2015 (10) TMI 1754 - HC - Income Tax

Entitlement to exemption under Section 54 - whether the assessee failed to construct a habitable house within a period of three years from the date of transfer - ITAT allowed the claim - Held that - The benefit of section 54(1) is available, if the assessee has, within a period of one year before or two years after a date on which the transfer took place, purchased, or has, within a period of three years after that date, constructed, a residential house in India. The fact that the assessee sold the residential house at Chennai onn 28.11.2007 and the fact that he purchased three adjoining residential house-sites on 10.3.2008 are not in dispute. The fact that the purchase of the residential sites was at a cost of ₹ 1,18,94,408/- and the fact that an advance of ₹ 70,00,000/- was paid to a builder on 28.6.2008 are also not in dispute. Therefore, the assessee has actually purchased three residential sites within a year and had entrusted the work of construction to a builder. If the completion of construction had been delayed on account of the delay in the Airports Authority of India in giving clearance and the Town Planning Authority giving approval to the building plan, the benefit of section 54 cannot be denied to the assessee. After all, the object of section 54(1) is to ensure that if the sale proceedings are invested in a residential house, the assessee should be entitled to the benefit. - Decided in favour of assessee.

Summary

Issues:
1. Entitlement to exemption under Section 54 of the Income Tax Act when the construction of a habitable house was not completed within three years from the date of transfer.

Analysis:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, challenging the entitlement of the assessee to exemption under Section 54. The assessment for the relevant year was initially completed, allowing the exemption claimed by the assessee. However, a subsequent order under Section 263 held the exemption to be incorrect, leading to a reassessment disallowing the claim and increasing the taxable income. The primary issue revolved around the completion of construction of a residential house within the stipulated three-year period as required by Section 54 for claiming exemption.

The Tribunal's decision in favor of the assessee was based on a detailed examination of the facts. The assessee had sold a property in Chennai and purchased three residential sites in Bangalore within the specified time frame. Despite delays in obtaining necessary approvals for construction, the Tribunal found that the assessee had fulfilled the conditions of Section 54 by purchasing the sites and initiating construction within the stipulated period. The Tribunal referenced previous decisions and legal provisions to support its conclusion that the delay in construction due to external factors did not disqualify the assessee from claiming the exemption.

The Tribunal's analysis considered the legislative intent behind Section 54, emphasizing that the primary objective is to ensure reinvestment of sale proceeds into a residential property to benefit the assessee. The completion of construction within the prescribed time frame was viewed in light of the overall compliance with the statutory requirements, including the purchase of the sites and initiation of construction. The decision highlighted that the delay in obtaining approvals should not penalize the assessee from availing the intended tax benefit under Section 54.

Ultimately, the High Court upheld the Tribunal's decision, noting that the assessee had met the conditions of Section 54 by purchasing the residential sites and commencing construction within the specified time frame. The Court concurred with the Tribunal's interpretation of the law and the factual findings, emphasizing that the purpose of Section 54 is to facilitate reinvestment in residential properties. Consequently, the appeal by the Revenue was dismissed, affirming the entitlement of the assessee to exemption under Section 54 of the Income Tax Act.