Deduction u/s 54 of the Act. Can be claimed as per law even construction of the house has not been completed and not occupied by the assessee

Addition of Rs. 300000.00 on account of disallowance of deduction u/s 54

The assessee has shown income from Long Term capital gain from sale of property at Ambala in the return of income filed by the assessee for the relevant assessment year and claimed  deduction of Rs.300000.00 u/s 54 as the assessee has invested for purchase of residential flat for himself; not for investment purpose. The assessee has made investment of Rs.300000.00 vide cheque no. 413152 dt.19.12.2006 i.e within the same relevant assessment year. The finding of the AO that the investment made by the assessee was not within the stipulated time period is untrue as the assessee has made investment within the prescribed  time period as per section 54 of the Income Tax Act,1961.

Sale of Residential Property at Ambala.

Deduction u/s 54 claimed  by the assessee of   Rs. 300000.00 invested for purchase  residential flat from M/s SRS Real Estate Ltd. who is a builder and has started construction of flats at Faridabad.

This is a case of allotment of a flat under the self financing scheme of DDA ( or similar schemes of co-operative societies and other institutions) is treated as construction of house for this purpose-Circular No. 471,dated October 15, 1986, and Circular No.672, dated December 16,1993.

If the substantial amount is paid in terms of purchase agreement within the stipulated period, the exemption under section 54 is available even if the possession is handed over after the stipulated period-CIT v. R.L.Sood [2000] 108 Taxman 227 (Delhi).

Legal title is not necessary – Holding of legal title is not necessary. If the taxpayer pays full consideration or substantial portion of it (in terms of the purchase agreement) within the period given above, the exemption under section 54 is available. This rule is applicable even if possession is handed over after the stipulated period or the sale deed is registered later on.

The word ‘purchase’ for the purpose of section 54, must be interpreted in its ordinary meaning, as buying for a price or equivalent of price-CIT v. Uma Budhia [2004] 141 Taxman 39 (kol.)(Mag.).

The view that section 54 is a relief provision should be viewed in a bit of relaxed manner

Vide Board’s Circular No. 471, dated 15-10-1986 it has been explained that to qualify investment for construction under section 54F the crucial date is the date of allotment of flat by DDA and payment of installment was only a follow-up action and taking possession of the flat is only a formality, of course, installments have to be paid by the allottee as per the schedule fixed by the DDA. As per Board’s Circular No. 672, dated 16-12-1993 the Board after referring to the above mentioned Circular No. 471 extended the facility of exemption under sections 54 and 54F in respect of allotment of flats/house by co-operative societies and other institutions, and the allotment and construction of the flats by co-operative societies and other institutions are to be considered in similar manner for the purpose of allowing exemption under section 54 . The above circulars are binding on the revenue authorities under section 119 of the Act. Since the flat has been allotted to the assessee by the builder who would fall in the category of other institutions mentioned in the circulars, it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat.

The second decision in this regard is that ITAT, Madras which in case of Mrs. Seetha Subramanian. vs Assistant Commissioner Of Income-Tax. [59 ITD 94] on the fact that CIT , after enquiry by an Inspector found that the house is not completed and passed order u/s 263 by which he disallowed the claim of assessee u/s 54F ruled as under

Before the Tribunal, the contention of the assessee was that the provisions of section 54F are a beneficial provision for promoting the construction of residential houses. Therefore, the said provision has to be construed liberally and for achieving the purpose for which it was incorporated in the statute. In support of the said contention the assessee relied upon the decision in the case of Bajaj Tempo Ltd. The assessee also relied upon certain circulars issued by the CBDT. One of the circulars was Circular No. 471,dated October 15, 1986. This was issued by the CBDT clarifying the position that where an assessee acquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assessee has not paid all the installments due under the said scheme. Later by another Circular No. 672, dated 16th December, 1993, the CBDT has issued clarification extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore it was contended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self financing scheme and pays the first installment of the cost of construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same. Admittedly in the present case, the assessee had invested the entire net consideration within the stipulated period and in fact has even constructed the entire residential property, except some finishing to make it fit for occupation. As the assessee has substantially completed all the work of construction and has invested the entire net consideration, it has to be inferred that the assessee has complied with the conditions provided under section 54F.

A similar case was considered by the Delhi Bench of this Tribunal in the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 and this Tribunal after considering the provisions of section 54 as well as section 55 held that the claim cannot be denied on the ground that the construction of the house started by the assessee was not completed within the stipulated period of three years and some work was carried out thereafter. The said decision also supports the assessee’s contention. Under the above circumstances, especially in the light of the circulars issued by the Central Board of Direct Taxes, we hold that the Commissioner of Income-tax was not justified in revising the assessment of the Assessing Officer. Hence we set aside the order of the CIT and restore that of the Assessing Officer.

With the above view it is clear that intention of the legislature is in providing relief u/s 54 to the assessee for promoting house construction under the self financing scheme of an institution like SRS Real Estate Ltd. Under the facts and circumstances the assessee is entitled for exemption u/s 54.

