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1986 (7) TMI 187 - AT - Income Tax

Issues Involved:
1. Whether the appellant purchased the residential flat within the period of one year after the sale of the previous property.
2. Whether the appellant is entitled to the benefit of exemption under Section 54 of the IT Act.
3. Interpretation of the term 'purchase' under Section 54.
4. Whether the agreement to purchase and the registered sale deed can be construed as construction of a residential property.

Issue-Wise Detailed Analysis:

1. Purchase of Residential Flat within One Year:
The appellant sold his residential flat on 5th March 1981 and entered into an agreement to purchase a new flat on 26th June 1981. However, the construction was completed, and the conveyance deed was executed and registered on 3rd March 1983, beyond the one-year period stipulated by Section 54 of the IT Act.

2. Entitlement to Exemption under Section 54:
The Commissioner of Income Tax (CIT) argued that the appellant did not construct a new residential house within the stipulated period and thus was not entitled to the exemption. The appellant contended that the provision in Section 54 is directory and not mandatory, arguing that substantial compliance should suffice. The appellant cited the Supreme Court's decision in CIT vs. T.N. Aravinda Reddy, which construed the term 'purchase' liberally.

3. Interpretation of 'Purchase':
The Tribunal examined whether the term 'purchase' in Section 54 is synonymous with 'ownership' or 'transfer of legal title.' It was concluded that the term should be construed liberally to effectuate the legislative intent. The date of the agreement to purchase, which eventually crystallized into a registered conveyance deed, should be considered the date of purchase for the purposes of Section 54. The Tribunal referenced the Supreme Court's decision in CIT vs. T.N. Aravinda Reddy, which supported a liberal interpretation of 'purchase.'

4. Agreement to Purchase as Construction:
The appellant alternatively argued that the agreement to purchase should be seen as an intention to construct a residential property, given the practical difficulties in constructing skyscrapers. The Tribunal rejected this interpretation, noting that Section 54 should be strictly construed. The Tribunal referred to the case of Dr. Mrs. Mrudula A. Talwar vs. ITO, which distinguished between construction and purchase.

Conclusion:
The Tribunal concluded that the term 'purchase' should be construed liberally, and the date of the agreement to purchase should be taken as the date of purchase for the purposes of Section 54. The fact that the major part of the consideration was paid after the expiry of one year did not disentitle the appellant to exemption, as there is no requirement in Section 54 for the consideration to be paid in cash within one year.

Result:
The order of the CIT was vacated, and the appeal was allowed.

 

 

 

 

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