RAJNI KUMAR WIFE OF SHRI BRIG. NARENDER KUMAR H.NO.394, SECTOR-21, GURGAONN,GURGAON vs. THE INCOME TAX OFFICER WARD-3(1), GURGAON, GURGAON

Against the abovesaid denial of claim u/s 54F of the Act, aggrieved assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) sustained the addition made by the assessee.

Aggrieved, assessee is in appeal before us raising following grounds of appeal :-

At the time of hearing, ld. AR brought to our notice relevant facts of the case and submitted that the assessee has filed detailed submissions before the AO on the basis of observation made by ld. PCIT, Faridabad in his order passed u/s 263 of the Act. Further ld. AR submitted that the only dispute is with regard to claim of deduction u/s 54 of the Act as claimed by the assessee at the time of calculation of LTCG. He submitted that the sequence of events in the case of the assessee are as under:- a) Application dated 29.03.2016 was made by the assessee with M/s Chintel’s India Ltd for booking of Plot. (reference of the same is found in provisional letter dated 27.05.2016 as issued by the Company). b) The sale of property for an amount of Rs.1.25cr was made on 18.05.2016. c) The Assessee was provisionally allotted a plot with M/s Chintel’s India Ltd on 27.05.2016with Plot No. L-001. Provisional allotment letter dated 27.05.2016 is placed in the paper book. d) Demand letter dated 27.05.2016 was issued by M/s Chintel’s India Ltd (placed in the PB at page-10 of PB) for amount of Rs.13,27,100/-, wherein it has been mentioned that amount of Rs.12,27,100/- has been paid and balance of Rs. 1,00,000/- is payable. e) On 11.06.2016, Plot Buyer agreement was drafted and agreed upon (PB Pg-14-30), though it was finally received by the Assessee on 17.08.2019 only. f) Demand letter dated 01.07.2016 was issued by M/s Chintel’s India Ltd (enclosed in the PB at page-11 of PB) for amount of Rs. 66,35,500/-, wherein it has been mentioned that amount of Rs. 13,27,100/- has been paid (payment acknowledgment enclosed in PB at page-12) and balance of Rs. 53,08,400/- is payable. g) On 04.08.2016, payment of Rs. 52,55,316/- (53,08,400-1% of TDS i.e 53084/-) was duly paid from HDFC bank account of husband of the Assessee (enclosed in the PB at page-31). The said transaction is even evident from Form 26AS of the Assessee enclosed in the PB at page-33) h) On 07.10.2016, payment of Rs. 59,71,950/- (60,32,273-1% TDS i.e 60322/-) was duly paid from HDFC bank account of husband of the Assessee (enclosed in the PB at page-31). The said transaction is even evident from Form 26AS of the Assessee enclosed in the PB at page-33. i) So, till 07.10.2016, a total amount of Rs.1,25,54,366/- (i.e Rs.13,27,100/-, Rs.52,55,316/- and Rs.59,71,950/-) was paid by the Assessee. j) Even an architect was namely Bezel Design & Communications Pvt Ltd was engaged for the layout designs and architectural purposes and an amount of Rs. 3 lac was advanced to the Company as advance on 09.10.2018. Relevant pages enclosed in the PB at pg-34-38.

He further submitted that from the above sequence of events, it is clear that the assessee has sold the property on 18.05.2016 and in order to avail the benefit u/s 54 of the Act, the assessee either need to purchase the residential house within 1 year before or 2 years after the sale or construct the residential house within 3 years after the sale of property. He submitted that the assessee has already paid an amount of Rs.1,25,54,366/- till 07.10.2016 i.e. within 5 months from the sale of the property. The amount of Rs.1,25,54,366/- is sufficient in order to cover the capital gains of Rs.92,57,020/- as claimed by the assessee. He submitted that it is only due to unavoidable circumstances that the possession of the plot was not handed over to the assessee and the assessee was not able to start the construction.

Ld. AR further submitted that the reasons for delay of the project which was totally beyond the control of the assessee are :- a) The entire projects on the Dwarka Expressway Gurugram, where this residential site was located at sector 106, got unduly delayed by 10-12 years as both State Govt. Haryana and Delhi Government couldn’t construct the highway amicable. b) It was the national level dispute and now off late Central Govt/NHAI has taken over the project of construction of the said Highway. c) Project also got disrupted and delayed due to frequent NGT imposing restrictions on construction in Delhi NCR due to excessive pollution. d) Even, the Builders i.e Chintels were badly involved in many frauds and delay sub standard projects causing loss of property and lives as per media reports.

He submitted that as honest taxpayer, the assessee wanted to construct the House on the said residential site (which was allotted by M/s Chintel’s India Ltd) within three years i.e. 19.05.2019 from the date of sale proceedings of 18.05.2016, however, the Builder M/s. Chintel failed to hand over the residential site within the stipulated time frame as per verbal and written promise from the date of agreement dated 27.05.2016 / 11thJune 2016 and the said fact was even placed before the AO as well as CIT(A).

