Deduction us 54-Old fund used for construction of new house. It is not mandatory that only the sale consideration of house sold is to be utilized for purchasing or constructing a new residential house-ITAT
ABCAUS Case Law Citation:
ABCAUS 1106 (2017) (01) ITAT
Assessment Year : 2009-10
Important Case Laws Cited/relied upon:
Smt. Shantaben P. Gandhi 6 taxmann.com 356 (Gujarat HC)
Smt. Nimmagadda Sridevi vs. The DCIT (Hyd ITAT)
Commissioner Of Income-Tax vs H.K. Kapoor (Allahabad HC)
Commissioner Of Income-Tax vs J.R. Subramanya Bhat (Karnataka HC)
Brief Facts of the Case:
The assessee was an individual. His case was selected for scrutiny assessment and notice u/s 143(2) followed by notice u/s 142(1) of the Income Tax Act, 1961(“Act’) were issued. During the year assessee had sold a house property for a sale consideration of Rs. 54,00,000/-. The assessee had claimed index cost of acquisition, deduction u/s 54EC for investment in bonds and the remaining amount of long term capital gain was claimed as deduction u/s 54 for constructing residential house which included cost of land. Ld.
The Assessing Officer (AO) observed that construction of residential house against which assessee had claimed deduction u/s 54 commenced before the date of transfer of property on which assessee had earned long term capital gain. The AO was of the view that deduction for construction of residential house is allowable u/s 54 only if the assessee constructs the house within a period of three years after the date of transfer of original asset, whereas in the instant case, the assessee had commenced and almost completed the construction of new residential house much before the date of transfer of capital asset. Therefore, the AO did not accept the plea of the assessee that the entire capital gain earned on sale of the old house stood fully invested either in construction of new house or capital gains bonds allowable u/s 54EC. Accordingly he rejected the claim of deduction u/s 54.
Aggrieved, the assessee went in appeal before CIT(A) who dismissed the appeal.
Contentions of the Assessee:
It was submitted that the construction of the new residential house on which deduction u/s 54 was claimed started and a considerable portion was constructed before the date of transfer of capital asset. However, the construction of residential house eligible for investment u/s 54 was completed after the date of transfer of capital asset i.e. the date on which completion certificate was issued by concerned authority.
It was further submitted that section 54 contemplates that deduction could be claimed under this section against long term capital gain from sale of residential house if another residential house is purchased within a period of one year or two years after the date of transfer of capital asset or if the assessee construct residential house within a period of three years after the date of transfer of capital asset.
It was contended that the deduction u/s 54 is allowable when the construction of residential house is completed and it is immaterial when the construction starts, main emphasis is on the date of completion of construction which in the case of assessee was after the date of transfer of capital asset and was well within the specified period of three years from the date of transfer of capital asset.
Observations made by the Tribunal:
The Tribunal noted that Assessing Officer on the basis of his examination of records observed that construction of new residential house was completed much before the date of transfer of old residential house and only a minor amount was spent after sale of old house. The AO denied the deduction u/s 54 taking the view sufficient compliance of the provisions of section 54 was not made as the amount of sale consideration was not invested in the new residential house.
The ITAT observed that the assessee in his submissions made to AO had not disputed that the major construction of the new house was completed much before the date of transfer of capital asset but there was some litigation going on between the local authorities and the previous landlord which was finally resolved by the City Service Superintendent after the date of transfer of old house on the basis of which assessee moved his application to get the completion certificate.
The Tribunal further observed that the fact of completion certificate along with some expenditure incurred by assessee for the completion of residential house after the date of sale of old house exhibited that construction of new residential house was completed after the sale of old house, as on this date the new residential house actually became habitable.
The Tribunal noted that the lower authorities had taken a common view that the sale consideration of the old residential house should form part of construction in the residential house for claiming deduction 54.
The Tribunal also clarified that an assessee is eligible to claim deduction u/s 54 even if a new residential house is purchased within one year before the date of transfer of capital asset which means that assessee has to make use of funds other than the sale consideration of house sold for investing in a residential house and it is not mandatory that only the sale consideration of house sold is to be utilized for purchasing or constructing a new residential house.
The ITAT further observed that the provisions of section 54 nowhere mentions about the date of start of construction of residential house but it only refers to a construction of a residential house which is the date of completion of the constructed residential house habitable for the purpose of residence.
The Tribunal stated that in the instant case, assessee had utilized other funds (apart from sale consideration) for constructing residential house and for this reason only he could not be denied deduction u/s 54.
It was thus held that the assessee was eligible to claim deduction u/s 54. The order of lower authorities was set aside and appeal of assessee was allowed.