S.54 Exemption on advance to builder- Non completion of construction & transfer of title

By Suraj R Agrawal Income Tax Judiciary September 4, 2015 1 comment

TaxGuru Citation: 2015 taxguru.in 664
Case Name: Shri Hasmukh N. Gala Vs Income Tax Officer (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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CA Suraj R. Agrawal

Brief- ITAT Mumbai has held in the case of Hasmukh N. Gala vs. ITO that Giving advance to builder constitutes ‘purchase’ of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.

Giving advance to builder constitutes “purchase” of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.

Facts of the case:

Assessee is an individual who is engaged in the business of trading in glass.
In the return of income filed for the assessment year under consideration, assessee had declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-.
After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-.
The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house.
The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010.
The Assessing Officer was of the view that giving of advance could not be treated as equivalent to ‘purchase’ for the purpose of section 54 of the Act, because no agreement was executed and that the advance money could be returned at any time.
The CIT (A) concluded that for the purpose of section 54 of the Act the term ‘purchase’ cannot be equated to ‘giving of advance’.

Issue put before ITAT Mumbai:

The controversy is as to whether under these facts assessee can be said to have purchased the new property so as to entitle him for exemption in relation to the amount spent towards the new property under section 54 of the Act and understanding of the expression ‘purchase’ contained in section 54 of the Act.

Contentions of Appellant: