2018 (11) TMI 322 - AT - Income Tax

Reduction of assessee s claim of deduction u/s 54 - housing loan of ₹ 50 lakh invested in purchase of new house excluded from the deduction claimed u/s 54 - reason for part disallowance as alleged utilisation of housing loan availed from Citi Bank towards purchase of new house - Held that - From the material placed before me, it appears, the assessee along with others had purchased a new flat vide agreement dated 23rd September 2010. From the copy of the said agreement placed in the paper book it also appears that the total sale consideration of ₹ 2.50 crore was also paid to the vendors before or at the time of execution of the agreement. Thus, from the aforesaid facts available on record, prima facie, it appears that the housing loan taken by the assessee was not utilised for purchase of the new house. On a plain interpretation of section 54(1) of the Act, it has to be concluded that if the assessee purchases a new house property one year before or two years after the date of transfer of original asset, it is entitled to claim deduction under section 54 of the Act irrespective of the fact whether money invested in purchase of new house property is out of the sale consideration received from transfer of original asset or not. The conditions of sub section (2) of section 54 of the Act comes into play only in a situation where the assessee does not stick to the time limit provided under section 54(1) of the Act. Undisputedly, in the present case, the assessee has purchased the new house property within the stipulated period of two years from the date of transfer of original asset. That being the case, the assessee is eligible to avail deduction under section 54 of the Act. Accordingly, the Assessing Officer is directed to allow assessee s claim of deduction under section 54(1) of the Act. - Decided in favour of assessee.

Summary

Issues:
Reduction of assessee's claim of deduction under section 54 of the Income Tax Act, 1961 by an amount of ?50 lakh.

Analysis:
The appeal was filed by the assessee challenging the reduction of the deduction claimed under section 54 of the Income Tax Act, 1961 by ?50 lakh for the assessment year 2011-12. The Assessing Officer noted that the investment made in the purchase of a new house included a housing loan of ?50 lakh from Citi Bank. The Assessing Officer disallowed this amount from the deduction claimed under section 54 of the Act, resulting in an addition to the long-term capital gain. The first appellate authority upheld this decision.

The assessee contended that the housing loan was not utilized for the purchase of the new house for which the deduction was claimed. The loan was sanctioned after the purchase consideration for the new house had already been paid. The assessee argued that even if the housing loan was used for the new house, it should not disentitle the assessee from claiming the deduction under section 54 of the Act. The assessee relied on a decision of the Tribunal and the High Court to support this argument.

The Tribunal observed that the housing loan was not utilized for the purchase of the new house, as evidenced by the timing of disbursement of the loan and the purchase of the property. Even if the loan was used for the new house, the Tribunal analyzed the provisions of section 54 of the Act and concluded that as long as the new house property was purchased within the stipulated period, the assessee was entitled to the deduction, regardless of the source of funds used for the purchase. The Tribunal directed the Assessing Officer to allow the assessee's claim of deduction under section 54(1) of the Act, and the appeal was allowed.

In conclusion, the Tribunal held that the assessee was eligible to claim the deduction under section 54 of the Act, as the new house property was purchased within the specified period, irrespective of the source of funds used for the purchase. The Tribunal directed the Assessing Officer to allow the deduction claimed by the assessee, and the appeal was allowed.