Case Law Details
Case Name : Shri Hasmukh N. Gala Vs Income Tax Officer (ITAT Mumbai)
Appeal Number : Income Tax Appeal No 7512/2013
Date of Judgement/Order : 19/08/2015
Related Assessment Year : 2010-11
CA Suraj R. Agrawal
Brief- ITAT Mumbai has held in the case of Hasmukh N. Gala vs. ITO that Giving advance to builder constitutes ‘purchase’ of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.
Giving advance to builder constitutes “purchase” of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.
Facts of the case:
- Assessee is an individual who is engaged in the business of trading in glass.
- In the return of income filed for the assessment year under consideration, assessee had declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-.
- After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-.
- The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house.
- The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010.
- The Assessing Officer was of the view that giving of advance could not be treated as equivalent to ‘purchase’ for the purpose of section 54 of the Act, because no agreement was executed and that the advance money could be returned at any time.
- The CIT (A) concluded that for the purpose of section 54 of the Act the term ‘purchase’ cannot be equated to ‘giving of advance’.
Issue put before ITAT Mumbai:
The controversy is as to whether under these facts assessee can be said to have purchased the new property so as to entitle him for exemption in relation to the amount spent towards the new property under section 54 of the Act and understanding of the expression ‘purchase’ contained in section 54 of the Act.
Contentions of Appellant:
- The claim of the assessee has been unjustly denied by the lower authorities.
- It has been pointed out that assessee had duly invested the amount in acquisition of a new residential property and the delay in completion of construction by the builder was beyond the control of the assessee.
- It was pointed out that assessee had furnished the allotment letter in respect of the specific flat allotted by the builder and a copy of the same was also placed in the Paper Book.
- It was emphasized that complete amount of consideration was paid to the builder and there was no requirement to produce an agreement when the letter of allotment along with proof of payment clearly established that assessee had invested towards acquisition of a new residential house.
Contention by Revenue:
- DR appearing for the Revenue has relied upon the conclusion drawn by the lower authorities by relying on the reasoning taken thereof.
- The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued.
- As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act.
Ruling of Honorable ITAT Mumbai::
- The aforesaid contention of revenue does not militate against assessee’s claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned.
- In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee’s claim under section 54 of the Act.
- In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires.
- In view of the aforesaid discussion and on the basis of material and evidence on record, ITAT Mumbai find that the assessee can be said to have complied with the requirement of section 54 of the Act; and, the exemption has been incorrectly denied by the lower authorities.
- Appeal of the assessee is allowed.
Key Take Away- Giving advance to builder constitutes “purchase” of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.