Section 54F – Allotment date not relevant if Assessee made substantial payment for acquisition of new Flat

CA Sandeep Kanoi

Moot point arising in the instant case, not addressed by the first appellate authority, i.e., as what constitutes a ‘purchase’ for the purposes of section 54F or, for that matter, the other para materia provisions. This is relevant as only upon ‘purchase’ could an assessee be said to have satisfied the qualifying condition of s. 54F(1), entitling it to exemption there-under. It would accordingly become relevant to determine whether the purchase of Flat B had taken place during the previous year relevant to AY 2008-09 or the current year, or, in short, the date of its purchase.

In this regard it is to be noted that the word ‘purchase’, along with ‘construction’, is specified in the provision qua the ‘new asset’ in contradistinction to the word ‘transfer’ employed in respect of the ‘original asset’ on which LTCG arises. Clearly, therefore, the same is being used to represent a mode of acquisition of the new asset. The hon’ble jurisdictional high court has explained the same in CIT vs. Mrs. Hilla J. B. Wadia [1995] 216 ITR 376 (Bom) (PB pgs.38-41) as acquiring substantial domain or control over the property by virtue of almost the entire payment thereof. In fact, in the case of allotment of flats through self-financing schemes, as by the DDA, the same is considered as an acquisition by way of construction, entitling the assessees to complete the test of dominion over an increased period of time, i.e., three years, as provided by the statute for the same (construction) after the date of transfer.

In the facts of the present case, the assessee paid Rs.5 1 lacs in July, 2007, receiving the letter of allotment. Whether the same would amount to a purchase of the relevant asset would be the next and the relevant question to be asked. Even though the same may not by itself be considered as constituting a ‘purchase’ in terms of test laid down by the hon’ble court in the case cited supra, the subsequent payments would definitely lead to one, so that the payments made in July, 2007 can, in retrospective, only be considered as toward purchase of Flat B, the new asset. But for the payments in July, 2007, it may be appreciated, the payment/s during the relevant previous year (Rs.40 lacs) would not result in the payment of the entire sum during the current year, even as we observe substantial payment to have been made, meeting the test of substantial control, by December, 2008, whereat therefore the purchase, as explained by the hon’ble court, can be said to have taken place or matured. A reasonable construction of the provision, thus, would only be of the purchase, as indeed construction, being a manner of acquisition, which is to be completed within the time as provided under the provision, i.e., one year before or two years subsequent to the date of transfer of the relevant capital asset. Further, determination of the purchase date of Flat B in December, 2008 would, however, result in no adverse impact on the assessee’s case either for A.Y. 2007-08 or for the current year.