2016 (5) TMI 589 - HC - Income Tax

Entitlement to exemption under Section 54 - ITAT concluded merely purchasing a flat for the purpose of seeking exemption of capital gain taking within a period of two years would imply taking the actual possession and also completion certificate of such premises within such period - Held that - The purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of the litigation. In the present case, Tribunal has noted that the assessee has sold the property on 01.12.2009 and the assessee has made the payment on 16.03.2010. The assessee was required to get the house and occupancy certificate on or before 01.12.2011. But however, the assessee got the occupancy certificate of the property on 17.01.2014. The assessee submitted the documentary evidence to show that after purchasing the property there was a civil suit filed by the other parties and the assessee could not complete the construction and the licence for constructing the house was accordingly delayed. The learned Tribunal further noted that CIT (A) in his order relied upon the decision of the Madras High Court in the case of CIT V/s Sadarmal Kothani (2008 (6) TMI 15 - MADRAS HIGH COURT ) wherein, it is held that in order to get the benefit under Section 54 of the Income Tax, the assessee need not complete the construction of the house and occupy the same. It is further noted that the assessee has invested the money and the occupancy certificate is delayed which is beyond the control of the assessee then the assessee is entitled for deduction under Section 54 of the Act. The learned Tribunal as such found that the assessee was entitled for deduction under Section 54 of the Act - Decided against revenue

Summary

Issues Involved:
1. Justification of Income Tax Appellate Tribunal's decision on capital gain exemption under Section 54 of the Income Tax Act.
2. Interpretation of the term "purchase" for the purpose of capital gain exemption under Section 54.
3. Applicability of judicial precedents on the interpretation of Section 54.

Detailed Analysis:

1. Justification of Income Tax Appellate Tribunal's decision on capital gain exemption under Section 54 of the Income Tax Act:
The core issue for consideration was whether the Income Tax Appellate Tribunal (ITAT) was justified in concluding that merely purchasing a flat within two years to seek exemption of capital gain implies taking actual possession and obtaining a completion certificate within such period. The records indicated that the consideration amount was paid to the developer, M/s Ashraya Real Estate Developers, but the construction was incomplete due to a dispute between a bank and the original owner. The injunction was vacated, and possession was handed over to the respondent beyond the two-year period. The payment of the total consideration by the respondent, despite the delay in possession and deed of conveyance, was deemed sufficient to avail the exemption under Section 54. The judgment referenced the Delhi High Court's decision in Commissioner of Income Tax II vs. Kuldeep Singh, which supported this view.

2. Interpretation of the term "purchase" for the purpose of capital gain exemption under Section 54:
The judgment delved into the interpretation of "purchase" under Section 54 of the Income Tax Act. The term can be given both restrictive and wider meanings. A restrictive meaning would imply the final transfer of legal title, such as through a sale deed. A wider interpretation could include payment of consideration or part consideration along with transfer of possession under Section 53A of the Transfer of Property Act, 1882. The Supreme Court in CIT Andhra Pradesh vs. T.N. Aravinda Reddy (1979) and Sh. Sanjeev Lal vs. CIT, Chandigarh & Anr. (2014) endorsed a pragmatic and practical interpretation, allowing for a wider understanding of "purchase" to include payments made and rights acquired even if the legal title transfer was delayed.

3. Applicability of judicial precedents on the interpretation of Section 54:
The judgment referenced several judicial precedents to support its conclusions. The Delhi High Court's decision in Commissioner of Income Tax II vs. Kuldeep Singh was extensively cited. It emphasized that the purpose of Section 54 is to provide relief to individuals replacing their residential house within the stipulated period. The Madhya Pradesh High Court in Shashi Verma vs. CIT (1997) and the Calcutta High Court in CIT vs. Smt. Bharati C. Kothari (2000) also supported the view that substantial investment in construction within the stipulated period suffices, even if the construction is not completed. The principle of purposive interpretation was highlighted to avoid unjust results and achieve the legislative intent.

Conclusion:
The High Court agreed with the ITAT's decision, noting that the purchase would be considered complete when the consideration is duly paid, and construction has commenced, despite delays due to litigation. The assessee's inability to complete construction and obtain the occupancy certificate within the stipulated period, due to circumstances beyond their control, did not disqualify them from claiming the exemption under Section 54. The appeal was thus rejected, and no substantial question of law was found for consideration.