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TMI Blog2018 (2) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... vement at Rs. 86,98,452/-. Thus, computed a long term capital gain of Rs. 2,97,78,977/-. The Assessing officer also noted that assessee had claimed exemption for Rs. 3,00,00,000/- on account of investment in another Flat No. 402, Emerald Road No.1, Juhu Scheme, Vide Parle (West) on 11.09.2014. The Assessing officer asked the assessee to submit the purchase deed of the flat. An agreement between M/s Sun Vision Emerald, Shri Suresh M. Shroff and Ms. Seema Sasbarwal was produced. The Assessing officer observed that as per provisions of section 54, Long Term Capital Gain on sale of residential house was required to be invested in purchase of residential house within a period of one year before or two years after the date of transfer or construction of residential house within a period of three years after the date of transfer. In the case of assessee, the transfer of residential house took place on 17.09.2012 and investment in another residential house as per agreement took place on 11.09.2014. As per clause 15 of agreement, the assessee had to take possession of new residential flat on or before August, 2016. The Assessing officer concluded that assessee had only purchased the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. He, therefore, confirmed the action of the Assessing officer in disallowing the claim of the assessee. 4. We have heard the rival contentions and have also gone through the records. Admittedly, the capital gain had arisen to the assessee on 17.9.2012 and the amount was paid by the assessee to the builder for purchase of a new house on 9.9.2014 i.e. within 2 years of the date of transaction of sale of the house property. The Assessing officer denied the claim because as per the agreement with the builder, the house was to be completed within 4 years, whereas, as per the provisions of section 54 of the Act, the house should have been constructed within 3 years from the date of receipt of the capital gains. Though the assessee has relied upon various cases wherein liberal construction has been taken by the Tribunal as well as various High Courts which is in consonance of the object for which the exemption provisions of sections 54 & 54F of the Act have been enacted i.e to promote purchase and construction of residential houses. Various courts have held that if assessee invests the amount in purchase / construction of building within the stipulated period and the constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said requirement under the provisions was not complied with, hence, the assessee is not entitled to claim for the benefit under the exemption provisions of section 54 of the Act. 8. We have heard the rival contentions. Before deliberating further on this issue we would like to reproduce the relevant provisions of section 54 of the Act herein under:- "Profit on sale of property used for residence. 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and 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, one residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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. Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1.4.1993" 9. A perusal of the above reproduced provisions of section 54 of the Act reveals that it deals with the capital gains earned on sale of property used for residence and as per the provisions of sub section (1) of section 54 of the Act, if an assessee, after sale of his residential property, has within a period of one year before or two years after the date of such transfer or within a period of three years, constructs a residential house, the capital gains will not be charged to tax upto the extent of the amount spent on the purchase or construction of residential house. Sub Section (1) of section 54 of the Act is a substantive provision enacted with the purpose of promoting purchase / construction of residential houses. However, sub section (2) of section 54 is an enabling provision which provides that the assessee should deposit the amount earned from capital gains in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sub-section (2) thus cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. In our view, if the assessee at the time of assessment proceedings, proves that he has already invested the capital gains on the purchase / construction of the new residential house within the stipulated period, the benefit under the substantive provisions of section 54(1) cannot be denied to the assessee. Any different or otherwise strict construction of sub section (2), in our view, will defeat the very purpose and object of the exemption provisions of section 54 of the Act. Our above view, is fortified with the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Shri K Ramachandra Rao, ITA No. 47 of 2014 c/w ITA No. 46/2014, ITA No. 494/2013 and ITA No. 495/2013, decided vide order dated 14.7.2014 wherein the Hon'ble High Court has directly dealt with this issue while interpreting the identical worded provisions of section 54F(2) of the Act. The following question of law was framed by the Hon'ble High Court on this issue:- "2) When the assessee invests the entire sale conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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