2019 (5) TMI 534 - AT - Income Tax

Disallowance of deduction u/s 54F - whether the new asset is purchased or constructed? - as per AO assessee has not purchased the house in the present case but has made payment installment to the builder for construction of the property thus flat cannot be considered as a new asset - whether the acquisition of an apartment under a builders buyers agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction are a case of purchase of a new asset or construction of new asset ? - HELD THAT - As decided in KULDEEP SINGH 2014 (8) TMI 463 - DELHI HIGH COURT acquisition of an apartment under a builders buyers agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of new asset. Whether the construction of the house property if commenced before the date of the sale of the original asset whether the assessee is entitled to deduction u/s 54F of the income tax act or not? - As decided in BHARTI MISHRA 2014 (1) TMI 446 - DELHI HIGH COURT eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally - Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house - Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted In the present case assessee has purchased a house property i.e. a new asset and is entitled to exemption u/s 54F of the act despite the fact that construction activities of the purchase of the new house has started before the date of sale of the original asset which resulted into capital gain chargeable to tax in the hands of the assessee. Accordingly we reverse the order of the lower authorities and direct the assessing officer to grant deduction under section 54F - Decided against Revenue.

Summary

Issues Involved:
1. Whether the acquisition of an apartment under a builder's buyer agreement constitutes a "purchase" or "construction" of a new asset.
2. Whether the construction of a new asset, if commenced before the date of sale of the original asset, qualifies for deduction under Section 54F of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Purchase vs. Construction of New Asset:
The primary issue was whether the acquisition of an apartment under a builder's buyer agreement, where the builder constructs in a phased manner and payments are linked to construction, is categorized as a "purchase" or "construction" of a new asset. The Tribunal referred to the Delhi High Court's ruling in CIT vs. Kuldeep Singh, which held that such transactions should be considered as a "purchase" rather than "construction." The High Court emphasized that the term "purchase" should be interpreted pragmatically and broadly, not restricted to the final transfer of legal title. The Tribunal concluded that the assessee's acquisition of the apartment under the agreement qualified as a "purchase" of a new asset.

2. Commencement of Construction Before Sale of Original Asset:
The second issue was whether the commencement of construction before the sale of the original asset disqualified the assessee from claiming deduction under Section 54F. The Tribunal referred to the Delhi High Court's decision in CIT vs. Bharti Mishra, which held that the timing of the commencement of construction was immaterial as long as the construction was completed within the specified period. The High Court clarified that Section 54F does not stipulate that construction must begin after the sale of the original asset. The Tribunal affirmed that the assessee was entitled to the deduction under Section 54F, even though the construction of the new asset began before the sale of the original asset.

Conclusion:
The Tribunal concluded that the assessee's acquisition of the apartment under the builder's buyer agreement constituted a "purchase" of a new asset. Furthermore, the Tribunal held that the assessee was entitled to the deduction under Section 54F, despite the construction of the new asset commencing before the sale of the original asset. The Tribunal reversed the lower authorities' orders and directed the Assessing Officer to grant the deduction under Section 54F of ?79,85,761 to the assessee. The appeal of the assessee was allowed.