2025 (10) TMI 1292 - AT - Income Tax

Tax deduction under s.54F allowed where allotment letter and payments within two years showed investment despite later registered agreement

ITAT, Mumbai allowed the assessee's claim under s.54F, holding that she acquired a specific right in a flat (allotment letter reserving Flat No. 2102) and ... Disallowance of deduction claimed u/s. 54F - assessee has made the purchase of residential house through this registered agreement as beyond the period of 2 years as mandated by section 54F(1) - HELD THAT:- It is an undisputed fact that assessee has made investments by making payment to the builder G.K. Relators through account pay cheques for which the funds moved from her bank accounts and receipts issued by the builder, acknowledging the receipt of the said payments. These payments are within the prescribed limitation of 2 years for the purchase of a residential house as mandated by Section 54F(1). Allotment letter is issued by the builder year earmarking Flat No. 2102 on 21st floor of the proposed building for which eventually a registered agreement was executed and the possession was handed over to the assessee after obtaining occupancy certificate. Thus assessee had in fact acquired a house property which is not in dispute. AO has based his decision to disallow on the registered agreement which falls beyond the period of 2 years for making an investment. Assessee claims that she has made the required investment of the sale consideration received by her in a residential house for which allotment letter issued by the builder earmarking the flat, is on record. What we have to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the builder and whether she has made investment of the consideration received on transfer of original asset within the prescribed period so as to entitle her to obtain possession of the new flat proposed to be constructed. Thus, the material fact in this connection is the right over the flat and the investment made therein by the assessee. Assessee has met both the conditions of acquiring a right in the flat by way of allotment letter, since Flat No. 2102 on 21st floor in the proposed building is reserved for her by way of exclusion to the rest of the world. For the investments made by her, the builder has issued receipts and the funds have moved out to the builder from her savings account which is not in dispute by the authorities below. claim of the assessee u/s. 54F allowed - Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED Whether an assessee is entitled to deduction under section 54F where the sale consideration of an original capital asset was applied towards allotment/booking and part/preliminary payments for a specified flat within two years of transfer, but the registered agreement of sale and formal registry occurred beyond the two-year period due to delay by the builder. Whether an allotment letter reserving a specific flat together with bona fide payments and builder receipts constitutes acquisition of a 'residential house' or a sufficient 'right' in a new asset for the purposes of section 54F(1) when formal registration occurs after the statutory period. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to deduction under section 54F when payments/allotment occur within two years but registered agreement is executed after two years Legal framework: Section 54F(1) permits deduction where net consideration of transfer of a capital asset is invested in the purchase or construction of a residential house within specified periods - purchase within two years from date of transfer; construction within three years. Precedent Treatment: Respondent relied on judicial precedents to support the proposition that formal registration/purchase occurring after the prescribed period defeats the claim; the Tribunal considered those submissions but evaluated entitlement principally on the statutory text and factual matrix before it. Interpretation and reasoning: The Tribunal examined whether the substance - investment of sale proceeds into acquisition of a specific flat - was effected within the two-year period. It placed weight on (i) an allotment letter issued prior to expiry of two years reserving a specific flat, (ii) part and further payments made from the assessee's bank accounts within the two-year window evidenced by bank statements and builder receipts, and (iii) delay in execution of registered agreement attributable to the builder. The Tribunal held that the object of section 54F is to encourage reinvestment of sale proceeds in residential accommodation and that the statutory requirement focuses on investment of the net consideration in purchase/ construction rather than formal completion of registration where the delay is beyond the assessee's control. Ratio vs. Obiter: Ratio - where an assessee, within the statutory period, has (a) obtained an allotment of a specific flat reserved to her and (b) invested the sale proceeds in payments evidenced by bank transactions and builder receipts, the statutory requirement of investment under section 54F(1) is satisfied notwithstanding subsequent registration beyond the two-year period if delay is caused by the builder. Obiter - general comments on liberal construction of beneficial provisions and on the meaning of 'purchased' or 'constructed' as not necessarily requiring immediate transfer of registered title. Conclusions: Deduction under section 54F is allowable where the assessee within two years (i) secured a right to a specific flat by way of allotment and (ii) made payments of the sale consideration to the builder evidenced by bank clearing and receipts, and late registration caused by the builder does not defeat the claim. Issue 2 - Whether an allotment letter and builder receipts constitute acquisition of a right in the flat sufficient for section 54F Legal framework: Entitlement under section 54F depends on application of sale proceeds to purchase or construction of a residential house; the existence of a proprietary or contractual right in the new asset and the application of funds are material facts. Precedent Treatment: Authorities were referenced by the Revenue to stress formalities of purchase; the Tribunal assessed those authorities against the documentary record and factual circumstances (allotment letter, payments, receipts, and subsequent possession after occupancy certificate). Interpretation and reasoning: The Tribunal treated the allotment letter as an instrument demonstrating exclusivity of right in the specified flat (Flat No. 2102, 21st floor) and the builder receipts plus bank debits as proof that the sale proceeds were actually applied towards that flat. The combination of reservation by allotment and demonstrable payment movement was held to establish that the assessee had acquired a right in the flat and had invested the sale consideration within the statutory period, satisfying the substantive conditions of section 54F despite delayed formal registration. Ratio vs. Obiter: Ratio - an allotment letter reserving a specific unit and contemporaneous payments evidenced by banker's records and builder receipts constitute acquisition of a right in the residential house for the purposes of section 54F where those acts effectuate application of sale proceeds within the statutory period; statements characterizing the provision as 'beneficial' and to be construed liberally are explanatory/obiter insofar as they guide interpretation but are not required findings of fact. Conclusions: The allotment letter together with receipts and bank evidence sufficed to show acquisition of a right in the new residential asset and application of funds within two years; accordingly, the condition in section 54F relating to investment in purchase was satisfied. Issue 3 - Allegation that delay in formalities attributable to the assessee defeats deduction Legal framework: Section 54F prescribes temporal limits for investment but does not explicitly deal with delays caused by third parties; determination requires factual inquiry into cause of delay and whether investment (in substance) was made within prescribed time. Precedent Treatment: The Revenue relied on cases emphasizing formal completion; the Tribunal declined to treat formal registration delay, when attributable to builder, as fatal where the assessee had performed her part within time through payments and secured allotment. Interpretation and reasoning: The Tribunal found the delay in registry and handing over of possession attributable to the builder's delayed construction. Given that the assessee had made payments and obtained allotment within two years, the Tribunal emphasized substance over form - the assessee had in effect invested the sale proceeds in a specific residential asset - and therefore the statutory requirement was satisfied notwithstanding later registration. Ratio vs. Obiter: Ratio - delay in formal registration caused by the builder does not defeat an assessee's claim under section 54F if the assessee had, within the statutory period, secured a specific allotment and applied sale proceeds as evidenced by bank payments and receipts; obiter - observations endorsing liberal construction of section 54F as beneficial. Conclusions: Where the delay in completing formalities is attributable to the builder, the assessee's timely payment and allotment establish compliance with section 54F and preclude denial of deduction solely because registration occurred later. Final Disposition Based on the documentary record (allotment letter, bank debits, builder receipts), the Tribunal concluded that the assessee acquired a right in the specified flat and invested the net consideration within two years of transfer; therefore the disallowance under section 54F was deleted and the assessee's claim for deduction allowed.