Case Law Details
Tarun Jalali Vs DDIT (ITAT Delhi)
Where construction of house was commenced even before the date of transfer of original asset, but it was completed within three years after the date of transfer, deduction under section 54F was admissible.
Sub-section 4 of section 54F prescribes appropriation of sale consideration of original asset towards provision of new asset made within one year before the date of transfer of original asset, two years from the date of transfer or construction of new in-house property, within three years from the date of transfer of original receipt but the Act does not prescribe any condition as to the date of commencement of construction of house property which may be commenced even before the date of transfer of original receipt. Similarly, the Hon’ble Karnataka High Court in the case of Commissioner of Income Tax vs J.R. Subramanya Bhat reported in 165 ITR 571 (Kar.) had expressed similar view and had held that investment made towards construction of house property prior to the date of transfer should also be eligible as deduction for the purpose of section 54 of the Act. Accordingly, respectfully following the ratio laid down by the Hon’ble Delhi High Court and the Hon’ble Karnataka High Court as aforementioned, we are of the view that provisions of section 54F do not prescribe any condition as to the date of commencement of construction of new house property, meaning thereby that the construction of house property may be commenced even before the date of transfer of original asset. However, it should be completed within three years after the date of transfer of original asset. On the facts of this case, we find that the construction of house property had been completed within three years from the date of transfer and accordingly, we are of the view that the assessee is eligible for exemption u/s 54F in respect of the two disputed amounts viz. Rs. 12 lakh paid on 20.06.2008 and Rs. 14,91,697 paid on 22.08.2008 which were expended prior to the date of transfer of original asset.
FULL TEXT OF THE ITAT JUDGMENT
This appeal has been preferred by the assessee against the order dated 27.02.2014 passed by the Ld. Commissioner of Income Tax(A)-XXIX, New Delhi for assessment year 2009-10.
2. Brief facts of the case are that the assessee sold a flat owned by him vide agreement to sale dated 30.09.2010. As per the assessee, he had entered into sale cum construction agreement dated 20.11.2007 with M/s Skyline Construction and Housing Pvt. Ltd. for purchase of flat no. A-304, Skyline Magnolia, Bangalore and had made payment amounting to Rs. 57,14,699/- towards the purchase of this new residential house on different dates ranging from 18.5.2007 to 15.4.2011. It was the assessee’s contention before the Assessing Officer that the new residential property was acquired vide sale deed dated 20.04.2011 which was within a period of three years from the date of sale for the old residential property and since the construction of the new house had been completed within the period of three years from the date of transfer of the old residential property, requirements of section 54 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) were fulfilled. It was also contended by the assessee before the Assessing Officer that although the construction was started prior to the date of sale of old property, the same was immaterial as the construction was completed within a period of three years from the date of sale. The assessee also contended before the Assessing Officer that in the alternative even if it was to be considered as purchase of new house, he had made substantial investment towards purchase of new house during the year under consideration and further that the agreement to buy a new house was within a period of one year from the date of sale of old house, and, therefore, the assessee was eligible for exemption u/s 54 notwithstanding the fact that the builder had failed to hand over the possession of the flat to the assessee within the stipulated period. However, the Assessing Officer was of the opinion that the case of the assessee did not fall within the precincts of section 54 of the Act as no allotment or agreement was made within the stipulated period of one year from the date of sale of the old property and further no substantial payments were made towards the cost of new asset and only an amount of Rs. 34,54,371/- was paid during the year under consideration. The Assessing Officer proceeded to add back the amount of exemption claimed by the assessee u/s 54 and amounting to Rs. 33,18,000/- to the income of the assessee.
2.1 Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax(A) who partly allowed the assessee’s appeal by holding that the assessee was entitled to benefit of section 54 in view of the judgment of the Hon’ble Allahabad High Court in the case of H.K. Kapur 234 ITR 753(Allahabad) wherein it was held that the agreement to construction being dated prior to the date of transfer of old asset was ultimately for allowing the benefit of exemption u/s 54 of the Act. However, the ld. Commissioner of Income Tax(A) also noted that the amount of capital gain not utilised for the construction of new house upto the due date of filing of return u/s 139(1) of the Act should have been deposited in the notified capital gain account scheme before filing of return of income which was not so done by the assessee. The ld. Commissioner of Income Tax(A) further noted that the assessee had appropriated Rs. 7,62,674/- only towards the construction of new flat after date of transfer of old asset and, therefore, the assessee was entitled to deduction u/s 54 only in respect of payment of Rs. 7,62,674/-.
