2022 (3) TMI 433 - AT - Income Tax

Disallowance of deduction claimed u/s 54 - relevant date of taking possession of property - whether CIT(A) erred in not directing the learned AO to allow deduction u/s 54 on the ground that the appellant has made investment in constructed residential house within three from the date of sale of original residential property? - HELD THAT - The purchaser/Assessee is put in possession only as a licensee and to that extent the purchaser/Assessee acquires interest in the premises/flat on entering into possession. Since by that date the purchaser/Assessee has already paid entire/majority of consideration for purchase, it can be said that the Assessee has, on the date of taking such possession, purchased the property for the purpose of Section 54 of the Act as has been held in that the case of CIT vs. Smt. Beena K. Jain 1993 (11) TMI 7 - BOMBAY HIGH COURT wherein held that for the purpose of determining the date of purchase of new residential house the relevant date in the date when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. We are of the considered view that on the facts of the present case the date on which possession is by the Assessee (i.e. 02.04.2016) should be taken as the date of purchase. The requirement of the Section 54 is that the Assessee should purchase a residential house within the specified period and source of funds is quite irrelevant. Nowhere, it has been mentioned that the funds received as consideration from sale of original asset must be utilized for the purchase of the new residential house - See DR. PS. PASRICHA 2008 (1) TMI 649 - ITAT MUMBAI Since the date of purchase falls within a period of 2 years from the sale of Original Asset (i.e. 21.05.2014), the Assessee is entitled to benefit under Section 54 of the Act. - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of deduction under Section 54 of the Income Tax Act.

Analysis:
1. The Appellant, a salaried employee, challenged the order of the Commissioner of Income Tax (Appeals) denying deduction under Section 54 of the Income Tax Act. The dispute arose from the purchase of a new residential property and the sale of the original asset. The Assessing Officer contended that the new property was purchased outside the specified period, thus disallowing the deduction. The Appellant argued that the date of actual physical possession should be considered the date of purchase, entitling them to the benefit under Section 54.

2. The Commissioner of Income Tax (Appeals) upheld the denial of the deduction, considering the date of registration of the Agreement for Sale as the date of purchase. The Appellant further contended that the transaction should be treated as a case of 'construction' rather than 'purchase,' citing completion of construction and possession within the specified period. The Appellant relied on judicial precedents to support their claim, while the Departmental Representative supported the Assessing Officer's decision based on the registration date of the agreement and the actual purchase of the property.

3. The Tribunal analyzed the agreement terms and relevant legal provisions to determine the nature of the transaction. The agreement for sale was subject to the Maharashtra Ownership Flats Act, and possession was granted to the purchaser as a licensee. Referring to judicial precedents, the Tribunal held that the date of taking possession should be considered the date of purchase for Section 54 purposes, regardless of the source of funds used. The Tribunal emphasized that the funds from the sale of the original asset need not be utilized for the new purchase to qualify for the deduction under Section 54.

4. Consequently, the Tribunal allowed the appeal, considering the date of actual physical possession as the date of purchase, falling within the specified period under Section 54. The Tribunal deemed the Appellant entitled to the benefit under Section 54 of the Income Tax Act, rendering the alternative argument regarding 'construction' unnecessary based on the established legal principles and precedents.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations, and the final decision rendered by the Tribunal regarding the deduction under Section 54 of the Income Tax Act.