Brief of the case:
The sole issue to be decided by ITAT is that whether the transaction of entering into an agreement with a builder for purchase of a flat that is going to be constructed is a case of “Purchase” or “Construction”. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction u/s 54 of the Act in respect of the cost of new flat.
Held by the CIT (A)
CIT(A) being agreed with the contentions of the assessee, allowed the deduction u/s 54 of the Act.
Contention of the revenue:
Since the deduction u/s 54 of the Act could be availed only if the residential house was purchased within one year prior to the date of house giving rise to capital gain and since the date of purchase of flat fell beyond the period of one year assessee is not entitled for the deduction u/s 54.
Contention of the assessee:
The date of possession should be considered as the date of purchase of new house, since the assessee obtained a habitable house only on the date of possession.
Held by the tribunal:
(a) is purchased within two years after the date on which the transfer of original house took place or
(b) is constructed within a period of three years after the date on which the transfer took place.
Comments of the author:
Tribunal while deciding this issue against the assessee used “construction” in place of “purchase” due to the findings of Hon’ble Bombay HC in matter of Mrs. Hilla J.B.Wadia (216 ITR 376) where court held assessee’s activity of transfer of property in which she had half share as construction. Further, ITAT Mumbai Bench in case of ACIT Vs. Sunder Kaur Sujan Singh (3 SOT 206) held booking of flat with builder as construction.