Tax Benefit Claim under Income Tax Act on Under-Construction Property: ITAT Directs to Calculate Benefit Based on Date of Possession 

The Mumbai bench of the Income-tax Appellate Tribunal ( ITAT ) has held that in the case of an under-construction property, the date of possession must be considered to determine the eligibility of a tax benefit under Section 54 of the Income Tax Act, 1961.

The ruling is important, as for availing tax benefits, investment in a new house must be made within a specific period of time. As per the new provision, the new house must be purchased within 'one-year prior' or 'two-years after' from date of sale of the old house.

The appellant non-resident couples exemption claim was denied by the Income Tax officer and determined the taxable income of each to be nearly Rs 36 lakh. Penalties were also levied as the Income Tax officer holding that claiming a wrongful deduction was 'concealment of income or furnishing of inappropriate particulars of income'.

The non-resident couple had sold the old house on Feb 10, 2011. Thus, the new house could have been purchased from Feb 11, 2010 (one-year prior) till Feb 9, 2013 (two-years after). However, the Assessing officer noted that the agreement with the builder for purchase of new house was made on July 25, 2009, and denied the tax benefit.

While allowing the appeal, the bench held that by entering into an agreement to purchase, only the right to purchase had been acquired. It is the date of possession - Feb 2, 2011, which should be considered for the purpose of the tax benefit.

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