DATE WHICH IS RELEVENT FOR THE PURPOSE OF CLAIMING EXEMPTION UNDER SECTION 54 OF INCOME TAX ACT 1961
For claiming Exemption under section 54 of Income Tax Act 1961 following conditions are required to be fulfilled:
1. The assessee has sold a residential house property.
2. He has purchased another house property before one year from date of sale or two years after the date of sale.
3. The amount to be invested in purchase of new house is the amount of long term capital gain.
Now the question is which date is relevant for deciding the period of one year before or two year after the date of sale. The honourable Supreme Court of India in the case of Sh. Sanjeev Lal v. CIT in Civil Appeal number 5899-5900 dated 1.7.2014 (365 ITR 389) has held that it the date of agreement which is relevant for calculating the period of one year or two year for claiming benefit of Section 54 of Income Tax Act 1961. In the above case Sh. Sanjeev Lal had entered into an agreement to sell his residential house property to Shri Sandeep Talwar on 27th December 2002 but the sale deed could not be executed due to some legal hassle and ultimately the sale deed was executed by Sh. Sanjeev Lal on 24th September 2004. Sh. Sanjeev Lal had purchased another house property on 30th April 2003. The Assessing Officer during assessment for AY 2005-06 denied the benefit of Section 54 to Sh. Sanjeev Lal due to the reason that he has not purchased the property one year before or two years after the date of sale i.e. 24th September 2004. Accordingly he denied the benefit of Section 54 and matter was not decided in the favour of assessee even upto High Court and ultimately the assessee approached Supreme Court where it was held that the assessee was entitled to benefit of Section 54 considering the date of agreement which was 27th December 2002 and he had purchased residential house on 20th April 2003. Ultimately the Supreme Court decided the issue in favour of assessee and has held that the assessee was entitled to benefit of Section 54 as he has entered into agreement to sell on 27th December 2002 and another residential house property was purchased on 30th April 2003 i.e. within the time limit provided in Section 54.
Here the Court has observed that purposive interpretation should be given to provisions of Income Tax Act. In the case of Oxford University Press v, CIT 3 SCC 359 (2001) it was held that purposive interpretation of the provisions of Income Tax Act should be given while considering a claim for exemption from tax. It was also said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing any provisions of Income Tax Act and more particularly when one is concerned with exemption from payment of tax.
For the benefit of readers it is advised that for the purpose of calculating capital gain or exemption under section 54 or 54F the date of agreement is very important and is considered as date of sale or purchase on view of this judgment of honourable Supreme Court of India.