S. 54F Investment can be made from amount other than the sale consideration

ITAT Ahemdabad has held in the case DCIT Vs. Shri Radhakant M. Tripathy that The very fact that the legislature has allowed investment in new property one year prior to the date of transfer establishes in no uncertain terms that it need not be the sale consideration out of which the investment should be made for qualifying for the said deduction u/s.54F of the Act.

Facts of the case

During the course of assessment proceedings, A.O. noticed that Assessee had sold a plot of land situated at Jayendra Park Housing Society on 26.03.2007 for Rs. 60 lac. Out of the capital gain earned of Rs. 44,99,597/- on sale of the aforesaid land, Assessee had claimed deduction under section 54F for an amount of Rs. 27,02,268/-on account of investment in construction of new residential property being purchase of land and construction of house. On the basis of details furnished, A.O. also noticed that Assessee had made aggregate payment of Rs. 34.50 lacs towards made investment in new residential property from 27.03.2006 to 24.06.2007, A.O. noticed that Assessee had started construction of new residential property before the date of transfer of aforesaid land (i.e. 26.03.2007) and that the payment of Rs. 17.5 lacs towards the purchaser on new property was made before the date of transfer of property on which capital gain was claimed. Thus according to the A.O., the amount invested prior to the date of sale of original asset was not eligible for deduction under section 54F and therefore the amount invested in purchase of new property was disallowed and added back to the total taxable capital gain. A.O. was further of the view that Assessee was eligible for deduction under 54F only for the balance of Rs. 17.50 lacs. He accordingly computed the deduction under section 54F at Rs. 13,31,552/- and the balance claim of deduction of Rs. 13,70,715/- was disallowed. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A).

Decision of CIT (Appeal)

I have considered the facts of the case and arguments of the learned A.R. carefully. The legal position emanating from the decisions cited by the appellant have also been perused. It is seen that during the year under consideration, the appellant had sold a plot of land situated at Jayendra Park Housing Society Ltd. on 26/03/2007 for Rs.60 lacs. After deducting the cost of acquisition and indexed cost of improvement in respect of such property, the appellant earned capital gain from sale of the plot amounting to Rs.46,99,597/. Out of such capital gain, appellant claimed deduction u/s.54F of the Act – for an amount of Rs.27,02,268/- on account of investment in construction of new residential property being purchase of land and construction of house, in which investment is claimed at Rs.34,50,000/-. On perusal of the provisions of Section 54F of the Act, in order to claim the said deduction in respect of capital gains arising from the transfer of a residential property, two conditions have been laid down viz. the assessee should either purchase a residential house property (new or old) within one year before, or within 2 years after the date of transfer of the original asset or construct a residential house property such that the construction should be completed within 3 years from the date of transfer of the original asset. That from the above conditions mentioned in Section 54F of the Act, I find that in so far as construction of the house property is concerned, the stress laid down by the legislature is on completion within the period of 3 years from the date of transfer of the original asset and the legislature is silent about the date of commencement of the construction of house property. Had it been the intention of the legislature to restrict the exemption only to the extent of investment made after the date of transfer the original asset, it would have categorically specified in the section itself. The absence of such a condition in the section is itself sufficient to conclude that the date of commencement of construction is irrelevant. The contention of the appellant that nowhere the section specifies that the investment in new residential property cannot be made prior to the date of transfer or receipt of sale consideration and that had it been the case, the legislature would not have allowed qualification of new investment one year prior to the date of transfer as it is a matter of common sense that the sale consideration would not have been received by that date i.e. prior to the date of transfer appears to be reasonable and logical. The very fact that the legislature has allowed investment in new property one year prior to the date of transfer establishes in no uncertain terms that it need not be the sale consideration out of which the investment should be made for qualifying for the said deduction u/s.54F of the Act. This interpretation of the provisions of Section 54F by various courts of law is not only logical but based on sound principles of law and accordingly in my opinion justifies the claim of the appellant. On going through the facts of the appellant’s case, I find that the conditions laid down in the said section have been duly met with in case of the appellant. The new residential house property has been purchased within the period specified in the Section i.e. one year prior and within 2 years from the date of transfer. Accordingly, argument of the learned A.R. that the question of disallowance of any capital gain on the reasons mentioned by the A.O. does not arise since the same being contrary to the legal position and legislative intent has sufficient force.

Decision of  ITAT

Issue in the present appeal is with respect to allowability of deduction u/s.54F. We find that CIT(A) while allowing this deduction has given a finding that Assessee had executed sale deed for sale of land at Jayendra Park Housing Society on 26.03.2007 for Rs. 60 lacs and the transfer as per definition u/s. 2(47) and Section 45 of the Act was 26.03.2007. He has further given a finding that the payments aggregating Rs. 17.50 lacs made during the period 27.03.2006 to 13.10.2006 is also eligible for deduction u/s 54F as the condition of one year before and two years after the sale is duly complied with. He has further noted that investment during the period 26.03.2006 to 26.03.2009 is eligible for deduction u/s. 54F. CIT(A) further relying on the various decisions cited in his order therefore held that the Assessee was eligible for deduction under 54F. Before us the Revenue could not bring any contrary material on record to controvert the findings of CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed.

Conclusion :-

Section 54F nowhere specifies that the investment in new residential property cannot be made prior to the date of transfer or receipt of sale consideration and that had it been the case, the legislature would not have allowed qualification of new investment one year prior to the date of transfer as it is a matter of common sense that the sale consideration would not have been received by that date i.e. prior to the date of transfer appears to be reasonable and logical. The very fact that the legislature has allowed investment in new property one year prior to the date of transfer establishes in no uncertain terms that it need not be the sale consideration out of which the investment should be made for qualifying for the said deduction u/s.54F of the Act.