2019 (2) TMI 116 - AT - Income Tax

Deduction u/s 54 denied - payment made prior to the sale of the old property - assessee made payments after 10.04.2011 i.e. beyond the period of 3 years from the date of sale of old property - as property was not acquired within the stipulated period of three years and consequently, assessee is not entitled for deduction u/s 54 - Held that - In CIT vs H.K. Kapoor (1997 (8) TMI 44 - ALLAHABAD HIGH COURT) held in unequivocal terms that in view of the decision of the Karnataka High Court in the case of CIT vs. J.R. Subramanya Bhat (1986 (6) TMI 7 - KARNATAKA HIGH COURT) the capital gains arising from the sale of the old house to the extent it got invested in the construction of the new house would be exempt u/s 54 and Section 54 does not lay down that the construction of the new house must taken after the sale of the old residential house or that the sale proceeds of the old residential house must be used for the construction of the new residential house. The law is fairly settled on this aspect that for acquiring the new house, it is not necessary that the assessee must utilize only the sale proceeds of the old house. By respectfully following this line of decision of the higher fora, we hold that the authorities below are not correct in refusing to accept the claim of the assessee to deduct such part of amount which was invested in the construction activity of the new house earlier to the sale of the old house. Turning to the other limb of the contention of the authorities below that the assessee did not acquire the property within three years from the date of the sale of the old house, the fact remains that there is no dispute that except the sum of ₹ 22,91,382/-, the entire sale consideration for the new house was invested on or earlier to 23.3.2011 i.e. within 3 years from the date of the sale of the old house. No substance in the objection taken by the authorities below to disallow the claim for deduction u/s 54 of the Act. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of deduction claimed under section 54 of the Income-tax Act, 1961.
- Eligibility of the assessee for deduction under section 54 based on the timing of investments and property acquisition.

Analysis:
1. The assessee challenged the order dated 29.04.2015 in Appeal No.49/14-15 for the Asstt. Year 2009-10 passed by the Commissioner of Income-tax (Appeals)-20, New Delhi, regarding the disallowance of the deduction claimed under section 54 of the Income-tax Act, 1961.

2. The case involved the sale of a house property by the assessee and his wife, resulting in long term capital gains. The assessee invested a portion of the sale consideration in a residential house project named "Omaxe Twin Towers" in Noida to claim deduction under section 54 of the Act.

3. The Assessing Officer disallowed the deduction claimed under section 54, stating that the possession of the new property was not handed over to the assessee within the stipulated period of 3 years, rendering the claim inadmissible.

4. The Commissioner of Income-tax (Appeals) upheld the assessment order, noting that the payment plan indicated that possession would not be offered within the required timeframe, making the pre-sale payment ineligible for deduction under section 54.

5. The assessee contended that the disallowance was unjustified, emphasizing that investments were made within the stipulated period, and possession delays were beyond their control.

6. The assessee's argument was supported by legal precedents, including the decision of the Hon'ble Allahabad High Court in CIT vs H.K. Kapoor, emphasizing that substantial investments in the new property should suffice to meet the requirements of section 54.

7. The Department, however, maintained that substantial compliance with the law was necessary, and failure to acquire the property within 3 years from the sale of the old property precluded the deduction under section 54.

8. Upon review, the Tribunal found no dispute regarding the facts, confirming that the majority of the sale consideration was invested before the stipulated period, satisfying the requirements of section 54.

9. Citing legal precedents, the Tribunal held that investments made before the sale of the old property could qualify for deduction under section 54, and substantial compliance with the 3-year requirement was met in this case.

10. Consequently, the Tribunal concluded that the authorities were unjustified in disallowing the deduction claimed under section 54, allowing the appeal in favor of the assessee.