Section 54 exemption for long-term capital gain: possession after final payment within two-year period qualifies, exemption allowed.

Exemption under section 54 for reinvestment of long-term capital gain was allowed where the new residential flat was under construction and possession was delivered only after payment of the balance consideration; the tribunal applied the principle that for under-construction properties the date of purchase for section 54 purposes is the date on which the assessee obtains right to use and enjoy the completed house (possession after final payment), and that date fell within the statutory two-year acquisition period, so exemption was granted.

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Issues: Whether the assessee is eligible for exemption under section 54 of the Income-tax Act, 1961 in respect of long term capital gain where the new residential flat was booked by agreement on 23-05-2012 but possession was taken on 07-01-2015 (within two years of transfer of old property on 28-10-2013).

Analysis: The new property was an under-construction flat with consideration payable by instalments linked to construction. The agreement of booking dated 23-05-2012 recorded initial payment only and the remaining payments were made progressively; construction completed on 26-12-2014 and possession was handed over on 07-01-2015 after final payment. Section 54 requires purchase of a residential house within the statutory period and the entitlement to exemption depends on discharge of the purchase obligation and acquisition of the right to use and enjoy the completed house. Precedent treating possession and payment of full consideration on completion as the relevant date for claiming exemption for under-construction properties was applied.

Conclusion: Exemption under section 54 of the Income-tax Act, 1961 is allowed as the date of purchase for the purposes of section 54 is 07-01-2015 (possession after final payment), which falls within two years from the date of transfer of the original asset; appeal allowed in favour of the assessee.

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