4 Section 54 – The exemption u/s. 54 cannot be denied even in a case where the assessee has utilised the entire capital gain by way of making payment to the developer of flat but could not get possession of the flat as the new flat was not completed by the developer. Section 54(2) does not say that in case assessee could not get possession of property, he was not entitled for exemption u/s. 54.

FACTS

The assessee, in his return
of income, claimed exemption u/s. 54 of the Act.  The claim for exemption was made on the basis
of payments made to the developer for sale consideration. The flat, however,
was not completed even though payment was made to the promoter. The possession
was not yet given to the assessee.

The Assessing Officer (AO)
denied deduction on the ground that construction is not completed and
therefore, the assessee is not eligible to claim exemption.

Aggrieved, the assessee
preferred an appeal to the CIT(A) who allowed the claim of the assessee.

Aggrieved, the revenue
preferred an appeal to the Tribunal.

HELD 

A bare reading of section
54 clearly says that in case the assessee purchased a residential house in
India or constructed a residential house in India within a period stipulated in
section 54(1), the assessee is eligible for exemption u/s. 54. Section 54(2)
clearly says that in case the capital gain, which is not appropriated by the
assessee towards purchase of new asset or which is not utilised in purchase of
residential house or construction of residential house, then it shall be
deposited in a specific account. It is not the case of the revenue that capital
gain was not appropriated or it was not utilised. The fact is that the entire
capital gain was paid to the developer of the flat. In other words, the
assessee has utilised the entire capital gain by way of making payment to the
developer of the flat.

Section
54(2) does not say that in case the assessee could not get the possession of
the property, he is not entitled for exemption u/s. 54. The requirement of
section 54 is that the capital gain shall be utilised or appropriated as
specified in section 54(2). The assessee has complied with the conditions
stipulated in section 54(2). Therefore, the Commissioner (Appeals) has rightly
allowed the appeal of the assessee. The Tribunal held that it did not find any
reason to interfere with the order of the lower authority and accordingly, it
confirmed the same.

The appeal filed by the Revenue
was dismissed.