2012 (7) TMI 218 - AT - Income Tax

Long-term Capital gains - deduction u/s 54 - partial denial on ground that deduction is available against construction of house property, if the same is constructed after the transfer of capital asset and completed within three years from the date of transfer of the capital assets - assessee purchased and invested Rs 26.19 lacs in construction of residential property before transfer of capital asset - Held that - It is undisputed that assessee sold his residential house on consideration of sum of Rs. 35 lacs on 03.11.2007 and has spent a sum of Rs. 30.44 lacs on purchase of plot and on construction of a residential house thereon. The construction of this residential house was completed in the month of March, 2008. Since the construction was completed within three years of transfer of capital asset, the ratio as laid down in the case of Subramaniya Bhat (1986 (6) TMI 7 (HC)) is applicable to the facts of this case as it has been clearly held in that case that for claiming deduction u/s 54, the construction of the house should be completed within the prescribed time limit and date of commencement of construction is not material for claiming deduction - Decided in favor of assessee.

Summary

Issues:
Interpretation of Section 54 of the Income Tax Act regarding deduction for construction of residential house property.

Analysis:
The case involved a dispute over the interpretation of Section 54 of the Income Tax Act regarding the deduction for the construction of a residential house property. The Assessing Officer (A.O.) disallowed the deduction claimed by the assessee under Section 54, arguing that the conditions for the deduction were not fulfilled as the investment in the purchase of a residential plot and construction of a house were made before the date of transfer of the capital assets. The A.O. relied on a specific case law to support this decision. However, the Commissioner of Income Tax (Appeals) (CIT(A)) allowed the appeal of the assessee, directing the A.O. to grant the deduction claimed under Section 54. The CIT(A) analyzed the conditions laid down in Section 54 and concluded that the appellant fulfilled all the requirements for the deduction. The CIT(A) also highlighted a relevant case law supporting the completion of construction within the prescribed time limit for claiming the deduction.

Subsequently, the Revenue appealed the CIT(A)'s decision before the Appellate Tribunal. The Tribunal examined the facts of the case and concurred with the CIT(A)'s findings. It emphasized that the completion of construction within three years of the transfer of the capital asset was crucial for claiming the deduction under Section 54. The Tribunal also differentiated the case relied upon by the A.O., stating that the facts in that case were distinct from the present situation where the construction was completed after the transfer of the capital asset. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the judgment clarified the conditions necessary for claiming a deduction under Section 54 of the Income Tax Act related to the construction of a residential house property. It emphasized the importance of completing the construction within the specified timeframe and highlighted the relevance of specific case laws in determining the eligibility for such deductions.