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2020 (9) TMI 416 - HC - Income TaxDeduction u/s 54 - whether advance payment made by the assessee for the purchase of a residential flat would constitute a part of purchase or not, when such advance is made to the seller of flat prior to the date of sale of capital asset in question? - HELD THAT - It is clear that the intention of the Legislature was to either purchase before or after the date of sale and the word purchased or constructed used in the Notes on Clauses amply makes the intention clear. In the light of the above discussions, we hold that the substantial question of law is required to be answered in favour of the assessee.
Issues Involved:
1. Whether advance payment for the purchase of a residential flat constitutes part of the purchase under Section 54 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Advance Payment for Purchase of Residential Flat under Section 54 Background: The appeal concerns the interpretation of Section 54 of the Income Tax Act, 1961, specifically whether advance payments made by the assessee for purchasing a residential flat prior to the sale of a capital asset qualify as part of the purchase for tax exemption purposes. Facts: - The assessee filed a return of income for the assessment year 2013-14, declaring a total income of ?2,52,480. - The return was processed under Section 143(1) and later scrutinized under Section 143(3), resulting in the disallowance of investments made prior to the sale of the asset on 15.11.2012. - The assessee's appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Income Tax Appellate Tribunal was dismissed. Legal Question: Whether the advance payment made by the assessee for the purchase of a residential flat constitutes part of the purchase for the purposes of Section 54 of the Income Tax Act. Court's Analysis: - The court referenced several precedents to address the issue, including CIT Vs. K.Srinivasan and C.Aryama Sundaram Vs. CIT. - In CIT Vs. K.Srinivasan, the court held that Section 54F does not require the investment in the new asset to be from the sale consideration of the original asset. The provision encourages investment in residential houses and should be interpreted to not nullify its objective. - In C.Aryama Sundaram Vs. CIT, the court emphasized that the cost of the new residential house includes the cost of land, materials, labor, and other related costs. The court clarified that Section 54(1) does not mandate that the same money received from the sale should be used for the new purchase. - The court also considered the judgment in Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Co., which emphasized strict interpretation of exemption provisions, favoring the Revenue in case of ambiguity. - The Supreme Court in Sh.Sanjeev Lal Vs. CIT highlighted the legislative intent to provide relief from tax on long-term capital gains when the proceeds are reinvested in a new residential house. Conclusion: The court concluded that the substantial question of law should be answered in favor of the assessee. The advance payment made by the assessee for the purchase of a residential flat constitutes part of the purchase under Section 54, even if made prior to the sale of the original asset. Judgment: The appeal was allowed, and the substantial question of law was answered in favor of the assessee, affirming that advance payments for the purchase of a residential flat qualify for tax exemption under Section 54 of the Income Tax Act.
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