Sec. 54 Utilization of capital gains in purchase of residential house sufficient to claim

CIT Vs. Shkuntla Devi (Karnataka High Court)

Utilization of capital gains in construction /Purchase of residential house would suffice to claim the benefit of section 54 of the Act irrespective of the fact that transaction not being complete in all respects.

Section 54 makes it explicitly clear that proceeds of sale of the property is to be reinvested within a period of two years, which would not be chargeable to tax. The intention of Legislature was to encourage the investment in the acquisition of residential house or construction thereof. The condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested either in purchasing a residential house or utilized for constructing a residential building. If it is established that consideration so received on alienation of property has been invested in either purchasing a residential building or spent on construction of residential building, an assessee would be entitled to the benefit flowing from section 54 of the Act irrespective of the fact that transaction not being complete in all respects. In other words, it has to be examined or discerned from the facts of each case as to whether the assessee had undertaken such an exercise or not?

 Facts on hand would disclose that assessee had owned a flat at Mumbai and sold the same on 4-2-2003 for a total consideration of Rs. 1,70,00,000 Subsequent to such sale she entered into an agreement for purchasing another property for a total consideration of Rs 3,25,00,000 by agreement dated 8-9-2003. Said agreement came to be entered into within six months from the date of sale i.e., 4-2-2003 and assessee had paid a total consideration of Rs. 2,40,00,000 between April’ 2003 to September’ 2003. After making the payment, a registered sale deed had not been executed in favour of the assessee before completion of two years period pursuant to Memorandum of Understanding dated 8-9-2003. The consideration received by her under sale dated 4-02-2003 has been paid by the assessee for purchasing another property and reinvestment has been made within two years as contemplated under section 54 of the Act. These facts are not in dispute. Thus, long- term capital gains computed by virtue of sale deed stood adjusted by virtue of payment made by assessee for purchasing another property under Memorandum of Understanding dated 8-9-2003. As such, Tribunal has rightly held that date of purchase was to be taken as the basis for reckoning the period of two years prescribed under section 54 of the Act for extending the benefit flowing therefrom. In the instant case consideration paid by assessee under Memorandum of Understanding dated 08-09-2003 would fully cover the consideration of capital gains portion for being eligible to claim exemption under section 54 of the Act.

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

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