Taxpayer entitled to capital gains exemption under Section 54 after allotment and payment created substantial domain The HC held that the taxpayer met section 54 requirements and was entitled to capital gains exemption because payment of a substantial sum and allotment ...
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Taxpayer entitled to capital gains exemption under Section 54 after allotment and payment created substantial domain
The HC held that the taxpayer met section 54 requirements and was entitled to capital gains exemption because payment of a substantial sum and allotment of the new flat within one year gave the taxpayer substantial domain, despite delayed possession and later registration. Relying on the CBDT circular recognizing allotment/payment as constituting title for such cases, the court refused the Revenue's request for a reference and allowed the exemption in line with the spirit of section 54.
Issues involved: Interpretation of section 54 of the Income-tax Act, 1961 regarding the relevance of the date of agreement to purchase and the date of registration of sale deed for purchase.
Summary: The case involved a petition u/s 256(2) of the Income-tax Act, 1961 concerning the assessment year 1982-83. The Revenue sought a direction to the Income-tax Appellate Tribunal to refer a question regarding the interpretation of section 54 of the Act. The assessee sold a residential house in 1981 and entered into an agreement to purchase a residential flat shortly after. The Assessing Officer taxed the capital gains, alleging failure to meet the conditions of section 54(1) due to not purchasing the flat within one year. The Tribunal held that the assessee satisfied the provisions of section 54(1) by purchasing the new flat within one year, thus no capital gains were taxable. The Revenue's application was dismissed, leading to the present petition.
The High Court justified the Tribunal's decision, emphasizing that the assessee had paid a substantial amount for the new flat within one year of selling the old house, thereby complying with section 54 requirements. Possession not being handed over within the stipulated period did not negate the benefit of the provision. Referring to Circular No. 471, the Court clarified that the allotment of the flat and payment towards its cost within one year entitled the assessee to the benefit of section 54. Considering the practical difficulties faced by assessees, the Court declined the Revenue's request for a reference, ultimately dismissing the petition.
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