Can You Get Exemption U/s 54F Even If Builder Does Not Complete House Within Three Years?

The exemption u/s 54F is for those assesseewho gets long term gains on any asset other thanhouse property and who uses all the sales consideration within a specified period for purchase or constructing a residential house. The specified period in case of house purchase is one year before or two years after the date of transfer of asset on which gains were made. However, for construction, section 54 provides , time limit of three years. Therefore , your question is very valid what happens if the builder has not completed the house within three years. Will you get or not?
While the plain reading and strict application of the provision u/s 54F compel one to think that exemption is not allowable in case of delay beyond 3 years, higher judicial authorities have rescued taxpayers by giving relief in those cases where they found that most of the sales consideration have been spent for construction
of house , still some portions were not complete for various reasons. The appellate authorities have taken the view that section 54F being relief provision, should be viewed in a bit of relaxed manner. Two of the judgements in this regard are given below which provides that exemption can be claimed even if construction is not completed within 3 years. However, remember in both the case the court was satisfied that either full amount or most of the amount of sales consideration were already used . The decision has elaborated on the reasons why the

CBDTissued circulars for such relief and that the word “institution ‘ in the circular will include “builder”.Assistant Commissioner of Income-tax, Circle 25(3) v. Smt. Sunder Kaur SujanSingh Gadh[2005] 3 SOT 206 (Mum.)
Brief facts of the case are, that the assesseehad sold a residential flat No. 4 in Vasant Vihar, 14th KharRoad, Mumbai-52, for a total consideration of Rs. 41 lakhsas per agreement dated 13-1-1997. The said flat had been purchased by the assesseefor a sum of Rs. 7.75 lakhson 10-7-1992. As against the sale proceeds of Rs. 41 lakhsthe assesseehad invested a sum of Rs. 11,47,500 towards purchase of another residential house property at Ahmedabad. The builders M/s. RadheDevelopers (India) Ltd., of Ahmedabad, Gujarat had, issued an allotment letter dated 26-2-1996 to the assesseeallotting flat No. B-62 in the building names as Thirthdhamand Rs. 11,47,500 were paid by the assesseeto the developers in two instalments, i.e., Rs. 10 lakhswere paid on 5-1-1996 and Rs. 1,47,500 were paid on 12-1-1996 out of her capital account with M/s. HarmohanSingh SujanSingh. Subsequently, the builder had not constructed the ‘B’-Block in Thirthdhamin respect of which the allotment letter was issued by them to the assesseeand as an alternative the membership of the assesseewas shifted to flat No. C-32 in the same building. The possession of the said flat No. C-32 was handed over to the assesseebefore 4-1-2000 as is evident from the builder’s letters dated 19-11-1999 and 4-1-2000.
The decision of Tribunal was

VideBoard’s Circular No. 471, dated 15-10-1986 it has been explained that to
qualify investment for construction under section 54F the crucial date is the
date of allotment of flat by DDAand payment of instalment was only a follow-up
action and taking possession of the flat is only a formality, of course, instalments have to be paid by the allotteeas per the schedule fixed by the DDA. As per Board’s Circular No. 672, dated 16-12-1993 the Board after referring to the above mentioned Circular No. 471 extended the facility of exemption under sections 54 and 54F in respect of allotment of flats/house by co-operative societies and other institutions, and the allotment and construction of the flat by co-operative societies and other institutions are to be considered in similar manner for the purpose of allowing exemption under section 54 . The above circulars are binding on the revenue authorities under section 119 of the Act. Since the flat has been allotted to the assesseeby the builder who would fall in the category of other institutions mentioned in the circulars, it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat.

The second decision in this regard is that

ITAT

, Madras which in case of

Mrs. Seetha Subramanian. vs Assistant Commissioner Of Income-Tax. [59 ITD94] on the fact that

CIT , after enquiry by an Inspector found that the house is not completed and passed order u/s 263 by which he disallowed the claim of

assessee

u/s 54F ruled as under

Before the Tribunal, the contention of the assesseewas that the provisions of section 54F is a beneficial provision for promoting the construction of residential houses.Therefore, the said provision has to be construed liberally and for achieving
the purpose for which it was incorporated in the statute. In support of the said
contention the assesseerelied upon the decision in the case of BajajTempo Ltd. The assesseealso relied upon certain circulars issued by the CBDT. One of the circulars was Circular No. 471, dated 15thOctober, 1986. This was issued by the CBDTclarifying the position that where an assesseeacquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assesseehas not paid all the instalments due under the said scheme. Later by another Circular No. 672,dated 16thDecember, 1993, the CBDThas issued clarification extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore it was contended 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. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assesseeis entitled to the benefit of sections 54 and 54F, if an assesseegets an allotment under the self financingscheme and pays the first instalment of the cost of construction. From that it is clear that in order to get the benefit under section 54F the assesseeneed not complete the construction of the house and occupy the same. Admittedly in the present case, the assesseehad invested the entire net consideration within the stipulated period and in fact has even constructed the entire residential property, except some finishingto make it fit for occupation. As the assesseehas substantially completed all the work of construction and has invested the entire net consideration, it has to be inferred that the assesseehas complied with the conditions provided under section 54F.

A similar case was considered by the Delhi Bench of this Tribunal in the case of SatishChandra Gupta v. Assessing Officer [1995] 54 ITD508and this Tribunal after considering the provisions of section 54 as well as section 55 held that the claim cannot be denied on the ground that the construction the house started by the assesseewas not completed within the stipulated period of three years and some work was carried out thereafter. The said decision also supports the assessee’scontention. Under the above circumstances, especially in the light of the circulars issued by the Central Board of Direct Taxes, we hold that the Commissioner of Income-tax was not justified in revising the assessment of the Assessing Officer. Hence we set aside the order of the CIT and restore that of the Assessing Officer.