M.B.VENKATESH,CHENNAI vs. ITO COMPANY WARD II(1), CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -13, Chennai, dated 17.11.2017 and pertains to assessment year 2010-11.

Shri N. Arjun Raj, the Ld. representative for the assessee, submitted that the assessee claimed deduction under Section 54F of the Income-tax Act, 1961 (in short 'the Act') in respect of capital gain arising out of the sale of vacant plot. According to the Ld. representative, the Assessing Officer disallowed the claim of the assessee on the ground that the construction of new building was completed well before the date of sale of vacant land, therefore, the assessee is not entitled for deduction under Section 54F of the Act.

On the contrary, Shri B. Sagadevan, the Ld. Departmental Representative, submitted that the judgment of Madras High Court in C. Aryama Sundaram (supra) is distinguishable. Referring to the question of law framed by the Madras High Court, which is reproduced at para 11 of the judgment, the Ld. D.R., submitted that the issue before the Madras High Court was with regard to cost of land, in case such land was purchased three years prior to the sale of property from which the capital gain arose. According to the Ld. D.R., the completion of construction of building was not the subject matter of appeal before the Madras High Court. Therefore, according to the Ld. D.R., the observation made by the Madras High Court with regard to completion of construction prior to the date of transfer may be a passing reference.

Placing reliance on the judgment of Gujarat High Court in Ushaben Jayantilal Sodhan v. ITO (2018) 93 taxmann.com 453, Shri B. Sagadevan, the Ld. D.R. submitted that an identical question was considered by the Gujarat High Court and held that the construction which was stated to have been carried out before the transfer of capital asset is not eligible for exemption under Section 54F of the Act. According to the Ld. D.R., in view of this judgment of Gujarat High Court, the judgment of Madras High Court in C. Aryama Sundaram (supra) may not be applicable to the facts of the case.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee before the Tribunal transferred the capital asset, namely, vacant plot of land for ₹1,15,29,000/-. The assessee’s share of capital gain works out to ₹34,76,585/-. The assessee, in fact, claims this amount of ₹34,76,585/- as exemption under Section 54F of the Act. It is not in dispute that the assessee purchased 1068.11 sq.ft. of undivided share of the land at Sholinganallur on 28.01.2008. The assessee has also entered into an agreement for construction of building with M/s Vishranthi Sabari Constructions in April, 2008 for construction of 1723 sq.ft. of super built up area. The construction was also completed on 15.02.2010 on the date on which the capital asset was admittedly transferred. The Assessing Officer as well as the CIT(Appeals) found that the assessee commenced the construction and completed the same before the transfer of capital asset on 15.02.2010, therefore, not eligible for exemption under Section 54F of the Act.

The question now arises for consideration is when the assessee invested his funds in purchasing land and constructing residential premises before the date of transfer of capital asset, whether he is eligible for exemption under Section 54F of the Act?

Therefore, this Tribunal is of the considered opinion that the factual aspect arises for consideration before the Madras High Court is identical as it arises for consideration before this Tribunal.

We have carefully gone through the judgment of Gujarat High Court in the case of UshabenJayantilalSodhan (supra). In almost similar circumstances, the Gujarat High Court has taken a contrary view and held that the expenditure incurred before the date of transfer is not eligible for exemption under Section 54F of the Act.

In view of the above, by respectfully following the judgment of Madras High Court in C. AryamaSundaram (supra), this Tribunal is of the considered opinion that the assessee is eligible for exemption under Section 54F of the Act even though the construction of the building commenced and completed before the date of transfer of capital asset. In view of this, we are unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to grant exemption under Section 54F of the Act.

In the result, the appeal filed by the assessee stands allowed. Order pronounced in the court on 20th November, 2018 at Chennai.