2.2 Now, the assessee is in appeal before the ITAT against the partial confirmation of disallowance by the ld. Commissioner of Income Tax(A) and has raised the following grounds of appeal:-
“1. That on facts and circumstances of the case the CIT (A) has erred in not allowing rebate u/s 54 for investment made in residential house prior to date of sale of house.
2. That the learned CIT (A) has erred in not allowing claim of Rs. 26,91,697/- made prior to sale of house in spite of accepting that the assessee was entitled to claim u/s 54.
It is prayed that the claim of assessee for exemption u/s 54 may kindly be accepted.”
3. Ld. AR filed written submissions and also submitted before the Bench that although the assessee had made payments of Rs. 57,14,699/- towards the new residential house, the amount of Rs. 5,06,415/- paid on 18.05.2007 and Rs. 6 lakh paid on 11.3.2008 were amounts for which no deduction was being claimed in the return of income. It was further submitted that two other payments viz. Rs. 7,62,674/- paid on 22.10.2008 and Rs. 11,53,913/- paid on 15.04.2011 had been claimed towards deduction and deduction had been allowed on these two amounts by the department. It was further submitted that only two amounts on which the deduction had not been allowed were: Rs. 12 lakh paid on 20.06.2008 and Rs. 14,91,697/- paid on 22.08.2008. It was submitted that these payments were made prior to the date of sale of Noida property for which deduction was claimed in the return of income but was disallowed in the assessment. It was also submitted that the observation of the ld. Commissioner of Income Tax(A) in respect of these two payments as having not been deposited in the capital gains account scheme was incorrect as these amounts were actually expended by the assessee prior to the date of sale of property and, therefore, there was no requirement for having deposited this amount in the capital gains account scheme. Reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of Commissioner of Income Tax(A) vs Bharti Mishra reported in 265 CTR 374 wherein it was held that section 54F(1)(iii) does not specify that construction must begin after the date of sale of old asset and further that on liberal interpretation of the provisions, the assessee could not be denied benefit of section 54F on the ground that construction of house had commenced before sale of asset.
4. In response, the ld. Sr. DR placed reliance on the order of the ld. Commissioner of Income Tax(A).
5. We have heard the rival submissions and perused the material available on record. We find that the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs Bharti Mishra (supra) has observed that sub-section 4 of section 54F prescribes appropriation of sale consideration of original asset towards provision of new asset made within one year before the date of transfer of original asset, two years from the date of transfer or construction of new in-house property, within three years from the date of transfer of original receipt but the Act does not prescribe any condition as to the date of commencement of construction of house property which may be commenced even before the date of transfer of original receipt. Similarly, the Hon’ble Karnataka High Court in the case of Commissioner of Income Tax vs J.R. Subramanya Bhat reported in 165 ITR 571 (Kar.) had expressed similar view and had held that investment made towards construction of house property prior to the date of transfer should also be eligible as deduction for the purpose of section 54 of the Act. Accordingly, respectfully following the ratio laid down by the Hon’ble Delhi High Court and the Hon’ble Karnataka High Court as aforementioned, we are of the view that provisions of section 54F do not prescribe any condition as to the date of commencement of construction of new house property, meaning thereby that the construction of house property may be commenced even before the date of transfer of original asset. However, it should be completed within three years after the date of transfer of original asset. On the facts of this case, we find that the construction of house property had been completed within three years from the date of transfer and accordingly, we are of the view that the assessee is eligible for exemption u/s 54F in respect of the two disputed amounts viz. Rs. 12 lakh paid on 20.06.2008 and Rs. 14,91,697 paid on 22.08.2008 which were expended prior to the date of transfer of original asset. We allow the ground raised by the assessee.
5. In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 12.02.2018.
