Sale consideration received by the assessee is entitled to benefit under Section 54 of the Income Tax Act, even though the transaction for purchase of new property was not completed and possession was also not handed over to the assessee within 2 years.
Brief Facts of the Case:
Assessee had sold a flat at Mumbai and had worked out a LTCG and had claimed exemption u/s 54 of the Act on the ground that she had reinvested the said amount for purchasing another property at Mumbai by paying an advance. The AO held that the sale transaction of new property had not been concluded, no registration of sale deed had taken place and balance consideration amount was yet to be paid even after 2 years of sale of the flat and as such, deduction claimed was disallowed.
The ld. DR contended that the entire sale consideration had not been paid by the assessee for purchase of new property and what had been invested by her is only a portion of total sale consideration and also that possession of the property proposed to be purchased was not delivered to the assessee within two years and as such, assessee would not be entitled to claim benefit under Section 54. Whereas the ld. AR contended that it is the utilization of amount, which was received by the assessee by sale of property, which had to be reinvested for the purposes of claiming benefit and said exercise having been undertaken, must grant the assessee benefit of claiming LTCG as provided u/s 54.
Held by Karnataka High Court:
It was held by Karnataka High Court that the intention of Legislature was to encourage the investment in the acquisition of residential house or construction thereof and the condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested either in purchasing a residential house or utilised for constructing a residential building and thus, if it is established that consideration so received on alienation of property has been invested in either purchasing a residential building or spent on construction of residential building, an assessee would be entitled to the benefit of Section 54 irrespective of the fact that transaction not being complete in all respects.
The main purpose of Section 54 is to give relief in respect of profits on the sale of a residential house and in the instant case consideration paid by assessee under Memorandum of Understanding of the purchase of new flat covered fully the consideration of capital gains portion for being eligible to claim exemption.