1986 (7) TMI 182 - AT - Income Tax

Summary

Issues Involved:
1. Whether the appellant purchased the residential flat within the statutory period of one year as required by section 54 of the Income-tax Act, 1961.
2. Whether the term 'purchase' in section 54 should be construed liberally to include the date of the agreement to purchase.
3. Whether the agreement to purchase and subsequent registration can be considered as an attempt to construct a residential property.
4. Whether the major part of the consideration paid after the statutory period affects the eligibility for exemption under section 54.

Issue-wise Detailed Analysis:

1. Whether the appellant purchased the residential flat within the statutory period of one year as required by section 54 of the Income-tax Act, 1961:
The appellant sold his residential flat on 5-3-1981 and entered into an agreement to purchase a new flat on 26-6-1981. The new flat was completed and registered in his favor on 3-3-1983, beyond the one-year period stipulated by section 54. The Income Tax Officer (ITO) allowed the exemption under section 54, but the Commissioner disagreed, stating that the purchase was not completed within the required timeframe.

2. Whether the term 'purchase' in section 54 should be construed liberally to include the date of the agreement to purchase:
The appellant argued that the term 'purchase' should be interpreted liberally, citing the Supreme Court's decision in CIT v. T.N. Aravinda Reddy, which held that 'purchase' includes transactions where the agreement eventually crystallizes into a purchase, even if the legal title is transferred later. The Tribunal agreed, stating that the date of the agreement should be considered the date of purchase for the purposes of section 54, as the term 'purchase' is not synonymous with 'ownership' or 'transfer of legal title'.

3. Whether the agreement to purchase and subsequent registration can be considered as an attempt to construct a residential property:
The appellant alternatively argued that the agreement should be seen as a construction agreement, given the complexities of modern construction. The Tribunal did not find this argument compelling, focusing instead on the interpretation of 'purchase' rather than reclassifying the transaction as construction.

4. Whether the major part of the consideration paid after the statutory period affects the eligibility for exemption under section 54:
The department contended that since the major payments were made after the one-year period, the exemption should not apply. However, the Tribunal, referencing the Supreme Court's observation that there is no 'cash and carry' requirement in section 54, concluded that the timing of the payments did not affect the eligibility for the exemption.

Conclusion:
The Tribunal vacated the Commissioner's order and allowed the appeal, holding that:
- The term 'purchase' should be construed liberally.
- The date of the agreement to purchase should be taken as the date of purchase for the purposes of section 54.
- The timing of the payment of the consideration does not affect the eligibility for exemption under section 54.
The appeal was allowed, and the exemption under section 54 was granted to the appellant.