PCIT Vs C. Gopalaswamy (Karnataka High Court)
The Revenue appealed before the Karnataka High Court against the Tribunal’s decision allowing the assessee exemption under Section 54F of the Income Tax Act. The substantial question concerned whether exemption could be allowed where the assessee had reinvested the capital gains by making full payment to the builder, but possession of the residential property was not handed over within the prescribed period and the construction agreement specified completion beyond the period contemplated under Section 54F. The assessee and his son had sold certain equity shares, resulting in long-term capital gain of Rs. 13,55,84,748, with the son’s share being Rs. 4,20,283. Each deposited Rs. 50,00,000 in REC Bonds and claimed exemption under Section 54F, while the balance was invested in a residential house. The Assessing Authority disallowed the claim of exemption of Rs. 5.23 crore on the ground that construction of the villas had not been completed within the stipulated period. The CIT(A) dismissed the assessee’s appeal, after which the matter was carried before the Tribunal in ITA 933(BNG)/2012.
The Tribunal noted that the builder had issued an allotment letter on 28-07-2008 stating that Rs. 7.70 Crores for villa No. 75 had been paid by the assessee. It observed that although the construction agreement specified an outer date beyond the three-year period under Section 54F, the assessee had paid the entire price and there was no dispute that construction had commenced. The Tribunal held that the change in unit numbers and the construction completion period did not disentitle the assessee from claiming Section 54F benefit. It relied upon the decision in Sri Sambandam Udaykumar, which held that Section 54F is a beneficial provision and that investment of capital gains in purchasing or constructing a residential house is material, while completion of construction or occupation is not a requirement for the benefit where the investment has been made.
