2012 (4) TMI 87 - AT - Income Tax

Exemption u/s 54F - The assessee sold the property on 8-6-2006 and immediately thereafter, on 5-7-2006, purchased a landed property to construct a house for a consideration of ₹ 33,88,160 - the Civil Court granted injunction to the owners of the property and ordered status quo, which prevented the assessee from proceeding further in constructing the residential house - The expiry of the three-year-period from the date of sale of the property was on 8-6-2009 - Even though these circumstances were explained before the assessing authority, the claim of exemption made by the assessee under section 54F was rejected on the ground that the assessee has not constructed the residential house within the period of three years, which is mandatory as per the provisions of the Income-tax Act, 1961 - the learned counsel appearing for the assessee, argued that the sale proceeds were straightaway utilized by the assessee in purchasing the landed property to construct a residential house and it was on that basis that exemption was claimed under section 54F - intention of the assessee is very clear from the fact that within days of the sale of her old property, the assessee had purchased the new site for constructing a residential house - The purchase value of the property is more than the long-term capital gains taxable in the hands of the assessee - Held that the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house - Decided in favor of the assessee

Summary

Issues:
Claim of exemption under section 54F for long-term capital gains due to inability to construct a residential house within the stipulated period.

Analysis:
The appellant sold a capital asset in the relevant year, resulting in capital gains, and claimed exemption under section 54F as she intended to construct a residential house. The appellant purchased land immediately after the sale, but faced legal challenges preventing construction. Despite explanations, the exemption claim was rejected due to non-compliance with the three-year construction period. The appellant's appeal was dismissed, leading to the current appeal.

The appellant argued that the land purchase, exceeding the capital gains, should suffice for exemption under section 54F, citing legal principles against compelling impossible tasks. The Revenue contended that exemption requires strict compliance, emphasizing the lack of house construction by the appellant.

The Tribunal noted the appellant's genuine intent to construct a house, evident from the swift land purchase post-sale. Legal battles ensued, preventing construction within the three-year limit. The appellant utilized the entire sale proceeds for land purchase, exceeding the capital gains, indicating a bona fide effort to claim section 54F benefits.

Considering the circumstances, the Tribunal held that the appellant's investment in land should be deemed an investment in constructing a residential house. Despite the inability to complete construction within the timeframe, the appellant fulfilled the statutory intent of section 54F. Therefore, the assessing authority was directed to grant the exemption as claimed.

Consequently, the appellant's appeal was allowed, rendering the stay petition moot and rejected. The judgment favored the appellant, recognizing her efforts to comply with the statutory provisions despite unforeseen legal impediments, thereby granting the exemption under section 54F.