He submitted that the deduction u/s 54 of the Act cannot be denied, as the delay in possession of residential site and further construction is delayed beyond three years due to the complete fault of the tricky and nefarious Builder M/s. Chintels Gurugram. He submitted that the provisions contained under section 54 and 54F being a beneficial provision have to be construed liberally.

In this regard, he placed reliance on the following case laws, wherein on similar basis, wherein the circumstances are beyond the control of the assessee and construction is delayed, the benefit of deduction u/s 54/54F has been allowed :- a) In CIT v. Mrs. Hilla J.B. Wadia [1993] 69 Taxman 114 (Bom.), it was observed that the Board had stated in Circular No. 471,dated 15.10.1986 that when an allotment letter is issued to an allottee on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of flat under this scheme should be treated as cost of construction for the purpose of capital gains. b) Smt. V A Tharabaivs DCIT in (Chennai Bench) as reported in 19 taxmann.com 276 “11. It is after the purchase of the property that the hell broke loose against the assessee in the form of civil litigation. The litigation started on 25-2-2008 and ended only on 19-9-2011. By that time the available period of three years to construct the house was already over, on 8-6-2009. The assessee was absolutely prevented from taking any single step in constructing the proposed residential house during this period of three years. The assessee was restrained by a competent court from constructing a house and the status quo of the property at the time of purchase was ordered to be maintained. Where, on the one hand section 54F demands the assessee to construct the house within a period of three years, on the other hand, civil courts restrain the assessee from constructing a house throughout that period of three years. The assessee is in fact between devil and deep sea. It is an accepted principle of jurisprudence that law never dictates a person to perform a duty that is impossible to perform. In the present case, it was impossible for the assessee to construct the residential house within the stipulated period of three years.

The Hon’ble Supreme Court in the case of Sanjeev Lal Vs. CIT [2014] 365 ITR 389 (SC) has laid down the purposive interpretation of section 54 to give a liberal approach to the assessee who clearly intended to claim benefit of section 54. Their Lordships held that section 54 is a beneficial provision and is to be construed keeping in view the intention of the Legislature to give relief in the matter of payment of tax on the long-term capital gain, relevant observation of their Lordships reads as under: - “22. In addition to the fact that the term "transfer" has been defined under section 2(47) of the Act, even if looked at the provisions of section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under section 54 of the Act, the Legislature does not want him to be burdened with tax on the long-term capital gain and, therefore, relief has been given to him in respect of paying income-tax on the long-term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income-tax Act and it is also said that equity and tax are strangers to each other, still this court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 3 SCC 359 this court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which sub-serve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the afore stated observations and the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provisions of section 54 read with section 2(47) of the Act, i.e., the definition of "transfer", which would enable the appellants to get the benefit under section 54 of the Act.”

