2025 (9) TMI 1298 - AT - Income Tax

Deduction under s.54 and s.54F allowed where actual payments within one year and land acquisition payments qualify

Mayura Mohta Versus DCIT, Circle-29, Kolkata

ITAT Kolkata (AT) allowed the taxpayer's appeal, setting aside the CIT(A) order and directing the AO to grant deduction under s.54 (and s.54F) of the Act. ... Exemption u/s 54 - sale consideration received on sale of property which was invested in acquisition of new residential house property within the period OR not? - According to the ld. AO, the property was purchased more than one year prior to the date of transfer of the old property HELD THAT:- We note that though the assessee has entered into an agreement to purchase of new property on 12.03.2014 no payments were made under that agreement. The assessee claimed the benefit u/s 54F of the Act only in respect of those payments which were made within one year from the date of transfer of old property. In our opinion, the assessee has rightly made the claim u/s 54F of the Act. The case of the assessee find support from the decision of Hon'ble High Court in the case of CIT Vs. Smt. Beena K. Jain [1993 (11) TMI 7 - BOMBAY HIGH COURT] In the case of Shri Varun Seth [2019 (7) TMI 1410 - ITAT DELHI] after following the decision of Hon'ble Apex Court in the case of Sanjeev Lal [2019 (7) TMI 1410 - ITAT DELHI] held that the amount utilized for by the assessee in execution of land should be constitute as amount invested in the purchase/ construction of residential house. Appeal of the assessee is allowed by setting aside the order of ld. CIT (A). Accordingly the AO is directed to allow deduction u/s 54 of the Act. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee is entitled to exemption under section 54 (referred to in parts as section 54F) when an agreement for purchase of new residential property was executed more than one year prior to the sale of the original property but payments and completion/possession occurred within the period specified under section 54. 2. Whether payments made and substantive completion/possession (or other acts demonstrating acquisition/intent to acquire, including deposit to capital gains account or acquisition of plot for construction) within the prescribed period satisfy the time-limit requirements of section 54, notwithstanding an earlier date of agreement. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to exemption under section 54 where agreement date precedes the statutory one-year pre-sale period Legal framework: Section 54 (and section 54F as referenced) permits exemption of long-term capital gain arising from transfer of a capital asset where the assessee purchases a residential house within one year before or two years after, or constructs within three years after, the date of transfer. Precedent Treatment: The Tribunal treated and followed higher-court authority adopting a purposive interpretation of section 54, holding that the substance of the transaction (actual completion, payment, and possession) governs the relevant date for purchase, rather than bare agreement dates entered when property is under construction or payment is not made. Interpretation and reasoning: The Court examined facts showing (a) agreement executed on 12.03.2014, (b) sale/transfer of old property on 03.06.2016, and (c) that no payments under the 2014 agreement were made until within one year of the 2016 sale and only those payments were relied upon for claiming exemption. The Tribunal emphasized that the statutory benchmarks must be applied to the date of substantive acquisition - completion of payment and handing over of possession (or other acts demonstrating investment/intent) - rather than to a preliminary booking/agreement date when no consideration or possession had been effected. The Court relied on authority holding that where an under-construction flat is booked and possession/completion (or full payment) occurs within the statutory period, the date of completion/possession is the relevant date for section 54 purposes. The Tribunal applied the purposive principle that section 54 is a beneficial provision intended to relieve tax burden where the assessee replaces an old asset by a new one in substance within the statutory window. Ratio vs. Obiter: Ratio - the relevant date for determining compliance with section 54 time limits is the date of substantive acquisition (payment/possession/completion) and not merely the earlier agreement date when consideration was not paid; further, payments made within the statutory period in execution of an earlier agreement qualify as investment for section 54. Obiter - observations comparing variant factual scenarios in other decisions (e.g., different facts regarding developer non-performance) that do not directly alter the controlling principle. Conclusions: The Tribunal held that the assessee was entitled to deduction under section 54 because the amounts actually paid and acts completing the acquisition (or demonstrating bona fide intent and investment) fell within the one-year/pre-sale or two-year/post-sale periods as required; therefore the earlier agreement date alone did not negate the exemption. Issue 2: Treatment of payments, possession, and acquisition of plot/land as constituting 'purchase' or 'investment' under section 54 where construction/possession may be delayed by developer or where only plot is acquired Legal framework: Section 54 contemplates purchase or construction of a residential house within prescribed periods; the statute and interpretative authorities require substance over form in determining whether investment qualifies. Precedent Treatment: The Tribunal followed decisions holding (a) payment of full consideration and handing over of possession marks the date of purchase for an under-construction property, (b) booking/booking-agreement of a bare shell does not constitute purchase until completion/possession, and (c) acquisition of land/plot and bona fide steps towards construction (including deposit into a capital gains account) may constitute qualifying investment when subsequent performance by developer prevents completion within prescribed time, provided the assessee took all reasonable steps and manifested intention to construct. Interpretation and reasoning: Applying the above authorities, the Tribunal found that monies utilized in acquisition of land or paid to developers, or deposited in capital gains accounts for construction, amount to 'investment' for section 54 when facts show genuine intent and substantive steps toward acquisition/construction. Where inability to complete within statutory period arises from developer default or factors beyond the assessee's control, the Court considered such acts and payments as sufficient to meet section 54's object and purpose, relying on purposive construction to give beneficial relief. Ratio vs. Obiter: Ratio - payments made for acquisition/plot or to execute construction, together with demonstrable bona fide intent and acts beyond mere booking, can be treated as investment/purchase for section 54; inability to obtain possession caused by the developer does not disentitle an assessee who has otherwise performed requisite acts within the statutory period. Obiter - factual nuances of developer delay and detailed remedies available to the assessee outside the tax context. Conclusions: The Tribunal concluded that payments made and steps taken toward acquisition/construction within the statutory period (including acquisition of plot and deposits in capital gains account) qualify as investment under section 54; accordingly, where such payments/possession/completion fall within the prescribed window, the exemption must be allowed notwithstanding an earlier date of agreement or subsequent delays attributable to third parties. Overall Disposition and Direction The Tribunal set aside the appellate authority's disallowance, held that the assessee satisfied section 54 time-limit requirements by reference to substantive acts (payments/possession/investment) occurring within the statutory period, followed controlling precedents adopting a purposive approach, and directed the Assessing Officer to allow the deduction under section 54. This holding is treated as the ratio in the present factual matrix.