2017 (12) TMI 1060 - AT - Income Tax

Partial rejection of claim for deduction u/s 54 - assessee held 1/3rd share in Flat - requirement that the sale proceeds realised on sale of old residential house alone should be utilised - Held that - For the purpose of sec. 54 of the Act, we have to see whether the assessee has completed the construction within three years from the date of transfer of old asset. In the instant case, there is no dispute that the assessee took possession of the new flat within three years from the date of sale of old residential flat. Accordingly, we are of the view that the assessee has complied with the time limit prescribed u/s 54 of the Act. Since the amount invested in the new flat prior to the due date for furnishing return of income was more than the amount of capital gain, the requirements of depositing any money under capital gains account scheme does not arise in the instant case. Further, the Hon ble High Court has held in the case of K.C.Gopalan 1999 (9) TMI 955 - KERALA HIGH COURT that there is no requirement that the sale proceeds realised on sale of old residential house alone should be utilised. Thus we are of the opinion that the assessee is entitled for deduction of full amount of capital gains u/s 54 of the Act, as he has complied with the conditions prescribed in that section. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to allow the deduction u/s 54 of the Act as claimed by the assessee.

Summary

Issues:
1. Partial rejection of claim for deduction u/s 54 of the Act for assessment year 2013-14.

Comprehensive Analysis:
The appeal challenged the partial rejection of the deduction claim u/s 54 of the Act for the assessment year 2013-14. The assessee sold a flat and claimed the entire capital gain as deductible under sec. 54 for acquiring a new flat. The assessing officer considered the acquisition as a purchase, limiting the deduction. The AO held certain payments ineligible for deduction, reducing the capital gain amount. The CIT(A) upheld this view, treating the acquisition as a purchase based on a previous court decision. The assessee contended that the acquisition was a case of construction, not purchase, citing relevant court decisions.

The Tribunal considered the nature of the acquisition and relevant court decisions. It noted that booking a flat under construction can be viewed as construction, not just purchase. Relying on precedents, the Tribunal held that the acquisition of a new flat in an apartment under construction should be considered a case of construction, not purchase. The Tribunal set aside the tax authorities' view and applied sec. 54 accordingly, allowing the deduction claimed by the assessee.

The dispute also involved the timing of construction completion under sec. 54. The assessee argued that construction completion within three years from the sale of the old asset was the key requirement, not the commencement date. Citing court decisions, the assessee maintained that completion within the stipulated period sufficed. The Tribunal agreed, emphasizing that possession of the new flat within three years met sec. 54 conditions. It clarified that the amount invested in the new flat before the due date for filing income tax returns exceeded the capital gain, eliminating the need for a capital gains account scheme deposit. The Tribunal concluded that the assessee complied with sec. 54 conditions and allowed the full deduction claimed.

In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to grant the deduction u/s 54 of the Act as claimed. The decision emphasized compliance with sec. 54 requirements, considering the nature of the acquisition and completion of construction within the specified timeframe.