Cost of land forms the part of capital gain exemption

Cost of land forms the part of capital gain exemption

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Cost of land forms the part of capital gain exemption

 

Capital Gains – Exemption – Construction of residential house within stipulated time – Exemption in respect of cost of acquisition of new residential house

 

 – Scope of Sec 54 

 

 

– Does not exclude cost of land from cost of residential house. 

 

  1. Aryama Sundaram Vs CIT [2018] 407 ITR 1 (Mad).

 

 

Facts : The assessee has sold a residential house property for a total consideration of Rs. 12,50,00,000.00 & the total long term capital gain that arose to the assessee was Rs. 10,47,95,925.00.  On May 14, 2017, the assessee had purchased a property with a superstructure thereon for a total consideration of Rs. 15,96,46,446.00 and after demolishing the existing superstructure,  the assessee constructed a residential house at a cost of Rs.  18,73,85,491.00. For the A. Y. 2010-11, the assessee had claimed entire long term capital gains as exempt from tax U/s 54. The AO held that only that part of the construction expenditure that was incurred after the sale of original asset was eligible for exemption U/s 54 and based on records held that the cost of construction incurred after the sale of original asset was Rs.  1,14,81,067.00 and accordingly allowed exemption. The CIT (A) upheld the view of AO. The tribunal held that Sec 54 was a beneficial provision and had to be construed liberally on compliance with the conditions. It held that even though the assessee had not invested in capital gain account scheme, it had complied with the main condition of Sec 54(1) and remitted the matter to the AO to consider the deduction U/s 54 for the construction cost incurred by the assessee. 

 

Held : allowing the appeal, that Sec 54(1) did not exclude the cost of land from the cost of residential house. According to the section the capital gain had to be adjusted against the cost of new residential house. What had to be adjusted or set off against was the cost of residential house that was purchased or constructed. Sec 54(1) was specific and clear. It was the cost of new residential house and not just the cost of construction of new residential house, which was to be adjusted. The cost of new residential house would necessarily include the cost of land, material, labour and any other cost relatable to the acquisition or construction of the residential house.

 

 

  1. Aryama Sundaram Vs CIT [2018] 407 ITR 1 (Mad).

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