2021 (2) TMI 580 - AT - Income Tax

Tribunal grants deduction under Section 54 for flat booking, expands interpretation

The Tribunal allowed the appeal of the assessee, directing the AO to grant the deduction claimed under Section 54 of the Income Tax Act. It emphasized a ... Deduction under section 54 (capital gains on sale of residential property) - Deposit in Capital Gains Account Scheme before due date of filing return under section 139(4) - Booking of flat with private builder treated as construction for section 54 - Requirement of possession/sale deed for claiming section 54 exemption - Interpretation of section 139(4) as extension/proviso to section 139(1) for due dateDeposit in Capital Gains Account Scheme before due date of filing return under section 139(4) - Interpretation of section 139(4) as extension/proviso to section 139(1) for due date - Deduction under section 54 (capital gains on sale of residential property) - Investment/payments made and cleared before the extended due date for filing return under section 139(4) qualify for being treated as utilisation of capital gains for claiming exemption under section 54. - HELD THAT: - The Tribunal examined whether the deposit/utilisation requirement in s.54(2) must be satisfied by the due date under s.139(1) or can be met by the extended due date under s.139(4). Following and relying on authoritative High Court decisions treating sub-s. (4) of s.139 as an extension/proviso to sub-s. (1), the Tribunal held that the due date for deposit/utilisation under s.54(2) is subject to the extended period available under s.139(4). On the facts the assessee had made and cleared payments from her bank account before the extended due date of filing under s.139(4) (31/03/2013) and therefore cannot be denied the benefit of s.54 on the ground that the amount was not deposited before the due date under s.139(1). The Tribunal respectfully followed the precedent lines cited and applied them to the contemporaneous factual matrix to conclude that the utilisation requirement was satisfied in substance within the extended time-frame. [Paras 11]Assessee's payments made and cleared before the due date under s.139(4) qualify as utilisation for the purposes of s.54; deduction cannot be denied for non-deposit before the s.139(1) due date.Booking of flat with private builder treated as construction for section 54 - Requirement of possession/sale deed for claiming section 54 exemption - Deduction under section 54 (capital gains on sale of residential property) - Booking and payment towards a flat (even with a private builder) made within the prescribed period is to be treated as investment in purchase/construction for the purposes of section 54, and non-receipt of physical possession or non-execution of sale deed within the period does not by itself disentitle the assessee to exemption where the substantive conditions of investment are satisfied. - HELD THAT: - The Tribunal considered CBDT Circulars No. 471 and No. 672 and judicial decisions which treat substantial payment/booking and scheme-based allotments as equivalent to construction/purchase for s.54 purposes. It held that s.54 requires investment in a new residential house within the statutory periods and does not prescribe that physical completion of construction or delivery of possession is a condition precedent to the exemption. Applying these principles and following Tribunal and High Court precedents that booking/payment to a builder/developer constitutes compliance in substance, the Tribunal concluded that the assessee's payments within three years of transfer satisfy the requirement of investment/construction under s.54 despite possession or registration occurring later. [Paras 11]Booking/payment towards the flat within the prescribed period is to be treated as investment for s.54; absence of possession or registered sale deed does not defeat the exemption when substantive compliance is shown.Final Conclusion: The Tribunal allowed the appeal, held that the assessee made/utilised the capital gains before the extended due date under section 139(4) and that booking/payments for the flat constitute investment/ construction for section 54 purposes; directed the Assessing Officer to allow the deduction under section 54 for assessment year 2011-12. Issues Involved:1. Disallowance of exemption under Section 54 of the Income Tax Act, 1961.2. Applicability of CBDT Circulars No. 471 and 672 to the assessee's case.3. Eligibility for exemption under Section 54 when investment is made before the filing of return under Section 139(4).4. Denial of exemption under Section 54 due to non-receipt of possession and non-execution of the sale deed.5. Alleged contradiction in the appellant's claim of payment made to the builder.6. Interpretation of the beneficial provisions of Section 54.Detailed Analysis:1. Disallowance of Exemption under Section 54:The assessee, a co-owner of a property, claimed exemption under Section 54 for capital gains arising from the sale of a property. The Assessing Officer (AO) disallowed the exemption on the grounds that the amount of capital gain was not invested in the purchase or construction of a residential house within the stipulated period, nor was it deposited in the capital gain scheme account within the limit provided under Section 139(1). The CIT(A) upheld this disallowance.2. Applicability of CBDT Circulars No. 471 and 672:The assessee argued that booking a flat should be considered as construction under Section 54, citing CBDT Circulars No. 471 and 672. However, the AO and CIT(A) rejected this claim, stating that these circulars apply only to allotments under self-financing schemes of government bodies like the Delhi Development Authority (DDA) and similar institutions, not to private builders.3. Eligibility for Exemption Under Section 54 When Investment is Made Before Filing Return Under Section 139(4):The assessee filed the return on 31/10/2012, within the extended period allowed under Section 139(4). The Tribunal noted that various judicial precedents, including those from the Punjab & Haryana High Court and the Rajasthan High Court, have held that the term 'Section 139' includes all its subsections. Thus, investments made before the due date for filing returns under Section 139(4) qualify for exemption under Section 54.4. Denial of Exemption Under Section 54 Due to Non-Receipt of Possession and Non-Execution of Sale Deed:The CIT(A) concurred with the AO's finding that the exemption could not be granted as the assessee had not received possession of the flat, nor had the sale deed been executed. The Tribunal, however, held that the primary requirement under Section 54 is the investment in the new residential house within the prescribed period, not the completion of construction or receipt of possession.5. Alleged Contradiction in the Appellant's Claim of Payment Made to the Builder:The CIT(A) found contradictions in the appellant's claim of having paid Rs. 89,50,000 to the builder. The Tribunal reviewed the evidence and found that all payments were made before the due date for filing the return under Section 139(4), thereby validating the appellant's claim.6. Interpretation of the Beneficial Provisions of Section 54:The CIT(A) interpreted Section 54 narrowly, denying the exemption on technical grounds. The Tribunal emphasized that Section 54 is a beneficial provision aimed at promoting investment in residential properties. It held that the intent of the legislature was not to deny exemption if the primary conditions of investment within the prescribed period were met.Conclusion:The Tribunal set aside the findings of the CIT(A) and directed the AO to allow the deduction claimed under Section 54. The appeal of the assessee was allowed, emphasizing the broader and beneficial interpretation of Section 54 to include investments made within the extended period for filing returns under Section 139(4) and recognizing the booking of flats with private builders as equivalent to construction for the purpose of claiming exemption.