ITO, NCE 22(2), CHENNAI vs. T JAYAKUMAR, CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

In this appeal filed by the Revenue, which is directed

against an order dated 28.09.2017 of ld. Commissioner of Income Tax

(Appeals)-10, Chennai, it is aggrieved that ld. Commissioner of

Income Tax (Appeals) allowed the claim of exemption u/s.54F Income

Tax Act, 1961 (herein after referred to as ‘the Act’) on long term

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capital gains arising from transfer of a property through three general

power of attorneys, two of which were dated 07.05.2012 and one

dated 07.06.2012.

sold a property belonging to him through execution of power of

attorneys in favour of one M/s. Anu Builders India Private Limited on

07.05.2012 and 07.06.2012. As per the ld. Departmental

Representative, assessee received the property through inheritance on

death of his father, alongwith his mother and three sisters. Submission

of the ld. Departmental Representative was that this property

measuring 89 cents, located at Medavakkam was sold by the

assessee to one M/s. Anu Builders India Private Limited through

execution of the above mentioned power of attorney, after obtaining

release deed from three of his sisters, for a consideration of

�2,04,34,000/-. As per the ld. Departmental Representative, assessee

had claimed exemption of �1,17,41,700/- u/s.54F of the Act for

reinvestment made in a new residential house. Contention of the ld.

Departmental Representative, was that conditions stipulated u/s.54F

of the Act were not satisfied by the assessee. His submission was that

builder Shri. Arunachalam Mastery did not complete the construction

within 06.05.2015, being outer limit for grant of deduction u/s.54F of

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the Act. As per the ld. Departmental Representative, first of the power

of attorneys having being executed on 07.05.2012, assessee ought

have completed construction of the building by 06.05.2015 for

claiming the exemption. Contention of the ld. Departmental

Representative was that despite assessee failing to meet this

condition, ld. Commissioner of Income Tax (Appeals) had allowed the

claim relying on the judgment of Hon’ble Delhi High Court in the case

of CIT vs. RL Sood, 245 ITR 727. As per the ld. Departmental

Representative, assessee was not entitled to claim the benefit of

Section 54F of the Act and ld. Commissioner of Income Tax (Appeals)

fell in error in directing the ld. Assessing Officer to allow such claim.

the order of the ld. Commissioner of Income Tax (Appeals).

We have considered the rival contentions and perused the 4.

orders of the authorities below. It is not disputed that consideration

on the sale of the land was received by the assessee, on execution of

three general power of attorney in favour of M/s. Anu Builders India

Pvt. Ltd. on 07.05.2012 and 07.06.2012. It is also not disputed that

assessee had invested a sum of �1,17,41,700/- for construction of a

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new residential house and had paid such amount to the builder Shri.

Arunachalam Mastery. The payments were admittedly made by the

assessee before 06.05.2015. Section 54F (1) of the Act which is

apposite here is reproduced hereunder:-

‘’54F Capital gain on transfer of certain capital assets not to be charged in

case of investment in residential house.

1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long- term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45: (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) the assessee,- (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset ; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset ; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

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(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head ''Income from house property''. Explanation For the purposes of this section,-- "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer’’.

The outer limit for constructing a new residential house is three years

from the date of transfer of the asset giving rise to the capital gains

and such date in the case before us was 06.05.2015. Assessee had

made payment of �1,17,41,700/- prior to the date. Reason why ld.

Assessing Officer denied the claim of deduction u/s.54F of the Act was

that the construction was not completed. Assessee had clearly

mentioned before the ld. Assessing Officer that non completion of the

construction was due to the failure of the builder and not any fault of

it. Thus, assessee had done what all he could do within the time limit

allowed u/s.54F of the Act for constructing a new residential house.

Ld. Commissioner of Income Tax (Appeals) had relied on the following

para in the judgment of Hon’ble Delhi High Court in the case of R L

Sood (supra) while deciding the issue in favour of the assessee.

‘’In the instant case, admittedly, the assessee had paid certain amount out of the total consideration for the purchase of the flat within the period of one year from the date of sale of his old residential house. Thus, on

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payment of a substantial amount in terms of the agreement of purchase dated September 25, 1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of section 54 of the Act. Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of section 54 of the Act. Realising the practical difficulty faced by the assessees in such situations, the Central Board of Direct Taxes issued Circular No. 471, dated October 15, 1986, clarifying that when the DDA issues the allotment letter to an allottee under its self-financing scheme, on payment of the first instalment of the cost of construction, the allottee gets title to the property and such allotment should be treated as cost of construction for the purpose of capital gains. On the same analogy, the assessee having been allotted the flat ; he having paid a substantial amount towards its cost within the stipulated period of one year, he cannot be denied the benefit of the said section because the flat purchased by him had come into his full domain within the period of one year, though the sale deed in his favour was registered subsequently’’.

Considering the facts before us, we are of the opinion that assessee

had satisfied the conditions set out in Section 54F of the Act. The

question of investing the capital gains in an account opened under

Capital Gains Account Scheme, becomes irrelevant the moment

assessee completed the process of investing in the new residential

house within the time allowed in Section 54(1) of the Act. In the

circumstances, ld. Commissioner of Income Tax (Appeals) was justified

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in allowing the claim. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).

In the result, the appeal of the Revenue stands dismissed. 5.

Order pronounced on Thursday, the 12th day of July, 2018, at Chennai.

Sd/- Sd/- (जॉज� माथन) (अ�ाहम पी. जॉज�) (GEORGE MATHAN) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 12th July, 2018. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF