TMI Blog1990 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... e said flat for Rs. 4,50,000 as per agreement dated 12-5-80. Possession was given on 15-5-80 to the buyer. The Income-tax Officer computed capital gains for the whole transaction at Rs. 4,12,800 and arrived assessee's share therein at Rs. 2,06,000 which was treated as the income under the head 'Long Term Capital gains' and allowed deduction under section 80-TT of the IT Act, 1961. The assessee submitted that he has purchased another house property being Flat No. 62, 'Rambha' at Petit Hall, Bombay, vide agreement dated 22-10-77 for Rs. 2,80,000. In this property, the assessee's share was 70% or Rs. 2,01,950. The assessee submitted his transactions in relation to purchase of new flat No. 62 in a serialised manner as under :-- 24-7-72 Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the sale of the old flat section 54 exemption is not available to the assessee. His claim is therefore rejected. " The Commissioner of Income-tax(Appeals) also confirmed the order of the ITO. 4. We have heard the counsels on both side. The Departmental Representative vehemently argued that the exemption under section 54 is not applicable to the assessee as he failed to buy any residential house property within a period of one year before/after the date of sale of the first house property. He submitted the reasons given by the ITO and the CIT(A) in their orders in support of his plea. He relied on the Supreme Court decision in CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46, and the decision of the Tribunal in Sri Rajaram v. ITO [1986] 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipal/corporation authorities. Therefore, he submitted that only when the flat construction was completed and available for residence and was actually allotted by the builder to the buyer in compliance with the agreement of sale entered upon by the builder earlier, it could be taken as ready for occupation and that was the date material for the purpose of counting period of one year within the meaning of section 54 of the IT Act, 1961. He finally submitted that 9-4-1980, on which date the builder agreed to give possession of the flat would be taken as the date on which the assessee has purchased the property for the purpose of residence within the meaning of section 54 of the IT Act, 1961. Till such time, he had only the right to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ometimes to finance his own construction activity, gives discounts and accepts lesser payment. The price paid before construction is complete, will be different from the price demanded by the vendors after the flat is constructed. The buyers even after having the agreement for purchase of the flat cannot exercise any right of ownership or their right cannot be traced to any part of the construction till such time the builder actually gives the possession of a particular flat to the buyer. After the completion of structure, it has to be inspected and cleared by the municipal authorities. Then the flat is ready for occupation which the builder normally intimates to the buyer. The buyer will then take possession and actually enjoy the house pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 54 if such a flat owner is denied the benefit. Practically in every big town in this country, the ownership flats are in fashion. In applying the provisions of section 54 to such a contingency, it would not be, as claimed by the learned counsel for the department, proper to deny the assessee the benefit of section 54. With the increase in the cost of buildings, if the technical policy of denying the benefits of section 54 claimed by the learned departmental counsel is accepted, section 54 would almost be an unused section. Certainly that cannot be the purpose of the legislation especially when this covers a large number of assessees, in a peculiar transaction like flats. A reconciliation, therefore, between the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay not be of much relevance. Considering the peculiar circumstances of that case, it was held that the benefit of section 54 should be extended by taking the date of allotment and occupation as the relevant date of purchase. Following the said decision, we are inclined to hold that in this case also, the assessee has, though, entered into agreement for purchase of flat on 22-10-77, paid the money during 1977 to 1979, but the relevant date to be taken for the purpose of applying of section 54 should be the date on which the flat was ready for occupation by the assessee. Taking that date as the date of purchase, is within the period of one year and therefore the capital gains are clearly exempt from tax applying the provisions of section 54. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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