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2019 (4) TMI 203 - AT - Income TaxDenial of exemption u/s.54F - construction of new residential house on land purchase of two parts one before sale of assets - HELD THAT - It is important to bear in mind that sale of an original asset and side-by-side purchase or construction of a new residential house is not only an important decision of one s life having repercussions for a longer period of time, but is also a time consuming matter as the concerned person has to mobilise his resources. If a plot is purchased in contemplation of ensuing construction within a reasonable time even before the transfer of the original asset, there can be no fetters on the allowability of exemption u/s 54F, if other conditions are fulfilled. What is a reasonable period, depends on the facts and circumstances of each case, which should normally not exceed two years before the date of transfer of the original asset, albeit such a period of two years cannot be a benchmark. A plot of land purchased prior to such a reasonable period cannot ordinarily be viewed as having been purchased for starting construction of a new residential house. It, ergo, follows that so long as the construction of a new residential house is completed within a period of three years from the date of transfer of the original asset, the benefit of exemption u/s.54F has to be allowed with reference to whole of the cost of plot or the cost of construction thereon, even if such a process of purchasing the plot or constructing the house started within a reasonable time anterior to the date of transfer of the original asset. The date of purchase of the first part of the plot on 11.10.2010, which is within the reasonable period as discussed above, constitutes the date of initiation of process of construction, and the deadline for the completion of construction would be 10.6.2015. As the construction actually got concluded latest by 15.9.2014, we hold that the assessee is entitled to exemption u/s 54F with reference to the full amount of ₹ 1.12 crore spent on purchase of two parts of land and construction of new residential house thereon. The impugned order is overturned pro tanto.
Issues Involved:
1. Denial of exemption under Section 54F of the Income-tax Act, 1961. 2. Eligibility of the cost of land purchased before the transfer of the original asset for exemption under Section 54F. 3. Interpretation of the time limits for purchasing or constructing a new residential house under Section 54F. Issue-Wise Detailed Analysis: 1. Denial of Exemption under Section 54F: The only issue argued was the denial of exemption under Section 54F of the Income-tax Act, 1961, on a sum of ?34,83,440/-, which was the amount paid by the assessee for purchasing part of the land on 11-10-2010, on which construction was done. The assessee claimed exemption under Section 54F for a sum of ?87,73,454/- on a proportionate basis towards investment of ?1,12,92,650/- on the purchase of a plot and construction of a new residential house thereon. The Assessing Officer (AO) allowed exemption on the cost of construction incurred by the assessee to the tune of ?67,59,973/- but rejected the claim for exemption on the purchase of the plot amounting to ?44,14,840/-. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the part of the common plot purchased within one year before the date of transfer of the original asset qualified for exemption, but the investment made before one year from the transfer date was not eligible for exemption. 2. Eligibility of the Cost of Land Purchased Before the Transfer of the Original Asset: The Tribunal analyzed the relevant parts of Section 54F, which provides that the capital gain arising from the transfer of any long-term capital asset can be exempt if the assessee has, within one year before or two years after the transfer date, purchased or within three years after that date constructed a residential house. The Tribunal noted that the cost of the plot should be considered as eligible for exemption along with the cost of construction, as accepted by the CBDT Circular No.667 dated 18-10-1993. The Tribunal emphasized that the process of purchasing or constructing a new residential house must be completed within the stipulated period, but there is no specific opening time limit for starting the construction. 3. Interpretation of the Time Limits for Purchasing or Constructing a New Residential House: The Tribunal distinguished between the three modes of granting exemption under Section 54F: - Purchase of a residential house within one year before the transfer date. - Purchase of a residential house within two years after the transfer date. - Construction of a residential house within three years after the transfer date. The Tribunal clarified that the reference to the period of three years for constructing a new residential house is only for completing the construction, not commencing it. The Tribunal rejected the Revenue's argument that the date of transfer of the original asset should be the starting point for the construction process. It held that the exemption should be allowed if the construction is completed within three years, even if the plot was purchased within a reasonable time before the transfer of the original asset. The Tribunal concluded that the assessee is entitled to exemption under Section 54F with reference to the full amount spent on the purchase of land and construction of the new residential house, as the construction was completed within the stipulated period. Conclusion: The Tribunal allowed the appeal, holding that the assessee is entitled to exemption under Section 54F for the full amount of ?1.12 crore spent on the purchase of land and construction of the new residential house, as the construction was completed within three years from the date of transfer of the original asset. The order of the CIT(A) was overturned to this extent.
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