Thursday 9 May 2013

Whether when assessee invests in purchase of land, which is transferred to builder for construction of flats on sharing basis, assessee continues to be eligible for Sec 54 benefits - YES: ITAT

THE issue before the Bench is - Whether when assessee invests in purchase of land, which is transferred to a builder for construction of flats on sharing basis, assessee continues to be eligible for Sec 54 benefits. And the verdict favours trhe assessee.
Facts of the case

The
assessee along with another person jointly acquired certain property for a consideration of Rs.1,95,430.00. Later another person relinquished her rights over the said property. Thereafter the assessee entered into a development agreement with M/s Tibrewala Builders for construction
of flats over the said property on 50:50 sharing basis. Accordingly, five flats fell to the share of the assessee, which were claimed to have been sold by her during the year under consideration for a total consideration of Rs.1,79,00,000. The assessee filed her return of income declaring total income of Rs.58,839. In the return of income, the assessee while computing LTCG claimed exemption u/s 54 towards purchase of plot and construction of house besides deposit in capital gains account scheme. The AO noted that exemption u/s. 54 was available only where the assessee purchased a residential house within a period of one year, after the date of transfer or sale of original asset. The AO held that as the assessee purchased only an open plot for construction of a house over it and not a residential house, she was not entitled to claim exemption of the amount of Rs.69,61,500/- u/s 54. The AO however, allowed exemption u/s. 54, on an amount of Rs.64,05,000 deposited in capital gains account scheme. The CIT(A) came to a conclusion that since the assessee had made payment for purchase of the plot from a different source and had not actually utilised the sale consideration received from transfer of the original asset, no deduction u/s. 54 can be allowed to the assessee.

On Appeal before the Tribunal the AR submitted that the only requirement u/s. 54 is the assessee must purchase a residential house within two years or construct a residential house within three years of the transfer of the original asset. It was submitted that investment in purchase of plot for constructing a residential house is sufficient compliance for the provision contained u/s. 54 and in case construction of the residential house is not made within three years, then such income can be charged to capital gains tax .The DR submitted that for claiming exemption u/s 54 the consideration received from sale of original asset has to be utilsied in purchase or construction of the new residential house; and otherwise, the intent and purpose of the provision will be defeated.

Having heard the parties, the Tribunal held that,

++ exemption claimed by the assessee u/s 54 cannot be denied on the ground that the assessee has not utilised the sale consideration received from the sale of flats itself, in purchasing the plot. Law is well settled by the judicial precedents that investment in purchase of pot for construction of house would entitle an assessee to claim exemption u/s.54 or 54F of the Act. Board’s circular No.667 dated 18.10.1993 also says so. The assessee is eligible to claim exemption of the amount of Rs.69,61,500 invested in purchase of land u/s 54;

++ on the issue of method of computation of LTCG adopted by the AO, it is evident from the orders of the revenue authorities that the assessee has not produced enough supporting evidence to prove that she has in fact incurred expenditure of Rs.6 lakhs towards cost of construction and cost of improvement. In such a view of the matter, the allowance of 50% of cost of construction at Rs.3 lakhs is reasonable, and no interference is called for;

++ on the issue of revenue authorities, not allowing the amount of Rs.3,00,000 being the cost of boundary wall as part of construction cost of the new property,it is quite evident that they have not disputed the fact that the assessee has incurred the expenditure of Rs.3 lakhs in the construction of the boundary wall. The assessee is entitled for deduction of Rs.3 lakhs, being expenditure incurred on construction of compound wall.

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