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2016 (5) TMI 589 - BOMBAY HIGH COURT

2016 (5) TMI 589 - BOMBAY HIGH COURT - TMI - Entitlement to exemption under Section 54 - ITAT concluded merely purchasing a flat for the purpose of seeking exemption of capital gain taking within a period of two years would imply taking the actual possession and also completion certificate of such premises within such period - Held that:- The purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already .....

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ing the property there was a civil suit filed by the other parties and the assessee could not complete the construction and the licence for constructing the house was accordingly delayed. The learned Tribunal further noted that CIT (A) in his order relied upon the decision of the Madras High Court in the case of CIT V/s Sadarmal Kothani (2008 (6) TMI 15 - MADRAS HIGH COURT ) wherein, it is held that in order to get the benefit under Section 54 of the Income Tax, the assessee need not complete th .....

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nt : Ms. Asha A. Desai, Advocate For The Respondent : Mr. P. Rao, Advocate ORAL ORDER : Upon hearing the learned counsel appearing for the respective parties, the only contention which arise for consideration is whether the Income Tax Appellate Tribunal was justified to come to the conclusion that merely purchasing a flat for the purpose of seeking exemption of capital gain taking within a period of two years would imply taking the actual possession and also completion certificate of such premis .....

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omplete the premises and hand over possession to the respondent which admittedly is beyond the period of two years. On the basis of such fact, as the payment of the total consideration was paid by the respondent, merely because the residential premises were not occupied, as the possession was not delivered to the respondent by the Developer and the deed of conveyance was not executed within such period would not by itself be a ground to deprive the respondent from availing the exemption of payme .....

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n 54 of the Act. Section 54 of the Act as applicable to assessment year 2006-07 reads as under:- "54. Profit on sale of property used for residence.- (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income fro .....

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s section, that is to say,- (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its pu .....

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1-4-88. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new assets made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable .....

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on of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in subsection (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires .....

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possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT Andhra Pradesh vs. T.N. Aravinda Reddy (1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word purchase . It was observed that the word purchase‟ used in Section 54 of the Act should be interpreted pragmatically in .....

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f old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain. 9. Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sh. Sanjeev Lal Etc. vs. CIT, Chandigarh & Anr., decided on 01/07/2014, 2014 (8) SCALE 432 again examined Section 54 in a case .....

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been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inher .....

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of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observa .....

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a), the assessee had invested the sale consideration for purchase of a flat from Delhi Development Authority and had paid part installments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was ₹ 31,980/- whereas the installments paid were ₹ 71,256/-, i.e. much more than the amount of capital gain. Reference was made to Circular No. .....

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ied requirement of Section 54. 11. What has been stated in the judgment of the Madhya Pradesh High Court in 1997, in practical terms and in reality still holds good. This is a matter of common knowledge that flats or apartments being constructed by builders take time. The Government Housing Boards also take time and seldom adhere to the promised date. Similar view has been taken in Bharati C. Kothari (supra) wherein reference was made to the decision of Andhra Pradesh High Court in CIT vs. Shahz .....

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quot;Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language used is at bes .....

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t if any assessee sells his residential house and purchases a new house against those sale considerations that capital gains tax arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party that does not make any difference. The basic requirement for the purpose of relief under section 54(1), is that the assessee should invest the sale proceeds in the construction of a residential ho .....

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sub-section requires the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word purchase is used in subsection (2) and indicates that the said word is not restricted or confined .....

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e sub-section (1) to Section 54. It is only the balance amount which is not utilized which is to be brought and charged to tax. The entire amount of sale consideration or the capital gains is not to be brought to tax, but the unspent amount/figure is taxed. 3. We are in respectful agreement with the view taken by the Delhi High Court to come to the conclusion that the purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the .....

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