39. Capital gain – Exemption u/s. 54 of the Act – A.Y. 2003-04 – Sale of residential property on 04/02/2003 – Agreement to purchase another residential property on 08/09/2003 and invested the capital gain within specified time – Assessee entitled to exemption u/s. 54 even if there is delay in completing the transaction

CIT vs. Mrs. Shakuntala Devi; 389 ITR 366 (Karn):

The assessee sold a flat
in Mumbai for a total consideration of Rs. 1,71,00,000/- on 04/02/2003 and the
consequent capital gain was Rs. 1,44,68,032/-. The assessee entered into an
agreement for purchase of the another residential property on 08/09/2003 for a
consideration of Rs. 3,25,00,000/- and invested the capital gain for the same.
The assessee’s claim for exemption u/s. 54 for the A. Y. 2003-04 was rejected
by the Assessing Officer on the ground that the transaction has not been
concluded, no registration of the sale deed has taken place and the balance
consideration was yet to be paid. The Tribunal held that the assessee is
entitled to exemption u/s. 54 of the Act.  

On appeal by the Revenue, the Karnataka High Court upheld the
decision of the Tribunal and held as under:

“i)   The Tribunal had rightly held that the date
of purchase was to be taken as the basis for reconing the period of two years
prescribed u/s. 54 of the Act extending the benefit following therefrom.

ii)   In the instant case the consideration paid by
the assessee under the memorandum of understanding dated 08/09/2003 would fully
cover the consideration of capital gains portion for being eligible to claim
exemption u/s. 54 of the Act.”