Mustansir I Tehsildar vs. ITO (ITAT Mumbai)

CONCLUSIONS:

Section 54:Acquisition of new flat in an apartment under construction should be considered as a case of “Construction” and not “Purchase”. The date of commencement of construction is not relevant for purpose of s. 54. The fact that the construction may have commenced prior to the date of transfer of the old asset is irrelevant. If the construction is completed within 3 years from the date of transfer, the exemption is available.

OBSERVATION IN THE CASE:

Section 54 of the Act provides the condition that the construction of new residential house should be completed within 3 years from the date of transfer of old residential house.

According to Ld A.R, section 54 is silent about commencement of construction and hence commencement of construction can precede the date of sale of old asset. In the instant case, the assessee had booked the flat much prior to the date of old flat.

We notice that the Hon’ble Karnataka High Court has held in the case of CIT Vs. J.R. Subramanya Bhat (1987)(165 ITR 571), that commencement of construction is not relevant for the purpose of sec. 54 and it is only the completion of construction.

The above said ratio was followed in the case of Asst. CIT Vs. Subhash Sevaram Bhavnani (2012)(23 taxmann.com 94)(Ahd. Trib.). Both these cases support the contentions of the assessee. Accordingly, for the purpose of sec. 54 of the Act, we have to see whether the assessee has completed the construction within three years from the date of transfer of old asset.

In the instant case, there is no dispute that the assessee took possession of the new flat within three years from the date of sale of old residential flat. Accordingly, we are of the view that the assessee has complied with the time limit prescribed u/s 54 of the Act. Since the amount invested in the new flat prior to the due date for furnishing return of income was more than the amount of capital gain, the requirements of depositing any money under capital gains account scheme does not arise in the instant case.

Further, the Hon’ble High Court has held in the case of ITO Vs. K.C.Gopalan (2000)(162 CTR 0566) that there is no requirement that the sale proceeds realised on sale of old residential house alone should be utilised.

Asst. CIT Vs. Sagar Nitin Parikh (ITA No.6399/Mum/2011 dated 03-06-2015) and Mrs. Hilla J B Wadia (216 ITR 376) followed