2012 (3) TMI 80 - HC - Income Tax

Deduction u/s 54F in respect of building under construction despite the same having not being fully constructed within the stipulated period of three years for availing of the benefit Held that - The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit. See CIT v. Sardarmal Kothari (2008 - TMI - 30187 - MADRAS HIGH COURT) In present case, assessee had invested in residential property within twelve months from the date of realization of sale proceeds of shares. Further, substantial construction was completed within three years period. Hence Tribunal was justified in extending the benefit of section 54F to assessee Decided against the Revenue.

Summary

Issues Involved:
1. Eligibility for deduction under Section 54F of the Income-tax Act, 1961.
2. Completion of construction within the stipulated period.
3. Interpretation of "purchase" and "construction" under Section 54F.
4. Tribunal's decision on granting exemption.

Detailed Analysis:

1. Eligibility for deduction under Section 54F of the Income-tax Act, 1961:
The primary issue revolves around whether the assessee is eligible for deduction under Section 54F of the Act. The assessee sold shares and invested part of the proceeds in a house property, claiming exemption under Section 54F. The assessing authority denied the exemption, stating that the property was neither purchased within two years nor constructed within three years from the date of transfer of the asset.

2. Completion of construction within the stipulated period:
The assessing authority concluded that the construction was not complete within three years of the asset transfer, as essential works like flooring and electrical fittings were pending. The Tribunal, however, found that substantial construction was completed within the three-year period, with only minor fittings pending. The Tribunal noted that the villa was habitable with water and temporary electrical connections, thus justifying the exemption under Section 54F.

3. Interpretation of "purchase" and "construction" under Section 54F:
Section 54F provides exemption if capital gains are invested in purchasing or constructing a residential house within specified periods. The court emphasized that the provision aims to promote investment in residential properties and should be construed liberally. The court clarified that the essence of Section 54F is the investment of capital gains in a residential house. Completion of construction or execution of a sale deed within the stipulated period is not a strict requirement as long as the investment is made.

4. Tribunal's decision on granting exemption:
The Tribunal held that the assessee's investment in the construction was substantial and within the stipulated period, making the assessee eligible for the exemption. The Tribunal's decision was based on the fact that the assessee had invested Rs. 2,16,61,670/- within twelve months from the sale of shares, and the developer confirmed the stage of construction. The High Court upheld the Tribunal's decision, stating that the assessee had fulfilled the objective of Section 54F by investing in a residential house and taking possession, even if minor works were pending.

Conclusion:
The High Court dismissed the revenue's appeal, affirming the Tribunal's order that the assessee is entitled to the exemption under Section 54F. The court reiterated that the provision should be interpreted to encourage investment in residential properties, and minor delays in construction completion should not disqualify the assessee from the exemption. The substantial question of law was answered in favor of the assessee, and the appeal was dismissed.