July 2019

Section 54A – Acquisition of an apartment under a builder-buyer agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset – Even in a case where construction of new asset commenced before the date of sale of original asset, the assessee is eligible for deduction of the amount of investment made in the new asset

Jagdish D. Shah | Jagdish T. Punjabi
Chartered Accountants

8  Kapil Kumar Agarwal vs. DCIT (Delhi) Members: Amit Shukla (JM) and Prashant Mahrishi (AM) ITA No. 2630/Del./2015 A.Y.: 2011-12 Date of order: 30th April, 2019 Counsel for Assessee / Revenue: Piyush Kaushik / Mrs. Sugandha Sharma

 

Section 54A – Acquisition of an apartment under a builder-buyer agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset – Even in a case where construction of new asset commenced before the date of sale of original asset, the assessee is eligible for deduction of the amount of investment made in the new asset

 

FACTS

During the previous year relevant to the assessment year under consideration, the assessee, an individual, sold shares held by him as long-term capital asset. The long-term capital gain arising from the sale of shares was claimed as deduction u/s. 54F of the Act. In the course of assessment proceedings, the AO noted that the shares were sold on 13th July, 2010 for a consideration of Rs. 80,00,000 and a long-term capital gain of Rs. 79,85,761 arose to the assessee on such sale. The assessee claimed this gain of Rs. 79,85,761 to be deductible u/s. 54F by contending that it had purchased a residential apartment by entering into an apartment buyer’s agreement and having made a payment of Rs. 1,42,45,000.

 

The AO was of the view that the assessee has not purchased the house but has made payment of instalment to the builder for construction of the property. He also noted that the assessee has started investing in the new asset with effect from 18th August, 2006, that is, three years and 11 months before the date of sale. Further, around 90% of the total investment in the new asset has been made before the date of sale of the original asset. The AO denied claim for deduction of Rs. 79,85,761 made u/s. 54F of the Act. He observed that the assessee would have been eligible for deduction u/s. 54F had the entire investment in the construction of the new asset been made between 13th July, 2010 and 12th July, 2013.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO. Still not satisfied, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal held that the question as to whether the acquisition of an apartment under a builders-buyers agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase of a new asset or construction of a new asset has been answered by the Delhi High Court in the case of CIT vs. Kuldeep Singh [(2014) 49 taxmann.com 167 (Delhi)]. Referring to the observations of the Delhi High Court in the case,  the Tribunal held that acquisition of an apartment under a builders-buyers agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset.

 

The Tribunal observed that the second question, viz., whether the construction of new asset even if commenced before the date of sale of the original asset, the assessee is eligible for deduction of the amount of investment made in the property, has been examined in the case of CIT vs. Bharti Mishra [(2014) 41 taxmann.com 50 (Delhi)]. The Tribunal observed that the issue in the present case is squarely covered by this decision of the Delhi High Court. It held that the assessee has purchased a house property, i.e., a new asset, and is entitled to exemption u/s. 54F of the Act despite the fact that construction activities of the purchase of the new house started before the date of sale of the original asset which resulted into capital gain chargeable to tax in the hands of the assessee. The Tribunal reversed the order of the lower authorities and directed the AO to grant deduction u/s. 54F of Rs. 79,85,761 to the assessee. In the event, the appeal filed by the assessee was allowed.

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