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2017 (4) TMI 117 - AT - Income TaxDisallowance of exemption claimed u/s 54F - construction of new house property has been commenced prior to the date of transfer of original asset - Held that - We are of the view that the provisions of section 54F does not prescribe any condition as to the date of commencement of construction of new house property. The construction of house property may be commenced before the date of transfer of original asset, however it should be completed within three years after the date of transfer of original asset. In this case, on perusal of the facts available on record, we find that construction of house property has been completed within three years from the date of transfer. Therefore, we are of the view that the assessee is eligible for exemption under section 54F, towards amount invested in construction of house property prior to the date of transfer of original asset. The Commissioner of Income Tax (Appeals) after considering the relevant provisions has rightly deleted additions made by the Assessing Officer. We do not find any error or infirmity in the order of the Commissioner of Income Tax (Appeals), hence, we incline to uphold the order of the Commissioner of Income Tax (Appeals) and dismiss the appeal filed by the Revenue. - Decided in favour of assessee
Issues Involved:
1. Eligibility for exemption under Section 54F of the Income Tax Act for investment in house construction commenced before the transfer of the original asset. 2. Interpretation of statutory provisions regarding the timing of construction commencement for claiming exemption under Section 54F. Detailed Analysis: Issue 1: Eligibility for Exemption under Section 54F The primary issue revolves around whether the assessee is entitled to claim exemption under Section 54F of the Income Tax Act for investments made in the construction of a residential house that commenced before the transfer of the original asset. Facts and Arguments: - The assessee declared a long-term capital gain of ?1,80,66,004 from the sale of two sites and claimed an exemption under Section 54 for reinvestment in a residential house. - The Assessing Officer (AO) contended that the exemption should be under Section 54F and denied the claim because the construction of the new house began before the transfer of the original asset. - The AO relied on the Gujarat High Court decision in Smt. Shantaben P. Gandhi vs. CIT, which held that construction must occur after the transfer to qualify for the exemption. - The assessee argued that Section 54F only requires the completion of construction within three years after the transfer, not the commencement. The assessee cited favorable judgments from the Karnataka High Court (CIT vs. J.R. Subrahmanya Bhat) and the Delhi High Court (CIT vs. Bharathi Mishra). Judgment: - The Commissioner of Income Tax (Appeals) sided with the assessee, stating that the prevalent judicial view supports the claim that the date of commencement is irrelevant as long as the construction is completed within three years. - The Tribunal upheld this view, referencing the ITAT Visakhapatnam Bench's decision in DCIT vs. Dr. Chalasani Mallikarjuna Rao, which allowed exemptions for pre-transfer construction commencement. Issue 2: Interpretation of Statutory Provisions The second issue concerns the interpretation of the statutory provisions of Section 54F regarding the timing of construction commencement for claiming tax exemptions. Facts and Arguments: - The AO's interpretation was that the statute unambiguously requires construction to begin after the transfer of the original asset. - The Departmental Representative argued that the Commissioner of Income Tax (Appeals) erred in interpreting the statute, insisting that the law mandates construction to start post-transfer. - The assessee's Authorized Representative countered that the statute does not specify the commencement date, only the completion within three years. Judgment: - The Tribunal found that the statute does not prescribe any condition for the commencement date of construction. It emphasized that the only requirement is the completion of construction within three years from the transfer date. - The Tribunal referenced several judicial precedents supporting this interpretation, including the Karnataka High Court and Delhi High Court rulings, and concluded that the AO's restrictive interpretation was incorrect. Conclusion: - The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow the exemption under Section 54F, affirming that the construction commencement date is immaterial as long as the completion occurs within the stipulated period. - The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was deemed not maintainable. Final Order: - Both the Revenue's appeal and the assessee's Cross Objection were dismissed, and the order was pronounced in open court on March 28, 2017.
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