1984 (7) TMI 152 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption under section 54 of the Income-tax Act, 1961.
2. Completion of construction within the stipulated period.
3. Nature of transaction: purchase or construction of flats.
4. Interpretation of statutory provisions and judicial precedents.

Detailed Analysis:

1. Entitlement to Exemption under Section 54 of the Income-tax Act, 1961:
The primary issue in this appeal is whether the assessee is entitled to exemption under section 54 of the Income-tax Act, 1961. The assessee claimed exemption on the grounds that she had ordered the construction of new flats within the stipulated period. However, the Income Tax Officer (ITO) denied the exemption, stating that the construction was not completed within two years from the date of sale of the old house property.

2. Completion of Construction within the Stipulated Period:
The assessee argued that the construction of the new flats was delayed due to factors beyond her control, such as the non-availability of cement following the Maharashtra cement scandal. Despite these arguments, the Commissioner (Appeals) held that the actual construction of the house within two years from the date of sale of the old house is a mandatory requirement to get exemption under section 54. The assessee admitted that the construction was not completed within the two-year period, and possession of the flats was taken in 1982, which was beyond the stipulated period.

3. Nature of Transaction: Purchase or Construction of Flats:
The Tribunal examined whether the transaction was a purchase or construction of flats. The agreements dated 1-4-1981 with Somnath Builders indicated that the assessee intended to purchase the flats after their construction was completed. The Tribunal concluded that the assessee did not construct the flats but purchased them, which required the purchase to be completed within one year from the date of sale of the old house to qualify for exemption under section 54. Since the purchase was completed in 1982, beyond the one-year period, the assessee was not entitled to the exemption.

4. Interpretation of Statutory Provisions and Judicial Precedents:
The Tribunal considered the interpretation of the words "has constructed" in section 54. It held that the construction must be completed within two years from the date of sale of the old house, and an incomplete construction cannot be considered a house for the purposes of exemption under section 54. The Tribunal referenced the Orissa High Court decision in CWT v. K.B. Pradhan, which stated that an incomplete construction cannot be called a house. The Tribunal also noted that the power to modify the language of the statute to avoid absurd results, as discussed in the Supreme Court decision in K.P. Varghese v. ITO, is not available to lower Tribunals.

Conclusion:
The Tribunal dismissed the appeal, holding that the assessee did not fulfill the conditions for exemption under section 54. The construction of the new flats was not completed within the stipulated two-year period, and the transaction was deemed a purchase rather than construction, requiring completion within one year from the date of sale of the old house. The Tribunal emphasized the importance of adhering to the literal interpretation of statutory provisions unless higher courts determine otherwise.