Case Law Details
Facts of the case are that the assessee is an Individual. In the return of income filed by him on 30-10-2009, he returned an income of Rs. 56,14,776 after claiming an exemption of Rs. 2,29,82,700 u/s 54F of Income-tax Act, 1961. The assessee had sold a property at Bangalore and had a long term capital gain of Rs. 2,29,82,700. He identified another residential flat at Gurgaon, Haryana called “Palm Drive” for a total consideration of Rs. 2,32,00,000. “Palm Drive” is a project promoted by internationally reputed builders called “Emaar”. The assessee entered into an agreement with the builder in respect of flat No. A 401 and has paid amounts to the builder towards the fulfilment of the agreement as requisitioned by the builder. While filing the Return of Income the amounts so paid were claimed as deduction. Subsequently during the course of assessment proceedings the assessee filed a revised working of deductions u/s 54F restricting the deduction to Rs. 89,99,724 being amount paid before the due date for filing the return. As per the provisions of Sec. 54F, if any amount of sale receipts remain unutilised as on the due date for filing the return the same should be deposited in a specific bank account under the Capital Gains Deposit Scheme 1988. As the assessee was not aware of such a provision, he did not deposit the money in the bank account but paid the amount to the builder. Therefore, he has revised the computation and accordingly requested the AO to restrict the deduction.
During the course of assessment proceedings it was further submitted that the flat No. A 401 was not in a completely habitable state, though structures etc., were completed. This delay was entirely due to the reasons beyond the control of the assessee. When this was pointed out by the AO and when it was put to him that the new house should have been completed within a period of 3 years the assessee also agreed to the disallowance of the amount of Rs. 89,99,724 which he claimed as per the revised computation as he was under the bona-fide impression that it is a necessary condition that the new house ought to have been completed within 3 years. However, it was pointed out by chartered accountant that section 54F is a beneficial provision and the assessee very honestly and sincerely desiring to avail the benefits conferred by the said section has acquired a new house and has paid monies as per the agreement with the builder and hence he decided to contest the order of the AO. In view of the judicial opinion brought to the notice of the assessee, the assessee was desirous to avail of the benefit or else he will be put to substantial loss in spite of his bona-fide investment. With a view to avail of the exemption the assessee raised objection to disallowance before the CIT(A).
Submission of the Assessee
The assessee submitted before the CIT(A):
(a)that the assessee was always a law abiding citizen and has always acted with due discharge of responsibilities and obligations under law and at the same time was also desirous of availing the benefits conferred upon the assessee.
(b)Section 54F is a beneficial provision and the assessee very honestly and sincerely desiring to avail the benefits conferred by the said section has acquired a new house and has paid monies as per the agreement with the builder. However, unfortunately he was not aware of the further conditions in respect of the unutilized money, under section 54 F( 4).
(c)In view of the judicial opinion brought to the notice of the assessee, the assessee is desirous to avail of the benefit or else he will be put to substantial loss in spite of his bona-fide investment, with a view to avail of the exemption.
(d) The citation and gist of judicial precedents relied upon by the assessee are as under:
i) 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.
ii) Smt. Shashi Varma vs. CIT 224 ITR 106 (MP): In this case the assessee was denied exemption on the investments made with Delhi Development Authority. However, relief was granted by the Hon’ble High Court. It was held that section 54 of the Act of 1961 only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, takes years and years. Therefore, confining to two years’ period for construction and handing over possession thereof is impossible and unworkable under section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54. Therefore, the view taken by the Tribunal is not correct.
iii) Satish Chandra Gupta vs. Assessing Officer, 54 ITD 508 (ITAT, Delhi Bench): The facts of this case were, the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years. However, the house was constructed and completed subsequently. Relief was given on the ground that the delay had occurred on account of reasons beyond the control of the assessee.
Held by CIT (A)
The CIT(A) held that the property was sold on 09.2008. Accordingly, the investment/purchase should have been completed within two years thereon, i.e., by September, 2010. The CIT(A) observed that by assessee’s own admission, even as on date of passing this appellate order, the structure is not complete and the entire project is going through rough phase and it is more than five years since the assessee had entered into contract with the builder.
The CIT(A) held that though 54F is a benevolent section and should be construed not too technically and not too strictly. Nevertheless, the status of affairs as on date is such that it is not known when the project is to be completed or it will ever be completed at all. A reasonable delay in construction can always be condoned if it is for the reasons beyond the control of the assessee. However, there is a total uncertainty as to when this project would be finally completed. In these circumstances, the CIT(A) observed that the prescribed time limit of two years cannot be stretched too far. Accordingly, the CIT(A) dismissed appeal of the assessee.
Held by ITAT
We have heard both parties. In the present situation we have to consider the following factors distinguishing a house construction as against flat booked with the construction company in the context of exemption u/s. 54F:
- Real estate prices have soared up and, therefore, very few individual house are being constructed.
- Exemption is available in case of purchase of a flat within two years.
- It has been held by co-ordinate Benches that consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law would not disentitle the assessee from availing benefit u/s. 54F of the Act.
- The concept of reasonable delay will not apply once we accept the decision of the co-ordinate Bench in the case of Narasimha Raju Rudra Raju (supra).
- Section 54F is a benevolent provision.
In this scenario, the only issue is whether the amount of consideration received on transfer invested by the assessee in a flat constructed within three years would amount to construction of a residential house within the time limit of three years. In short, we are of the opinion that a flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Further, as already pointed out even if only advance is given the benefit still will be available for exemption u/s. 54F.
The assessee will get the benefit u/s. 54F for payment made till 12.9.2011. Hence the AO may verify the exact amount invested by the assessee up to 12.9.2011 and allow the claim under sec. 54F, accordingly.
