2015 (8) TMI 463 - HC - Income Tax

Entitlement to deduction under section 54 - assessee had failed to construct her house within the stipulated period of three years - ITAT allowed claim - Held that - In order to get the benefit of section 54 of the Act, it does not appear that in case of purchase of the property with sale proceeds it has to be reckoned within three years, in case of construction of new building utilising sale proceeds, the construction has to be completed within a period of three years of the sale. In this case, question of registration of document does not arise and it is a question of investment in construction of the new building. When it was found on fact that construction was completed within three years of sale of the property, the benefit would automatically follow. Decided in favour of assesse.

Summary

Issues:
1. Interpretation of deduction under section 54 of the Income-tax Act, 1961.
2. Requirement of completion of construction within the stipulated period for claiming exemption under section 54 of the Act.
3. Validity of Income-tax Appellate Tribunal's decision regarding the Board's Circular No. 667.

Analysis:
1. The primary issue in this case revolves around the interpretation of the deduction under section 54 of the Income-tax Act, 1961. The appellant raised concerns regarding the Income-tax Appellate Tribunal's decision to direct the Assessing Officer to allow the deduction under section 54, despite the assessee failing to construct a house within the stipulated three-year period following the sale of the property.

2. The Court examined the requirement of completion of construction within the specified period for claiming exemption under section 54 of the Act. The Tribunal found that the assessee had invested the entire net consideration within the stipulated period and had substantially completed the construction of the residential property, except for minor finishing touches. The Tribunal concluded that since the assessee had acquired substantial domain over the new house and made significant payments towards land and construction within the specified period under section 54, the conditions for claiming exemption were met.

3. Another issue addressed was the validity of the Income-tax Appellate Tribunal's interpretation of the Board's Circular No. 667, dated October 18, 1993. The Tribunal stated that the Circular did not mandate the completion of construction to avail of the benefits under section 54/54F of the Act, contrary to the appellant's argument. The Court upheld the Tribunal's decision, emphasizing that in cases of construction using sale proceeds, completion within three years is crucial, rather than registration of documents. Since the construction was completed within the stipulated period, the Court found no legal basis to consider the appeal, ultimately dismissing it without costs.

In conclusion, the High Court of Andhra Pradesh upheld the Tribunal's decision, emphasizing the importance of completing construction within the specified period for claiming exemption under section 54 of the Income-tax Act, 1961. The Court's analysis focused on the factual completion of construction within the timeframe, rather than technicalities related to documentation or registration, highlighting the practical application of the law in such cases.