Amount paid prior to one year for purchase of flat but sale deed executed within ome year- whether capital gain exemption available?

Amount paid prior to one year for purchase of flat but sale deed executed within ome year- whether capital gain exemption available?

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For the purpose of section 54, the relevant date is the date on which assessee pays final consideration amount and takes possession of the flat and not on which substantial payments are made.

Assessee sold immovable property on 12-3-2012 for a consideration of Rs. 1,35,00,000 and made gain of Rs. 1,16/57,447 out of which assessee claimed section 54 exemption of Rs. 1,00,25,000 for purchase of flat and Rs. 16,32,447 was declared as income. Assessee had claimed exemption in respect of property booked on 23-9-2008 and registered on 21-10-2008. AO observed that entire payment was not made between 21-10-2008 to 21-10-2011. Assessee’s contention was that said property was completed on 13-12-2011. Rejecting assessee’s contention AO denied exemption. Held: The issue before Tribunal was  whether the date of purchase of property completed on 13-12-2011 fell within a period of one year from the date of sale was covered under the provision of section 54. An identical issue came up for hearing before the Bombay High Court in the case of CIT v. Smt. Beena K. Jain (1996) 217 ITR 363 (Bom) wherein the Bombay High Court had held that the Tribunal was justified in granting exemption to the assessee on the basis of date of possession of the flat when the balance consideration was paid. Thus the relevant date for the purpose of section 54 was 13-12-2011 when the assessee paid final consideration amount on the flat and the possession was taken. Therefore, following the decision of the jurisdictional High Court, the order of CIT(A) was upheld by dismissing the appeal of the revenue.

Decision: In assessee’s favour.

Followed: CIT v. Smt. Beena K. Jain (1996) 217 ITR 363 (Bom)

Referred: Bastimal K. Jain v. ITO [ITA No. 2896/M/2014 for assessment year 2010-11 order dt. 8-6-2016] and V.M. Dujodwala v. ITO (1991) 36 ITD 130 (Mum)

IN THE ITAT, MUMBAI BENCH

SAKTIJIT DEY, J.M. & RAJESH KUMAR, A.M.

ITO v. Sunil Shiv Khanna

ITA No. 5857/M/2016

14 May, 2018

Assessee by: Saurabh V. Bhat, A.R.

Revenue by: Saurabh Kumar Rai, D.R.

ORDER

Rajesh Kumar, A.M.

The present appeal has been preferred by the Revenue against the order dated 28-7-2016 of the Commissioner (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

2. The various grounds raised by the Revenue are as under :–

“Whether on the facts and circumstances of the case and in law, the learned Commissioner (Appeals) has erred in granting benefit of deduction under section 54 even though the major amount was invested 3 years prior to present sale and purchase agreement was also registered at that time and thus the condition of prior purchase within one year of sale was not fulfilled.

2. The appellant prays that the order of the learned Commissioner (Appeals) on the above ground(s) be set aside and that of the assessing officer be restored.

3. The appellant prays that the appeal is maintainable in this case in view of Circular No. 21/2015, dt. 10-12-2015 of the CBDT.

4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

3. The sole issue raised by the Revenue is against granting the benefit of deduction under section 54 of the Act by the learned Commissioner (Appeals) in respect of investments in the property by ignoring the fact that the substantial part of the amount was invested prior to three years from the date of sale.

4. The facts in brief are that the assessee has sold immovable property for Rs. 1,55,00,000 and claimed indexation cost at Rs. 38,42,553. The resultant total long-term capital gain of Rs. 1,16,57,447 was deducted by Rs. 1,00,25,000 as deduction claimed under section 54 of the Act and balance of Rs. 16,32,447 was declared in the return of income. The assessing officer, during the course of assessment proceedings, observed that the assessee claimed deduction of Rs. 1,00,25,000 in respect of property which was booked on 23-9-2008 and registered on 21-10-2008 but the construction whereof was completed on 13-12-2011. The assessing officer noted that the entire payment was not made between 21-10-2008 to 21-10-2011. Thus according to the assessing officer substantial payments were made beyond three years from the date of sale. Accordingly a show cause notice was issued to the assessee as to how the assessee was eligible under section 54 of the Act when the substantial part of the payments to the tune of Rs. 69,63,850 was made on or before 21-10-2008 which was replied by the assessee submitting that the said property was completed on 13-12-2011 notwithstanding the substantial payments was made between 2008 and 2011. Therefore the assessee is entitled to exemption under section 54 of the Act. The claim/contentions of the assessee did not find favour with the assessing officer and he rejected the claim of the assessee disallowing the exemption claimed under section 54 of the Act.

