Section 54 – An assessee is entitled to claim deduction u/s. 54 if he purchases a new house property one year before or two years after the date of transfer of the original asset, irrespective of the fact whether money invested in purchase of new house property is out of sale consideration received from the transfer of original asset or not

10. (2019) 198 TTJ (Mum) 370 Hansa Shah vs. ITO ITA No.: 607/Mum/2018 A.Y.: 2011-12 Dated : 5^th October, 2018

Section 54 – An assessee is entitled to
claim deduction u/s. 54 if he purchases a new house property one year before or
two years after the date of transfer of the original asset, irrespective of the
fact whether money invested in purchase of new house property is out of sale consideration
received from the transfer of original asset or not

FACTS

During the year,
the assessee had sold a flat jointly held with others and declared her share of
capital gain at Rs. 55,82,426. However, she claimed deduction of the capital
gain u/s. 54 of the Act towards investment made of Rs. 98,90,358 in purchase of
a new flat. The AO noted that the investment of Rs. 98,90,358 included housing
loan of Rs. 50 lakh availed from Citibank. The assessee submitted that the
housing loan was not utilised for the purchase of the new house. The assessee
had produced the loan sanction letter of the bank as well as bank statement to
demonstrate that the housing loan was disbursed much after the purchase of the
new house by the assessee. In fact, the assessee had also explained the source
of funds utilised in the purchase of the new house. However, the AO rejected
the claim of the assessee and reduced the housing loan from the cost of the new
house and allowed the balance amount of Rs. 48,93,358 towards deduction u/s. 54
of the Act. Accordingly, he made an addition of Rs. 6,92,068 towards long-term
capital gain.

Aggrieved by the
assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A)
sustained the addition made by the AO.

HELD

The Tribunal held that even assuming that the housing loan was utilised
for the purpose of purchase of new house property, it needed to be examined
whether by the reason of utilisation of housing loan in purchase of new house
property, the assessee would not be eligible to claim deduction u/s. 54 of the
Act. For this purpose, it was necessary to look into the provisions of section
54. On a careful reading of the aforesaid provision as a whole and more
particularly sub-section (1) of section 54 of the Act, it became clear that the
only condition which required to be fulfilled was, one year before or two years
after the date of transfer of the original asset the assessee must have
purchased the new house property.

In case the logic of the department that for availing deduction the
consideration received by the assessee from the sale of the original asset had
to be utilised for investment in the new house property was accepted, the
provision of section 54(1) would become redundant because such a situation
would never arise in case assessee purchased the new house property one year
before the date of transfer of new asset.

Thus, on a plain
interpretation of section 54(1) of the Act, it had to be concluded that if the
assessee purchased a new house property one year before or two years after the
date of transfer of the original asset, he was entitled to claim deduction u/s.
54 of the Act irrespective of the fact whether money invested in the purchase
of the new house property was out of the sale consideration received from transfer
of original asset or not. In the present case, the assessee had purchased the
new house property within the stipulated period of two years from the date of
transfer of the original asset. That being the case, the assessee was eligible
to avail deduction u/s. 54 of the Act.