For capital Gain Exemption, possession is to be taken as purchase of a new house within a 2 years period
| Whether capital gain exemption would be available if the assessee akes over the possession of the property and the sale deed is not executed? Whether the capital gain exemption will be available if the assessee purchases the new property with borrowed funds and doesn’t use the funds generated from sale of earlier assets. This are the common questions in the mind of the taxpayers while claiming capital gain exemption.
Denial of exemption is a regular feature during various assessment proceedings. This disallowance has increased in the faceless assessment scheme.
Here was one such issue before Mumbai ITAT in the case referred below:
Reji Easow [2022] 136 taxmann.com 111 (Mumbai – Trib.)
It may be noted that section 54 just requires purchase and investment. It doesn’t refer to use of the same fund for investment. The observation of the ITAT would be highly relevant for various taxpayers. A taxpayer can use any source of funds to buy a new house for claiming section 54 deductions. Money doesn’t have colour & so Capital Gain exemption available even if the house is purchased with borrowed funds. For Capital Gain Exemption, Assessee need not prove that the new house was paid for by consideration/capital gains from sale of old house.
ITAT Mumbai observed as under:
1. Possession of new house within stipulated 2 years is ‘purchase’ for sec.54,even if not funded by proceeds of old house. 2. If the assessee has taken possession of the new house within the stipulated 2 years period, assessee is entitled to deduction under section 54 even if the agreement for sale of new house is not registered within the 2 years period. 3. Such possession is to be taken as purchase of a new house within a 2 years period. 4. Source of funds used is irrelevant. 5. Assessee need not prove that the new house was paid for by consideration/capital gains from sale of old house. 6. Assessee will get deduction even if he paid for it though home loan provided purchase is completed by entering into possession within the stipulated 2 years period.
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