Rajiv Madhok Vs ACIT (ITAT Delhi)
The issue under consideration is whether disallowance of claim u/s 54F will be sustain under Act?
In the present case, the assessee, an individual, sold his shares and claimed tax deduction under section 54F by stating that he invested in the purchase/construction of the property. He claimed that the said purchase was within the time period provided in section 54F of the Act and thus, he is entitled to not charging of long-term capital gain to the extent of investment in purchase/construction of the residential house property.
The contention of the assessee is that since final consideration was paid and the possession of flat was received within a period of one year prior to the date of transfer of capital asset, the same should be considered as the date of purchase. Whereas, the stand of Department is that the date of execution of agreement for purchase of flat should be considered as the date of purchase.
The Hon’ble Bombay High Court in the case of CIT Vs. Smt. Beena K. Jain decided the issue in favour of the assessee by answering the question as under :
“2. Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long- term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day.”
ITAT states that, in view of the identical facts and circumstances, the ratio of the decision in the case of Ayushi Patni (supra) is squarely applicable over the facts of the instant case and thus accordingly, ITAT hold that the new asset i.e. residential house has been purchased within two years from the date of transfer of the original asset i.e shares, and thus, the assessee is entitled for benefit of section 54F of the Act. The finding of the Ld. CIT(A) on the issue in dispute is accordingly set aside and the Assessing Officer is directed to allow the benefit of section 54F of the Act.
Hence, appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against order dated 31/01/2017 passed by the learned CIT(Appeals)-10, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13 raising following grounds:
1. That on facts and in the circumstances of the petitioner’s case, the learned Commissioner of Income Tax (Appeals)-10, New Delhi erred in law and on facts in upholding the order of the learned Assessing Officer and in sustaining the disallowance of the claim of Rs.2,07,62,580/- made in terms of the provisions contained in section 54F of the Income Tax Act, 1961.
2. That on facts and in the circumstances of the petitioner’s case, the learned Commissioner of Income Tax(Appeals)-10, New Delhi, erred in law and on facts in upholding the order of the learned assessing officer and in not allowing deduction under section 54F of the Act even for the amounts spent on construction of the residential house property after the date of long term capital gain/transfer of the original asset.
2. Briefly stated facts of the case are that the assessee filed return of income on 27/07/2012 declaring total income of Rs. 1,70,06,340/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices were issued and complied with. During the year under consideration, the assessee shown long-term capital gain of Rs. 2,18,91,720/- on sale of the shares on 02/09/2011, but same was claimed as not to be charged in terms of section 54F of the Act in view of the investment in purchase/construction of property bearing No.T204/08-03 in Common wealth Games, Village, Delhi. The assessee claimed that the property was purchased/constructed within the time period provided in the section 54F of the Act and thus, he is entitled for not charging of long-term capital gain to the extent of investment in purchase/construction of the residential house property. However, according to the Assessing Officer, the residential house has been purchased prior to the time period provided in section 54F of the Act and therefore assessee is not entitled for said benefit under section 54F of the Act. The Assessing Officer, accordingly completed the scrutiny assessment on 27/03/2015 after making addition for the longterm capital gain of Rs. 2,18,91,720/-. On further appeal, the Ld. CIT(A) upheld the addition, however, reduced the addition to Rs. 2,07,62,580/- i.e. the amount which was claimed as deduction under section 54F of the Act. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. The sole issue raised in both the grounds of the appeal is sustaining disallowance of claim of Rs. 2,07,62,580/- which was made under section 54F of the Act.
4. We have heard rival submission of the parties and perused the relevant material on record. In the case the assessee sold shares and shown long-term capital gain of Rs.2,18,91,720/-. Initially, in the documents filed before the Assessing Officer the assessee claimed to have sold the shares on 02/09/2011, however, based on share purchase agreement (SPA), the date of the sale was claimed as on 17/08/2011. The Assessing Officer and the Ld. CIT(A) has accepted the date of the sale as on 17/08/2011. Thus there is no dispute as far as date of the sale of the shares in the amount of long-term capital gain of Rs.2,18,91,720/- is concerned.
4.1 On sale of a capital asset, capital gain is charged as per provisions of section 45 of the Act. But if an assessee invest in certain new assets, the capital gain is not charged to the extent provided in the provisions of the Act. One of such provision is section 54F of the Act. In the case the dispute is regarding availing of benefit under section 54F of the Act. Under the provisions of the section 54F, the long-term capital gain is not charged, if any individual or HUF invest the entire sale consideration arising on transfer of any long-term capital asset (not being a residential house), i.e., original asset, into a purchase or construction of residential house (i.e new asset). If the cost of the new asset is less than the net consideration in respect of the original asset, the capital gain in proportion to the cost of the new asset bears to the net consideration, is not charged under section 45 of the Act.
4.2 For availing the benefit of section 54F, the investment in purchase/construction of residential house has to be made as under:
(a) Purchase of residential house within a period of one year before or two years after the date on which the transfer of the original asset took place, or
(b) Construction of residential house within a period of three years from the date on which the transfer of the original assessee took place.
4.3 In the case of the assessee, the transfer of the shares has taken place on 17/08/2011 and therefore time period available to the assessee for purchase/construction for availing benefit of the section 54F works out as under:
(a) Purchase within a period of one year before the transfer of shares (i.e. period between 17/08/2010 to 16.08.2011 or purchase within two years after the date of the transfer of shares (i.e. period between 17.08.2011 to 18.08.2013) or
(b) Construction within a period of three years from the transfer of shares (i.e. period between 17.08.2011 to 18/8/2014)
4.4 Regarding the purchase/construction of the residential house the assessee provided following information:
