2013 (11) TMI 1380 - HC - Income Tax

Exemption from long term capital gains (LTCG) u/s 54F - Construction or acquisition of property - Held that - The architect s certificate showed that earlier structure was demolished and new construction was made on the plot - It was a case of new construction after demolition - The word construct is distinguishable from maintenance, which means to keep up, to keep from change, to preserve - The construction was carried out within the outer limit of three years - Decided against Revenue.

Summary

Issues:
1. Denial of benefit under Section 54F of the Income Tax Act and taxation of capital gains.
2. Deletion of addition under Section 68 of the Income Tax Act.

Issue 1: Denial of benefit under Section 54F and taxation of capital gains
The appellant, the Revenue, filed an appeal under Section 260A of the Income Tax Act, challenging the denial of benefit under Section 54F and the taxation of capital gains by the Assessing Officer. The Assessing Officer made two additions: firstly, denying the benefit under Section 54F and bringing capital gains of Rs.51,71,994 to tax, and secondly, adding Rs.19,75,410 under Section 68, which was later deleted by the CIT(Appeals) as unjustified. The CIT(Appeals) noted that the Assessing Officer himself accepted the factual position in the remand report. The assessee sold a property in Ghaziabad and declared capital gains as per Section 50C(1) based on stamp duty paid on circle rates, which was not objected to by the Assessing Officer.

Issue 2: Deletion of addition under Section 68 of the Income Tax Act
The second addition made by the Assessing Officer under Section 68 of the Income Tax Act was deleted by the CIT(Appeals) as entirely unjustified. The assessee had sold a property and purchased another property in Delhi, using a loan sanctioned by a nationalized bank. The Assessing Officer, under Section 54F, required the assessee to complete construction of a residential house within three years from the sale of the capital asset. The Assessing Officer noted that the purchased property was already fully constructed and questioned the need for reconstruction or renovation. However, the Assessing Officer did not dispute the amount spent on construction declared by the assessee, which exceeded the purchase value. The CIT(Appeals) allowed additional evidence and highlighted the difference between the old and new construction, ultimately concluding that it was a case of new construction after demolition, a finding affirmed by the tribunal.

In conclusion, the High Court dismissed the appeal by the Revenue, upholding the decisions of the lower authorities regarding the denial of benefit under Section 54F and the deletion of the addition under Section 68 of the Income Tax Act. The Court found that the construction was completed within the stipulated three-year period as required by Section 54F, and the factual findings supported the conclusion that it was indeed a case of construction under the Act. The Court left open the issue of whether cases of renovation or extension fall under the term "construction" in Section 54F for future determination.