The assessee has paid a substantial amount to the builder i.e. SRS Real Estate Ltd. being builder (other institution) for the purchase of residential house. Therefore he is entitled for exemption u/s 54 of Rs.300000.00 for the A.Y.2007-08.

It is not necessary for the assessee to be member of the society. Amount deposited in the SRS Real Estate Pvt. Ltd is meant for purchase of residential unit not investment purposes and deduction claimed is  allowable. This is only the presumption of the AO that Rs.300000.00 investment has been made by the assessee only for the investment purposes. In reality assessee made investment for residential purpose. Hence deduction is allowable u/s 54.

The assessee has purely invested for the purpose of his residence . He and his wife has one house in sector-16, Faridabad but he wanted to buy one more house for his personal use as he has two sons both unmarried . After marriage of his two sons it may not be possible for the assessee to live with his two sons therefore he made investment for some more residential house . Hence deduction seems to be allowable as per  the intention of the legislature.

Hence the Hon’ble CIT(A) , Faridabad court is prayed to delete the addition of Rs.300000.00 made by the AO on the basis of above legal position.

Observations made by the Ld CIT(A) , Faridabad in his order dt. 4.06.2013

Ground is against denial of deduction of Rs.3,00,000/- u/s 54 of the Income Tax Act.by the Ld. Assessing Officer . The facts are that during the year under consideration the appellant got Rs.12,00,000/- by way of sale of property at Ambala. After giving effect to indexation, the long term capital gains were calculated at Rs.11,19,970/-. The appellant claimed exemption u/s 54 of the Income Tax Act amounting to Rs.3,00,000/- on account of investment in a residential flat of SRS Real Estate Ltd. during the year. The AO after considering the facts of the case held that the appellant was not the member of the society and the amount deposited by him in SRS Real Estate Pvt. Ltd. was meant for investment purpose thereby disallowing exemption u/s 54 amounting to Rs.3,00,000/-.

During the course of appellate proceedings, the appellant stated that it had claimed a deduction of Rs.3.00.000/- u/s 54 and surrendered the balance amount for taxation. Furthermore, he had invested Rs.3,00,000/- during the year under consideration for purchase of residential property in approved residential group housing society known as SRS Residency, Sector-87, Faridabad. In support thereof, the appellant gave the following documents:

1. Application made by the appellant to M/s SRS Real Estate Ltd., SRS Multiplex, Sector-12, Faridabad for advance registration projects along with a cheque for Rs.3,00,000/- in favor of M/s SRS Real Estate Limited dated 19.12.2006.

2. Permanent Registration Certificate dated 20.02.2008 given by SRS Real Estate Ltd in the name of Shri XXXXX Gupta to confirm permanent registration of three bed rooms flat in their becoming group housing colony SRS Residency Sector-87, Faridabad.

3. Letter dated 27.01.2009 from SRS Real Estate Ltd. regarding invitation for member of flat Nos of residential units in SRS Residency, Sector-87, Faridabad.

4. Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993 issued by the Central Board of Direct Taxes.

5. I have considered the facts of the case together with the relevant submissions of the appellant in the light of requisite papers substantiating the investments made by him. On the basis of the documents submitted by the appellant, it is clear that he had made an investment of Rs.3,00,000/- on 19.12.2006 in a residential project promoted by SRS Real Estate Ltd., Faridabad. Subsequently, the SRS Real Estate Ltd. issued a permanent residence certificate in the name of Shri Anil Gupta on 20.02.2008. In this certificate, SRS Real Estate Ltd. has acknowledged receipt of a total amount of Rs.3,00,000/- paid by the appellant by that date. The documents concerning draw of plot corroborates the progress in the construction work of the housing society. All these documents make it amply clear that the appellant made investments in a residential house during the year under consideration and thus satisfied the requirements of section 54 of the Income Tax Act. The circulars given by the appellant are extremely relevant, as they fully justify the claim of exemption u/s 54 made by the appellant. As per Circular 471 dated 15.10.1986, where an assessee acquired a flat by an allotment under the self financing scheme of DDA, the allotment itself is sufficient compliance for getting the benefit u/s 54F, even though the assessee has not paid all the installments due under the said scheme. Later by another Circular No. 672 dated 16.12.1993, the CBDT issued a clarification extending the same benefit for acquisition of houses or flats on allotment under similar scheme. From theses Circulars, it is crystal clear that in order to get benefit u/s 54, the appellant need not complete the construction of the house and occupy the same. In the present case, since the appellant had made the initial payment to M/s SRS Real Estate Ltd. for allotment of a house, which was subsequently allotted, the appellant in the light of the facts of the case and Circulars No. 471 and 672 issued by the CBDT is eligible to exemption u/s 54 of the Income Tax Act. The appellant gets relief accordingly.  

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Qualification: LL.B / Advocate
Company: S.K.Jain & Co.
Location: Faridabad, Haryana, India
Member Since: 16 May 2019 | Total Posts: 30
I am S.K.Jain , Tax Consultant cum Advocate practising in Income Tax , GST , Company Matters . The name of the concern is S.K.Jain & Co. and I am prop. of this concern . I am in practice for the last 30 years . Those who have joined the profession recently and want to discuss on the particular i View Full Profile

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