Exemption Under section 54F admissible even if the payment is done by third-Party
Key Facts:
a. The assessee surrendered his tenancy/possessory rights under a joint development agreement with a property developer.
b. He made the required payments toward a residential flat within the statutory period.
c. The developer discharged the outstanding balance directly to the seller, as confirmed by a seller-endorsed letter and reflected as a liability in the developer’s financial statements.
Legal Issue:
1. Can the assessee claim the full deduction under Section 54F for his capital gain when a third party fulfills part of the investment obligation within the prescribed one-year window, even if actual remittance occurs later?
Holding:
Mumbai Tribunal allowed full deduction –
1. Constructive Discharge: A binding third-party commitment satisfied the investment requirement within time.
2. Documentary Confirmation: A seller-countersigned letter and the developer’s accounting entry conclusively proved the obligation was discharged timely.
3. No Dispute: The seller never challenged the payment timing, underscoring its validity.
The Tribunal applied a substance-over-form approach: a bona fide third-party undertaking and corresponding liability entry can qualify as “investment” for Section 54F purposes, irrespective of when funds physically change hands.
The copy of the order is as under:
