PER SUSHMA CHOWLA, JM The appeal by the assessee is against the order of CIT(A), Chandigarh dated 18.2.2010 relating to assessment year 2007-08 against the order passed under section 143(3) of the I.T. Act.
2. The assessee has raised the following grounds of appeal:-
1) That on the facts and in the circumstances of the case the learned CIT(A), Chandigarh has erred in confirming the addit ion made by the learned Assessing Officer .
2) That the learned CIT(A), while passing her appellate order, has not properly considered the documentary evidence, judgments and Departmental Circulars.
3. The brief facts of the case are that during the year under consideration the assessee had sold her agriculture land at village Bihsanpura, District Mohali for 1.50 crore on 17.4.2006. The assessee had claimed deduction u/s 54f of the i.t. act amounting to Rs.1,4156,332/-. The assessee had claimed to have purchased the residential plot No.K-96, South City-1, Gurgaon, out of the said sale consideration. In the return of income it was claimed by the assessee that the construction of the house would start immediately after sanction of housing loan and the house would be completed in financial year 2007-08. During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish the details of housing loan availed and also the details of construction made on the plot and completion thereof. The Assessing Officer noted from the details furnished by the assessee that the construction of the house has not been completed. A certificate issued by M/ Artisans was furnished on record by the assessee which confirmed that the construction work was in progress and as on 25.3.2009, it had reached the Ground floor roof level and the subsequent work was in progress. The Assessing Officer was of the view that as the construction of the house was not complete and three years had lapsed since the sale of capital asset, the assessee was not entitled to benefit of exemption u/s 54F of the
I.T.Act. The Assessing Officer further observed that u/s 54f of the i.t. act, the assessee is required to complete the construction of the house within a period of three years from the date of transfer of the original asset and as the assessee has failed to do so; she is not eligible for any deduction u/s 54F of the Act.
4. Before the CIT (A) the submission of the learned counsel was that the language of section 54F(1) of the Act uses the word constructed and not complete .Reliance was placed on the CBDT Circular No.667 dated 18.10.1993, which says cost of the land is an integral part of cost of residential house, whether purchased or buil t. The CIT(A) upheld the order of Assessing Officer. Reliance placed by the assessee on Mrs.Seetha Subramanian vs. ACIT, 56 TTJ (Mad) 417 was held to be distinguishable as the house was more or less complete except some finishing work in the facts of the case before Madras Bench of Tribunal.
5. The assessee is in appeal against the order of CIT(A) and the issue raised is against the denial of deduction claimed u/s 54F of the Act. The Ld. AR for the assessee pointed out that the assessee had after purchasing the land, invested Rs.10,75,000/- on construction of the building upto 25.3.2009. The property was constructed up to ground floor roof level and construction was still going on as three storeys had to the constructed. Further it was pointed out that completion of construction was not required and spending within three years on construction of house is enough to claim deduction u/s 54F of the Act in view of the rat io laid down CIT Vs,. Sardar Mal Kothari, [302 ITR 286 (Mad)]. The alternate plea of the assessee was that in case it is to be held that the construction of the house was not complete, the capital gain can be assessed in the hands of the assessee only after three years and not in the year under appeal. Ld. AR for the assessee placed reliance on Satish Chander Gupta Vs. A.O., 54 ITD 508 (Del).The Ld. DR for the Revenue placed reliance on the order of the CIT(A) and pointed out that in the case laws relied upon by the assessee the completion certificate had been received and hence, the allowance of the exemption claimed.
6. We have heard the rival contentions and perused the record. The issue arising before us is in connection with the exemption claimed u/s 54F of the Act. The assessee in the year under consideration had sold agriculture land for Rs.1.50 crores against which it had claimed exemption u/s 54F of the Act amounting to Rs.1.41 Cr. The assessee had purchased a residential plot in South City, Gurgaon out of the sale consideration which was claimed as investment u/s 54F of the Act. The construction was started after sanction of building plans and ti ll 25.3.2009 it had constructed upto ground floor roof level. The house construction was in progress and the exemption was claimed as the assessee had invested the whole of sale consideration of the land in the purchase of the plot itself. The construction of house was started thereafter. The claim of the assessee is that i t is not compulsory that the construction should have been completed within the period of three years. However the revenue authorities had denied the exemption u/s 54F of the Act as the assessee had failed to complete the construction within the said period of three years.
