2015 (12) TMI 499 - AT - Income Tax

Entitlement for deduction u/s 54 - Held that - We have already noticed that the deduction u/s 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction u/s 54 of the Act in respect of the cost of new flat. - Decided against assessee.

Summary

Issues Involved:
Interpretation of deduction u/s 54 of the Income Tax Act regarding the purchase date of a new residential house for claiming capital gain deduction.

Detailed Analysis:

1. Issue of Deduction u/s 54 of the Act:
The primary issue in this case revolves around the interpretation of Section 54 of the Income Tax Act, specifically concerning the eligibility for deduction related to the purchase of a new residential house. The appellant challenged the decision of the Ld CIT(A) regarding the entitlement of the assessee for deduction u/s 54. The crux of the matter was whether the date of possession or the date of entering into an agreement should be considered as the date of purchase of the new house for claiming the deduction.

2. Contentions and Legal Interpretation:
The appellant contended that the date of possession should be considered as the date of purchase since the house was habitable only upon possession. On the contrary, the AO argued that the date of purchase should be the date of entering into the agreement. The Tribunal analyzed the provisions of Section 54, which stipulate different time limits for the purchase and construction of a new house. The distinction between "purchase" and "construction" was crucial in determining the eligibility for deduction.

3. Precedents and Judicial Interpretation:
The Tribunal referred to precedents set by the Hon'ble jurisdictional High Court of Bombay and previous Tribunal decisions to clarify the distinction between "purchase" and "construction." The case laws highlighted that booking a flat with a builder for construction should be considered a case of "construction" rather than "purchase." The Tribunal emphasized that for claiming deduction u/s 54, the new house must be constructed within three years after the date of transfer of the original house.

4. Decision and Rationale:
After considering the arguments, precedents, and legal provisions, the Tribunal concluded that the booking of a flat with a builder, where possession is handed over after construction, falls under the category of "construction." Therefore, the assessee did not fulfill the conditions prescribed under Section 54 for claiming the deduction. Consequently, the Tribunal set aside the Ld CIT(A)'s order and upheld the AO's decision, denying the assessee the deduction u/s 54 of the Act.

5. Final Verdict:
In the final judgment, the Tribunal allowed the appeal filed by the revenue, emphasizing that the assessee failed to meet the requirements outlined in Section 54 for claiming the deduction. The order was pronounced on June 3, 2015, confirming the decision taken by the AO based on the distinction between "purchase" and "construction" in the context of Section 54 of the Income Tax Act.