Section 54- Purchase date is date of possession of flat on which assessee pays final consideration

By Editor4 Income Tax Judiciary October 26, 2018 1 comment

TaxGuru Citation: 2018 taxguru.in 1650
Case Name: ITO Vs Sunil Shiv Khanna (ITAT Mumbai)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2010-11
Courts: All ITAT, ITAT Mumbai

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ITO Vs Sunil Shiv Khanna (ITAT Mumbai)

We are of the view that the assessee’s claim of deduction u/s. 54 of the Act is to be reckoned from the date of handing over of the possession of the flat by the builder to the assessee i.e. 11.09.2009, and if we take that date, the assessee is entitled to deduction u/s. 54 of the Act because the assessee has sold his residential flat on 24.02.2010. For the purpose of section 54, the relevant date is the date on which assessee pays final consideration amount and takes possession of the flat and not on which substantial payments are made.

FULL TEXT OF THE ITAT JUDGMENT

This appeal by assessee is arising out of the order of the CIT(A) – 26, Mumbai, in appeal No.CIT(A)-26/IT 64/ITO.15(1)(2)/12-13 dated 24.02.2014. The assessment was framed by the ITO 15(1)(2), Mumbai, for A.Y. 2010-11 vide his order dated 29.01.2013 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The only issue in this appeal of the assessee is against the order of the CIT(A) confirming the action of the AO in disallowing deduction on account of Long Term Capital Gains claimed by the assessee by observing that new residential house was not purchased within the time limit prescribed u/s 54 of the Act.

3. Briefly stated the facts of the case are that the assessee is engaged in the business of manufacturing of ornaments through his proprietary concern. During the year under consideration, the assessee claimed deduction u/s. 54 and 54EC of the Act of Long Term Capital Gains arising out of sale of house property and claimed consequential deductions. The assessee sold his flat for a consideration of Rs.55 lacs on 24.02.2010 resulting into Long term capital gain of Rs.50,94,568/- after taking indexed cost of acquisition at Rs.3,79,832/-. The assessee claimed that he has purchased a flat vide agreement dated 28.12.2007 for a consideration of Rs.42.71 lacs from one M/s. Sharpmind Developers and the same was registered on 28.12.2007. According to the AO, the assessee has claimed deduction u/s. 54 of the Act on the basis of this purchase, which was made one year before the date of sale of the property. Accordingly, he denied deduction u/s. 54 of the Act. Aggrieved the assessee preferred appeal before the CIT(A), who also confirmed the action of AO by observing as under:

“3.8. Therefore, applying the decision of the facts of the present case, it is hereby held that the assessee has become owner of the house on registration of the agreement i.e. on 28.02.2008, which is beyond a period of 12 months before the date of sale of the property.

3.9. Further, as per the Provisions of Section 54, the amount of Capital Gains needs to be appropriated for the purchase of a new house within a period of one year before the sale of Long Term Capital Asset. Appropriation of Capital Gain in this case is the commitment of the assessee to purchase a new house for a agreed sum. In this case, the assessee has agreed to purchase a new house on 28.12.2007 for Rs.42,71,000/-. Thus, the assessee has appropriated the sum of Rs.42,71,000/- on 28.12.2007. It is beyond one year before the date of sale of the old house. Hence, deduction u/s. 54 cannot be allowed for this reason also.

3.10. Further Madras High Court also by an order dated 26.11.2013 in the case of Late R Krishnaswamy ITA No.697 & 698 of 2013 has held that date of registration of sale deeds is material for the purpose of various deductions provided in the Act from Long Term Capital Gains. Therefore, applying the various decisions as above, and also the Provisions of Section 54, it is hereby held that assessee has not acquired the new house property within one year before the sale of the Long Term Capital Asset has also no appropriation of the Long Term Capital Gain was made towards acquisition of a new house within one year before the sale of Long Term Capital Asset. Therefore, it is not eligible for deduction u/s. 54. This ground is therefore, dismissed.”

Aggrieved, the assessee is in second round of appeal before the Tribunal.

4. We have heard the rival contentions and have gone through the facts and circumstances of the case. We find that the assessee has sold his flat for consideration of Rs.55 lacs on 24.02.2010 and this resulted into Long term capital gains of Rs.50,94,568/- after claiming indexation of cost of acquisition. The assessee claimed deduction u/s. 54 of the Act in respect to which he entered into an agreement for purchase of Flat with M/s. Sharpmind Developers on 28.12.2007. The relevant events relating to the transaction reads as under:

Date of Purchase Agreement of under construction flat	28.12.2007

Date of Registration	28.02.2008

Date of Payment
Rs. 9.35 L	FY 07-08
Rs.10 L	FY 08-09
Rs.10.71 L	FY 09-10

Date of O/C	31.03.2009

Date of possession	11.09.2009

5. Before us the learned counsel for the assessee argued that the assessee entered into an agreement with M/s. Sharpmind Developers on 28.12.2007. The flat intended to be purchased by the assessee was not at all constructed on 28.12.2007 and though the agreement for purchase was entered into is just a right for purchase of flat in the proposed construction and eventually property’s possession was given to the assessee by the builder only on 11.09.2009 because the flat got ready and occupancy certificate was received by the builder from the BMC only on 31.03.2009. In such facts, the learned counsel for the assessee stated that acquisition of property is to be considered as and when the possession of the flat was given to the assessee by the builder and that date falls as on 11.09.2009. According to the learned counsel for the assessee the vital conditions of section 54 of the Act are fulfilled when the property’s possession was handed over to the assessee by the builder on 11.09.2009 i.e. within the time limit prescribed u/s. 54 of the Act for claiming deduction u/s 54 of the Act. We find from the arguments of the learned counsel for the assessee as well as the learned DR that these facts are undisputed. The assessee from the very beginning has been claiming that the possession of the flat was handed over to the assessee only on 11.09.2009 and that date should be reckoned for the purpose of computation of claim of deduction u/s. 54F of the Act. We find that the learned counsel for the assessee relied on the decision of this Tribunal in the case of V M Dujodwala vs. ITO 36 ITD 130 (Mum), wherein the Hon’ble Tribunal considered the facts of the case as under:

“He submitted that the builder being out of fund and for such other reason, went on delaying the construction. Just to help the builder to fasten the construction, the payments were made in instalments much earlier to the actual possession of the property. This is very common in transaction in flats. The construction was completed at a later date and on 24-11-79, the builder expressed his desire to offer the possession of the flat. That is the first date when the property, at best, can be said to be a purchase of residential property. He stressed that even after construction of the building, the flat is not immediately available for residence to the assessee unless it is cleared by the municipal/corporation authorities. Therefore, he submitted that only when the flat construction was completed and available for residence and was actually allotted by the builder to the buyer in compliance with the agreement of sale entered upon by the builder earlier, it could be taken as ready for occupation and that was the date material for the purpose of counting period of one year within the meaning of Section 54 of the IT Act, 1961. He finally submitted that 9-4-1980, on which date the builder agreed to give possession of the flat would be taken as the date on which the assessee has purchased the property for the purpose of residence within the meaning of Section 54 of the IT Act, 1961. Till such time, he had only the right to purchase house property, he added. He relied on the following decisions:-