7. Section 54F(1)of the Act provides as under :-
54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or 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, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section
45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
8. Under the provisions of section 54F of the Act, the requirement is that where capital gains arises on the transfer of any asset, not being a residential house, the assessee can take the benefit of exemption of the said capital gains, provided the assessee has within a period of one year before or two years after the date of transfer purchased a residential house or within a period of three years after that day constructed a residential house. The provisions of section 54F are pari materia to the provisions contained in section 54 of the Act. The only distinction being that U/s 54 of the Act, the exemption is allowable on investment in new house, where the original asset sold is the residential property and provisions of section
54 F of the Act are applicable to al l other assets, not being residential house.
9. The Delhi Bench of Tribunal in the case of Satish Chander Gupta Vs. Assessing Officer(supra) while deciding the issue of claim of exemption u/s 54 of the Act had held that the emphasis was on the utilization or investment of capital gains in the construction of residential house. If the entire amount deposited in the bank account is utilized in the process of construction of house, there is no provision to withhold or withdraw the deduction on the ground that the residential house sought to be constructed is not complete. Reading the provisions of section 54(1) and 54(2) of the Act it was held by the Tribunal as under :- It is not correct to interpret beneficial provision of s.54 in the manner as done by the Revenue authorities. The claim cannot be denied on the ground that construction of the house started by the assessee was not complete within the stipulated period of 3 years and some work was carried out thereafter. In terms of sub-s.(2) of s.54 the assessee was entitled to the amount appropriated by him, out of the capital gain for construction of residential house till the due date of filing of return for the asst . yr. 1990-91. To the above amount a sum of Rs.10 lakhs, i .e. the amount admittedly deposited in the notified bank account, was to be added and the said total sum allowed as deduction under s.54. The proviso to sub-s.(2) of s.54 was to be applied in the previous year in which the period of 3 years from the date of transfer of original asset expired to the amount deposited in the bank account and not uti lized for construction of the new asset. The question of application of proviso does not arise in the year under appeal. The AO is directed to recomputed and allow deduction under s.54 as directed above.
10. In Shashi Verma Vs. CIT [224 ITR 106 (M.P.)], relied upon by the Learned. AR for the assessee it was held that while al lowing exemption u/s 54 of the Act investment for acquisi tion of flat under the scheme of DDA, where the first installment paid was much more than the capital gains, deduction is to be allowed as section 54 does not require that construction of new house should necessarily be completed within two years, where substantial investment is made in the construction of house.
11. In the facts of the present case, the assessee had invested the full sale consideration received on the sale of original asset in the purchase of the plot of land at Gurgaon. Thereafter the assessee had invested 10,75,000/- in the construction of the building. The construction was in progress and was not complete and in view thereof, the benefit of exemption claimed u/s 54F of the Act was rejected by the authorities below. However, following the ratio laid down by the Hon'bleble Madhya Pradesh in the case of Smt. Shashi Verma Vs. CIT(supra), we find that there is no merit in the plea of the authorities in denying the exemption u/s 54F of the Act on the ground that the construction of the house has not been completed. The requirements of section 54 and 54F of the Act is for the assessee to have either purchased a residential house being a new asset within the stipulated period or construct a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of the construction of the residential house and the thrust is on the investment of the net consideration received on sale of original asset and the start of construction of a new residential asset. In view thereof, where the assessee had invested the consideration received on sale of original asset in the purchase of the plot of land and started construction though not completed, the assessee had complied with the provisions of section 54F of the Act and hence was entitled to the benefit of exemption claimed. Accordingly, we set aside the order of the CIT (A) and direct the Assessing Officer to allow the claim of the assessee in respect of the benefit of exemption claimed u/s 54F of the Act. The grounds of appeal raised by the assessee are thus allowed.
11. In the result, the appeal of the assessee is al lowed. Order Pronounced in the Open Court on this 28 t h day of July, 2010. Sd/- Sd/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 28 t h July, 2010 Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR