2013 (5) TMI 74 - AT - Income Tax

Exemption u/s 54 - Purchase of 2 acres of land out of sale consideration and claimed exemption U/s 54 - No completion of construction within 3 years s the possession of the land could not be delivered by the developer. - Held that - provision contained u/s 54 including the proviso are parimateria with section 54F of the Act. The proviso to section 54 also lays down that if the amount of capital gain is not utilized towards construction of residential house within a period of 3 years from the date of transfer of original asset, then, it will be charged to capital gain u/s 45 of the Act in the year in which the period of three years from the date of transfer of the original asset expires. I The department has not disputed the fact that the assessee has invested ₹ 84.00 lakh in purchase of land towards construction of the house, which could not be constructed within the stipulated period of 3 years as the possession of the land could not be delivered by the developer. In these circumstances, the assessee's claim of exemption u/s 54 of the Act could not be denied in view of proviso to section 54 of the Act - Appeal of the assessee is allowed

Summary

Issues:
- Denial of assessee's claim of exemption u/s 54 of the Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad concerned the denial of the assessee's claim of exemption under section 54 of the Income Tax Act. The assessee had sold residential flats and claimed exemption for investing in land for constructing a house. However, the construction could not be completed within the stipulated 3-year period. The Assessing Officer disallowed the exemption, a decision upheld by the CIT(A). The assessee argued that the capital gain should only be taxed after the 3-year period, citing various legal precedents to support the claim.

The Tribunal considered the provisions of sections 54 and 54F of the Act, noting that if the capital gain is not utilized for construction within 3 years, it would be taxed as income in the year the period expires. Relying on the decision in the case of M. Janardhan Reddy, the Tribunal held that the assessee's claim for exemption could not be denied as the land was purchased for constructing a house, even though the construction was delayed due to the developer's failure to deliver possession. The Tribunal distinguished the decisions cited by the Departmental Representative, emphasizing that the facts of those cases were different. Consequently, the Tribunal directed the Assessing Officer to allow the exemption claimed by the assessee under section 54 for the relevant assessment year, subject to verifying if the capital gain was offered for taxation in the subsequent year as claimed by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the importance of fulfilling conditions for exemption under section 54 of the Act and the tax implications if the construction is not completed within the specified period. The decision underscored the significance of legal interpretations and precedents in determining the applicability of exemptions and taxation in such cases.