Case Law Details
Smt. Rajneet Sandhu vs. DCIT (2010) 133 TTJ 0064 (Chandigarh): In this case the construction of the house was not completed within the prescribed period. It was held that section 54F does not prescribe that the residential house should be completed within the prescribed period and benefit under s. 54F was allowed. It was held that thrust was on investment and not on completion.
The brief facts of the case are that during the year under consideration the assessee had sold her agriculture land at village Bihsanpura, District Mohali for 1.50 crore on 17.4.2006. The assessee had claimed deduction u/s 54F of the I.T. Act amounting to Rs.1,4156,332/-. The assessee had claimed to have purchased the residential plot No.K-96, South City-1, Gurgaon, out of the said sale consideration. In the return of income it was claimed by the assessee that the construction of the house would start immediately after sanction of housing loan and the house would be completed in financial year 2007-08. During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish the details of housing loan availed and also the details of construction made on the plot and completion thereof. The Assessing Officer noted from the details furnished by the assessee that the construction of the house has not been completed. A certificate issued by M/ Artisans was furnished on record by the assessee which confirmed that the construction work was in progress and as on 25.3.2009, it had reached the Ground floor roof level and the subsequent work was in progress. The Assessing Officer was of the view that as the construction of the house was not complete and three years had lapsed since the sale of capital asset, the assessee was not entitled to benefit of exemption u/s 54F of the I.T.Act. The Assessing Officer further observed that u/s 54F of the I.T. Act, the assessee is required to complete the construction of the house within a period of three years from the date of transfer of the original asset and as the assessee has failed to do so; she is not eligible for any deduction u/s 54F of the Act.
Held by CIT (A)
Before the CIT (A) the submission of the learned counsel was that the language of section 54F(1) of the Act uses the word “constructed” and not “complete ”.Reliance was placed on the CBDT Circular No.667 dated 10.1993, which says cost of the land is an integral part of cost of residential house, whether purchased or built. The CIT(A) upheld the order of Assessing Officer. Reliance placed by the assessee on Mrs.Seetha Subramanian vs. ACIT, 56 TTJ (Mad) 417 was held to be distinguishable as the house was more or less complete except some finishing work in the facts of the case before Madras Bench of Tribunal.
Held by ITAT
The issue arising before us is in connection with the exemption claimed u/s 54F of the Act. The assessee in the year under consideration had sold agriculture land for Rs.1.50 crores against which it had claimed exemption u/s 54F of the Act amounting to Rs.1.41 Cr. The assessee had purchased a residential plot in South City, Gurgaon out of the sale consideration which was claimed as investment u/s 54F of the Act. The construction was started after sanction of building plans and till 25.3.2009 it had constructed upto ground floor roof level. The house construction was in progress and the exemption was claimed as the assessee had invested the whole of sale consideration of the land in the purchase of the plot itself. The construction of house was started thereafter. The claim of the assessee is that it is not compulsory that the construction should have been completed within the period of three years. However the revenue authorities had denied the exemption u/s 54F of the Act as the assessee had failed to complete the construction within the said period of three years.
Under the provisions of section 54F of the Act, the requirement is that where capital gains arises on the transfer of any asset, not being a residential house, the assessee can take the benefit of exemption of the said capital gains, provided the assessee has within a period of one year before or two years after the date of transfer purchased a residential house or within a period of three years after that day constructed a residential house. The provisions of section 54F are pari materia to the provisions contained in section 54 of the Act. The only distinction being that U/s 54 of the Act, the exemption is allowable on investment in new house, where the original asset sold is the residential property and provisions of section 54 F of the Act are applicable to all other assets, not being residential house.
The Delhi Bench of Tribunal in the case of Satish Chander Gupta Vs. Assessing Officer(supra) while deciding the issue of claim of exemption u/s 54 of the Act had held that the emphasis was on the utilization or investment of capital gains in the construction of residential house. If the entire amount deposited in the bank account is utilized in the process of construction of house, there is no provision to withhold or withdraw the deduction on the ground that the residential house sought to be constructed is not complete.
In Smt. Shashi Varma vs. CIT 224 ITR 106 (MP), relied upon by the AR for the assessee it was held that while allowing exemption u/s 54 of the Act investment for acquisition of flat under the scheme of DDA, where the first installment paid was much more than the capital gains, deduction is to be allowed as section 54 does not require that construction of new house should necessarily be completed within two years, where substantial investment is made in the construction of house.
In the facts of the present case, the assessee had invested the full sale consideration received on the sale of original asset in the purchase of the plot of land at Gurgaon. Thereafter the assessee had invested 10,75,000/- in the construction of the building. The construction was in progress and was not complete and in view thereof, the benefit of exemption claimed u/s 54F of the Act was rejected by the authorities However, following the ratio laid down by the Hon’ble’ble Madhya Pradesh in the case of Smt. Shashi Verma Vs. CIT(supra), we find that there is no merit in the plea of the authorities in denying the exemption u/s 54F of the Act on the ground that the construction of the house has not been completed. The requirements of section 54 and 54F of the Act is for the assessee to have either purchased a residential house being a new asset within the stipulated period or construct a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of the construction of the residential house and the thrust is on the investment of the net consideration received on sale of original asset and the start of construction of a new residential asset. In view thereof, where the assessee had invested the consideration received on sale of original asset in the purchase of the plot of land and started construction though not completed, the assessee had complied with the provisions of section 54F of the Act and hence was entitled to the benefit of exemption claimed.
Accordingly, we set aside the order of the CIT (A) and direct the Assessing Officer to allow the claim of the assessee in respect of the benefit of exemption claimed u/s 54F of the Act. The grounds of appeal raised by the assessee are thus allowed.
Source- Smt. Rajneet Sandhu Vs. DCIT (ITAT Chandigarh), ITA No. 392/Chd/2010, Date- 28.07.2010
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IMPROMPTU
The view taken, though not for the first time is, to the effect that the prescribed time limit of 2 / 3 years ‘FOR’ ‘purchase’ / ‘construction’ of a new asset is not to be construed strictly or rigidly, or interpreted in a narrow sense. That is the right or better view should necessary regard be had to the setting /the whole context, with adequate emphasis / stress placed on the crucial word “FOR”. Even if considered from a different angle, constructing and completing a new independent house, or purchasing a Flat/Apartment, within time as planned, is not left to the investor- taxpayer; but is subject to or circumscribed by several ifs and buts, mostly resting with the promoter/seller.
As per the scheme of the enactment itself, – in particular, in section 54 OR section 154 / 155 of IT Act, there is no provision hence by necessary implication not envisaged/intended to tax the amount of capital gains or to the extent it has been ‘utilised’ for the purchase or construction. A close reading and understanding of sub-section (2) rw the Proviso thereto lends support.
In the context, it may be noted,, the recent SC judgment in Sanjeev Lal v CIT is a case on the point, to support the identical proposition that section 54 requires to be interpreted by adopting a common sense reasoning, founded on principles of natural justice and a liberal judicial approach. This aspect has been briefly touched upon in the published article, -(2014) 226 Taxman 143- 150/151.
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