5. In the appellate proceedings, the learned Commissioner (Appeals) allowed the claim of the assessee after considering the submissions and contentions of the assessee by observing and holding as under :–

“I have gone through the facts of the case. The appellant has sold a residential property during the present financial year. Meanwhile the appellant had invested in residential property at Marvel Bharucha Realtors in the financial year 2008-09. The said property which is purchased has been registered on 21-10-2008 and the construction has been completed on 13-12-2011. The question to be seen is whether in the present given facts the appellant is entitled to claim deduction under section 54 or not. The provisions of the section states that “…The capital gain arises from the transfer of a long-term capital asset, being buildings all lands pertinent thereto, and being a residential house, the income of which is chargeable under the head income from house property…, And the assessee has within a period of one year before or 2 years after the date on which the transfer took place purchased, or has within a period of 3 years… Then instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions…” From the present facts it can be seen that the property has been sold in the current financial year, i.e., the period 1-4-2011-31-3-2012. In terms of the new property which has been purchased, the said property has been completed in October 2011. The mere fact that some of the payments have been made in the financial year 2008-09 would not take away from the taxpayers onus having been completed in terms of the conditions laid down in section 54. As the courts have held in various decisions the provisions of exemption are to be construed liberally in favour of the taxpayer and are not to be denied merely on technical grounds. While definitely the taxpayer has completed the part performance of the contract in terms of the definitions of transfer specified in section 2(47) and the transfer of property act however it cannot be said that the act of actual taking over of the said new property is immaterial when it comes to the applicability of the provisions of section 54. As can be seen in the present case while the property which has been purchased started being constructed in 2008 however the possession of the same has come to the taxpayer only in 2011. Therefore I am in agreement with the grounds filed by the taxpayer that he should be allowed to claim the exemption under section 54. The appeal is accordingly allowed.”

6. The learned D.R. vehemently submitted before us that the learned Commissioner (Appeals) has erred in allowing the relief to the assessee on the basis of date of possession of the property though the property was purchased by the assessee and registered on 21-10-2008. The learned DR contended that substantial part of the total consideration of Rs. 69,63,850 was paid on or before the said date. Thus clearly violated the provision of section 54 of the Act which provides that assessee has to invest in the purchase of new property within one year before or two years after the date on which the transfer of property took place. In this case the period is more than three years and therefore was wrongly allowed by the learned Commissioner (Appeals). The learned D.R. finally prayed that the order of assessing officer be restored by allowing the appeal of the Revenue.

7. The learned A.R. submitted that the learned Commissioner (Appeals) has considered all the details concerning the sale and purchase of properties in question and after carrying out the detailed and necessary verification, the exemption under section 54 of the Act was allowed. The learned A.R. brought to the notice of the Bench the date of sale, i.e., 12-3-2012 a copy of which was placed in the paper book at page No. 6 to 20 and also submitted that the construction of the property in which the assessee invested the money was completed on 13-12-2011. The learned A.R. submitted that the property in the present case was booked on 23-9-2008 and also got registered on 21-10-2008 but the construction of the property was completed on 13-12-2011. The learned A.R. submitted that since the assessee has taken the possession of the property after completion of property, i.e., 13-12-2011 and the sale of property was 12-3-2012, therefore, the same is within one year prior to the date of sale and therefore the assessee is clearly entitled for exemption under section 54 of the Act. The assessee in defense of his argument relied on the following decisions :–

1. CIT v. Smt. Beena K. Jain (1996) 217 ITR 363 (Bom)

2. Bastimal K. Jain v. ITO [ITA No. 2896/M/2014 for assessment year 2010-11 order dt. 8-6-2016]

3. V.M. Dujodwala v. ITO (1991) 36 ITD 130 (Mum)

The learned A.R. finally submitted that in view of the ratio laid down by the jurisdictional High Court and the co-ordinate benches of the Tribunal the appeal of the Revenue deserved to be dismissed.

8. We have heard the rival submissions of both the parties and perused the material on record including the decisions cited by the learned A.R. The undisputed facts are that the assessee sold the property on 12-3-2012 for a consideration of Rs. 1,55,00,000 and made a gain of Rs. 1,16,57,447 out of which exemption of Rs. 1,00,25,000 was claimed under section 54 of the Act as the money was utilized in the purchase of flat and the remaining balance of Rs. 16,32,447 was declared in the return of income. The claim under section 54 was made in respect of property booked on 23-9-2008 and registered on 21-10-2008 and payment of Rs. 69,63,850 was also made whereas the construction of the property was completed on 13-12-2011. The possession was taken on that date and the remaining payment was also made simultaneously. The issue before us is whether the date of purchase of property completed on 13-12-2011 falls within a period of one year from the date of sale is covered under the provision of section 54 of the Act. An identical issue came up for hearing before the Hon’ble Bombay High Court in the case of the CIT v. Smt. Beena K. Jain (supra) wherein the Hon’ble Bombay High Court has held that the Tribunal is justified in granting exemption to the assessee on the basis of date of possession of the flat when the balance consideration was paid. Thus the relevant date for the purpose of section 54 of the Act was 13-12-2011 when the petitioner paid final consideration amount on the flat and the possession was taken. We, therefore, respectfully following the decision of the Jurisdictional High Court uphold the order of learned Commissioner (Appeals) by dismissing the appeal of the Revenue.

9. In the result, the appeal of the Revenue is dismissed.

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