2017 (2) TMI 339 - HC - Income Tax

Eligibility of exemption u/s 54F - as within the stipulated period the assessee has purchased plot for construction of residential house but constructions has not been completed - Whether phrase constructed residential house , inter-alia, will include investment in purchase of residential plot and investment in payment of development charges for use of plot ? - Held that - The assessee has not started the construction within the specified period and the development charges have been paid to M/s Ansal Housing and Construction Ltd. for the development of the road and other facilities in the colony where the plot is situated at a pre-determined rate depending on the size of the plot. Mere payment of the development charges to the builder does not mean that the assessee has started construction, which is essential condition or claiming exemption u/s 54F of the I.T. Act. As in the case of Pawan Kumar Garg v. Commissioner of Income Tax reported in (2007 (7) TMI 294 - PUNJAB AND HARYANA HIGH COURT ) wherein also the Court has held that no benefit under Section 54F of the Act could be given to the assessee, who had failed to fulfil the primary ingredients of proving either the constructions of a house or the purchase of a house. In fact there is not such a whisper that the construction had been started or that any portion at all had been built. - Decided against the assessee.

Summary

Issues:
1. Entitlement for exemption under Section 54F of the Income Tax Act where construction of residential house is not completed within the stipulated period.
2. Inclusion of investment in purchase of residential plot and payment of development charges for the plot under the phrase 'constructed residential house.'
3. Necessity of completion of construction within stipulated period for availing exemption under Section 54F.

Analysis:
1. The appellant appealed against the Tribunal's order rejecting the application for exemption under Section 54F of the Income Tax Act. The appellant had purchased a plot for constructing a residential house within the stipulated period but failed to complete the construction. The Commissioner Income Tax (Appeals) allowed the appeal, relying on a judgment of the Madras High Court and a CBDT Circular. However, the Income Tax Appellate Tribunal reversed the decision, emphasizing that construction had not commenced within the specified period, leading to the denial of the exemption.

2. The Tribunal examined the case in detail, noting that the assessee had only paid development charges to the builder for infrastructure development in the colony where the plot was located. The Tribunal clarified that payment of development charges alone does not constitute the start of construction, a crucial condition for claiming exemption under Section 54F. The Tribunal referred to a Division Bench decision of the High Court and a judgment of the Punjab and Haryana High Court, emphasizing the importance of fulfilling the requirements of either constructing or purchasing a house within the specified period to avail the benefits under Section 54F.

3. The Tribunal's decision was based on the principle that the assessee had not initiated construction within the stipulated period, as evidenced by the payment of development charges without actual construction work commencing. Relying on legal precedents and the factual findings of the case, the Tribunal upheld the assessing officer's decision to disallow the exemption claimed under Section 54F. Consequently, the questions of law were answered in favor of the department, leading to the dismissal of the appeal without costs.