Section 54 of the Income-tax Act 1961 – Amount exceeding capital gains arising from sale of old residential house having been paid by assessee to a builder within three years for construction of new residential house, assessee was entitled to exemption u/s.54 notwithstanding that assessee obtained possession after three years and also failed to deposit capital gains in the capital gains account scheme before due date of fling return of income u/s.139 (1) for relevant year.
Facts
The assessee’s claim for exemption u/s. 54 of long term capital gain on sale of a residential house was denied by the Assessing Officer. The CIT(A) confirmed the disallowance.
Held
The Tribunal, relying on the decisions in the following cases, held that the assessee was entitled to exemption u/s. 54 :
a. Asst. CIT vs. Smt. Sunder Kaur Singh Gadh (2005) 3 SOT 206 (Mum.)
b. ITO vs. Mrs. Hilla J.B. Wadia 113 CTR 173 (Bom.)/ (1995) 216 ITR 376 (Bom.)
c. Jagan Nath Singh Lodha vs. ITO (2004) 85 TTJ 173 (Jd.)
d. CIT vs. Mrs. Jagriti Aggarwal (2011) 245 CTR 629 (P&H)/(2011) 64 DTR 333 (P&H)/(2011) 339 ITR 610 (P&H)
e. Jagtar Singh Chawla vs. Asst. CIT ITA No.4923 (Del.) of 2010 dated 30-06-2011
The Tribunal noted as under:
The assessee had booked a new residential flat with the builder jointly with his wife and he had paid booking amount of Rs.1,00,000 to the builder before the due date of filing of the return of income u/s. 139(1) for the A.Y.2006-07 and the balance amount had been paid in instalments after the said date. 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.672, 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 builder would fall in the category of “other institutions”. Thus, in the present case, the period of three years would apply for construction of new house from the date of transfer of the old flat.
The assessee had invested the capital gains in construction of a new residential house within a period of three years and this should be treated as sufficient compliance of the provisions of the Act. It is not necessary that the possession of the flat should also be taken within the period of three years. The taking of the possession may be delayed because of many factors not under the control of the assessee due to default on the part of the builder and, therefore, merely because the possession had not been taken within the period of three years, the exemption cannot be denied. Within the period of three years, the assessee had invested more than the amount of capital gain in the construction of new residential house. Therefore, 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.
The other objection raised by the Revenue is that the assessee had paid/utilised only a sum of Rs. 1 lakh towards the construction of flat till the due date of filing of the return of income u/s. 139(1) for the relevant year, and, therefore, the balance amount of capital gain was required to be deposited in the Capital Gains Account Scheme which had not been done. This is only a technical default and on this ground, the claim of exemption cannot be denied particularly when the amount had been actually utilised for the construction of residential house and not for any other purpose.
The assessee has also made a point that the due date of filing of the return of income u/s. 139(1) for the purpose of utilisation of the amount for purchase/ construction of residential house has to be construed with respect to the due date prescribed for filing of the return u/s. 139(4). In the present case, the capital gain earned by the assessee was Rs. 9.98 lakh and the assessee had utilised a sum of Rs. 13.50 lakh towards the construction of residential house by 05-07-2007, which was within the extended period of filing of the return u/s. 139(4) till 31-03-2008 for the A.Y.2006-07. The assessee had, thus, utilised the amount which was more than capital gain earned towards construction of new residential house within extended period u/s. 139(4) and, therefore, there was no default in not depositing the amount under the Capital Gains Account Scheme.
