Assessee is an individual aged about 76 years. During the year under consideration, the assessee has earned long-term capital gain of Rs. 4978349 on sale of residential flat No. A-30, Mandakini Enclave, New Delhi. The appellant claimed deduction under section 54 for amount of Rs. 5227000 (Rs. 36 Lacs for amount deposited in capital gain account scheme and Rs. 1527000 for payment made for purchase of New House prior to the due date of filing of return of income. Since the investment new house (including the deposit in capital gain was computed at Rs. NIL. The assessing officer has however reduce the deduction by Rs. 901349 on the ground that:–
(a) Amount deposited in capital gain account was Rs. 35 Lacs and not Rs. 36 lacs.
(b) That the amount of Rs. 1527000 claimed as investment in new house includes Rs. 950000 in respect of other house other than the “new house”.
During the year the assessee has made payment of Rs. 1527000 to the builder namely Ajay Enterprises Pvt. Ltd. from whom the “new house” was purchased. Out of this amount of Rs. 1527000 the builder has appropriated Rs. 950000 toward another flat No. C-408 booked by the assessee with the builder. It should not be reason for making dis allowance/ addition. The fact of the matter is that the assessee has invested a total sum of Rs. 6174683 in the eligible new house (A-907) upto 4-12-2008 i.e. well within the period specified under section 54 of Income Tax Act, 1961. The assessee being an old man of around 76 years could not keep track of the adjustment made by the builder. However, he made the substantive compliance of section 54 by making the required investment in the new house within the period specified under section 54 of Income Tax Act, 1961.
Legislature has required that the cost of new asset should be equal to or more than the capital gain. The main sub-clause (i) of section 54 providing for the exemption does not require that the whole payment for purchase of new asset should be made. In other words even if an assessee acquires a new house on credit i.e. the payment for which may be made in future, the assessee cannot be denied the benefit of deduction under section 54 because what is required by sub-clause (i) is that cost of new house should be equal to or more than the amount of long-term capital gain.
