2005 (4) TMI 518 - AT - Income Tax

Deduction u/s 54 - Capital gains - Profit on sale of property used for residential house - HELD THAT - The condition laid down in the case of purchase of the residential house is that the house must have been purchased one year prior to the sale of the capital asset or two years subsequent thereto. In the case of a residential house the condition laid down is that the residential house must have been constructed within three years after the sale of the capital asset. Therefore for proper application of this section it has to be seen whether it is a purchase or a construction in the above case. Vide Board s Circular No. 471 dated 15-10-1986 it has been explained that to qualify investment for construction u/s 54F the crucial date is the date of allotment of flat by DDA and payment of instalment was only a follow-up action and taking possession of the flat is only a formality of course instalments have to be paid by the allottee as per the schedule fixed by the DDA. Since the flat has been allotted to the assessee by the builder who would fall in the category of other institutions mentioned in the circulars it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat. Having come to this conclusion that it is case of construction it is now to be seen if the assessee fulfils the conditions laid down u/s 54(1) of the Act. The assessee was allotted flat No. B-62 and it was changed to C-32 vide letter dated 19-11-1999 and by letter dated 4-1-2000 the possession of the flat was already given to the assessee. Therefore the assessee is in total enjoyment of the property by 4-1-2000 i.e. within 3 years of the sale of her flat in Mumbai on 13-1-1997. Therefore the assessee has fulfilled the conditions prescribed in the section for claiming exemption. We therefore find sufficient strength in the arguments advanced by the ld. counsel for the assessee and we are of the opinion that the order of the CIT(A) is in consonance with the provisions of the Act and it deserves to be upheld. In the result appeal of the revenue stands dismissed.

Summary

Issues:
1. Correct interpretation of section 54 of the Income-tax Act regarding deduction eligibility.
2. Whether the investment made by the assessee in a residential property qualifies for exemption under section 54.
3. Application of the provisions of section 54 for purchase or construction of a residential house.
4. Compliance with the conditions laid down under section 54(1) of the Act for claiming exemption.

Issue 1: Correct interpretation of section 54 of the Income-tax Act regarding deduction eligibility

The appeal involved a dispute over the correct interpretation of section 54 of the Income-tax Act. The key contention was whether the investment made by the assessee in a residential property qualified for exemption under this section. The Assessing Officer had initially made an adjustment of Rs. 11,47,500 in the return processed under section 143(1)(a), leading to an appeal by the assessee to the CIT(A) challenging this adjustment.

Issue 2: Whether the investment made by the assessee in a residential property qualifies for exemption under section 54

The primary issue revolved around whether the investment made by the assessee in a residential property met the criteria for exemption under section 54 of the Income-tax Act. The assessee had sold a residential flat in Mumbai and invested a sum of Rs. 11,47,500 in another residential property in Ahmedabad. The dispute arose when the Assessing Officer disallowed the claim under section 54, leading to the appeal before the CIT(A) and subsequently before the Appellate Tribunal.

Issue 3: Application of the provisions of section 54 for purchase or construction of a residential house

Section 54 of the Income-tax Act provides for exemption in cases where the capital gain arises from the transfer of a long-term capital asset, specifically a residential house. The section outlines conditions for the purchase or construction of a residential house within specified timelines to avail the exemption. The Tribunal analyzed whether the investment made by the assessee in the residential property constituted a purchase or construction as per the provisions of section 54.

Issue 4: Compliance with the conditions laid down under section 54(1) of the Act for claiming exemption

The Tribunal delved into whether the assessee fulfilled the conditions prescribed under section 54(1) of the Act for claiming exemption. It was crucial to determine if the investment in the residential property, which was initially allotted as flat No. B-62 and later shifted to flat No. C-32, met the statutory requirements for exemption under section 54. The Tribunal considered the timeline of events, possession of the property, and the nature of the transaction to ascertain the eligibility of the assessee for the claimed deduction.

In conclusion, the Appellate Tribunal upheld the order of the CIT(A) and dismissed the revenue's appeal, ruling in favor of the assessee's eligibility for exemption under section 54 of the Income-tax Act. The Tribunal found merit in the arguments presented by the assessee's counsel, emphasizing compliance with the statutory provisions and the fulfillment of conditions for claiming the exemption.