Date of possession is considerable as actual purchase date for claiming exemption u/s 54

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.

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