Hence, this appeal by the revenue stands dismissed.” e) Girish L Ragha. Panajivs Department Of Income Tax (ITA NO. 116/PNJ/2014) -Tax Appeal no.66 of 2015 Bombay High Court. 69 taxmann.com 95 “Section 54 of the Income-tax Act, 1961 – Capital gains – Profit on sale of property used for residence (Time period for Investment) – Assessee sold residential property – He entered into an agreement with a builder for purchase of a flat and invested sale proceeds in it within prescribed period of two years – He was required to get house and occupancy certificate within two years – After purchase of property, there was a civil suit filed by other parties and assessee could not complete construction and licence for constructing house was accordingly issued after 4 years – Whether since assessee had invested money within stipulated period and delay in obtaining occupancy certificate was beyond control of assessee, assessee would be entitled for deduction under section 54 – Held, yes [Para 3] [In favour of assessee].” f) Similarly we also rely upon the following case laws: i) In the case of CIT v. Mrs. Shakuntala Devi [2016] 389 ITR 366/75 taxmann.com 222 (Karn.) it was held that the date of agreement to purchase should be taken as the date of purchase of the new property. As such if assessee has entered into the agreement to purchase and invested the capital gain, it is immaterial that part of the consideration is yet to be paid or registration has not been completed. Deduction u/s. 54 should be allowed. ii) In the case of Pr. CIT v. C. Gopalaswamy [2016] 384 ITR 307/[2017] 81 taxmann.com 78 (Karn) it was held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat. iii) In the case of CIT v. R.L. Sood [2000] 245 ITR 727/108 Taxman 227 (Delhi) it has been held that since substantial amount of the consideration was paid within the time, the deduction u/s. 54 will be available though the possession and registration was made later. iv) In the case of Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP.) it was held that section 54 of the Act only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, it takes years and years. Therefore, confining to two years' period for construction and handing over possession thereof is impossible and unworkable under section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54. v) In the case of Hasmukh N. Gala v. ITO [2017] 83 taxmann.com 49 Mumbai Tribunal it was held that completion of the construction or possession of the residential house is not material if assessee has invested the substantial part of the money for acquisition or construction of residential house. In such a case deduction u/s. 54 or 54F cannot be denied. vi) In the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 (Mad.) the Madras High court held that Section 54F of Income tax Act is a beneficial provision for promoting the construction of residential house and requires to be construed liberally for achieving that purpose. 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'. The condition precedent for claiming benefit u/s. 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief. vii) In the case of Smt. Rajneet Sandhu v. Dy. CIT [2012] 49 SOT 7/[2016] 16 taxmann.com 210 (Chandigarh) where the construction of the house was not completed within the prescribed period, it was held that section 54F does not prescribe that the residential house should be completed within the prescribed period and benefit under section 54F was allowed. It was further held that thrust was on investment and not on completion. viii) In the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 (ITAT, Delhi Bench) where the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years and the house was constructed and completed subsequently, the Delhi Bench granted relief on the ground that the delay had occurred on account of reasons beyond the control of the assessee. ix) In the case of Narasimha Raju Rudra Rao v. Asstt. CIT [2013] 35 taxmann.com 90/143 ITD 586 (Hyderabad - Tribunal) the ITAT held as under: Provision contained under section 54F being a beneficial provision has to be construed liberally. In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be parted by the assessee and invested either in purchasing a residential house or in (a) constructing a residential house. If the assessee has invested the money in construction of 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. Once the assessee demonstrates that the consideration received on transfer has been invested either in purchasing a residential house or in (b) constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from availing benefit under section 54F. x) In the case of Pradeep Kumar Chowdhry v. Dy. CIT [2015] 55 taxmann.com 81/69 SOT 36 (Hyd.) where the construction was not completed within the prescribed time, it was held that Section 54F is a benevolent provision. The only issue is whether the amount of consideration received on transfer is invested by the assessee for the construction of a flat. It was further held that a flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Further, as already pointed out even if only advance is given the benefit still will be available for exemption u/s. 54F. Refer -Vishal Dutt v. ITO [2016] 68 Taxmann.com 337 (Mum. - Trib.). xi) In the case of Mrs. Seetha Subramanian v. Asstt. CIT [1996] 59 ITD 94 (Mad. – Trib.) it was held that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. In order to get the benefit under section 54F, the assessee need not complete the construction of the house and occupy the same. Similar views have been expressed in the under mentioned cases also: Asstt. CIT v. M. Raghuraman [2018] 91 taxmann.com 11/169 ITD 315 (Chennai - Trib.), Smt. Babitha Kemparaje ors v. CIT [2017] 86 taxmann.com 43/167 ITD 125 (Bangalore - Trib.), Bhavna Cuccria v. ITO [2017] 82 taxmann.com 306/165 ITD 124 (Chandigarh - Trib.), Kannan Chandrasekar v. ITO [2017] 82 taxmann.com 284/165 ITD 223 (Chennai - Trib.). xii) PCIT vs Dilip Ranjrekar (101 Taxmann.com 114) (Karnatka HC) “Where AO rejected assessee's claim for deduction under sec. 54 on ground that construction of new property was not completed within a period of three years as prescribed in section 54, in view of fact that delay was beyond control of assessee because construction was put up by builder, impugned order passed by Tribunal allowing assessee's claim was to be upheld”

He submitted that it is also a matter of fact that, since the possession of the plot could not be handed over to the assessee till March 2022 and the assessee’s husband had retired from the Armed forces and had to settle, post retirement, it was considered appropriate to get rid of the property and buy a new residential plot to settle the family. Hence, the site was sold on 08.04.2022 for a consideration of Rs.1,65,00,000 and a new House No.27, Sector 123 , New Sunny Enclave , Kharar Mohali (PB) was purchased on 09.05.2022 for a sum of Rs.2,10,00,000 thus reinvesting the entire sale proceeds to buy a new residential property and the relevant documents in this regard are placed in the paper book at pages- 46-69.

In view of his submissions as above, in conclusion, he submitted that the non-completion of the house was beyond the control of the assessee and the assessee had already paid a sufficient amount to M/s Chintel for purchase of plot and thus the benefit of section 54 of the Act cannot be denied to the assessee.

On the other hand, ld. DR of the Revenue submitted that the assessee has not verified the conditions laid down u/s 54 of the Act and those conditions are not satisfied by the assessee. Therefore, the assessee is not eligible to claim deduction u/s 54F of the Act, he supported the findings of the lower authorities.

