Interesting case: Capital gain Exemption if Payments towards purchase of plot is done prior to one year of capital gain exemption
Varun Seth v. Asstt. CIT
Decision: In assessee’s favour.
Capital gains Deduction under section 54-Sale proceeds of residential house utilized in acquisition of plot–Possession of plot could not be acquired due to developer’s failure
Assessee declared long-term capital gain of Rs. 1,92,80,160, on sale of property on 28-11-2014 for sum of Rs. 6,10,50,000. While computing long-term capital gain, assessee had claimed exemption under section 54 of Rs. 1,58,00,000 on acquisition of allotment of a residential plot and for Rs. 25,10,000 deposited in Capital Gain Account with PNB, to be utilized in the construction of new residential house thereon. AO allowed the exemption for Rs. 25,10,000 deposited in Capital Gain Account with PNB, however, he denied the exemption of Rs. 1,58,00,000 for the investment made in Plot Jaypee Green, Noida for the reasons that in the given case assessee neither purchased a house nor constructed a house within the stipulated time under section 54 which expired on 28-11-2017. The said plot was purchased more than one year before transfer of the capital assets taken place. Therefore, conditions required under section 54 was not satisfied. CIT(A) held that the AO was fully justified in rejecting the claim of the assessee under section 54.
In the instant case, investment for purchase of plot had been made out of the part sale consideration received as advance only, so as to construct the house thereon and there was no embargo to the purchase of plot or start construction prior to the sale of house property. If an assessee sells his house property and utilizes the money for acquiring a plot for the construction of the house and if facts and circumstances point out that assessee intended to construct the house, which had been found so, then it was clear that he wants to avail exemption as provided under the law. Now if the developer after receiving the money could not fulfill the obligation within time, then can assessee be held responsible for not complying the law. Amount utilized by the assessee in the acquisition of land should be construed as amount invested in purchase/construction of residential house. The intention of the statute as provided in section 54 had been fully satisfied by the assessee in the present case. Thus, on the facts of the present case, assessee was entitled for exemption under section 54 and AO was directed to allow the exemption under section 54.