Applicability
Firm is not entitled to exemption – A firm is not entitled to exemption under section 54 – CIT v. K. Gangiah Chetty & Sons [1995] 214 ITR 548 (Mad.).
Tax authorities must determine extent of appurtenant land – The expression ‘land appurtenant thereto’ under section 54 has also a secondary meaning as equivalent to ‘usually enjoyed or occupied with’. There is no indication that the Legislature used the above expression in section 54 limiting its sense and meaning artificially to any particle extent.
That expression is used in section 54 in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case – CIT v. Zaibunnisa Begum [1985] 151 ITR 320 (AP).
Where entire extent of land adjoining residence was used as pathways, servant quarters, etc., entire land was to be treated as land appurtenant to building – CIT v. Smt. M. Kalpagam [1997] 227 ITR 733/93 Taxman 283 (Mad.).
Exemption is allowable in full even if house is partly purchased and partly constructed – The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased – B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).
When more than one house is purchased – In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other conditions mentioned in the section are satisfied – K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.
Exemption is allowable even if a share in new property is purchased – When the Act enables an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable the assessee to claim the exemption. It is possible that a person may not be in a position to purchase the whole residential house at a time and in the circumstances an assessee might purchase a portion of the house or some interest in the house. Thus, where the assessee sold a house and from the sale proceeds purchased 15 per cent undivided share in a house, property from her husband and her son, and she was earlier residing in that house exemption under section 54 can be allowed – CIT v. Chandanben Maganlal [2000] 245 ITR 182 (Guj.).
Construction of new house
Construction cannot precede sale of old house – To claim exemption under section 54, the construction of the new house should be within two years after the transfer of the existing house. The exemption is not available where the new construction is made before the transfer or sale of the existing house – Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218 (Guj.).
(Contra)
Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house had begun before the sale of the old house – CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128.
u The date of commencement of the construction of the new house is not material. To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house – CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).
Flats purchased under SFS – As per CBDT Circular No. 471, dated 15-10-1986, cases of allotment of flats under the self-financing scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains and therefore, investment of capital gain in purchase of DDA Flat in the form of first instalment of price of flat within two years of sale of original property would entitle assessee to claim exemption in respect of capital gain even though construction of flat was not complete in two years – Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP)/CIT v. Smt. Brinda Kumari [2001] 114 Taxman 266 (Del.)
Assessee need not necessarily himself construct new house – The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against the sale consideration, the capital gains arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party does not make any difference. The basic requirement for the purpose of relief under section 54(1) is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Thus, where the assessee sold a flat, and within two years entered into an agreement for the purchase of a new flat which was under construction, and paid the amounts in instalments within three years of the sale of the earlier flat, exemption is admissible – CIT v. Smt. Bharati C. Kothari [2000] 244 ITR 352 (Cal.).
Purchase of new house
Date of purchase – For the purpose of section 54, the date of agreement to purchase should be taken as the date of purchase and the date of registration of sale deed for purchase is not relevant – CIT v. R.L. Sood [2000] 108 Taxman 227/245 ITR 727 (Delhi).
Purchase need not necessarily be on ‘cash and carry’ basis – The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’. Thus, where the eldest brother in a coparcenary comprising four brothers sold his own house and acquired the common house from his three brothers who executed release deeds for a consideration, there was a ‘purchase’ by the eldest brother of the share of each of the brothers for a price – CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 (SC).
Date of taking possessions relevant for computing time-limit – Date of taking over possession of property purchased, and not the date of registration of sale in favour of the assessee, is relevant for computing the prescribed time-limit – CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397 (AP).
Holding of legal title within prescribed time is not a pre-condition – Taking into consideration the letter as well as the spirit of section 54 and the word ‘towards’ used before the word ‘purchase’ in section 54(2), it seems that the word ‘purchase’ is not used in the sense of legal transfer and therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting section 54 – CIT v. Dr. Laxmichand Narpal Nagda [1995] 211 ITR 804 (Bom.).
Section 54 exemption is allowed if the asses see pur based two adjoining residential falts but having two entrance not converted in one
Will you please give situation for it