2013 (8) TMI 944 - AT - Income Tax

Tribunal grants exemption under Section 54 for residential house construction

The Tribunal allowed the appeal, granting the assessee the benefit of exemption under section 54 of the Income Tax Act. The transaction was deemed as ... Benefit of exemption to the assessee u/s. 54 - Held that:- Under section 54F of the Act, the same conditions as are envisaged u/s. 54(1) of the Act are required to be met for claiming exemption from tax on capital gain on transfer of a certain capital asset. The assessee on sale of shares, derived capital gain and paid part of the consideration to the developer for construction of residential house. The construction could not be completed within a period of three years. The Hon’ble Court took the view that the assessee had made entire payment, but did not get a registered sale deed and the fact that the construction was not fully completed in all respects cannot be a ground to deny the benefit of exemption u/s. 54F of the Act. In the light of the facts and circumstances of the present case and the precedents on the issue, we are of the view that the assessee was entitled to benefit of exemption us. 54(1) of the Act as claimed by the assessee. - Decided in favour of assessee Issues Involved:1. Whether the revenue authorities were justified in denying the benefit of exemption to the assessee under section 54 of the Income Tax Act.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 54:The appeal by the assessee concerns the denial of exemption under section 54 of the Income Tax Act by the revenue authorities. The assessee sold a residential flat on 07.05.2007, resulting in a long-term capital gain of Rs. 2,34,59,601. The assessee claimed an exemption of Rs. 1,22,00,000 under section 54 of the Act. Section 54 provides that if an individual derives long-term capital gain from the transfer of a long-term capital asset, being a residential house, and either purchases another residential house within one year before or two years after the date of transfer or constructs a residential house within three years after the date of transfer, the capital gain used for this purpose will not be chargeable to tax.The Assessing Officer (AO) acknowledged that the assessee entered into an agreement on 12.09.2007 to purchase a flat from M/s. Century Chimes and paid Rs. 40 lakhs as an advance. The remaining Rs. 82 lakhs was deposited in a capital gains scheme account as per section 54(2). However, the AO denied the exemption, arguing that the purchase of the property, evidenced by a sale deed dated 04.05.2010, occurred more than two years after the transfer of the original asset, thus not meeting the conditions for purchase within the stipulated period. The AO did not consider the transaction as construction of a residential house, which allows a three-year period.The assessee contended that the agreement with M/s. Century Chimes was for the construction of a flat, and the delay in possession was due to the developer's failure to complete the construction on time. The assessee relied on Board Circulars No.471 and No.672, which equate the acquisition of flats under certain schemes to construction, thus allowing a three-year period for claiming exemption under section 54.The AO dismissed the applicability of these circulars, stating they pertain to schemes by the Delhi Development Authority and cooperative societies, not private builders. Consequently, the AO concluded that the assessee failed to purchase the property within two years and denied the exemption.On appeal, the CIT(A) upheld the AO's decision, emphasizing that the agreement required full payment by 30.06.2008, which the assessee failed to meet. The CIT(A) viewed the assessee's argument of construction as an afterthought to cover the delay in payment and non-compliance with section 54's requirements.The assessee appealed to the Tribunal, reiterating the contention that the transaction should be considered as construction of a residential house. The Tribunal examined several judicial precedents, including CIT Vs. Smt Bharti C Kothari, ACIT Vs. Smt. Sunder Kaur Sujan Singh Gadh, and CIT Vs. Sambandam Udaykumar, which support the view that acquiring a flat from a builder can be considered construction, thus allowing the benefit of section 54.The Tribunal noted that the agreement with M/s. Century Chimes involved the construction of the flat, with the developer agreeing to deliver possession by 30.06.2008. Despite the delay, the flat was eventually handed over on 04.05.2010, within three years from the date of transfer of the original asset. The Tribunal concluded that the assessee met the conditions for exemption under section 54, as the transaction qualified as construction of a residential house.The Tribunal also addressed the CIT(A)'s observation regarding the change in the assessee's claim from purchase to construction, stating that in taxation matters, there cannot be any estoppel. The correctness of the claim should be the primary consideration.Based on the facts and judicial precedents, the Tribunal allowed the appeal, granting the assessee the benefit of exemption under section 54.Conclusion:The Tribunal concluded that the assessee was entitled to the benefit of exemption under section 54 of the Income Tax Act, as the transaction qualified as construction of a residential house within three years from the date of transfer of the original asset. The appeal by the assessee was allowed.