Considered the rival submissions and material placed on record. We observe that the issue under consideration is, the assessee has sold a property and claimed deduction u/s 54F of the Act. We observe that assessee has booked residential plot from M/s. Chintel on 27.05.2016 and assessee was granted provisional allotment letter dated 12.07.2015 and the same is placed in the paper book. Accordingly, assessee made payment to M/s. Chintel in three installments totaling to Rs.1,25,54,366/- and the relevant evidence of payments are already placed on record. Accordingly, assessee claimed the deduction u/s 54F of the Act. The issue under consideration is, the AO observed that as per the provisions of section 54F, the assessee need to purchase the residential house within one year before or two years after the sale or construct a residential house within three years from the date of original sale. The issue under consideration is that assessee could not complete the construction of the residential house due to the reason that M/s. Chintel has not handed over the respective plot of land to the assessee and the assessee was not able to start the construction. It was brought to our notice that the reason for delay of project was due to following reasons :- a) The entire projects on the Dwarka Expressway Gurugram, where this residential site was located at sector 106, got unduly delayed by 10-12 years as both State Govt. Haryana and Delhi Government couldn’t construct the highway amicable. b) It was the national level dispute and now off late Central Govt/NHAI has taken over the project of construction of the said Highway. c) Project also got disrupted and delayed due to frequent NGT imposing restrictions on construction in Delhi NCR due to excessive pollution. d) Even, the Builders i.e. Chintel were badly involved in many frauds and delay sub standard projects causing loss of property and lives as per media reports.

Due to the above reasons, the assessee was prevented from initiating the construction of the residential house and it is in fact beyond the control of the assessee. Here the issue under consideration is whether the assessee is eligible to claim the deduction u/s 54F of the Act if the assessee is prevented from completing construction of the project within the statutory period and the same is beyond the control of the assessee. In the given case, it is brought to our notice that assessee was prevented to have the control of the plot or handed over to the assessee within time to complete the construction of the residential house in time. It is clearly a situation where assessee could not to get the possession of the plot of land and it was brought to our notice that due to national level dispute and the Central Government/ NHAI has taken over the project of construction of the highway because of that the whole project was delayed beyond the control of the assessee.

It is brought to our notice that due to the above reasons, assessee has surrendered the right of the plot with M/s. Chintel and claimed the refund of Rs.1,65,00,000/- on 08.04.2022 and relevant evidence of the same are placed at pages 46 to 59 of the paper book. Subsequently, assessee purchased new residential property for Rs.2,10,00,000/- on 09.05.2022 in New Sunny Enclave.

The short issue in this case is, the assessee has sold the property and invested the whole sale consideration in purchase of a plot for the purpose of construction of residential plot, however due to beyond control of the assessee the same plot was never handed over to the assessee even beyond the period of limitation allowed u/s 54/54F of the Act i.e. 3 years from the sale of original asset. As per the records available on record, the assessee had invested all the sale consideration in purchase of the abovesaid plot and due to the reasons beyond the control of the assessee, the assessee could not commence the construction of the residential house. It is also brought to our notice that the assessee had finally gave up the rights on the abovesaid plot and purchased the residential property beyond the period of limitation. From the above facts available on record, it is beyond the control of the assessee to construct the residential property within the period allowed u/s 54F of the Act.

In the similar situation, Hon’ble Karnataka High Court in the case of CIT vs. Sambandam Udaykumar (2012) 19 taxmann.com 17 held that section 54F is a beneficial provision for promoting construction of residential house and in the given case also, assessee has utilized the funds for the purpose of construction of residential house and all the funds were utilized within the period of three years. Merely because the approval and construction of the property was completed beyond the period of three years, the same is not disentitled the assessee from the benefit of exemption u/s 54F of the Act. Similar views were expressed by Hon’ble Madras High Court in the case of CIT vs. Sardarmal Kothari (2008) 302 ITR 286 (Mad.), coordinate Bench of this Tribunal in the case of Subramanian Swaminathan vs. ACIT (2023) 152 taxmann.com 72 (Delhi- Trib.) and ITAT Bangalore Bench in the case of Sharda Mohan Shetty vs. ITO (2023) 150 taxmann.com 122 (Bangalore-Trib.) 22. Hon’ble Bombay High Court in the case of CIT vs. Girish L Ragha (2016) 69 taxmann.com 95 (Bombay) held as under :-

From the above decision, it is clear that provisions of section 54F are beneficial provision and the same has to be applied as per the peculiar situation of each case. In the given case, the assessee was intended to construct a residential house and accordingly, invested the whole purchase consideration in plot of land and it is fact on record that it is beyond the control of the assessee to get the plot of land to initiate the construction of the plot on time due to various reasons as discussed above and finally assessee has to forego the rights of the plot of land and finally invested the recovered amount from M/s. Chintel in the new property. In this peculiar situation and condition beyond the control of the assessee, in our considered view, assessee is eligible to claim the deduction u/s 54F of the Act.