2014 (7) TMI 99 - SC - Income Tax

Exemption of LTCG u/s 54 - transfer - determination of effective date of transfer of original house - assesee entered into an agreement to sell on 27th December, 2002, but unfortunately they could not execute the sale deed on account of the litigation - transfer deed was executed as on 24th September, 2004 - New house property was purchased as on 30th April, 2003 - fulfillment of condition of purchase of a residential house/new asset within one year prior or two years after the date on which transfer of the residential house – Held that:- A right in personam had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid ₹ 15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand.

If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain.

In the case of Oxford University Press v. Commissioner of Income Tax [2001 (1) TMI 79 - SUPREME Court] this Court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax.

In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property and used for purchase of a new asset/residential house. - Decided in favor of assessee.