By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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54F – Inability to construct the residential house within three years due to restraint order by competent Court will not disentitle the assessee from the exemption.
Facts:
The assessee sold her capital asset resulting in long-term capital gains which was claimed as exempt as the the assessee was proposing to construct a residential house property out of the sale consideration. The exemption was claimed u/s. 54F. The assessee sold the property on 8th June, 2006 and immediately thereafter, on 5th July, 2006, purchased a landed property to construct a house. The purchase price paid for the land was more than the long-term capital gains arisen in the hands of the assessee on sale of her capital asset. But the assessee could not construct the residential house in the land purchased by her as proposed, due to injunction granted to the owners by the Civil Court. The expiry of the threeyear period from the date of sale of the property was on 8th June, 2009. The matter went upto the Hon’ble Supreme Court, which was dismissed by the Hon’ble Supreme Court and all proceedings were dismissed on 13th September 2011.
Held:
The facts demonstrate that the assessee had arranged the transaction in such a bona fide manner so as to claim the exemption available u/s. 54F. It is after the purchase of the property that hell broke loose against the assessee in the form of civil litigation. The litigation started on 25th February, 2008 and ended only on 19th September, 2011. By that time, the available period of three years to construct the house was already over, on 8th June, 2009. It is an accepted principle of jurisprudence that law never dictates a person to perform a duty that is impossible to perform. In the present case, it was impossible for the assessee to construct the residential house within the stipulated period of three years.
A dominant factor to be seen in the present case is that the entire consideration received by the assessee on sale of her old property has been utilised for the purchase of the new property. The conduct of the assessee unequivocally demonstrates that the assessee was in fact proceeding to construct a residential house, based on which the assessee had claimed exemption u/s. 54F. It is true that the assessee could not construct the house. In the special facts and circumstances of the present case, therefore, it is necessary to hold that the amount utilised by the assessee to purchase the land was in fact utilised for acquiring/constructing a residential house.
