Date of Final Occupation should be considered for Calculating the period of eligibility for Capital Gain Exemption: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), recently held that it is the date of possession of a new house, and not that of the purchase/sale agreement, will be considered for calculating the eligibility period for claiming exemption on reinvestment of long term capital gain in residential property under section 54F of the Income Tax Act, 1961.

In the instant case, the assessee claimed income tax deduction as she had purchased a new flat out of her capital gain from the sale of her old house property. However, the claim was rejected by the Assessing Officer on ground that the new house was not purchased within one year prior to transfer of the existing property.

He also rejected the assessees’ contention that though the purchase agreement was entered into on August 18, 2007, the final possession of the new house was received only in March 2009. According to the assessee, the date of possession must be considered for determining the 'period of eligibility'. Thus, she is eligible for the benefit.

The division bench of the Tribunal, after recognizing the issues facing by the flat buyers in metropolitan cities due to project delays, observed that, "The buyers even after having the agreement for purchase of the new flat cannot exercise any right of ownership or their right cannot be traced to any part of the construction till such time the builder actually gives the possession of a particular flat to the buyer... Against this background of flat transactions, we are now faced with the provisions of Section 54 for granting exemption to the taxpayer, who at one point of time, enters into purchase and another point of time, takes possession and starts actual enjoyment of the flat."

Relying on previous orders of high courts, including the Bombay High court, the tribunal held that the date of final occupation should be considered for calculating the period of eligibility for deduction under section 54. In this case, it would enable the taxpayer to satisfy the requirement that the new house must be purchased within one year prior to transfer of the existing house.

“If the date of possession i.e. March 2009 is taken as date of purchase of new flat as contended by the assessee in its case the assessee is entitled to deduction u/s 54 of the Act as assessee has sold residential flat on 11.09.2009 and satisfied the requirement to purchase the new residential property within the period of one year before the date of transfer of the asset sold.”

Read the full text of the Order below.