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Issues involved: Interpretation of section 54 of the Income-tax Act, 1961 regarding exemption on capital gains for construction of a new house property within a specified period after the transfer of a capital asset.
Summary: The assessee owned an immovable property in Bombay, divided into a larger plot and a smaller plot. The larger plot was sold to a housing society, and the smaller plot had a new building constructed by a contractor. The assessee claimed exemption u/s 54 for the cost of construction of the new building. However, the Income Tax Officer (ITO) disallowed the claim as the conditions of s. 54 were not met. On appeal, the Appellate Tribunal found that while the first condition of s. 54 was satisfied, the second condition regarding the construction of a house property within a specified period was not met. The Tribunal held that the new building was constructed before the transfer of the larger plot, thus the exemption under s. 54 was not applicable. The High Court upheld the Tribunal's decision, stating that the new house property must be constructed within the specified period after the transfer of the capital asset. The Court rejected the argument that possession of the property was not handed over to the assessee immediately, emphasizing that the completion of construction was the determining factor. The Court also dismissed the contention that various transactional features indicated construction within the specified period. The Court concluded that the provisions of s. 54 were not attracted in this case as the new house property was not constructed within the required timeframe. The question was answered in favor of the revenue, and the assessee was directed to pay the costs of the reference.
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