Section 54 – Conditions of section 54 stand complied when the assessee pays booking advance to a builder and the builder issues him a letter of allotment specifying the flat number and the specific details of the property. Deduction u/s. 54 cannot be denied on the ground that the new property was still under construction or that the legal title in the new residential house has not passed to the assessee within the specified period.
Facts
The assessee, an individual, was carrying on business of trading in glass. During the previous year relevant to the assessment year under consideration, the assessee had vide sale agreement dated 8th December, 2009 sold a residential house for a consideration of Rs. 1,02,55,000. Long term capital gain computed on sale of this residential house, amounting to Rs. 88,37,096, was claimed to be exempt u/s. 54 of the Act on the ground that the assessee had on 6th February, 2010 issued a cheque of Rs. 1 crore to a builder for purchase of Flat Nos. 1 and 2 in a building known as Ramniwas at Malad(E). The assessee produced a copy of receipt of payment made by him and also an allotment letter dated 15th October, 2010 from the builder.
In the course of assessment proceedings, the Assessing Officer (AO) noticed that the construction of the new house was not completed even after two years from the date of transfer of old house. He held that giving of an advance could not be treated as a `purchase’ for the purposes of section 54 of the Act. The AO, denied the claim made u/s. 54 of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO on the ground that the assessee, though, has parted with money but has not acquired possession or domain over the new residential house.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held
The Tribunal observed that the legal title has not passed or transferred to the assessee within the specified period and that the new property was still under construction. However, it also noted that the allotment letter by the builder does mention the flat number and has other specific details of the property. It noted the observations of the Delhi High Court in the case of CIT vs. Kuldeep Singh (2014) 270 CTR 561 (Del.) where the Delhi High Court having noted the ratio of the decision of the Supreme Court in the case of Sanjeev Lal vs. CIT (2014) 269 CTR 1 (SC) and also having referred to the decisions of the Madhya Pradesh High Court in the case of Smt. Shashi Varma vs. CIT (1999) 152 CTR 227 (MP) and of the Calcutta High Court in the case of CIT vs. Smt. Bharati C. Kothari (2000) 244 ITR 106 (MP) opined that when substantial investment was made in the new property, it should be deemed that sufficient steps had been taken and it would satisfy the requirements of section 54 of the Act.
It observed that the parity of reasoning explained by the Delhi High Court squarely applied to the case being decided. It also noted that the co-ordinate Bench in the case of Shri Khemchand Fagwani vs. ITO (ITA No. 7876/Mum/2010, order dated 10th September, 2014), has allowed the claim of exemption under similar circumstances.
Following the precedents, the Tribunal allowed the claim made u/s. 54 of the Act.
The appeal filed by the assessee was allowed.
