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TMI Blog2017 (5) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... essee over and above satisfied the conditions laid down by Sec.54 of the Act and demonstrated his intention to invest the capital gains in residential house. In our opinion, assessee ought not to have denied the claim of deduction u/s.54 of the Act. Accordingly, we are of the opinion that the assessee is entitled for exemption u/s.54 - Decided in favour of assessee. - ITA No.: 2932/Mds/2016 - - - Dated:- 11-5-2017 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER, AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri S. Deepa, CA For The Respondent : Shri Supriyo Pal, JCIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-4,Chennai dated 19.08.2016 pertaining to assessment year 2012-13. 2. The only grievance in this appeal of assessee is nongranting of exemption u/s.54 of the Act in respect of sale of the residential property. 3. The ld.A.R submitted before us that the assessee claimed capital gains u/s.54 of the Act. Further, ld.A.R submitted the following points for our consideration. (i) The Appellant has claimed Capital Gains exemption unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction or occupation is not the requirement of law. The words used in the section are Purchased or Constructed . The condition precedent for claiming benefit under section 54 is that the capital gain should be parted by the appellant and invested either in purchasing a residential house or in constructing a residential house. If the construction is not completed and it is not in a fit condition to be occupied, it does not disentitle the Appellant to claim section 54 relief. (vii) Further there is no dispute the fact that the Appellant had invested large sums of money in the construction of the house. The requirement of the provision is that the Appellant within a period of three years after the date of transfer has to construct a residential house in order to become eligible for exemption. The Appellant relies on the ratio of the following decisions: a) Commissioner of Income Tax Vs. Shri. Sardarmal Kothari (Madras High Court) reported in 302 ITR 286. b) Commissioner of Income Tax Vs. Sambandam Udayakumar (Karnataka High Court) reported in 345 ITR 389. (viii) Further, the appellant submits that as substantial payments have been made, the Appellant is entitled to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) stipulates that for claiming the benefit of capital gains tax exemption the assessee has within a period of one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date constructed a residential house. The words used in the section are purchased or constructed . Now the question arises as to whether booking of a flat by investing the entire capital gains within the stipulated period of three years from the date of sale of the original property, although the construction was never completed before the end of the three years, can be construed as the new property constructed or purchased making the assessee eligible for exemption under section 54 of the Act. According to D.R, for claiming the benefit of section 54, the assessee should have completed the construction of the new house/property within the period of three years from the end of the date on which the old property was transferred. 4.1 The ld.D.R relied on the following case laws. a) Farida A. Dungerpurwala( 2014) 52 tax mann.com 527, wherein held that booking of a flat which was going to be constructed by a builder has to be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possession was handed over to the appellant on 05/11/2015. Hence, in view of the above facts of the case, the assessee is not entitled for benefit u/s.54 of the Act. Therefore, ld.D.R pleaded that the action of the AO may be upheld. 5. We have heard both the parties and perused the material on record. The assessee in this case transferred the residential property on 22.06.2011 for consideration of ₹ 115 lakhs. The assessee earned capital gains at ₹ 74,20,062/- and claimed exemption u/s.54 of the Act for the same amount. The assessee paid towards purchase of the new residential property as follows:- The assessee availed home loan from M/s.India Bulls Housing Finance Ltd. for an amount of ₹ 46,12,572/- and the company has paid ₹ 40 lakhs to builder M/s.Phoenix Hodu Developers Pvt Ltd. on 11.01.2012, which laws duly acknowledged by the developer. On the whole amount, the assessee claimed exemption u/s.54 of the Act subject to capital gains of ₹ 74,20,062/-. This was disallowed by the AO on the reason that the construction of residential property was not completed within 3 years from the transfer of residential capital asset. We have gone t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid . 5.1 The time period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion along with transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT Andhra Pradesh v. T.N. Aravinda Reddy (1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word purchase . It was observed that the word purchase used in Section 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that purchase primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money's worth. The word purchase , it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the payments made by the assessee to the person with whom he had entered into an earlier agreement to sell should be allowed to be set-off as expenses incurred in relation to the sale deed which was executed. 10. More direct are the two decisions of Madhya Pradesh High Court in Shashi Verma (Smt.) v. CIT [1997] 224 ITR 106and Calcutta High Court in CIT v. Smt. Bharati C. Kothari (2000) 244 ITR 352. In Shashi Verma (supra), the assessee had invested the sale consideration for purchase of a flat from Delhi Development Authority and had paid part instalments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was ₹ 31,980/- whereas the instalments paid were ₹ 71,256/-, i.e. much more than the amount of capital gain. Reference was made to Circular No. 471 dated 15th October, 1986 [1986] 162 ITR (Stat.) 41. It was observed that Section 54 of the Act says that assessee could have constructed the house and not that the construction should have necessarily been completed. Noticing that it was not easy to construct a hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period is 3 years. The limit of three years for constructing a house, in this case it is upto 21.06.2014 vide Sec.54(2) of the Act. The capital gains which is not appropriated by the assessee is to be deposited into capital gains scheme before the due date of filing of return u/s.139(1) of the Act. 6.3 In the present case, the assessee had already appropriated the capital gains for the purpose of construction of residential unit. However, construction was not completed within the stipulated period. In our opinion, liberal interpretation to be considered while granting exemption u/s.54 of the Act as it is a beneficial provision. The judgement of Karnataka High Court in the case of CIT Vs. Smt. V.S.Shantha Kumari in 126 DTR 436(Kar.) wherein held that completion of construction within three years was not mandatory and was necessary was that the construction should be commenced. That cannot be disputed. When the commencement of the construction of the residential unit which is evidenced by construction agreement cited supra and also sale deed cited supra, in our opinion, assessee over and above satisfied the conditions laid down by Sec.54 of the Act and demonstrated his intent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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