Summary: The ITAT Bangalore in Viswanathan Padmanabhan vs. Income Tax Officer held that deduction under Section 54F cannot be denied merely because the registered sale deed of the new flat was executed after the expiry of two years from the date of transfer of the original asset. The assessee had sold a residential property on 07.01.2015 and invested the capital gains in a flat booked with a builder, paying approximately ₹39.57 lakh out of the total consideration of ₹46.51 lakh within the prescribed period. The Tribunal observed that booking an under-construction flat and making payments linked to construction milestones is akin to construction rather than a simple purchase. Relying on CBDT Circulars Nos. 471 and 672, it held that such cases qualify for the three-year period available for construction under Section 54F. It further held that substantial payment, allotment, and acquisition of rights in the property are more significant than the date of registration. Since the assessee had substantially complied with the statutory requirements, the exemption under Section 54F was allowed.
Core Issue: Whether deduction under section 54F could be denied merely because the registered sale deed of the new flat was executed after the expiry of two years from the date of transfer of the original asset, despite the assessee having booked the flat and paid almost the entire consideration within the prescribed period.
Facts: The assessee sold a residential property on 07.01.2015 for ₹75.40 lakh and earned long-term capital gains. To claim exemption under section 54F, he booked a flat in Bangalore from a builder. A booking advance of ₹1,00,000 was paid on 17.04.2014. Thereafter, substantial payments of ₹4,28,450 and ₹34,28,500 were made on 11.01.2015 and 12.01.2015 respectively. Thus, out of the total consideration of approximately ₹46.51 lakh, about ₹39.57 lakh (around 85%-90%) was paid within the prescribed period. The balance amount of ₹6,94,500 was paid at the time of registration. However, the registered sale deed was executed only on 06.03.2017, i.e., beyond two years from the date of sale of the original asset. The AO therefore denied exemption under section 54F.
AO/CIT(A) Findings: The AO held that since the original asset was transferred on 07.01.2015, the new residential house should have been purchased on or before 06.01.2017. As the sale deed of the new flat was registered only on 06.03.2017, the statutory condition was not fulfilled. The CIT(A) affirmed the disallowance and rejected the assessee’s contention that booking of the flat coupled with substantial payment amounted to purchase/construction for purposes of section 54F.
ITAT Findings: The Tribunal held that section 54F is a beneficial provision intended to encourage investment in residential housing and therefore deserves liberal interpretation. It observed that where a flat is booked with a builder and consideration is paid in instalments linked to construction, the transaction is more appropriately regarded as a case of construction rather than a simple purchase. Relying upon CBDT Circular Nos. 471 and 672, the Tribunal held that such cases are to be treated as construction for purposes of sections 54 and 54F. Consequently, the assessee would be entitled to the three-year period applicable to construction, and the registration of the flat on 06.03.2017 fell well within three years from the transfer date of 07.01.2015.
The Tribunal further held that even if the transaction were viewed as a purchase, the date of registration is not decisive. What is relevant is whether the assessee acquired substantial domain and rights over the property by making substantial payment within the prescribed period. Since almost the entire consideration had been paid within time and the allotment of the flat had already taken place, the assessee had effectively acquired the residential property for purposes of section 54F. The subsequent execution of the sale deed was merely a formal event and could not defeat the exemption claim. Accordingly, the orders of the lower authorities were reversed and the deduction under section 54F was allowed.
Case Laws Relied Upon:
1. CIT vs. T.N. Aravinda Reddy – Purchase means acquisition for a price; registration is not determinative.
2. CIT vs. R.L. Sood – Substantial payment and allotment confer entitlement to exemption even if registration is later.
3. Balraj vs. CIT – Registration is not imperative for claiming exemption under section 54.
4. Humayun Suleman Merchant vs. CCIT – Considered by the Tribunal.
5. CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993.
Relevant Paras: 8 to 13.
Held: Booking of an under-construction flat with a builder and making substantial payments within the statutory period constitutes sufficient compliance with section 54F. Such transactions can be treated as cases of construction, entitling the assessee to the three-year period. Even otherwise, substantial payment and acquisition of domain over the property are more important than the date of registration. Accordingly, deduction under section 54F was held allowable and denial of exemption merely because the sale deed was registered after two years was unsustainable
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