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2018 (11) TMI 375 - AT - Income TaxDisallowing of deduction u/s. 54 - non-completion of construction within a period of 3 years - condition precedent for claiming benefit - Held that - Sec. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are purchased or constructed . The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief. See COMMISSIONER OF INCOME-TAX VERSUS SAMBANDAM UDAYKUMAR 2012 (3) TMI 80 - KARNATAKA HIGH COURT . Thus even on the basis of non-completion of construction of the new asset within the period of 3 years, the deduction u/s.54 of the Act cannot be denied to the Assessee. - Decided in favour of assessee.
Issues Involved:
1. Justification of disallowance of the assessee's claim for deduction under Section 54 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Justification of Disallowance of Deduction under Section 54: Factual Background: The assessee sold a residential property in Noida for ?1,50,00,000 on 20.06.2012, resulting in a Long Term Capital Gain (LTCG) of ?82,33,620. The assessee claimed a deduction for the entire LTCG under Section 54, asserting that the gain was reinvested in acquiring a new residential property in Bangalore. The Memorandum of Understanding (MOU) for this new property was signed on 09.12.2010, before the sale of the Noida property. Payments totaling ?88,10,246 were made after the sale of the Noida property. Legal Provisions: Section 54 of the Income Tax Act provides for deduction of capital gains if the assessee invests in a new residential house within one year before or two years after the sale of the old property, or constructs a new house within three years. The capital gain must be appropriated towards the purchase or construction of the new asset within the stipulated period or deposited in a specified account before filing the return. Assessment by Revenue Authorities: The Assessing Officer (AO) disallowed the deduction, arguing that the MOU for the new property was signed before the sale of the old property, and thus, the investment did not qualify under Section 54. The CIT(A) upheld this view, additionally noting that the construction of the new property was not completed within three years due to external factors like the cancellation of a No Objection Certificate by Hindustan Aeronautics Ltd. (HAL). Tribunal's Analysis: The Tribunal examined the conditions under Section 54, emphasizing that: - The LTCG must be invested in the construction of a new residential house. - The construction should be completed within three years from the date of transfer of the old asset. Case Law Reference: The Tribunal referred to the Karnataka High Court's decision in CIT v. J.R. Subramanya Bhat, where it was held that the commencement date of construction is immaterial as long as the construction is completed within the stipulated period. The Tribunal also cited the Karnataka High Court's ruling in CIT Vs. Sambandam Udayakumar, which emphasized a liberal interpretation of Section 54 to promote residential construction, stating that non-completion within three years does not disqualify the deduction if the investment was made. Conclusion: The Tribunal concluded that the assessee satisfied the conditions under Section 54, as the entire LTCG was invested in the construction of the new property within three years. The Tribunal held that the deduction could not be denied based on the non-completion of construction within the three-year period, aligning with the precedent set by the Karnataka High Court. Therefore, the assessee was entitled to the deduction for the entire LTCG invested in the new asset. Judgment: The appeal by the assessee was allowed, and the order of the CIT(A) was overturned. The Tribunal directed that the deduction under Section 54 be granted for the LTCG invested in the new residential property. Pronouncement: The judgment was pronounced in the open court on 20th July 2018.
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