2012 (8) TMI 762 - AT - Income Tax

Deduction u/s 54 - capital gain on sale of property on 27.12.04 - new flat purchased on 04.07.03 - deduction denied on ground that new flat purchased on 4.7.2003, is beyond one year from the sale of the flat on 27.12.2004 - full consideration paid and possession taken on 29.04.05 - Held that - As per the provisions of S2(47)(v), the transaction of transfer is deemed to be completed at the time when the conditions u/s 53A of the Transfer of Property Act are fulfilled. One of the essential conditions is handing over of the possession and part payment of consideration. Since in present case, new flat to be purchased by the assessee was not in existence at the time of agreement dated 5.7.2003; but was to be constructed by the builder, therefore, the transaction of purchase cannot be said to have been completed. Purchase of the new flat by the assessee will be treated on the date when the assessee has received the possession after it is constructed and not on the date of agreement for purchase when the flat itself was not in existence. Claim u/s 54 allowed - Decided in favor of assessee

Summary

Issues:
1. Disallowance of deduction u/s 54 of the IT Act for not making investment within the specified time limit.
2. Addition on account of commission paid.

Issue 1 - Disallowance of deduction u/s 54 of the IT Act:
The assessee sold a property and claimed deduction u/s 54 for investing in a new residential house. The Assessing Officer disallowed the claim as the new flat was purchased before the sale of the old property. The Commissioner of Income Tax(Appeals) upheld the disallowance. The assessee argued that the new flat was purchased after the sale of the old property, citing possession letter dated 29.4.2005 as proof. The assessee made substantial payments before and after the sale of the old property. The ITAT noted that the transaction was not completed when the agreement was made as the flat was under construction. Referring to sec. 2(47)(v) of the IT Act, possession and part payment are essential for transfer. The ITAT allowed the claim u/s 54, emphasizing possession date as crucial.

Issue 2 - Addition on account of commission paid:
The second issue involved the addition on account of commission paid. However, the judgment does not provide detailed analysis or discussion on this matter. Hence, it can be inferred that the ITAT did not find any merit in the addition of commission paid and did not sustain it.

In conclusion, the ITAT allowed the appeal of the assessee concerning the disallowance of deduction u/s 54 of the IT Act, emphasizing the importance of possession date for determining eligibility for the deduction. The judgment did not delve into the second issue of addition on account of commission paid, indicating that it was not a substantial matter in the decision-making process.