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TMI Blog2017 (1) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... y that only the sale consideration of house sold is to be utilized for purchasing or constructing a new residential house. In the given case assessee has utilized other funds (apart from sale consideration) for constructing residential house and for this reason only he cannot be denied deduction u/s 54 of the Act. Further going through the provisions of section 54 of the Act we also observe that there is no mention about the date of start of construction of residential house but it only refers to a construction of a residential house which in our view is the date of completion of the constructed residential house habitable for the purpose of residence. Thus in the case of assessee long term capital gain arose from sale of old residential house on 18.07.2008 and assessee invested ₹ 53,92,287 in constructing another residential house construction of which was commenced in 2006 but was completed on 16.4.2009 and was well within the statutory time limit meant for constructing of new residential house within 3 years from the date of transfer of capital asset as envisaged in the provisions of section 54 of the Act and, therefore, assessee is eligible to claim deduction u/s 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of new house is baseless and accordingly rejected the claim of deduction u/s 54 of the Act at ₹ 29,62,200/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A) but could not succeed as ld. CIT(A) dismissed the assessee s appeal by observing as follows :- 5.3 I have gone through the facts of the case as well as the submissions made by the AR. The main contention of the appellant is that the exemption u/s. 54 cannot be refused simply on the ground that the construction of the new residential house has begun before the sale of old house. His claim is that since he occupied the newly constructed house after the sale of old house, hence he should be allowed exemption u/s. 54, despite the fact that the construction of the house had started long before the sale of the old house and almost entire expenses had been made before the transfer of the old house. For this purpose, the appellant has relied upon the decisions of Allahabad High Court in the case of H.K.Kapoor (Supra) and of Karnataka High court in the case of J. r. Subramaniam Bhatt (Supra). 5.3.1 From the details of expenses submitted by the appellant before the AO and reproduced in assessment order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. [Para 13] In view of the above discussion, it is opined that investment in residential house which would have taken place after the sale of existing capital asset is to be considered for deduction under section 54F as the investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable because an inhabitable premises, cannot be equated with a residential house. If a person cannot live in the premises, then such premises cannot be considered as a residential house. In case of semi-finished house, the assessee will have to invest huge money on finishing the house to make it habitable. Therefore, the investment in a house would be complete only when such house becomes habitable. [Para 14] Further in the case of Chandru L Raheja v. ITO [1988] 27 ITD 551 (Bom.), it was held that when the assessee had already purchased land, started construction of a building then only that part of the investment in new house that was made out of the sale proceeds received after the transfer of the old house would qualify for deduction under section 54. [Para 15] In view of the above, it is clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the neaning of section 54 on the day on which it was found to have been actually constructed. Therefore, it could not be said that the assessee had constructed any house property within a period of two years after the date of transfer of its house property on the larger plot so as to be entitled to the benefit of section 54. 5.3.4 Similarly in the decision of the ITAT Mumbai Bench in the case of [2001] 78 ITD 206 (NUM.), Ms. M.N. Palia, the Bench has held on similar facts as follows: It was clear that no investment in the new residential house constructed by the assessee was made within one year prior to the sale of shares. Entire investment was made from 11-11-1988 to 8-5-1991 and meagre sums of ₹ 5,000 and ₹ 13,240.20 were shown to be invested in the new asset on 6-4-1992 and 15-10- 1992 respectively. The completion certificate obtained from Architect in itself was vague as it did not specify the date of completion of the said house. The assessee's said house was complete by 8-5-1991 and the amount shown to be expended on 6-4-1992 and 15-10-1992 as well as the certificate obtained from the Architecture were the exercise by the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of transfer of capital asset on 18.7.2008. However, construction of residential house eligible for investment u/s 54 of the Act was completed on 16.4.2009 i.e. the date on which completion certificate was issued by concerned authority. Ld. AR further submitted that section 54 of the Act contemplates that deduction can be claimed under this section against long term capital gain from sale of residential house if another residential house is purchased within a period of one year or two years after the date of transfer of capital asset or if the assessee construct residential house within a period of three years after the date of transfer of capital asset. Ld. AR firmly contended that the deduction u/s 54 of the Act is allowable when the construction of residential house is completed and it is immaterial when the construction starts, main emphasis is on the date of completion of construction which in the case of assessee was 16.4.2009 and is well within the specified period of three years from 18.07.2008 i.e. date of transfer of capital asset. 6. On the other hand ld. DR supported the orders of lower authorities. 7. We have heard the rival contentions and perused the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring and relying on the judicial pronouncements as referred above in the preceding paragraphs. Ld. CIT(A) in his appellate order referred and relied on the decision of the Co-ordinate Bench, Hyderabad in the case of Smt. Nimma Gaddu Sridevi wherein it was held that the investment in house would be complete only such house becomes habitable (emphasis supplied). This particular word habitable is of crucial importance because construction of a structure may take years but it becomes residential house only when it is habitable and the person resides therein has legal permission given by the local authorities to use it for residential purposes. 11. In this context we analyze the facts provided by the assessee vide his submission dated 25.11.2011 before ld. Assessing Officer. Relevant para 4 of the reply dated 25.11.2011 is reproduced below :- 4.2- Submission of the assessee . The assessee submitted his reply dated 25.11.2011. The para No 4 reads as under: 04. As regards my sale of old house and constructing a new house, it may please be noted that as per the details submitted earlier, I have constructed a new residential house in F.Y. 2008-09. The old house was sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h copies of bills are as per Annexure - 7. Majority of the payments for the construction are paid by cheque only from my bank account with Bank of India, University Branch, Vadodara. I have =d construction activity prior to the date of sale of the old house but its completion has taken place after the date of sale of the old house, which may please be noted by your Hon. In view of the above, your Hon. Are hereby requested to uphold and allow my claim of ₹ 27,01,596/- (Rs. 42,01,596 long term capital gain minus ₹ 15,00,000 investment in bonds u/s 54EC). 12. In the above referred para no.4 of assessee s reply dated 25.11.2011 it gives a very clear picture of the facts of the case. Assessee has not objected to the fact that major construction of the impugned house was completed much before the date of transfer of capital asset i.e. 18.07.2008 but there was some litigation going on between the local authorities and the previous landlord which was finally resolved by the City Service Superintendent on 16.4.2009 on the basis of which assessee moved his application to get the completion certificate. This fact of completion certificate along with some expenditure incurred b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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