Case Law Details

Case Name : The CIT & ITO Vs Smt. B S Shanthakumari (Karnataka High Court)
Appeal Number : Income tax (Appeal) No. 165 of 2014
Date of Judgement/Order : 13/07/2015
Related Assessment Year :
Courts : All High Courts (4420) Karnataka High Court (216)

Sec. 54F – benefit allowed, on completing the major construction of resi. House rather fully habitable house property.

Brief of the Case

Karnataka High Court held In the case of The CIT & ITO vs. Smt. B S Shanthakumari that the essence of provisions u/s 54F is to ensure that assessee who received capital gains would invest the same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act.

Facts of the Case

The assessee is an individual who sold a property under a sale deed dated 06/10/2008 and capital gain on sale of such property was invested by the assessee to purchase a residential site. The assessee claimed deduction u/s 54F which was disallowed by the revenue on the ground that assessee had not completed the construction of the house with in 3 years as per requirement of section 54F.

Contention of the Revenue

 The ld counsel of the revenue contended that assessee has not complied conditions of Section 54F. Assessee has not placed any material on record to show that he had commenced the construction and completed the same within three years from date of sale of her property and as such assessee would not be entitled to the benefit of long term capital gains u/s Section 54F.

He also contended that facts of the case Commissioner of Income Tax Vs Sambandam Udaykumar reported in (2012) 81 CCH 0151 relied upon by ITAT, is different from the current case. In that case it was found that construction was almost completed but in the current case construction had not been completed within 3 years.

 Held by CIT (A)

 The CIT (A) allowed the deduction u/s 54F.

 Held by ITAT

 ITAT allowed the deduction u/s 54F by following the judgments of Sambandam Udaykumar’s case (2012) 81 CCH 0151 and judgment of High Court of Madras in the case of CIT Vs Sardarmal Kothari reported in (2008) 302 ITR 286.

 Held by High Court

 Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be on reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired.

A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F.

Also Co-ordinate bench of this Court in Sambandam Udaykumar’s case (2012) 81 CCH 0151 has examined similar issue and has held that the words used in Section 54F are ‘purchased’ or ‘constructed’ and held that the condition precedent for claiming benefit under such provision is the capital gain realized from sale of a Long Term capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. It has also been held that if the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respects or such building is yet to be completed fully or the building not being in a fit condition for being occupied, would by itself not be a ground for the assessee to be denied the benefit under Section 54F of the Act.

The assessee during the appellate proceedings had produced the photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction.

Accordingly, appeal of the revenue dismissed.

Also Read ITAT Judgment in Above Case-Source / Download –  ITO Vs. Smt. B.S. Shanthakumari (ITAT Bangalore), ITA No.63/Bang/2013, Assessment year : 2009-10, Date of Pronouncement – 13.11.2013

Download Judgment/Order

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Category : Income Tax (28360)
Type : Judiciary (12669)

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