Capital gains tax-Whether investment in a flat under the Self-financing Scheme of the Delhi Development Authority would be construction for purpose of sections 54 and 54F of the Income-tax Act, 1961 - Income Tax - 471/1986

Capital gains tax-Whether investment in a flat under the Self-financing Scheme of the Delhi Development Authority would be construction for purpose of sections 54 and 54F of the Income-tax Act, 1961 Circular No.471 Dated 15/10/1986 To All Chief Commissioners (Admn.) Commissioners of Income-tax. Sir, Subject: Capital gains tax-Whether investment in a flat under the Self-financing Scheme of the Delhi Development Authority would be construction for purpose of sections 54 and 54F of the Income-tax Act, 1961. Sections 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer. 2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-financing Scheme of the Delhi Development Authority amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the Self-financing Scheme of the Delhi Development Authority, the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession. 3. The Board have been advised that under the above circumstances, the inference that can be drawn is that the D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme, the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax, the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-financing Scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains. 4. The contents of the circular may be brought to the notice of all the officers working under you. 5. Hindi version will follow shortly. Yours faithfully, (Sd.) Mrs. S. Basu Officer On Special Duty.