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2018 (8) TMI 1124 - AT - Income TaxDeduction u/s 54 - purchase of new residential house - AO disallowed the claim by observing that the assessee has not utilized capital gains for purchase of new residential house contending that the new residential house has been purchased out of own sources i.e. savings from saving bank account and bank loans. - Held that - the assessee is entitled to exemption under section 54 even though for the construction of the new house, the amount that was received by way of sale of his old property as such was not utilized. It was held by the Kerala High Court 1999 (9) TMI 955 - KERALA HIGH COURT that no provision is made by the statue that the assessee should utilize the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset. Entitlement of exemption under section 54 relates to the cost of acquisition of a new estate in the nature of house property for the purpose of his own residence within the specified period. - assessee has met with all the conditions stipulated under section 54(1) - Deduction allowed - Decided in favor of assessee.
Issues Involved:
1. Disallowance of deduction under Section 54 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Disallowance of Deduction under Section 54 Facts: The assessee sold an immovable property on 04.02.2012, earning a long-term capital gain of ?83,04,453/-. Prior to this sale, the assessee purchased a new residential flat on 19.04.2011 for ?1.25 crores, with the assessee's share being ?91.20 lakhs. The purchase was funded through ?24 lakhs from savings and ?67 lakhs from a bank loan. The Assessing Officer (AO) disallowed the claim for exemption under Section 54, arguing that the capital gains were not utilized for the purchase of the new property, as the funds used were from savings and loans. CIT(A) Decision: The CIT(A) upheld the AO's decision, relying on several tribunal decisions which emphasized that the capital gains should be utilized for the purchase of the new property. The CIT(A) noted that the assessee did not use the sale consideration for the new property purchase or loan repayment, nor deposited it in the capital gain account scheme. Tribunal Analysis: The Tribunal examined the facts and relevant legal provisions. The key points considered were: - The assessee purchased the new residential house within one year before selling the old property, meeting the time frame stipulated in Section 54. - The source of funds for the new property purchase (savings and loans) was deemed irrelevant as per legal precedents. Legal Precedents: 1. Kerala High Court in ITO vs. K.C. Gopalan (1999): It was held that the law does not require the sale consideration itself to be used for purchasing the new property. 2. ITAT in ACIT vs. Dr. PS Pasricha (2008): The Tribunal ruled that the source of funds for purchasing the new residential house is irrelevant as long as the purchase is within the specified period. 3. Bombay High Court in CIT vs. Dr. PS Pasricha (2009): Affirmed the Tribunal's decision, stating the requirement is the purchase of a residential house within the specified period, not the source of funds. 4. Punjab & Haryana High Court in CIT vs. Kapil Kumar Agarwal (2016): Confirmed that Section 54 does not mandate the sale consideration to be used for the new property purchase. 5. Gauhati High Court in CIT vs. Rajesh Kumar Jalan (2006): Supported the view that the exemption under Section 54 is based on the cost of acquisition of the new house within the specified period, irrespective of the source of funds. Conclusion: The Tribunal concluded that the assessee met all the conditions under Section 54. The purchase of the new residential house within one year before the sale of the old house qualified for the exemption, regardless of the source of funds. The Tribunal reversed the lower authorities' decisions and allowed the assessee's claim for exemption under Section 54. Order: The appeal by the assessee was allowed, and the order was pronounced in the open court on 04-07-2018.
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