Completion of Construction irrelevant to Apply S. 54F: ITAT allows Capital Gain exemption since Sale Deed was Registered within Prescribed Time [Read Order]

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The Bangalore bench of the ITAT has held that the date of completion of construction of new property is irrelevant to allow exemption under section 54F of the Income Tax Act, 1961 and the same is allowable if the ownership of the property is transferred to the assessee within the prescribed statutory period.

The income tax department, while concluding the proceedings against the assessee, an individual, held that the deduction under section 54F will be available to assessee only if the assessee has within a period of one year before or two year after the date on which transfer took place or, has within a period of three years after the date of transfer constructed a residential house. The department contended that as the assessee acquired the property with respect to which the deduction under section 54 F was claimed was acquired on 10/02/2011, i.e., 4 years prior to the transfer of original asset and that the assessee constructed the residential house on the same property which is valued at Rs.3,12,13,249/-, the Capital gain was restricted to Rs.14,90,260/-.

The Tribunal bench comprising Shri. Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member relied on a catena of decisions and observed that the passport to derive benefit under sec.54F(1) is investment in construction of property within the period required u/s 54(1)F or to invest in residential property within the stipulated time for enabling deduction under section 5 4F of the Act.

Relying on the decision of the Karnataka High Court in decision of CIT vs.Sambandam Udaykumar, the Tribunal observed that under provisions of section 54F of the Act, the condition preceded is that, capital gains realised from sale of capital asset should have been parted by assessee and invested or constructed a residential house, as the case may be.

“Hon’ble court also observed that, the essence of the purpose of section 54F, is whether, the assessee who received the capital gain has invested in a house. Once it is demonstrated that the consideration received on transfer of capital asset has been invested in or construction of residential house, even though the construction is not complete in all respect as required under law, assessee cannot be denied benefit under section 54F. Further on a plain reading of decision of Hon’ble Karnataka High Court in case of CIT Vs. Sambandam (Supra) reveals that, there is no particular stage of completion of construction, that is contemplated. Ld. AR submitted that, the construction was later on completed and the sale deed was registered in favour of assessee on 05/07/2019 in respect of transfer of ownership of residential property. There is nothing placed by revenue on record to demonstrate any other violation in support of their arguments,” the Tribunal concluded.

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S.M. Shoba vs The Income Tax Officer

Counsel for Appellant:   Ramasubramanian

Counsel for Respondent:   Priyadarshi Mishra


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