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2014 (1) TMI 446 - HC - Income TaxExemption u/s 54F - whether the respondent-assessee can be denied benefit of Section 54F because construction of the house had commenced before the sale of the shares i.e., on 17th September, 2008 - Held that - Following CCE v. Favourite Industries 2012 (4) TMI 65 - SUPREME COURT OF INDIA - It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally - Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house - Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted - Decided against Revenue.
Issues Involved:
1. Commencement of construction before the sale of shares. 2. Completion of construction within three years from the date of sale. 3. Interpretation of Section 54F of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Commencement of Construction Before the Sale of Shares: The primary issue raised was whether the benefit under Section 54F of the Income Tax Act, 1961, could be denied to the respondent-assessee because the construction of the house had commenced before the sale of shares. The Assessing Officer rejected the claim on this ground. However, the Commissioner of Income Tax (Appeals) and the Tribunal relied on precedents from the Allahabad High Court and Karnataka High Court, which interpreted Section 54 (similar to Section 54F) to mean that the date of commencement of construction was immaterial. The critical factor was the completion of construction within the specified period. The Tribunal's conclusion was that the commencement date did not bar the assessee from claiming the benefit, provided the construction was completed within the stipulated time. 2. Completion of Construction Within Three Years from the Date of Sale: The second ground for rejecting the claim was that the construction was not completed within three years after the date of sale. However, the Commissioner of Income Tax (Appeals) found that the construction was completed within three years from the date of sale of shares (sold on 17th September 2008 and construction completed in June 2011). This factual finding was not contested by the Revenue before the Tribunal or in the present appeal. Thus, the completion of construction within the required timeframe was established. 3. Interpretation of Section 54F of the Income Tax Act, 1961: The court examined the interpretation of Section 54F, which provides for exemption on capital gains if the proceeds are invested in a residential house. Section 54F(1) states that the assessee must either purchase a residential house within one year before or two years after the sale, or construct a house within three years after the sale. The court noted that there was no stipulation that construction must begin after the sale of the original asset. The requirement was that the construction should be completed within the specified period. The court emphasized that Section 54F is a beneficial provision and should be interpreted liberally once the assessee falls within its ambit. Consistency in Judicial Pronouncements: The judgment highlighted the importance of consistency in judicial decisions, referencing the Supreme Court's observations on the principle of stare decisis and the need for stability in legal interpretations. The court noted that the interpretation of Section 54/54F had been consistent since 1986 and should not be altered after nearly two decades. Conclusion: The court found no merit in the Revenue's appeal and dismissed it, affirming that the respondent-assessee was entitled to the benefit under Section 54F. The court reiterated that the commencement date of construction was immaterial as long as the construction was completed within the specified period, and that Section 54F should be interpreted liberally to benefit the assessee.
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