Mustansir I Tehsildar Vs. ITO (ITAT Mumbai)
Acquisition of flat in under construction building should be considered as Construction and not Purchase
Hon’ble Bombay High Court has held in the case of Mrs. Hilla J B Wadia (supra) has held that booking of flat in an apartment under construction must also be viewed as a method of constructing residential tenements. Accordingly, the co-ordinate bench has taken the view in the case of Sagar Nitin Parikh (supra) that booking of flat in an apartment under construction is a case of “Construction”. In view of the above said decision of the Hon’ble Bombay High Court and Tribunal, the acquisition of new flat in an apartment under construction should be considered as a case of “Construction” and not “Purchase”. Accordingly we set aside the view taken by the tax authorities and hold that the assessee has constructed a flat and the provisions of sec. 54 should be applied accordingly.
Commencement of construction is not relevant for the purpose of sec. 54 and it is only the completion of construction
Section 54 of the Act provides the condition that the construction of new residential house should be completed within 3 years from the date of transfer of old residential house. According to Ld A.R, section 54 is silent about commencement of construction and hence commencement of construction can precede the date of sale of old asset. In the instant case, the assessee had booked the flat much prior to the date of old flat. We notice that the Hon’ble Karnataka High Court has held in the case of CIT Vs. J.R.Subramanya Bhat (supra) that commencement of construction is not relevant for the purpose of sec. 54 and it is only the completion of construction. The above said ratio was followed in the case of Asst. CIT Vs. Subhash Sevaram Bhavnani (2012)(23 taxmann.com 94)(Ahd. Trib.). Both these cases support the contentions of the assessee. Accordingly, for the purpose of sec. 54 of the Act, we have to see whether the assessee has completed the construction within three years from the date of transfer of old asset. In the instant case, there is no dispute that the assessee took possession of the new flat within three years from the date of sale of old residential flat. Accordingly, we are of the view that the assessee has complied with the time limit prescribed u/s 54 of the Act. Since the amount invested in the new flat prior to the due date for furnishing return of income was more than the amount of capital gain, the requirements of depositing any money under capital gains account scheme does not arise in the instant case. Further, the Hon’ble High Court has held in the case of K.C.Gopalan that there is no requirement that the sale proceeds realized on sale of old residential house alone should be utilized.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
The assessee Mustansir I Tehsildar Vs. ITO (ITAT Mumbai) has filed this appeal challenging the order dated 04-07-2017 passed by Ld CIT(A)-33, Mumbai confirming the partial rejection of claim made by the assessee for deduction u/s 54 of the Act for assessment year 2013-14.
2. The facts relating to the issue are discussed in brief. The assessee held 1/3rdshare in Flat No. 2902 of an apartment named Planet Godrej located at Byculla, Mumbai. He sold the same on 05-12-2012 for a consideration of Rs. 126.83 lakhs and consequent thereto, the long term capital gain was computed at Rs. 78.36 lakhs. The assessee had earlier booked a flat at Elegant Tower, which was under construction; vide agreement dated 05-02-2010. The assessee had made payments to the builder much earlier to the date of transfer of old flat as detailed below:-
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