Case Law Details
Amount deposited but not utilized wholly or partly for purchase or construction of new asset within the specified period will be charged to tax under Section 45 in the previous year in which the period of three years from the date of transfer of original asset expired. The period of three years is stipulated as this is the longer period specified in the sub-section (1) to Section 54. It is only the balance amount which is not utilized which is to be brought and charged to tax. The entire amount of sale consideration or the capital gains is not to be brought to tax, but the unspent amount/figure is taxed.
The assessee in his return filed on 8th January, 2007 had declared a taxable income of Rs.47,88,579/-, but as noticed above he had claimed benefit of Section 54 of the Act on sale consideration of Rs.2 crores declared as income from capital gains on the sale of house property bearing No. B-383, New Friends Colony, New Delhi vide sale deed dated 3rd June, 2005 from the purchaser Bansi Lal Gupta. Under Section 54 of the Act, exemption of Rs.37,86,273/- had been claimed, inter alia, on the ground that the said amount had been invested in purchase of a new residential property at Gurgaon. The assessee filed details before the Assessing Officer to establish that he had paid Rs.61,15,000/- upto 12th May, 2006 for purchase of property at Gurgaon along with details, date of payments etc.
The Assessing Officer referred to the copy of the flat buyers agreement dated 9th February, 2006 between the assessee and the builder and observed that the ownership in the new property would be conferred on the date of issuance of occupation certificate. Further, the expected date of completion was 36 months from the date of the agreement dated 9th February, 2006 i.e. 8th February, 2009. He held that the assessee was not entitled to benefit of Section 54 as he had not purchased the new property within a period of one year before the sale of first property on 3rd June, 2005 or within two years from the date on which the transfer took place. The assessee had not constructed residential house within three years from 3rd June, 2005. Assessing Officer observed that legal ownership of the property never vested in the assessee within the aforesaid period and therefore, the purchase was not completed within two years which was the period stipulated and specified in Section 54 of the Act. He, accordingly, computed the long term capital gain, after granting benefit of indexation on cost of acquisition and cost of improvement, at Rs.45,36,273/-. While examining the question of capital gains, the Assessing Officer also disallowed the claim of the assessee to the extent of Rs.7,50,000/- as cost incurred for transfer.
It is accepted position and it is not disputed by the Revenue that Rs.37,86,273/- had been invested by the assessee for purchase of the property at Gurgaon. However, legal title in the said property was not passed or transferred to the assessee within a period of two years from the date of sale of the first property on 3rd June, 2005. The second property it is apparent was still under construction though the builder had entered into and executed the flat buyers agreement with the assessee dated 9th February, 2006. The said agreement mentions the apartment number and gives specific detail of the property. The payments were linked to stage of construction and that amount of Rs.2,90,46,250/- was payable within 27 months of booking i.e. on or before 12th February, 2008 and the total cost of flat/apartment was Rs. 3,13,09,375/-. Thus, the consideration being paid by the respondent assessee was nearly 9 times income by way of capital gains which was earned by the assessee.
The word „purchase‟ can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. „Pu chase‟ can a so refer to payment of consideration or part consideration along with transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT Andhra Pradesh vs. T.N. Aravinda Reddy (1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word „purchase‟. It was observed that thword „purchase‟ used n Section 54 of the Act hou d be nterpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that „purchase‟ prima ily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money‟s worth. The word „purchase‟, it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit,pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain.
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