the flat purchased by him had come into his full domain within the period of one year, though the sale deed in his favour was registered subsequently. (ii) in Balraj vs. Commissioner of Income-tax [2002] 123 Taxman 290 (Delhi)/[2002] 254 ITR 22 (Delhi)/[2002] 173 CTR 452 (Delhi)[06-12-2001] it is held that For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property. Section 54 speaks of purchase. Moreover, the ownership of the property may have different connotations in different statutes. In view of various decisions of the Supreme Court, it was to be held that the Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative.
Therefore, the assessee was entitled to exemption in terms of section 54. Registration of the document is not imperative for attracting Section 54; it is not necessary that the assessee should become the full legal owner. In instant case, it is not the case of the revenue that flat was not registered in the name of the assessee or consideration paid by the assessee is not genuine. No other judicial precedent except Bombay high court was shown to us by revenue, which was considered by us and found not be not applicable to the present case. The issue we are deciding not on the basis of beneficial construction of the provisions but on the basis of circulars and judicial precedents holding what is ‘ Purchase”.
13. Therefore, respectfully following the above decisions of Honourable high court and honourable Supreme court where the assessee has substantially made the payment for purchase of flat but sale deed registered later, the deduction u/s 54F of the Act is allowable to the assessee. Orders of The Ld revenue authorities reversed, Appeal of the assessee is allowed.
14. Appeal of the assessee is allowed.
Order pronounced in the open court on 29 May 2026.
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