2016 (10) TMI 884 - AT - Income Tax

Provisions of sec. 50C applicability - Claim of exemption u/s 54 - Held that - the sale consideration adopted for the purposes of income tax purposes is more than the stamp duty valuation and hence, in view, the provisions of sec. 50C are not applicable in the instant cases. Accordingly, set aside the orders passed by Ld CIT(A) on this issue and direct the AO not to apply the provisions of sec. 50C in the instant cases. - Decided in favour of the assessee. Entitlement to deduction u/s 54 on the cost of new flat acquired - Held that - Unable to agree with the view of the Ld CIT(A) that the possession should have been taken within three years. Since the assessees have been considered to have paid entire cost of new flats, they should be allowed deduction u/s 54 of the Act in respect of cost of new flats. See Commissioner Of Income-Tax Versus Mrs. Hilla JB. Wadia 1993 (3) TMI 7 - BOMBAY High Court and circular No.471 dated 15.10.1986 and Part 2 of Circular No.672 dated 16.3.1993 - Decided in favour of the assessee.

Summary

Issues:
1. Applicability of sec. 50C in computation of long term capital gains.
2. Entitlement to deduction u/s 54 of the Act on the cost of new flat acquired.

Analysis:

Issue 1: Applicability of sec. 50C in computation of long term capital gains
The case involved joint owners who sold a property and received a sum of Rs. 51 lakhs and four constructed flats. The Assessing Officer applied sec. 50C to determine capital gains, considering stamp duty valuation. However, discrepancies arose in the computation for each co-owner. The ITAT Mumbai held that since the sale consideration declared for income tax purposes exceeded the stamp duty valuation, sec. 50C was deemed inapplicable. The ITAT ruled in favor of the assessees, setting aside the CIT(A)'s orders.

Issue 2: Entitlement to deduction u/s 54 of the Act on the cost of new flat acquired
The CIT(A) rejected the assessees' deduction claim u/s 54, citing that the new flat was not constructed within the stipulated period. The assessees argued that as they received new flats as part of the sale consideration, they should be deemed to have paid the entire consideration for the new flat. The ITAT considered relevant case laws and observed that the utilization of capital gains in constructing a new residential house was crucial for the deduction u/s 54. Relying on precedents and CBDT circulars, the ITAT disagreed with the CIT(A) and directed the AO to allow the deduction u/s 54 for the cost of new flats. Consequently, both appeals were allowed in favor of the assessees.

In conclusion, the ITAT Mumbai's judgment clarified the applicability of sec. 50C and the entitlement to deduction u/s 54 of the Act in cases involving computation of long term capital gains and acquisition of new flats.