Section 54 exemption is to the construction and not possession


Assessee sold a residential flat in March, 2006 and invested the capital gain to book a new flat with a builder in December, 2007. The payment for same was made in installments till February, 2009. In the relevant assessment year, the assessee claimed the exemption under section 54F. During assessment, the Assessing Officer denied exemption on ground that assessee could neither prove possession of residential flat within a period of two years from date of transfer of old flat nor had deposited unutilized capital gain in capital gain account scheme before due date of filing of return under section 139(1). CIT(A) upheld the order of AO.


On appeal, the Tribunal held in favour of assessee as under:
1) Booking of flat with a builder was a case of construction and not purchase of residential flat;

2) Therefore, time period applicable would be 3 years, which would expire on March, 2009;

3) Since assessee had made investment within period of three years, exemption under section 54F could not be denied;

4) Further, merely because possession had not been taken within three years, exemption could not be denied;

5) In view of judgment of Punjab and Haryana High Court in CIT v. Jagriti Aggarwal [2011] 15 taxmann.com 146, the assessee can utilize the capital gains before extended period given under section 139 (4) i.e., 31-3-2008; and

6) Therefore, requirement to deposit unutilized capital gains in capital gain account scheme before due date of filing of return under section 139(1) doesn't arise.
In view of above, the deduction under section 54 is allowed to assessee - KISHORE H. GALAIYA v. ITO[2012] 24 taxmann.com 11 (Mumbai - Trib.)
Tags-section 54 of income tax act,section 54,section 54 exemption,income tax section 54
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