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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI B.P. JAIN
PER B.P. JAIN, ACCOUNTANT MEMBER:
This appeal of the assessee arises from the order of ld. CIT(A)-2, Faridabad vide order dated 18.02.2013 for the A.Y. 2009-10. The assessee has raised the following revised grounds of appeal:- “1.That the CIT(A)- Faridabad erred on facts and in law in confirming the action of the Assessing Officer while holding that the assessee is not entitled to the exemption under section 54F of the Income Tax Act, 1961 (‘the Act’) without appreciating that: a) The assessee has invested Rs.38,21,650/- out of Rs.38,79,475/- in purchase of residential plot and added Page 1 of 7
balance of capital gains of Rs.20,786/- in taxable income for the relevant assessment year. b) The cost of vacant plot is an inseparable one and has to be included in the cost of new asset i.e. a residential house, in view of the Board’s Circular No.667 dated 18.10.1993. c) As the possession of the plot was not handed over to the assessee in time the residential unit remained unconstructed due to the circumstances beyond the control of the assessee. d) In exceptional circumstances, if at all, the assessing officer intends to tax the capital gains, the same becomes taxable in the assessment year 2012-13, in which the prescribed period of three years from the assessment year expired, but the revenue failed to do so. The appellant craves leave to add, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
2. The brief facts of the case are that assessee sold his house for Rs. 56,00,000/- and after indexation, declared long term capital gains of Rs. 38,79,475/- It claimed deduction under section 54 of the Income Tax Act to the tune of Rs. 38,21,650/- on account of purchase of plot of land from BPTP Ltd. for a sum of Rs.38,21,650/-. The Assessing Officer denied exemption u/s 54 since he held that only a plot of land was purchased and neither a residential house was purchased nor constructed within the specified time, period as laid down in section 54 of the Income Tax Act. Furthermore, the AO held that if the appellant was not in a position Page 2 of 7 to construct or purchase a residential house, he could have deposited the capital gains amount in any scheme as per the provisions of Section 54(2) of Income Tax Act. On account of this reasoning, the AO after denying exemption u/s 54 of the Act, enhanced the returned income of the appellant to 48,94,910/-.
The ld. CIT (A) confirmed the action of the Assessing Officer.
I have heard the rival contentions and perused the facts of the case. The assessee has declared long term gain of Rs. 38,79,475/- and purchased of plot of land for Rs. 38,21,650/-. On the balance amount the assessee has paid taxes. The said investment has been done within the stipulated period of 3 years. As per circular no. 667 dated 18.10.1993 of the Central Board of Direct Taxes if the amount is invested with the plot of land and the construction is completed within the specified period, and then no capital gain taxes will be leviable. The relevant part of the circular is reproduced herein above:-
“The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also. The Board are of the view that the cost of the land is an- integral part of the cost of the residential house, whether Page 3 of 7 purchased or built. Accordingly, if the amount of capital gain for the purposes of section 54, and the net consideration for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereonTafe completed within the period specified in these sections.”
In the case of Smt. Pushpa Devi Tirbrewala vs. Income Tax Officer reported in 2713 158 TTJ 46 (Hyderabad) (UO) on the identical issue the capital gain tax was held to be exempted the relevant portion is of the order is reproduced herein below:-
“Assessee entered into agreement with developer for development of land owned by 50:50 sharing basis—Five flats fell to assessee's share, which were claimed to have been sold by her—While computing long term capital gains assessee claimed exemption u/s 54 towards purchase of plot and construction of house besides deposit in capital gains scheme—AO held exemption u/s 54 is available only where assessee purchases residential house within period of one year, after date of transfer or sale of original asset and that assessee was not entitled to exemption u/s 54 since it had purchased only an open plot for construction of a house over it and not a residential house— Page 4 of 7
CIT(A) disallowed claim of exemption holding that assessee has purchased plot by utilizing fund from different source and not out of sale consideration received from sale of flats—Held, exemption u/s 54 cannot be denied on ground that assessee had not utilized sale consideration received from sale of flats itself, in purchasing plot—Investment in purchase of plot for construction of house would entitle an assessee to claim exemption u/s.54 or 54F— Assessee's claim that construction was completed within stipulated period of three years as per Section 54 was accepted considering categorical submission and evidence and information produced by assessee—Further even if assumed that construction was not completed within period of three years, disallowance can be made in the year in which period of three years expires and not in the impugned assessment year- Assessee’s appeal allowed.”
In the circumstances and facts of the case I have no hesitation to say that the assessee has invested capital gain for the construction of the house and on the first occasion in the investment of plot which is meant for the construction of the house and therefore no capital gain tax is leviable. The order of the ld. CIT(A) and that of the Assessing Officer is directed to be reversed and all the additions made are directed to be deleted. Thus all grounds of assessee are allowed.
In the result, the appeal of the assessee is allowed.