S. 54 Exemption available on Acquisition of new flat in exchange of old flat

The dispute is regarding allow ability of exemption under section 54 of the Act and computation of long term capital gain in respect of exchange of old flat with a new flat and cash compensation under development agreement with the builder. The revenue authorities have held that since assessee had neither purchased a new flat or constructed a new flat, the provisions of section 54 are not applicable. We, however, do not subscribe with the view taken by revenue authorities. The exemption under section 54 is allowable in case the assessee transfers a residential house and within a period of 1 year before or 2 years after the date of transfer, purchases a new residential house or constructs a new residential house within a period of 3 years from the date of transfer. In this case, the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under section 2(47) of the Act. Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer. The acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. This view is supported by the decision of the Tribunal in the case of another co-owner in the case of J. K. Madan (supra). Therefore, the provisions of section 54 are applicable and assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer.

The AR has also argued that entire cash compensation received by the assessee amounting to Rs. 11,25,800/- cannot be taxed as capital gain as assessee had invested a sum of Rs. 8,00,000/- lacs in NABARD bonds under section 54EC. Since cash compensation was part of consideration for transfer of the old flat and the assessee had invested the money in NABARD bonds, the exemption under section 54EC will be available. As regards the completion of new flat within a period of 3 years, assessee has filed a copy of letter dated 30.05.2007 of the builder in which it has been mentioned that the builder had applied for occupation certificate and possession was to be given on 14.6.2007, which in fact was given the very next day, i.e. 15-06-2007. We, therefore, allow the claim of exemption under section 54, and set aside the order of CIT(A) and direct the AO to allow the claim of the assessee.

INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH ‘F’, MUMBAI

BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER &

SHRI VIVEK VARMA, JUDICIAL MEMBER

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