2018 (2) TMI 875 - AT - Income Tax

Disallowing rebate u/s 54F - investment made in residential house prior to date of sale of house - Held that - Sub-section 4 of section 54F prescribes appropriation of sale consideration of original asset towards provision of new asset made within one year before the date of transfer of original asset, two years from the date of transfer or construction of new in-house property, within three years from the date of transfer of original receipt but the Act does not prescribe any condition as to the date of commencement of construction of house property which may be commenced even before the date of transfer of original receipt - See Commissioner of Income-tax Versus Bharti Mishra 2014 (1) TMI 446 - DELHI HIGH COURT Similarly in the case of Commissioner of Income Tax vs J.R. Subramanya Bhat reported in (1986 (6) TMI 7 - KARNATAKA High Court) had expressed similar view and had held that investment made towards construction of house property prior to the date of transfer should also be eligible as deduction for the purpose of section 54 of the Act. On the facts of this case, we find that the construction of house property had been completed within three years from the date of transfer and accordingly, we are of the view that the assessee is eligible for exemption u/s 54F in respect of the two disputed amounts viz. ₹ 12 lakh paid on 20.06.2008 and ₹ 14,91,697 paid on 22.08.2008 which were expended prior to the date of transfer of original asset. We allow the ground raised by the assessee.

Summary

Issues:
1. Eligibility for exemption u/s 54 of the Income Tax Act, 1961 based on the purchase of a new residential property.
2. Requirement of depositing unutilized capital gain in the notified capital gain account scheme.
3. Allowance of deduction for payments made towards the construction of a new house prior to the date of sale of the old property.

Analysis:

*Issue 1: Eligibility for exemption u/s 54*
The appellant claimed exemption u/s 54 for the purchase of a new residential property within three years from the date of sale of the old property. The Assessing Officer disallowed the exemption as no allotment or agreement was made within the stipulated period, and only a partial payment was made. The Commissioner of Income Tax(A) partly allowed the appeal, considering a judgment allowing benefits under section 54 for an agreement to construction dated prior to the sale of the old asset. However, the Commissioner noted non-utilization of capital gain for construction and allowed deduction only for the amount spent post-sale. The ITAT, following precedents, held that construction could commence before the sale of the old asset as long as it was completed within three years post-sale. Consequently, the appellant was granted exemption for payments made before the sale of the old property.

*Issue 2: Requirement of depositing unutilized capital gain*
The Commissioner observed that the unutilized capital gain should have been deposited in the notified capital gain account scheme before filing the return, which the appellant failed to do. However, the ITAT did not address this issue in the judgment, focusing instead on the eligibility for exemption u/s 54 based on the construction timeline.

*Issue 3: Allowance of deduction for pre-sale payments*
The appellant contended that certain payments made before the sale of the old property were disallowed by the Commissioner despite being expended before the sale. The ITAT, citing judgments, held that construction could commence before the sale date, and the appellant was entitled to deduction for these disputed amounts paid before the sale.

In conclusion, the ITAT allowed the appeal, granting the appellant exemption u/s 54 for payments made towards the new house before the sale of the old property. The judgment emphasized the completion of construction within the stipulated period rather than the commencement date. The issue of depositing unutilized capital gain in the notified scheme was not addressed explicitly in the judgment.