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2017 (5) TMI 1041 - AT - Income TaxNon-granting of exemption u/s.54 in respect of sale of the residential property - whether the assessee can be considered to have constructed or acdquired residential property within 3 years from the sale of residential property i.e. 21.06.2014? - Held that - the present case, the assessee had already appropriated the capital gains for the purpose of construction of residential unit. However, construction was not completed within the stipulated period. In our opinion, liberal interpretation to be considered while granting exemption u/s.54 of the Act as it is a beneficial provision. The judgement in the case of CIT Vs. Smt. V.S.Shantha Kumari in (2015 (8) TMI 274 - KARNATAKA HIGH COURT ) wherein held that completion of construction within three years was not mandatory and was necessary was that the construction should be commenced. That cannot be disputed. When the commencement of the construction of the residential unit which is evidenced by construction agreement cited supra and also sale deed cited supra, in our opinion, assessee over and above satisfied the conditions laid down by Sec.54 of the Act and demonstrated his intention to invest the capital gains in residential house. In our opinion, assessee ought not to have denied the claim of deduction u/s.54 of the Act. Accordingly, we are of the opinion that the assessee is entitled for exemption u/s.54 - Decided in favour of assessee.
Issues Involved:
1. Non-granting of exemption under Section 54 of the Income Tax Act, 1961 for the sale of a residential property. Detailed Analysis: Issue 1: Non-granting of exemption under Section 54 of the Income Tax Act, 1961 Appellant’s Contentions: - The appellant claimed capital gains exemption under Section 54 for the sale of a residential property by investing in a new residential property. - The property was sold on 22-06-2011 for ?1,15,00,000, and the capital gains arising from the sale were ?74,20,062. - The appellant invested a total of ?1,04,02,567 in the new property, including payments to the builder and a home loan from India Bulls Housing Finance Limited. - The construction of the new property was not completed within the stipulated three-year period, and possession was handed over on 05-11-2015. - The appellant argued that the intention of the legislature was to encourage investments in residential houses and that completion of construction or occupation is not a requirement for claiming the exemption. - The appellant cited various case laws to support the claim that substantial payments towards the new property should qualify for the exemption. Respondent’s Contentions: - The respondent argued that under Section 54, the construction of the new property must be completed within three years from the date of sale of the original property. - The respondent cited several case laws to support the argument that the exemption is only available if the construction is completed within the stipulated period. - The respondent pointed out that the new property was not completed by 22-06-2014, and the possession was handed over only on 05-11-2015, thus disqualifying the appellant from claiming the exemption. Tribunal’s Findings: - The tribunal reviewed the provisions of Section 54 and noted that the time period allowed for construction is three years from the date of transfer. - The tribunal considered the appellant’s substantial investment in the new property and the commencement of construction as evidence of intent to invest the capital gains in a residential house. - The tribunal cited the Karnataka High Court’s judgment in CIT Vs. Smt. V.S. Shantha Kumari, which held that completion of construction within three years is not mandatory as long as the construction has commenced. - The tribunal concluded that the appellant had demonstrated the intention to invest the capital gains in a residential house and had satisfied the conditions laid down by Section 54. - The tribunal reversed the lower authorities' decision and allowed the appellant’s claim for exemption under Section 54. Conclusion: - The tribunal allowed the appeal and granted the exemption under Section 54 of the Income Tax Act, 1961, to the appellant, reversing the decision of the lower authorities.
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