ARVINDER SINGH SAHNI,MUMBAI vs. DY COMMISSIONER OF INCOME TAX, CIRCLE - 13(2)(2), MUMBAI

The Assessing Officer by considering the claim of the Assessee and the relevant property documents filed by the Assessee of the new property observed that possession of new residential house as per agreement of sale is 31.12.2018, whereas the Assessee was supposed to construct the new residential house before 19.12.2017 as the Assessee sold the property on 19.12.2014. The Assessing officer therefore, in order to examine such issue, issued a show- cause notice dated 25.10.2017 and asked the Assessee to justify “ as to why disallowance u/s 54 should not be made as the possession of the flat is beyond the time limit provided in section 54 of the Act”.

The Assessee made the relevant submissions and also relied on various judgments including in the case of CIT vs. Mrs. Hilla J.

The Assessing Officer though considered the aforesaid claim of the Assessee, however, not being impressed by such claim of the Assessee and by considering the fact that the Assessee is not going to get possession within the time limit, as provided in section 54 of the Act, i.e., 19.12.2017 and further, the new flat in Trump Tower, Mumbai was booked on 31.10.2014 before the sale of capital asset on 19.12.2014 and therefore the Assessee has not satisfied the primary conditions of section 54 of the Act, ultimately held the claim of the Assessee, as not acceptable. The Assessing Officer ultimately disallowed the amount of Rs.2,30,81,246/-, which was claimed by the Assessee u/s 54 of the Act, being exempt and added to the total income of the Assessee.

The Assessee being aggrieved challenged the said addition/disallowance by filing First Appeal before the Ld. Commissioner, however of no avail, as the Ld. Commissioner affirmed the aforesaid addition/disallowance by holding that the Assessee did not satisfy the conditions of section 54 and therefore the Assessing Officer was justified in disallowing the exemption.

The Assessee therefore being aggrieved has preferred instant appeal. The Ld. Counsel for the Assessee Ms. Ritu Punjabi demonstrated the fact of this case, in the context of the relevant provisions of section 54 of the Act, and claimed that the Assessee

On the contrary, the Ld. DR placed reliance on the orders passed by the authorities below and submitted that though the Assessee had purchased a property within one year prior to the date of transfer of the old property, on which capital gain has been earned. However it is a fact that, possession of the new property was supposed to be obtained/delivered on 31.12.2018 and therefore the time as prescribed and/or available upto 19.12.2017 has exceeded. “The Assessee further claimed that the possession of the property is ‘sine qua non’ for claiming the benefit u/s 54 of the Act.”

We have heard the parties and perused the relevant material available on record. It is not in controversy in this case that the Assessee within one year prior to the date of selling the property (old), on which the capital gain has been earned, has purchased new property. The only controversy as cropped up, relates to the date of possession of the new property purchased. The authorities

Therefore, the date of allotment is paramount for considering the deduction claimed u/s 54 of the Act, and possession of the property has ipso-facto, no effect, on the claim u/s 54 of the Act.

We further observe that this judgment of the Hon’ble High Court, subsequently also considered by the Hon’ble Apex Court in the case Pr.CIT vs. Vembu Vaidyanathan (2019) 108 taxmann.com 339 (SC), and ultimately affirmed the same by dismissing Special Leave Petition (SLP) filed by the Revenue.

We further observe that the Hon’ble Karnataka High Court in the case of Pr. CIT v. C. Gopalaswamy [2017] 81 taxmann.com 78 (Karn) has also dealt with identical issue, as involved in the instant case, such as date of possession of the property much beyond the date/available time for construction, as per the provisions of Section 6 Arvinder Singh Sahni 54F of the Act. The Hon’ble High Court considered the claim of the Revenue to the effect, since the construction was not completed therefore the Tribunal ought not to have allowed the Appeal and/or should not have granted the relief u/s 54F of the Act. The Hon’ble High Court ultimately dismissed the Appeal of the Revenue and eventually accepted the finding of the Tribunal that 54F of the Act that if the Assessee has invested the money in construction of residential house, merely because the construction was not completed in all respects and it was not in fit condition to be occupied within the period, as prescribed u/s 54F of the Act. The essence of the provision is whether the assessee, who received capital gains has invested in its residential house. “Once it is demonstrated that the consideration received on transfer, has been invested either in purchasing residential house or in construction of residential house, even though the transactions are not complete in all respects, are required under the law, that would not disentitle the Assessee from benefit”.

We further observe that the Hon’ble Juri ictional High Court in the case of CIT v. Girish L. Ragha [2016] 69 TAXMANN.COM 95 (BOMBAY) has also dealt with an identical issue, wherein the Assessee though invested the capital gain in purchase of new property within the time framework, as prescribed u/s 54 of the Act, however the occupancy certificate issued was of 17.01.2017 i.e., beyond the period of three years, as prescribed for constructing a new house. The Hon’ble High Court ultimately held merely because Assessee got occupancy certificate after four years and such delay

We further observe that, the Hon’ble Delhi High Court in the case of CIT Vs. Kuldeep Singh (2014) 49 taxmann.com 167 (Delhi) has also dealt with a case, wherein the Assessee invested the capital gain, within the prescribed period of two years for purchase of flat, on the linked two stages of construction and the possession was supposed to be obtained later on. The Hon’ble High Court has held that the word ‘purchased’ as used in sub-section (2) of section 54 of the Act, indicates that the said word is not restricted or confined to registered sale deed or even possession, but has the wider connotation. For ready reference and brevity, the conclusion drawn by the Hon’ble High Court is reproduced, here under:-

As in the instant case, admittedly the Assessee within one year prior to the date of selling the old property and/or earning the capital gain, has purchased residential property and therefore the Assessee is entitled to get the benefit of provisions of section 54 of the Act, thus the addition made by the Assessing Officer as affirmed by the Ld. Commissioner, is deleted.

In the result, the Assessee’s Appeal is allowed.

The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT