2014 (9) TMI 958 - AT - Income Tax

Tribunal denies deduction claim under section 54, ruling construction not purchase.

Farida A Dungerpurwala C/o Gulf Asia Exports Versus Income Tax Circle- 14 (3) (2), Mumbai

The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the assessee regarding the claim for ... Rejection of claim for deduction under section 54 - whether the date of possession should be considered as the date of purchase of new house, since the assessee obtained a habitable house only on the date of possession? - Held that:- As decided in Kishore H. Galaiya v. ITO [2012 (9) TMI 40 - ITAT, MUMBAI] booking of a flat which is going to be constructed by a builder has to be considered as a case of 'construction of flat'. We have already noticed that the deduction under section 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction under section 54 of the Act in respect of the cost of new flat. - Decided against assessee. Issues:Claim for deduction under section 54 of the Income Tax Act.Analysis:The appeal concerned the rejection of the claim for deduction under section 54 of the Income Tax Act by the assessee in relation to the assessment year 2006-07. The assessee sold a residential flat and claimed a deduction for the cost of a new flat. The Assessing Officer rejected the claim, stating that the new flat should be considered purchased on the date of possession, which was beyond the prescribed period. The Commissioner of Income-tax (Appeals) upheld this decision, emphasizing that the purchase of another property should be construed from the date of execution of the agreement through registration. The assessee argued that the date of possession should be considered as the date of purchase, as she obtained a habitable house only on the possession date. The statute allows deduction if a new house is purchased within one year before the transfer of the original residential house or constructed within specific timeframes.The Tribunal examined whether entering into an agreement with a builder for a flat to be constructed constituted 'purchase' or 'construction.' Referring to precedents, including the Bombay High Court and Mumbai Tribunal decisions, it was established that such agreements with builders should be considered cases of 'construction.' The Tribunal emphasized that the deduction under section 54 is available only if a new house is constructed within the specified timeframes. As the assessee had constructed a house prior to the transfer of the original house, she was not entitled to claim the deduction under section 54. Consequently, the Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the assessee.In conclusion, the Tribunal's decision was based on the interpretation of the provisions of section 54 of the Income Tax Act regarding the eligibility for deduction in cases of purchasing or constructing a new house. The judgment clarified that agreements with builders for the construction of flats should be treated as cases of construction rather than purchase, impacting the eligibility for deductions under section 54.