Assessee granted full exemption under Section 54F for new house construction costs

The Tribunal allowed the appeal, holding that the assessee is entitled to exemption under Section 54F for the full amount of Rs. 1.12 crore spent on the purchase of land and construction of the new residential house, as the construction was completed within three years from the date of transfer of the original asset. The order of the CIT(A) was overturned to this extent.

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Issues Involved:
1. Denial of exemption under Section 54F of the Income-tax Act, 1961.
2. Eligibility of the cost of land purchased before the transfer of the original asset for exemption under Section 54F.
3. Interpretation of the time limits for purchasing or constructing a new residential house under Section 54F.

Issue-Wise Detailed Analysis:

1. Denial of Exemption under Section 54F:
The only issue argued was the denial of exemption under Section 54F of the Income-tax Act, 1961, on a sum of Rs. 34,83,440/-, which was the amount paid by the assessee for purchasing part of the land on 11-10-2010, on which construction was done. The assessee claimed exemption under Section 54F for a sum of Rs. 87,73,454/- on a proportionate basis towards investment of Rs. 1,12,92,650/- on the purchase of a plot and construction of a new residential house thereon. The Assessing Officer (AO) allowed exemption on the cost of construction incurred by the assessee to the tune of Rs. 67,59,973/- but rejected the claim for exemption on the purchase of the plot amounting to Rs. 44,14,840/-. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the part of the common plot purchased within one year before the date of transfer of the original asset qualified for exemption, but the investment made before one year from the transfer date was not eligible for exemption.

2. Eligibility of the Cost of Land Purchased Before the Transfer of the Original Asset:
The Tribunal analyzed the relevant parts of Section 54F, which provides that the capital gain arising from the transfer of any long-term capital asset can be exempt if the assessee has, within one year before or two years after the transfer date, purchased or within three years after that date constructed a residential house. The Tribunal noted that the cost of the plot should be considered as eligible for exemption along with the cost of construction, as accepted by the CBDT Circular No.667 dated 18-10-1993. The Tribunal emphasized that the process of purchasing or constructing a new residential house must be completed within the stipulated period, but there is no specific opening time limit for starting the construction.

3. Interpretation of the Time Limits for Purchasing or Constructing a New Residential House:
The Tribunal distinguished between the three modes of granting exemption under Section 54F:
- Purchase of a residential house within one year before the transfer date.
- Purchase of a residential house within two years after the transfer date.
- Construction of a residential house within three years after the transfer date.

The Tribunal clarified that the reference to the period of three years for constructing a new residential house is only for completing the construction, not commencing it. The Tribunal rejected the Revenue's argument that the date of transfer of the original asset should be the starting point for the construction process. It held that the exemption should be allowed if the construction is completed within three years, even if the plot was purchased within a reasonable time before the transfer of the original asset. The Tribunal concluded that the assessee is entitled to exemption under Section 54F with reference to the full amount spent on the purchase of land and construction of the new residential house, as the construction was completed within the stipulated period.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to exemption under Section 54F for the full amount of Rs. 1.12 crore spent on the purchase of land and construction of the new residential house, as the construction was completed within three years from the date of transfer of the original asset. The order of the CIT(A) was overturned to this extent.

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