Benefit of capital gain exemption could not be denied merely because the builder failed to hand over possession of flat to assessee within prescribed time

 

 

Often a question arises whether the capital gain exemption would be admissible if the builder failed to hand over possession of flat to assessee within one year or the sale deed was registered late?

It was an issued before the court in the case of CIT vs. R.L. SOOD (2001) 165 CTR 0458 wherein the facts of the case was as under:

The assessee had paid a sum of Rs. 2,39,850 out of the total sale consideration of Rs. 2,75,000 for purchase of flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dt. 25th Sept., 1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of s. 54. Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of s. 54. Realising the practical difficulty faced by the assessee in such situations, the Board issued a Circular No. 471, dt. 15th Oct., 1986, clarifying that when the DDA issues the allotment letter to an allottee under its self-financing scheme, on payment of first instalment of cost of construction, the allottee gets title to the property and such allotment should be treated as cost of construction for the purpose of capital gains. On the same analogy, the assessee having been allotted the flat, he having paid a substantial amount towards its cost within the stipulated period of one year, he cannot be denied the benefit of the said section because the flat purchased by him had come into his full domain within the period of one year, though the sale deed in his favour was registered subsequently. In the light of the said circular and keeping in view the spirit of s. 54, the request of the Revenue to call for a reference on the proposed question is declined.

The court concluded as under:

Tribunal rightly held that assessee having entered into an agreement for purchase of new flat within four days of sale of old property and paid a substantial amount he had acquired substantial domain over the new flat within the specified period of one year and therefore, benefit of s. 54 could not be denied merely because the builder failed to hand over possession of flat to assessee within one year or the sale deed was registered later; reference declined.

 

COMMISSIONER OF INCOME TAX vs. R.L. SOOD

HIGH COURT OF DELHI

Arun Kumar & D.K. Jain, JJ.

IT Case No. 73 of 1994

24th September, 1999

(1999) 67 CCH 0597 DelHC

(2001) 165 CTR 0458 : (2000) 245 ITR 0727 : (2000) 108 TAXMAN 0227

Legislation Referred to

S 54, 256(2)

Case pertains to

Asst. Year 1982-83

Decision in favour of:

Assessee

In favour of :

Assessee

Cases referred:

Circular No. 471, dt. 15th Oct., 1986

Counsel appeared:

Sanjay Khanna, for the Revenue : None, for the Assessee

BY THE COURT

Judgment

By this petition under s. 256(2) of the IT Act, 1961, (for short ‘the Act’), pertaining to the asst. yr. 1982-83, the Revenue seeks a direction to the Tribunal to state the case and refer the following question for the opinion of this Court :

“Whether, on the facts and in circumstances of the case, the Tribunal is correct in law in holding that for the purpose of s. 54 of the IT Act, 1961, the date of agreement to purchase should be taken as the date of purchase and the date of registration of sale deed for purchase is not relevant.”

2. The assessee was the owner of a residential house which he sold on 22nd Sept., 1981, for a total consideration of Rs. 2,75,000. On 25th Sept., 1981, he entered into an agreement for purchase of a residential flat and by September, 1982 paid a sum of Rs. 2,39,850 to the builder of the said flat. The actual possession was delivered to the assessee on 17th Feb., 1983 and the sale deed in his favour was registered on 26th Feb., 1985.
3. During the course of the assessment proceedings for the relevant assessment year, the AO brought the difference between the sale price of the residential flat sold by the assessee and the cost of acquisition of the said house to tax as capital gains on the ground that the assessee had failed to satisfy the conditions laid down in s. 54(1) of the Act inasmuch as he had failed to purchase the flat within the stipulated period of one year. The assessee’s appeal to the CIT (A) was unsuccessful.
4. The assessee took the matter in further appeal to the Tribunal, who took the view that the assessee having purchased the new flat within one year of the sale of his old residential house, the provisions of s. 54(1) of the Act stood satisfied and, therefore, no income by way of capital gains could be taxed in the hands of the assessee. The Revenue’s application under s. 256(1) having been dismissed by the Tribunal the present petition had been filed.
5. We have heard Mr. Sanjiv Khanna, the learned senior standing counsel on behalf of the Revenue.
6. In our view the Tribunal was justified in declining to make a reference on the proposed question to this Court. Admittedly, the assessee had paid a sum of Rs. 2,39,850 out of the total sale consideration of Rs. 2,75,000 for purchase of flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dt. 25th Sept., 1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of s. 54. Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of s. 54 of the Act.
7. We may note that realising the practical difficulty faced by the assessee in such situations, the CBDT issued a Circular No. 471, dt. 15th Oct., 1986, clarifying that when the DDA issues the allotment letter to an allottee under its self-financing scheme, on payment of first instalment of cost of construction, the allottee gets title to the property and such allotment should be treated as cost of construction for the purpose of capital gains. On the same analogy, the assessee having been allotted the flat, he having paid a substantial amount towards its cost within the stipulate period of one year, he cannot be denied the benefit of the said section because the flat purchased by him had come into his full domain within the period of one year, though the sale deed in his favour was registered subsequently.
8. In the light of the said circular and keeping in view the spirit of s. 54 of the Act, we decline the request of the Revenue to call for a reference on the proposed question.
9. Consequently, the petition is dismissed.