TMI Blog2017 (5) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be denied. Thus for the purpose of claiming exemption under section 54 the assessee is only required to invest the amount for the purpose of purchase or construction of a property without completing the same in the impugned year and all amount advanced for the said purpose would be treated as being utilized for the purpose of section 54. - Decided in favour of assessee. - ITA No. 341/Chd/2017 - - - Dated:- 23-5-2017 - Shri Sanjay Garg, Judicial Member And Ms. Annapurna Gupta , Accountant Member Appellant By : Sh. Tej Mohan Singh Respondent By : Sh. S.K. Mittal ORDER Per Annapurna Gupta A. M. This appeal has been filed by the assessee against the order of the Ld. CIT(A)-2, Chandigarh dt. 20/01/2017. The assessee has raised the following grounds of appeal: 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts in upholding the disallowance of deduction claimed under section 54 in utter disregard of the explanation filed and various judicial precedents which is illegal, arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax(Appeals) has erred in failing to appreciate that the assessee had fulfilled al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) the assessee contended that she had invested capital gain earned to the extent of ₹ 62,10,000/- on 15/04/2013 i.e; before due date of filing of return of income and on payment thereof had been allotted and granted title, possession and ownership rights for the said apartment. The assessee submitted that exemption could not be denied merely because payment was made but possession not obtained and relied upon the decision of the Delhi High Court in the case of CIT Vs. Kuldeep Singh (2014) 270 CTR 561(Del). The Ld. CIT(A) after considering the assessee's submission held that as per the facts of the case the assessee could not be said to have purchased a house within two years or even constructed a house within three years from the date of sale i.e; 06/11/2012 since as per the assessee's own admission the flat would become livable only in May 2016 i.e beyond three years from the date of transfer of the original asset on 06-11-12. The Ld. CIT(A) held that as a matter of fact even after three years from the date of sale of the original asset, the new house had not came into existence and therefore the assessee had not fulfilled the conditions specified under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 36 months from the date of start of actual construction, with a grace period of six months. 8. The sole reason for denying exemption u/s 54 to the assessee is that, the assessee had not complied with the condition stipulated in the section of purchase /construction of new house within the stipulated period of two and three years respectively since as per the agreement for purchase of new house/flat , the construction of the said house could not have been completed within the said period and even as a matter of fact has not been completed within the stipulated period. 9. The contention of the Ld. Counsel is that since the assessee had invested substantial amount for the purchase of the said Flat and has been allotted a flat, she was entitled to exemption under section 54 even if the construction of the said Flat was not completed or was not possible to be completed within the period of two/three years from the date on which the assessee had earned capital gain on account of transfer of its original asset. 10. Ld. DR on the other hand has contended that completion of construction within three years or purchase of a Flat within two years is an essential condition for claimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments referred to before us by the Ld. Counsel for the assessee. In case of Smt. Ranjeet Sandhu (supra) the assessee had sold her agricultural land for ₹ 1.5 crores and out of the same purchased a residential plot and started construction of a new house and claimed exemption u/s 54F.However the same was denied by the AO since he noted that the construction had not been completed. The CIT(A) confirmed the order of the AO. On second appeal to the Tribunal, it was held that completion of construction was not an essential condition for claiming exemption u/s 54,the thrust being on investment of the consideration received on sale of asset in construction of a new house. The relevant findings of the ITAT at para 11 of the order is as under: 11.In the facts of the present case, the assessee had invested the full sale consideration received on the sale of original asset in the purchase of the plot of land at Gurgaon. Thereafter the assessee had invested ₹ 10,75,000 in the construction of the building. The construction was in progress and was not complete and in view thereof, the benefit of exemption claimed under s. 54F of the Act was rejected by the authorities below. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any long term capital asset, not being a residential house and the assessee had after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, referred to as the new asset, then the capital gain is exempt, if whole of the net consideration of the original asset is invested in the new asset i.e. residential house. Now the question arises in the present case whether the assessee had fulfilled the conditions under section 54F or not, has to be perused. In the present case, the assessee had invested the total sale consideration (net consideration) within three years after the transfer of the original asset. The words mentioned in section 54F are that the amount should be invested in the construction of a residential house. Therefore, once the assessee having been invested total sale consideration into construction of a residential house, then it is not necessary that the residential house should have been completed within three years of the transfer of the original asset. The residential house may be completed even after completion of three years of the transfer of the original asset. In such a situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 14,62,500/- till 16.2.2009. In the back drop of this factual position, it is required to be seen whether the assessee had fulfilled the conditions of section 54 of the Act so as to make him eligible for claim of exemption u/s 54 of the Act. The first condition is that the capital gain should have been invested in the purchase of new residential house within a period of two years from the date of transfer or for construction of new residential house within a period of three years from the date of transfer. In the present case, the assessee had booked the new flat with the builder and as per agreement, the assessee was to make payment in installments and the builder was to handover the possession of the flat after construction. It has therefore to be considered as a case of construction of new residential house and not purchase of flat. This position has been clarified by the CBDT in circular No.472 dated 16.12.1993 in which it has been made clear that the earlier circular No. 471 dated 15.10.1986 in which it was stated that acquisition of flat through allotment by DDA has to be treated as a construction of flat would apply to co- operative societies and other institutions. The bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken on 31/08/2009. Therefore, in our view, the claim of the exemption in this case cannot be denied on the ground that the possession of the flat had not been taken within the period of three years. 11.4 Thus it is evident from the above that if substantial amount of capital gain has been invested by the assessee for the purpose of purchasing a new house, exemption u/s 54 cannot be denied for the reason that construction was not completed within three years or house was not purchased within two years. In the present case the capital gain earned by the assessee is ₹ 74,33,137/- and the amount invested in the new house before the due date of filing of return of income for the impugned year is ₹ 62,10,000/-.Thus undeniably the assessee has invested substantial amount for purchasing the new asset and following the decisions of the coordinate bench and the Hon'ble High Court, cited above, we hold that the assessee is entitled to claim deduction u/s 54 of the Income Tax Act,1961. 11.5 Even otherwise we find that section 54 gives a window period of three years, from the date of transfer of original asset, for the construction of a new house and two years for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged under section 45; 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 purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset 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 in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme 11 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years after the date on which transfer has taken place to purchase new machinery or plant or acquire building or land. We find that the High Court has completely missed the window of three years given to the assessee to purchase or acquire machinery and building or land. This is why the expression used in 54G(2) is which is not utilized by him for all or any of the purposes aforesaid.... . It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the Section is to utilize the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. It is undisputed that the entire amount claimed in the assessment year in question has been so utilized for purchase and/or acquisition of new machinery or plant and land or building. 37. The High Court is not correct when it states:- 31. The word 'purchase' is not defined under the Act and therefore, has to be construed in the commercial sense. In many dictionaries, the word 'purchase' means the acquisition of property by party's own act as distinguished from acquisition by act of law. In the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t building for the purpose of his business in the said area. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words not utilized in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be utilized by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilization by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets. We find therefore that on this ground also, the assessee is liable to succeed. The appeals are, accordingly, allowed and the judgment of the High Court is set aside. 12. In view of the interpretation given to the word utilized used in section 54G of the Act by the Supreme Court and considering that the condition specified in section 54G(2) are identical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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