Sanjay Vasant Jumde Vs ITO (ITAT Pune)
ITAT Pune held that as on the date of agreement, the building was not constructed, the date of possession will be considered as actual date of purchase for the purpose of claiming exemption under section 54 of the Income Tax Act.
Facts- During the relevant A.Y., the assessee has sold his bungalow and earned long term capital gain of Rs. 2,10,71,915/-, out of which he claimed deduction of Rs. 1,70,91,871/- u/s 54 of the Act for investment in a residential flat to the extent of Rs. 1,70,91,871/-. The assessee had sold the above bungalow on 23-10-2018. The flat in the investment of which the assessee claimed deduction u/s 54 of the Act was purchased on 21-12-2016.
A.O held that as the property purchased is beyond one year preceding the year of sale, the assessee is not eligible for deduction u/s 54 of the Act. The assessee submitted that he entered into a supplementary agreement with the builder for purchase of the flat on 06-07-2018 and the date of possession of the flat by the assessee was 24-12-2018. Therefore, the assessee had claimed that he is eligible for deduction u/s 54 of the Act. A.O however, observed that the supplementary deed was only a deed of rectification and cannot be taken cognizance of that the flat number, building name and the consideration value of the flat remained the same. Accordingly, the A.O held that the assessee was not eligible for deduction u/s 54 of the Act as the assessee had not purchased the new asset within the period of one year before the transfer took place.
Conclusion- The Hon’ble Bombay High Court held that the substance of the transaction signifies when the new property is ready for possession, when the substantial or full payment had been made and when the actual possession was acquired by the assessee. These substantial necessities are crucial for determining the issue for claim of deduction u/s 54 of the Act. Admittedly, in this case what the department is harping upon is merely the agreement dated 21-12-2016 when the building itself was not constructed and the assessee has only acquired his right to get a flat in the said building. When actually therefore, can it be said that the new property was purchased? It is only when the assessee received the possession through letter of possession on 24-12-2018. This is when all the three ingredients as enumerated in the decision of Hon’ble Jurisdictional High Court for claiming deduction u/s 54 had been complied with by the assessee.
In another decision of Pune Tribunal in ITA No. 1424/PUN/2016 and ITA No. 1707/PUN/2016, for A.Y. 2012-13, order dated 17-0-2019 identical facts were considered. It was observed by the Tribunal that it is an unabated fact that at the time of execution of agreement, the residential property was not in existence. Therefore, taking into consideration the facts of the case, the date of possession of the flat as the date of actual purchase for the purpose of claiming exemption u/s 54 of the Act.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal preferred by the assessee emanates from order of the ld. D.R.P. dated 31-03-222 for A.Y. 2019-20 as per the following grounds of appeal.
“The following grounds are taken without prejudice to each other-On facts and in law,
1) The learned A.O.IDRP erred in denying deduction u/s 54 of Rs.1,70,90,871/- to the appellant from the capital gains on sale of a residential property.
2) The learned A.O. I DRP was not justified in holding that- Bombay H.C. decision in the case of CIT v. Smt. Beena K. Jain [217 ITR 363] was against the appellant as the appellant had paid full consideration to the developer before 01.07.2017 i.e. more than one year before the date of the sale of the old flat and accordingly, the new flat was purchased more than one year before the date of sale of the old flat and hence, the deduction u/s 54 was not allowable.
3) The learned A.O. I DRP failed to appreciate that-
a. The appellant had complied with the conditions of section 54 in that he had received possession of the new residential property within two months of sale of the old property and hence, the deduction u/s 54 was allowable to the appellant.
b. The agreement for purchase of a new flat dated 21.12.2016 was only for booking of a new flat which was yet to be constructed at that time and therefore, it is not correct to hold that the appellant had purchased a new flat on the date of agreement i.e. 2l.12.20 16.
c. As the appellant received possession of the new flat from the builder on 24.12.2018 which was within the prescribed time limit u/s 54 from the date of the sale of the old residential house which was 23.10.2018 and accordingly, the appellant satisfied the condition of section 54.
d. Bombay H.C. decision in the case of Smt. Beena K. Jain [217 ITR 363] was supporting the appellant’s claim when the Hon’ble H.C. has clearly held that the new property is deemed to be acquired only when it is ready, full consideration is paid and the possession is received by the assessee and in the present case, all these three conditions were fulfilled only on 24-12-2018 when the appellant received possession of the new flat and the deduction was rightly allowable to the appellant.
4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
2. The relevant facts are that the assessee is a non-resident Indian and he has filed his return of income declaring the total income of Rs. 8,70,970/- for the A.Y. 2019-20. The assessee has claimed deduction of Rs. 1,70,91,871/- u/s 54 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). During the relevant assessment year the assessee has sold his bungalow and earned long term capital gain of Rs. 2,10,71,915/-, out of which he claimed deduction of Rs. 1,70,91,871/- u/s 54 of the Act for investment in a residential flat to the extent of Rs. 1,70,91,871/-. The assessee had sold the above bungalow on 23-10-2018. The flat in the investment of which the assessee claimed deduction u/s 54 of the Act was purchased on 21-12-2016. The A.O held that as the property purchased is beyond one year preceding the year of sale, the assessee is not eligible for deduction u/s 54 of the Act. The assessee submitted that he entered into a supplementary agreement with the builder for purchase of the flat on 06-07-2018 and the date of possession of the flat by the assessee was 24-12-2018. Therefore, the assessee had claimed that he is eligible for deduction u/s 54 of the Act. The A.O however, observed that the supplementary deed was only a deed of rectification and cannot be taken cognizance of that the flat number, building name and the consideration value of the flat remained the same. Accordingly, the A.O held that the assessee was not eligible for deduction u/s 54 of the Act as the assessee had not purchased the new asset within the period of one year before the transfer took place.
3. Before the ld. D.R.P the assessee had submitted as follows:
“In this case, the assessee filed the return declaring total income of Rs. 8,70,970/- for the A. Y. 2019 – 20. As against this returned income, in the draft order the assessment is proposed to be made on the total income of Rs.1, 79,61,8411- by making disallowance of deduction claimed under Section 54 of the. Act of Rs. 1, 70,90,871/-.
During the year, the assessee on sale of his bungalow and a plot has earned long term capital gains of Rs.2, 10,71,915/-. The assessee claimed deduction’ under Section 54 of the Act for investment in a residential flat to the extent of Rs.1,70,90,871/-.
This deduction is being disallowed by the Ld. AO in the draft order on the ground that the assessee has purchased a new flat on December 21, 2016 while the capital gains arose on sale of the property on October 23, 2018. Thus, in the opinion of the Ld. A 0 the new residential flat was purchased by the assessee more than one year before the sale of the property. As per Section 54 of the Act, the deduction is available if a new residential property is purchased within a period of one year before or two years after the date on which the transfer took place or has within a period of three years from the date of transfer constructed one residential house in India. Accordingly, the Ld. AO has held that the assessee is not entitled to the deduction under Section 54 of the Act and the disallowance of Rs. 1, 70,90,871/- is being proposed in the draft order
In this context, the assessee relies on his submissions made during the assessment proceedings. However, in addition, the assessee submits the following contentions in support of his plea that the deduction under Section 54 of the Act is rightly claimed.
For the sake of convenience, the relevant portion of section 54 is reproduced hereunder-
Section 54
Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long term capital asset being buildings or lands appurtenant thereto and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset) and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased] or has within a period of three years after that date [constructed one residential house in India] then instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section that is to say.
The assessee is giving the following details of the dates of various transactions relevant in this regard –
