2017 (10) TMI 819 - AT - Income Tax

Tribunal upholds taxpayer's claim under Income Tax Act, emphasizing timely completion of residential property.

The Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), ruling in favor of the assessee in a case involving disallowance ... Deduction u/s 54F - investment in house property - The AO disallowed the claim made by the assessee since the assessee has entered into contract for construction agreement prior to one year before the sale of the long term capital asset - Held that: - the assessee has completed the construction of the house within three years from the date of capital gains and the assessee has satisfied the condition for allowing deduction u/s 54F - the case is squarely covered by the decision in the case of Commissioner of Income-tax Versus Bharti Mishra [2014 (1) TMI 446 - DELHI HIGH COURT], where it was held that It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally - appeal dismissed - decided against Revenue. Issues:1. Disallowance made under section 54F of the Income Tax Act.2. Interpretation of provisions related to the conditions for claiming deduction under section 54F.3. Dispute regarding the timeline of construction and possession of residential property in relation to the capital gains transaction.Issue 1: Disallowance under Section 54F:The Revenue appealed against the Order of the Commissioner of Income Tax (Appeals) regarding the disallowance made under section 54F of the Income Tax Act. The Assessing Officer disallowed the claim as the assessee had entered into a construction agreement prior to the sale of the long-term capital asset. The Revenue contended that the assessee did not comply with the mandatory requirement of purchasing a residential property and thus was not entitled to the deduction under section 54F.Issue 2: Interpretation of Section 54F Provisions:The main contention revolved around the interpretation of the provisions of section 54F. The Revenue argued that the assessee did not meet the requirement of making the investment one year before the capital gains transaction. On the other hand, the assessee argued that the construction of the residential house was completed within three years from the date of the sale of the capital asset, fulfilling the conditions for claiming the deduction under section 54F. The debate centered on whether the one-year timeline applied to construction as well as purchase of assets.Issue 3: Timeline of Construction and Possession:The timeline of construction and possession of the residential property in relation to the capital gains transaction was a crucial aspect of the case. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee, emphasizing that the construction was completed and possession was taken within three years from the date of the sale of the capital asset. The liberal interpretation of the statute was advocated to support the assessee's claim for deduction under section 54F.The Appellate Tribunal, after considering the arguments, upheld the decision of the Commissioner of Income Tax (Appeals). It was noted that the assessee had completed the construction of the residential house within three years from the date of the capital gains transaction, meeting the conditions specified under section 54F. The Tribunal highlighted the importance of a liberal interpretation of the provisions to encourage investments in house properties, as intended by the legislature. The judgment was in favor of the assessee, and the appeal of the Revenue was dismissed. The case was decided based on the specific timeline requirements and the completion of construction within the stipulated period, aligning with the provisions of section 54F.