Date of Allotment of Under-Construction Property cannot be Treated as “Date of Purchase”:  ITAT allows Capital Gains Exemption u/s 54 [Read Order]

In a recent ruling, a Two-Member bench of the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the date of allotment in respect of an under-construction property cannot be considered as date of purchase for the purpose of allowing capital gain deduction under section 54 of the Income Tax Act, 1961 as the provision mandates “purchase” of property.

The bench comprising Mr. Prashant Maharishi (Accountant Member) and Mr. Raj Kumar Chauhan (Judicial Member) held that “By entering into an Agreement to purchase assessee has acquired right to purchase the property and did not purchase the property as same was under construction. Section requires ―Purchase of property.”

Coming to the facts of the case, while allowing the claim under section 54 in respect of sale of old flat, the Assessing Officer rejected the same by taking the date of purchase new property as 25/7/2009 as per the purchase agreement.

As per provisions of section 54 of the Act , if assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India , then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, in this case it would be exempt.

Shri Vimal Punmiya, CA, appearing for the assessee, argued that he got possession of the property on 2/2/2011 therefore, the date of purchase of the property should be considered the date of possession of the property on 2/2/2011 which falls within one year prior to the date of 10/2/2011 and therefore the assessee is eligible for deduction under section 54 of the Act.

Holding in favour of the assessee, the Tribunal held that “assessee is entitled to deduction u/s 54 of the act on purchase of new property considering the date of possession , when it is completed, as the date of purchase of property as agreement to purchase the property was for under construction property.”

Shri Soumendu Kumar Dash appeared for the Revenue.

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