2010 (7) TMI 806 - AT - Income Tax

Exemption u/s 54F allowed as law requires timely investment, not completion, of new residential house construction

ITAT Chandigarh allowed the assessee's appeal and held that exemption u/s 54F could not be denied merely because construction of the residential house was ... Capital gain - after selling agricultural land and investing in a residential plot - claimed deduction u/s 54F - Requirement of completion of construction for claiming exemption under section 54F - language of s. 54F(1) of the Act uses the word 'constructed' and not 'complete' - construction was in progress and was not complete - Held That:- Following the ratio laid down by the Hon'ble Madhya Pradesh High Court in the case of Smt. Shashi Varma [1996 (3) TMI 65 - MADHYA PRADESH HIGH COURT], we find that there is no merit in the plea of the authorities in denying the exemption u/s 54F of the Act on the ground that the construction of the house has not been completed. The requirement of ss. 54 and 54F of the Act is for the assessee to have either purchased a residential house being a new asset within the stipulated period or construct a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of the construction of the residential house and the thrust is on the investment of the net consideration received on sale of original asset and the start of construction of a new residential asset [sic-house). In view thereof, where the assessee had invested the consideration received on sale of original asset in the purchase of the plot of land and started construction though not completed, the assessee had complied with the provisions of s. 54F of the Act and hence was entitled to the benefit of exemption claimed. Accordingly, we set aside the order of the CIT(A) and direct the AO to allow the claim of the assessee in respect of the benefit of exemption claimed under s. 54F of the Act. The grounds of appeal raised by the assessee are thus allowed. Issues Involved:- Appeal against order of CIT(A) regarding addition made by AO- Consideration of documentary evidence, judgments, and Departmental circulars by CIT(A)- Claim of deduction under section 54F of the IT Act- Interpretation of the term 'constructed' in section 54F(1) of the Act- Completion of construction within the specified period under section 54F- Comparison of provisions of section 54 and section 54F of the Act- Application of judgments in similar cases to the present scenario- Requirement of completion of construction for claiming exemption under section 54F- Investment of sale consideration in purchase of plot and construction progress- Compliance with provisions of section 54F for claiming exemptionAnalysis:The appeal before the Appellate Tribunal ITAT Chandigarh involved a challenge against the order of CIT(A) concerning the addition made by the Assessing Officer (AO) under section 143(3) of the IT Act for the assessment year 2007-08. The assessee claimed deduction under section 54F of the Act after selling agricultural land and investing in a residential plot. The AO denied the exemption as the construction of the house was not completed within three years of the sale. The CIT(A) upheld the AO's decision, emphasizing the term 'constructed' in section 54F(1) and distinguishing previous judgments cited by the assessee.The Tribunal considered the provisions of section 54F, which require either purchase or construction of a residential house within specified periods to claim exemption. Referring to a judgment in a similar case, the Tribunal highlighted that the emphasis is on the investment of capital gains in construction. It was noted that completion of construction within the stipulated period is not mandatory for claiming the exemption under section 54F. The Tribunal also compared the provisions of section 54 and section 54F, noting that the latter applies to assets other than residential houses.Relying on precedents, including a case where deduction was allowed despite incomplete construction, the Tribunal found merit in the assessee's claim. The Tribunal concluded that investing the sale consideration in the purchase of the plot and initiating construction, even if incomplete, fulfilled the requirements of section 54F. As a result, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the exemption claimed under section 54F. Consequently, the grounds of appeal raised by the assessee were allowed, and the appeal was granted in favor of the assessee.