2016 (10) TMI 202 - AT - Income Tax

Exemption of long term capital gain under section 54 - whether the condition relating to construction of flat instead of condition relating to buying of the flat is applicable while allowing the exemption ? - Held that - The assessee had sold the property on 04- 03-2011 and, therefore, as per section 54, the assessee was required to construct a new residential house by 04-03-2014 since section 54 allows exemption to an assessee of long term capital gain arising from sale of residential house if the amount of capital gain is invested in construction of new residential house within a period of 3 years. There is no specific requirement that assessee should also obtain the possession of the same within the period of three years. The emphasis is upon the utilization of the amount in purchase / construction of the new residential house. It is noted that undisputedly, the assessee invested a sum of ₹ 1,03,50,932 which was more than the capital gain earned by the assessee. In our opinion, the Ld.CIT(A) rightly drew support from the circular issued by the CBDT No.672 dt 16-12-1993. It is further noted by us that section 54 is a beneficial provision intending to provide benefits to the assessee with a view to boost investment in housing infrastructure. Thus, while interpreting such provisions, an effort should be made in the direction so as to find out how the benefit of deduction can be granted and not to find out how the same can be denied. In case the assesse has fulfilled the conditions in substance, then the benefit should not be denied on mere technicalities. In our view, the assessee has made compliance of the requisite conditions of section 54 and, therefore, the benefit has been rightly granted by The CIT. See CIT vs Hilla JB Wadia 1993 (3) TMI 7 - BOMBAY High Court - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of conditions for exemption of long term capital gain under section 54 of the Income Tax Act, 1961.
2. Requirement of possession of new residential property within a specified period for claiming exemption.

Analysis:
1. The primary issue in this case revolved around the interpretation of conditions for claiming exemption of long term capital gain under section 54 of the Income Tax Act, 1961. The Assessing Officer rejected the assessee's claim as the possession of the new flat was not received, and construction was incomplete. However, the Ld.CIT(A) allowed the exemption, emphasizing the condition of construction within three years of the sale of the old property. The Ld.CIT(A) noted that the purpose of section 54 is to allow exemption if the capital gain is invested in construction within three years, irrespective of possession within the same period. The Ld.CIT(A) held that the assessee had invested more than the capital gain in the new property, meeting the conditions of section 54, and the possession timing was not crucial for exemption.

2. The second issue focused on whether possession of the new residential property within a specified period was necessary for claiming exemption under section 54. The ITAT Mumbai noted that section 54 emphasizes the utilization of the amount in purchase or construction of the new residential house, without a specific requirement for obtaining possession within the stipulated period. The tribunal highlighted that the aim of section 54 is to benefit the assessee and boost investment in housing infrastructure. Therefore, the tribunal upheld the Ld.CIT(A)'s decision, stating that as long as the assessee fulfills the substantive conditions of section 54, including investing the capital gain in construction within the stipulated time, the possession timing should not be a ground for denial of exemption.

3. The tribunal further emphasized that the interpretation of tax provisions should lean towards granting deductions rather than denying them on technical grounds. The tribunal found no reason to interfere with the Ld.CIT(A)'s order, as the assessee had complied with the conditions of section 54 and the factual findings were not refuted by the revenue. The tribunal dismissed the revenue's appeal, citing the judgment of the Hon'ble Bombay High Court in a relevant case. Ultimately, the tribunal upheld the decision of the Ld.CIT(A) and dismissed the revenue's appeal, affirming the granting of exemption to the assessee under section 54.

This detailed analysis of the judgment showcases the meticulous consideration of legal provisions and factual circumstances leading to the decision in favor of the assessee regarding the exemption of long term capital gain under section 54 of the Income Tax Act, 1961.