2017 (6) TMI 442 - AT - Income Tax

Disallowance of exemption claimed by the assessee under Section 54 - Held that - Under the common law, for transfer of immovable property value of which is exceeding ₹ 100/-, a registered sale deed has to be executed. However, in view of the special provisions of Section 2(47) such a requirement under the common law, may not be applicable while interpreting Section 2(47) of the Act. Therefore, even though the assessee executed registered sale deed on 06.06.2012, this Tribunal is of the considered opinion that there was a transfer of property within the meaning of Section 2(47) of the Act on 09.04.2012 when the assessee entered in to an agreement for sale and handed over the physical possession. If the transfer of property took place on 09.04.2012, the payments were made on 23.04.02012 and 05.05.2012 are after the sale of the property. Even otherwise Section 54 clearly says that if the assessee, within a period of one year before or two years after the date on which the transaction took place, purchased or within a period of three years after that date, constructed a residential house in India, then the assessee is eligible for deduction under Section 54 of the Act. In this case, the investment was admittedly made one year before the date of sale of property. In view of language employed by Parliament in Section 54 of the Act, it is not the requirement that the sale consideration has to be invested in purchase of property. It is immaterial whether the assessee invested the sale consideration in purchasing of new flat on receipt of the money after the date of sale or one year before the sale of property. In this case, the assessee invested the sale consideration one year before the sale of property, therefore, the assessee is eligible for deduction under Section 54 of the Act - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of exemption claimed by the assessee under Section 54 of the Income-tax Act, 1961.

Detailed Analysis:
The only issue in this case is the disallowance of exemption claimed by the assessee under Section 54 of the Income-tax Act, 1961. The assessee sold a flat and claimed exemption under Section 54 for investing in a new property. The Assessing Officer disallowed the claim as the investment in the new property was made after the sale of the existing property. The contention of the assessee was that there was a transfer of property as per the agreement for sale executed before the registration of the sale deed. The key argument revolved around the interpretation of Section 2(47) of the Act and whether the assessee was entitled to exemption under Section 54 based on the timing of investments made in the new property.

The arguments put forth by both sides were carefully considered by the Tribunal. The Tribunal noted that the assessee had entered into an agreement for sale before the registration of the sale deed, where physical possession was handed over to the purchaser. The Tribunal analyzed the provisions of Section 2(47) of the Act and Section 53A of the Transfer of Property Act to determine if there was a transfer of property for the purpose of income tax. The Tribunal held that the transfer of property occurred when the physical possession was handed over, even before the registration of the sale deed. This interpretation was crucial in deciding the eligibility of the assessee for exemption under Section 54 of the Act.

Furthermore, the Tribunal examined the requirements of Section 54 of the Act, which allows for deduction if the assessee purchases or constructs a residential house within a specified period before or after the transaction. The Tribunal emphasized that the timing of investment in the new property was within the permissible period as stipulated in Section 54. The Tribunal concluded that the assessee was eligible for deduction under Section 54, even though the investment was made before the sale of the existing property. Consequently, the orders of the lower authorities disallowing the claim were set aside, and the Assessing Officer was directed to allow the claim of the assessee under Section 54 while computing taxable income.

In conclusion, the appeal filed by the assessee was allowed, and the judgment favored the assessee's claim for exemption under Section 54 of the Income-tax Act, 1961. The Tribunal's decision highlighted the importance of the timing of property transfer and investments in determining eligibility for tax exemptions, emphasizing the specific provisions of the Act governing such transactions.