Time limit for making investment in under construction projects is 3 years to avail benefit of Sec 54 : ITAT
Hemant Shridhar Phatak vs. The Asst. Commissioner of Income Tax (ITA NO.267 & 268/MUM/2023)
- Mr.Phatak and his wife jointly sold a residential flat on 04/08/2012 and claimed exemption under section 54 of the Income Tax Act, on the long-term capital gains. They had booked two flats in under construction projects on 18/04/2011, and possession was received on 26/11/2014.
- The Assessing Officer denied the exemption, stating that the flats were booked beyond one year before the date of transfer and possession was received after two years from the transfer.
- The assessee’s representative argued that the flats were booked in a building under construction, and possession was received within three years from the date of transfer, fulfilling the condition for exemption under section 54. He contended that, acquiring a flat in a building under construction was considered akin to construction.
Note: For the purpose of availing benefit of section 54 of the Act, the assessee from the date of sale of long term capital asset should either within a period of one year before or two years after the date on which the transfer took place purchase or within a period of three years after the date construct a residential house in India.
ITAT Mumbai held as under:
- In the case of CIT vs. Hilla J B Wadia, 216 ITR 376 (Bom), the Hon’ble Jurisdictional High Court has held that where an assessee has utilized capital gains from transfer of old residential asset towards purchase of flat in a building under construction, ‘this must also be viewed as a method of constructing residential tenement.’
- Where the assessee has acquired a flat in a building under construction, it would be a case of construction and not purchase of property.
- So the time limit of 3 years prescribed U/S 54 for construction of new property is fulfilled.
- The appeal is allowed
The copy of the order is as under: