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Facts
The assessee sold a property and claimed a deduction under Section 54 for the purchase of a new residential property. The Assessing Officer (AO) disallowed the deduction, stating that the purchase was not completed within the stipulated time frame. The assessee had entered into agreements for purchase and construction, made significant payments, and occupied the property, but the final registration was delayed due to the wife's health issues preventing her travel to India.
Held
The Tribunal held that for the purpose of claiming exemption under Section 54, it is not necessary for the registered purchase deed to be completed within the prescribed time. The key factor is whether the capital gains received have been invested in a residential house. The delay in registration was considered to be due to reasons beyond the assessee's control.
Key Issues
Whether the assessee is eligible for deduction under Section 54 when the final registration of the new property was delayed beyond the stipulated time due to reasons beyond their control, despite substantial investment and occupation.
Sections Cited
147, 144C(13), 45, 54, 271F, 271(1)(c)
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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the ld. DCIT ASMNT, Circle-2(1), Bengaluru dated 12.12.2024 vide DIN & Order No. ITBA/AST/S/147/2024- 25/1071150775(1) passed u/s 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2016-17.
The assessee has raised the following grounds of appeal:
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 2 of 14
The brief facts of the case are that as per the specific information flagged as per risk management strategy (RMS) formulated by the CBDT in insight portal under the head “NMS Cases”, the assessee had carried out the following financial transactions during the FY 2015-16 relevant for AY 2017-18 –
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 3 of 14 a) Received amount of Rs.70,00,000/- for sale of immovable property. b) Paid purchase consideration Rs.21,26,423/- for purchase of immovable property to Bhartiya Urban Private Limited.
After obtaining the prior approval of the CIT (Intl. Taxation), Bengaluru on 29/03/2023, the order u/s. 148A(d)of the Act along with the notice u/s. 148 of the Act were served to the assessee. In response to notice u/s. 148 of the Act, the assessee filed his return of income on 11/01/2024. From the return of income filed by the assessee, it was seen by the AO that the assessee had claimed cost of acquisition with indexation amounting to Rs.33,35,209/- and also claimed deduction u/s. 54 of the Act amounting to Rs.36,64,791/- and accordingly declared capital gain of Rs. NIL. Further, in response to notices issued u/s. 142(1) of the Act as well as show cause notices, the assessee filed his response on various dates and accordingly, the AO completed the assessment proceedings by disallowing the deduction claimed u/s.54 of the Act amounting to Rs.36,64,791/- and added the same under the head Capital Gain u/s. 45 of the Act.
3.1 During the course of assessment proceedings, the AO noticed that assessee had sold his house property in Delhi on 07/09/2015 for a consideration of Rs.70,00,000/- which was originally purchased on 04/06/2007 for a consideration of Rs.17,00,000/-, the index cost of acquisition being worked out to Rs.33,35,209/-. The AO observed that the assessee had also claimed deduction u/s. 54 of the Act amounting to Rs.36,64,791/- on the total cost of new residential apartment amounting to Rs.88,60,160/-. The assessee during the course of assessment proceedings submitted that the assessee had made a booking with M/s. Bhartiya City Developers
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 4 of 14 Pvt. Ltd, Bangalore for the construction & purchase of his apartment in the project “NIKOO HOMES” for a total consideration of Rs.88,60,160/- on 08/02/2013 which was completed and completion certificate was obtained on 04/02/2017. The assessee took position of the property on 01/05/2018 and started paying the electricity charges, however as the assessee’s wife due to her health issue was not allowed to travel and accordingly the final registration of the property was only held on 10/01/2019. It is submitted that the agreement of purchase for a consideration of Rs.32,14,200/- and construction agreement for a consideration Rs.56,45,960/- was executed on 31.12.2013 in favour of the assessee and his wife Mrs. Lovita Phukan for a total consideration of Rs.88,60,160/-.
3.2 The AO noted that the assessee had sold the property on 01/09/2015, whereas the registered sale deed of new purchased property as submitted by the assessee bears the date of 10/01/2019 which is clearly beyond the two years timelines as per section 54 of the Act. Further, without prejudice, the assessee had furnished possession certificate dated 01/05/2018 for having occupied the property and hence sought relief for deduction u/s. 54 of the Act. However, as per the provisions of the Act the assessee should purchase a new residential property within two years from the date of sale and thus the AO observed that the assessee does not qualify for claiming exemption u/s. 54 of the Act. Further, the ld. D.R.P also upheld the contention of the AO that the conditions as specified u/s. 54 of the Act are not accomplished by the assessee. Further, the panel noted that the assessee failed to meet conditions u/s 54 of the Act for claiming deduction as the reinvestment was not completed within required time frame and other supporting evidences was insufficient to substantiate the claim made by the assessee. The AO, accordingly held that the IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 5 of 14 assessee is not eligible to claim deduction u/s. 54 of the Act and disallowed the deduction and added the same under the head Capital Gain u/s.45 of the Act.
Aggrieved by the assessment completed u/s. 147 r.w.s. 144C(13) of the Act dated 12.12.2024, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a paper book in support of his case.
Before us, the ld. A.R. of the assessee vehemently submitted that the assessee had sold his house property at Delhi on 07/09/2015 and also made a booking for construction of apartment with M/s. Bhartiya City Developers Pvt. Ltd, Bangalore on 08/02/2013. Further, the agreement of purchase for a consideration of Rs.32,14,200/- and constriction agreement for a consideration of Rs.56,45,960/- was executed on 31/12/2013 in favour of the assessee and his wife for a total consideration of Rs.88,60,160/-. The constriction was completed and the occupancy certificated was also obtained by M/s. Bhartiya City Developers Pvt. Ltd, Bangalore on 04/02/2017 and the assessee took position of thy property on 01/05/2018 and started paying the electricity charges. Therefore, the condition of the section 54 of the Act are fulfilled by the assessee. Further, the ld. A.R of the assessee vehemently submitted that the AO grossly errored in holding that the booking of a flat is a purchase and accordingly held that purchase shall be done within two years the date of transfer. Further, as the final registration was done on 10/01/2019, the AO has disallowed Rs.36,64,791/- claimed as deduction u/s. 54 of the Act. The A.R. of the assessee also contended that the majority of the payments were made before 07/09/2018 and accordingly the assessee is eligible to claim the deduction u/s. 54 of the Act.
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 6 of 14 6. The ld. D.R. on the other hand supported the order of the AO and submitted that as the assessee had not satisfied the conditions laid down under section 54 of the Act, the assessee is not eligible to claim deduction u/s. 54 of the Act.
We have heard the rival submission and perused the material available on record. It is an undisputed fact that the assessee had sold his house property at Delhi on 07/09/2015 for a total consideration of Rs. 70,00,000/- which was originally purchased on 04/06/2007 for a consideration of Rs.17,00,000/-, the index cost of acquisition being Rs.33,35,209/-. Therefore, there is no dispute with regard to the long term capital gain as computed by the assessee amounting to Rs.36,64,791/-. The only dispute in this case is with regard to claim of deduction u/s. 54 of the Act amounting to Rs.36,64,791/-. The assessee along with his wife Mrs. Lovita Phukan had executed the agreement of purchase for a consideration Rs. 32,14,200/- and construction agreement for a consideration of Rs.56,45,960/- on 31/12/2013 with the builder M/s. Bhartiya City Developers Pvt. Ltd, Bangalore wherein it is also agreed that the assessee in addition to the payment of cost of construction shall also pay stamp duty, propitiated cost of external and internal electrification, sanitary works and connection charges, deposits payable to electricity supply company/water supply sewerage board, cables and transformers, generator etc. Thus, the assessee along with his wife had entered in to two separate agreements i.e. agreement to purchase and construction agreement on 31/12/2013. It is also an undisputed fact that the Bruhat Bengaluru Mahanagara Palike had issued the occupancy certificate on 04/02/2017 for the relevant block of “NIKOO HOMES” & the assessee claimed to have occupied the property and started paying electricity bill on and from 01/05/2018. The main contention of the AO in disallowing the deduction u/s. 54 of the Act is that the IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 7 of 14 assessee had sold the property on 07/09/2015 whereas the registered sale deed of newly purchased property was on 10/01/2019 which was clearly beyond the two years’ timelines as per section 54 of the Act. On going through the payment details as submitted by the assessee, we take note of the fact that the assessee has made the following payments as detailed below:-
Sl.No Mode Cheque Date Amount 01 RTGS 31.01.2013 4,00,000 02 RTGS 02.04.2013 5,00,000 03 NEFT 04.04.2013 5,00,000 04 RTGS 08.04.2013 5,00,000 05 RTGS 16.04.2013 3,15,040 06 NEFT 01.05.2013 3,900 07 NEFT 02.01.2014 5,31,610 08 RTGS/NEFT 19.08.2014 5,36,773 09 NEFT 06.03.2015 5,74,138 10 NEFT 18.05.2015 5,74,138 11 NEFT 06.07.2015 5,82,644 12 NEFT 19.08.2015 5,82,644 13 NEFT 15.09.2015 5,82,644 14 NEFT 15.10.2015 5,82,644 15 NEFT 04.01.2016 5,83,707 16 NEFT 16.03.2016 5,83,707 17 NEFT 24.05.2016 4,86,422 18 NEFT 01.03.2017 5,10,123 19 NEFT 17.01.2018 10,00,000 20 NEFT 17.01.2018 3,50,000 21 NEFT 17.01.2018 25,189 22 IMPS 10.01.2018 1,50,000 23 NEFT 02.05.2018 1,00,020
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 8 of 14 24 000053 13.10.2018 5,000
25 IMPS 07.01.2018 10,000 26 NEFT 08.01.2018 11,939 Total 1,05,82,912 On going through the above, we take note of the fact that the assessee had made major payments on or before 07/09/2018 & also claimed to have occupied the property and started paying electricity bill on and from 01/05/2018.
7.1 Before proceeding further, it is apposite here to extract the relevant provisions of section 54 of the Act which is reproduced below for ease of reference and convenience: - Profit on sale of property used for residence. 54. (1) “[Subject to the provisions of sub-section (2), where , in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from House property” (hereafter in this section referred to as the original asset), and the 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, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) If the amount of the capital gain [is greater than the cost of the residential house] so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three year of its purchase or construction, as the case may be, the cost shall be nil’ or IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 9 of 14 (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain:
Provided that……….”
On reading of the above section would make it explicitly clear that the capital gain on the sale of the property is to be utilized by the assessee within a period of one year before or two years after the date on which the transfer took place towards the purchase of residential house or within a period of three years after that in the construction of the residential house.
7.2 The jurisdictional High Court of Karnataka in the case of Commissioner of Income Tax, Bangalore v. Mrs. Shakuntala Devi reported in [2016] 389 ITR 366 has very thoroughly analyzed the provision of section 54 of the Act and held that utilization of capital gains in purchase/construction of residential house would suffice to claim the benefit of section 54 of the Act. The relevant paragraph are reproduced below for ease of reference & convenience :-
“11. A reading of the above Section would make it explicitly clear that proceeds of sale of the property is to be reinvested within a period of two years, which would not be chargeable to tax. The intention of Legislature was to encourage the investment in the acquisition of residential house or construction thereof. The condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested either in purchasing a residential house or utilised for constructing a residential building. If it is established that consideration so received on alienation of property has been invested in either purchasing a residential building or spent on construction of residential building, an assessee would be entitled to the benefit flowing from Section 54 of the Act irrespective of the fact that transaction not being complete in all respects. In other words, it has to be examined or discerned from the facts of each case as to whether the assessee had undertaken such an exercise or not?
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 10 of 14 12. The main purpose of Section 54 of the Act is to give relief in respect of profits on the sale of a residential house. Necessary conditions to be fulfilled for the applicability of Section 54 are: (i) Assessee should be an individual or a Hindu Undivided Family; (ii) Capital assets should result from the transfer of a long term capital asset; (iii) Capital gain must arise from transfer of building which is chargeable as 'income from house property'; (iv) Property should be a residential house; (v) Assessee must have within a period of two years after that date purchased another property; (vi) Property purchased must be residential; (vii) Exemption would be available only to the extent the sale proceeds are utilised; (viii) Where re-investment in a residential property is not made before due date for filing report, amount not so utilised till such date is required to be deposited in Capital Gain Account Scheme. Thus, if the above conditions are satisfied, assessee is entitled to claim benefit of the provision of Section 54.
Facts on hand would disclose that assessee had owned a flat at Mumbai and sold the same on 04.02.2003 for a total consideration of 1,70,00,000/-. Subsequent to such sale she entered into an agreement for purchasing another property for a total consideration of 3,25,00,000/- by agreement dated 08.09.2003. Said agreement came to be entered into within six months from the date of sale i.e., 04.02.2003 and assessee had paid a total consideration of 2,40,00,000/- between April' 2003 to September' 2003. After making the payment, a registered sale deed had not been executed in favour of the assessee before completion of two years period pursuant to Memorandum of Understanding dated 08.09.2003. The consideration received by her under sale dated 04.02.2003 has been paid by the assessee for purchasing another property and reinvestment has been made within two years as contemplated under Section 54 of the Act. These facts are not in dispute. Thus, long- term capital gains computed by virtue of sale deed stood adjusted by virtue of payment made by assessee for purchasing another property under Memorandum of Understanding dated 08.09.2003. As such, Tribunal has rightly held that date of purchase was to be taken as the basis for reckoning the period of two years prescribed under Section 54 of the Act for extending the benefit flowing therefrom. In the instant case consideration paid by assessee under Memorandum of Understanding dated 08.09.2003 would fully cover the consideration of capital gains portion for being eligible to claim exemption under Section 54 of the Act.
