TMI Blog2024 (3) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... idential house, including the land on which the residential house is constructed, the capital gain is not to be charged u/s 45. We further observed that in the case of CIT Vs. Kapil Kumar Aggarwal [ 2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT] that section 54F of the Act, nowhere envisages that sale consideration obtained by the assessee from original capital asset is mandatorily required to be utilized for purposes of meeting cost of new asset. It was, therefore, held that where investment made by the assessee although not entirely sourced from capital gains but was within stipulated time and if more than capital gain earned by assessee, the assessee is entitled to exempt u/s 54F. Hon ble Allahabad High Court in the case of CIT Vs. H.K. Kapoor [ 1997 (8) TMI 44 - ALLAHABAD HIGH COURT] held that exemption on capital gains u/s 54 of the Act could be allowed notwithstanding the fact that the construction of new house had begun before the sale of the old house. Thus direct the AO to allow deduction u/s 54 of the Act as claimed by the assessee. Decided in favour of assessee. - Shri Challa Nagendra Prasad, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction u/s 54 of the Act as the assessee sold two properties in the financial year relevant to the current assessment year and the possession of the building constructed was taken after the date of sale of the two properties. The AO while completing the assessment, however, restricted the deduction claimed u/s 54 of the Act to Rs. 1,08,23,892/- as against Rs. 1,31,47,100/- claimed by the assessee on the ground that an amount of Rs. 23,23,208/- was paid to the builder after the sale of the properties by the assessee. The AO also denied the claim of the assessee for deduction u/s 54 of the Act on the ground that the assessee did not meet the cost of construction from the sale proceeds of the properties but was paid from out of loan obtained by the assessee from Axis Bank. 3. On appeal, the Ld. CIT(Appeals) not only sustained the action of the AO in denying deduction of Rs. 1,08,23,892/- as was done by the AO he also denied the claim of deduction of Rs. 23,23,208/- which was allowed u/s 54 of the Act by the AO, by enhancing the income of the assessee to that extent. 4. Before us, the Ld. Counsel for the assessee made his submissions as under: - The admitted facts are (kind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding payment made for the purpose of construction of the Property has not been submitted/page no.4 of the assessment order). The main contention of the Ld. AO is that though the assessee has invested a sum of Rs. 162.36 lakhs in the new house at Bangalore, but he has invested Rs. 23,23,208/-out of the capital gain and accordingly the LD. AO granted the benefit of Rs. 23,23,208/- u/s 54 of the Act. Regarding construction of new house before the date of sale of original capital Asset, the assessee places reliance on the decision of Hon'ble Madras High Court in the case of C. Aryama Sundaram Vs. The Commissioner of Income Tax-3, Tax Case (Appeal) No. 520 of 2017 (Madras High Court) (CLC Page No. 17-23), wherein, it the Hon'ble High Court has been held as under (CLC Page No. 22)- 23 It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken as ready for occupation and that was the date material for the purpose of counting period within the meaning of section 54 of the Act. Since, 12.02.2012 being the date of offer of possession /and date of payment i.e. 27.02.2012, which is within the period of three years from the sale of original asset, the appellant is entitled to claim the benefit of section 54 of the Act. Regarding date of possession, reliance is placed on the following judgments: Bastimal K fain vs. ITO 15(1)(2), Mumbai in IT A No. 2896/Mum/2014 dated 08.06.2016 (Hon'ble ITAT, Mumbai) (CLC Page No. 1-8). Reji Easow vs. ITO, Ward 3(5), Thane in ITA No. 1557/Mum/2020 (Hon'ble ITAT, Mumbai) (CLC Page No. 9-14) CIT vs. Smt. Beena K. Jain, (1996) 217 ITR 363 (Hon'ble Bombay High Court) (CLC Page No. 15- 16). Ld. CIT (A) made the following adverse observations (para 10.2 of page 25 of the appellate order): - a) The Maintenance charges become applicable only after the expiry of one year (defect liability period) from the completion of the construction/project. Almost 85% of the Total amount was paid by the appellant by 29.07.2009. b) The maintenance charges become due to builder and that they were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance charges become due to the builder and they were also paid from 25.12.2011, thus for all practical purposes the appellant was the owner of the property in 2010. In this connection, the Facts regarding Maintenance Charges are as below as per letter: - S.No. Cheque No. Cheque No. Amount (Rs.) Date of clearing Page No. in our Paper Book 1. 079805 25.12.2011 31,022 25.01.2012 (PB-68) 2. 133893 20.01.2012 31,022 25.01.2012 (PB-68) 3. 133894 17.04.2012 31,022 18.04.2012 (PB-78) 4. 133895 17.10.2012 31,022 20.10.2012 (PB-88) It is further stated that cheque no. 079805 issued by the assessee towards first payment of maintenance charges which was cleared on 25.01.2012 i.e. after the date of possession letter. Hence, the payment was made on after the sale of original asset. Therefore, in view of above facts and circumstances of the case, it is prayed that the appeal of the appellant may kindly be allowed. 5. On the other hand, the Ld. DR strongly placed reliance on the orders of the Ld. CIT(Appeals). 6. Heard rival submissions. The only issue to be decided is as to whether the assessee is entitled for deduction u/s 54 of the Act on the two properties sold by the assessee during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential house. 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain. 23. At the cost of repetition, it is reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Golf Link house had been used for the purpose of residence for more than two years before the sale, he rejected the contention of the assessee that the Safdarjang Enclave, New Delhi, house had been completed by the assessee within a period of two years from the date of sale of the Golf Link house. The ITO was, therefore, of the view that s. 54 of the Act was not applicable. In the alternative, the assessee pleaded before the ITO that he started the construction of another residential house at 64 Surya Nagar, Agra on 10th March, 1963 and that came to be completed within two years of the sale of the Golf Link house and that the capital gains to the extent of being invested in the construction of the Surya Nagar house was not taxable under s. 54 of the Act. The ITO, however, took the view that the assessee had started construction of this house prior to the sale of the Golf Link house. He, therefore, rejected the alternative contention too of the assessee. On appeal, the AAC had agreed with the ITO. On further appeal, the Tribunal reproducing s. 54 in its order found as follows: A perusal of the above provision will show that it does not lay down that the construction of any hou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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