CIT Vs Bharti Mishra (Delhi High Court)
The respondent-assessee, an individual, had sold shares on 17 September 2008 and invested ₹54,86,965 from the proceeds in constructing a residential property. Out of this, ₹37,99,000 was used for construction before filing the return and ₹16,87,965 was deposited into a Capital Gains Account Scheme before the due date under Section 139. The Assessing Officer (AO) denied exemption under Section 54F, holding that (a) the house construction began before the sale of shares, and (b) construction was not completed within three years.
The Commissioner of Income Tax (Appeals) reversed this, noting that construction was completed within three years (June 2011) and that the Act does not prohibit construction before the sale date. The Income Tax Appellate Tribunal (ITAT) upheld this finding.
Before the High Court, the Revenue conceded that no contrary precedent supported its position. The Court therefore addressed only one question: whether exemption under Section 54F can be denied if construction commenced before the sale.
The High Court relied on CIT v. J.R. Subramanya Bhat (1987) 165 ITR 571 (Karnataka HC) and CIT v. H.K. Kapoor (Decd.) (1998) 2 ITR 753 (Allahabad HC). Both rulings interpreted Section 54, which is similar to Section 54F except that Section 54 applies to sale of residential property, while Section 54F applies to sale of other long-term capital assets. In Subramanya Bhat, the Karnataka High Court held that even if construction starts before the sale, the benefit cannot be denied as long as completion occurs within the prescribed time—two years for purchase or three years for construction. Similarly, in H.K. Kapoor, the Allahabad High Court affirmed that exemption cannot be refused merely because construction started before the sale.