Coordinate Bench of this Court in the case of PRINCIPAL COMMISSIONER OF INCOME-TAX vs. C. GOPALASWAMY reported in [2016] 384 ITR 307 (KAR) has held that utilization of capital gains in construction of residential house would suffice to claim the benefit of Section 54 of the Act.”
7.3 Further, it is worthwhile here to mention that the Hon’ble Supreme Court of India in the case of Commissioner of Income-tax
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 11 of 14 v. T.N. Aravinda Reddy reported in (1979) 120 ITR 46 has held that the ordinary meaning of word “purchase” is buying for a price or equivalent of price. The relevant para is reproduced below for ease of reference & convenience:-
“3. We find no reason to divorce the ordinary meaning of the word "purchase as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in section 54(1). If you sell your house and make a profit, pay Caesar what is due to him. But if you buy or build another subject to the conditions of section 54(1) you are exempt. The purpose is plain ; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on cash and carry." ……….”
7.4 The Hon’ble High Court of Delhi in the case of Balraj v. Commissioner of Income-tax reported in (2002) 254 ITR 22 has held that the section 54 speaks of purchase only and for availing benefit under this section it is not necessary that the assessee should become the owner of property by evidencing the registration thereof. The relevant findings are reproduced below for ease of reference & convenience- “3. The Assessing Officer, the appellate authority as well as the Tribunal rejected the claim of the assessee in respect of the assessment year 1975-76 on the ground that he did not become the owner of the property, as the said transaction was not evidenced by registration thereof as provided under section 17 of the Registration Act. For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property. Section 54 speaks of purchase. Moreover, the ownership of the property may have different connotations in different statutes. The question which arises for consideration appears to be squarely covered by a decision of the Apex Court in CIT v. T.N. Aravinda Reddy[1979] 120 ITR 461 where it has been held that the word ‘purchase’ occurring in section 54(1) of the Act had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 12 of 14 adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor’s share for consideration to the release and the transferee, the assessee, "purchased" the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1). The question now is no longer res integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 6252. The Apex Court categorically held that section 22 of the Act does not require registration of sale deed. The meaning of the word ‘owner’ in the context of section 22 has been held to be a person who is entitled to receive income in his own right. The Apex Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751 and this Court in CIT v. R.L. Sood [2000] 245 ITR 7272 have held that registration of the document is not mandatory for claiming depreciation on the property. In this view of the matter, we have no doubt in our mind that the learned Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative. We, therefore, answer the question in the negative, i.e., the assessee is entitled to exemption in terms of section 54.”
7.5 Further, the Hon’ble High Court of Karnataka in the case of CIT v. Sambandam Udaykumar reported in (2012) 345 ITR 389 has held that the provision of section 54 of the Act has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are purchased or constructed. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said prevision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 13 of 14 stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit.
7.6 After taking into considerations the above judicial precedents & the facts of the present case, we are of the opinion that for the purpose of claiming exemption under section 54 of the Act, it is not necessary that the assessee should have registered the purchase deed within the time prescribed in order to claim exemption u/s 54 of the Act. What is important to avail the exemption is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit. We are also of the considered view that the inability to obtain the registration of purchase deed within three years was due to the reasons beyond the control the assessee as his wife (co-owner) was not allowed to travel due to her health issues and she could not come to India for the registration and therefore, we are of the considered opinion that failure of the assessee to get registration
IT(IT)A No.235/Bang/2025 Navjyoti Sharma, Bangalore Page 14 of 14 was not attributable to any failure on the part of the assessee. In view of the Judicial precedents and the liberal interpretation of “purchase” in section 54 of the act, the exemption claimed u/s. 54 is justified and accordingly we direct the AO to grant exemption u/s 54 of the Act as claimed by the assessee.
In the result appeal filed by the assessee is allowed.