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TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 203
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....ew residential house thereon. The Assessing Officer (AO) observed that exemption u/s.54F of the Act was claimed, inter alia, on the total cost of plot amounting to Rs. 44,14,840/-. Taking note of the prescription of section 54F, granting exemption on construction of a new residential house within a period of three years from the date of transfer of original asset, the AO held that such purchase of land by the assessee for Rs. 44,14,840/-, made prior to the date of the transfer of original asset, could not be considered as qualifying amount. Allowing exemption u/s.54F on the cost of construction incurred by the assessee to the tune of Rs. 67,59,973/-, the AO rejected the claim of the assessee for exemption qua purchase of total plot amounting to Rs. 44,14,940/-. In holding so, the AO relied on Circular No.667 issued by the CBDT on 18-10-1993. The ld. CIT(A) held that the part of common plot of land purchased by the assessee within one year before the date of transfer of the original asset qualified for exemption u/s.54F. Investment in the part of the common plot made before one year from the date of transfer of the original asset was held to be not eligible for exemption, against wh....
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.... one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that ..... (2) to (4) ....." 6. Sub-section (1) of section 54F provides that where the capital gain arises from transfer of any long term capital asset (original asset), other than a residential house and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased or has within a period of three year....
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....F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction u/s.54/54F....'. 8. Now we turn separately to the above referred three different modes of granting exemption u/s 54F. The first mode grants exemption when the assessee purchases a residential house within a period of one year before the date of transfer of the asset. This part of the provision straightaway talks of purchasing a residential house. The process of purchasing a new residential house may have kickstarted at any point of time, but it must culminate with completion of purchase of a new residential house with in a period of one year before the date of transfer of the original asset. The second mode provides for exemption when the assessee purchases a new residential house within a period of two years after the date of transfer of the asset. Here again, it is manifest that the process of purchasing a new residential house may have started at any point of time, but it must terminate with the completion of purchase of a new residential house with in a period of two years from the date of t....
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..... Subsection (2) provides that where the assessee purchases or constructs another residential house within the two/three years, which is different from the residential house purchased/constructed by the assessee qualifying for exemption u/s.54F, then the amount of exemption allowed under sub-section (1) of section 54F shall be deemed to be the income of the year in which new non-qualifying residential house is purchased or constructed. Sub-section (3) provides that where the new qualifying residential house is transferred within a period of three years from the date of its purchase or construction etc., the amount for which exemption under sub-section (1) of section 54F was allowed on account of investment in such purchase/construction of new house, shall be deemed to be the income chargeable under the head "Capital gains" for the year in which such new qualifying residential house is transferred. On a conjoint reading of all the four sub-sections of section 54F, it becomes vivid that the exemption under this section is granted from capital gain arising on the transfer of original asset when an assessee purchases or constructs a new residential house within the prescribed period. I....
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....l asset, he becomes entitled to exemption. In the absence of any opening deadline given in the provision for purchase of land or start of construction thereon, it is wholly impermissible to read the date of transfer of the original asset as the starting period under this mode. 11. It is important to bear in mind that sale of an original asset and side-by-side purchase or construction of a new residential house is not only an important decision of one's life having repercussions for a longer period of time, but is also a time consuming matter as the concerned person has to mobilise his resources. If a plot is purchased in contemplation of ensuing construction within a reasonable time even before the transfer of the original asset, there can be no fetters on the allowability of exemption u/s 54F, if other conditions are fulfilled. What is a reasonable period, depends on the facts and circumstances of each case, which should normally not exceed two years before the date of transfer of the original asset, albeit such a period of two years cannot be a benchmark. A plot of land purchased prior to such a reasonable period cannot ordinarily be viewed as having been purchased for starting ....
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....hased a new residential house within a period of one year before the date of transfer of the original asset. Possibility of availing exemption under this mode can be only in a scenario where the original asset has not been transferred and the sale consideration of the original asset is not realized, except to the extent of advance received, if any, on the ensuing sale of the original asset. Ergo, it is far-fetched to argue that utilization of only the sale consideration from the transfer of original asset is sine qua non for purchase or construction of a new residential house so as to qualify for the exemption. We, therefore, repel the contention of the ld. DR that for availing exemption under section 54F of the Act, it is mandatory to purchase or construct a new residential house only by using the consideration realized on the transfer of original asset. Once this argument fails, the edifice of the Revenue's contention that the starting point would consequently be the date of transfer of the original asset, falls flat on the ground. 13. It is seen that whereas the AO canvassed a view that the period of three years for the purposes of construction of a new residential house, as gi....