The order of the Bench was delivered by
B.R. Baskaran, Accountant Member - The appeal of the assessee is directed against the order dated March 29, 2010 passed by the learned Commissioner of Income-tax (Appeals)-25, Mumbai and it relates to the assessment year 2006-07. The assessee is aggrieved by the decision of the learned Commissioner of Income-tax (Appeals) in confirming the rejection of claim for deduction under section 54 of the Act made by the assessee in her return of income.
2. The assessee sold a residential flat on October 10, 2005 for a sum of Rs.28,50,000. The assessee claimed a sum of Rs. 14,33,450 as deduction under section 54 in respect of cost of a new flat. The Assessing Officer noticed that the assessee had booked a flat in a project as per the sale agreement registered on December 4, 2002 for a consideration of Rs.31,20,000. The assessee paid the above said consideration in installments. It is noticed that the flat was booked in the joint names of the assessee and her relative. According to the assessee, she obtained possession of the new flat on December 4, 2004. Before the Assessing Officer, the assessee submitted that the new flat should be considered as having purchased only on December 4, 2004, i.e., on the date on which he obtained possession. Under section 54 of the Act, the cost of new house purchased within one year prior to the date of sale of original residential house is also eligible for deduction. It appears that the cost of new flat worked out to about Rs.34.86 lakh and the assessee claimed 50 per cent. of her share therein as deduction under section 54 of the Act.
3. The Assessing Officer did not accept the contentions of the assessee that the date of possession of new house should be taken as the date of purchase. The Assessing Officer placed strong reliance on the decision of the jurisdictional High Court rendered in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom) with the following observations :
"As stated in the aforesaid paragraphs the Bombay High Court in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom) has held that, what one has to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the society and whether she has made a substantial investment within the prescribed period which will entitle her to obtain possession of that flat so constructed. The Board has stated in the circular that when an allotment letter is issued to an allottee under this scheme 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."
4. Accordingly, the Assessing Officer rejected the claim for deduction under section 54 of the Act.
5. The learned Commissioner of Income-tax (Appeals) also confirmed the decision of the Assessing Officer with the following observations :
"....The fact of having executed the agreement by way of registering the same on December 4, 2002 is not in dispute. The claim of the appellant that as per clause 14 of the agreement builder can terminate the agreement on non-payment of instalments, in the case of appellant is not found to be implemented though the appellant is found having defaulted the payment of instalments on certain occasions. The relevant and effective material facts are that the agreement was complete on all respects when it was executed by way of registering the same and the appellant paid earnest money and agreed to make the payment of instalments on the dates as mentioned in the agreement itself. Therefore, for the purpose of claiming deduction under section 54 of the Income-tax Act, the purchase of another property one year before the sale of property has to be construed from the date of execution of agreement through registration and not from the date of possession as claimed by the appellant. Therefore, I do not find any infirmity in the action of the Assessing Officer in disallowing exemption under section 54 of the Income-tax Act on capital gains on the sale of another property made much beyond the prescribed period of time as per the provisions of section 54 of the Income-tax Act."
6. Aggrieved, the assessee has filed this appeal before us.
7. We have heard the rival contentions and perused the record. The learned authorised representative reiterated the contentions that were made before the tax authorities, viz., the date of possession should be considered as the date of purchase of new house, since the assessee obtained a habitable house only on the date of possession. On the contrary, the learned Departmental representative placed strong reliance on the orders of the tax authorities. There is no dispute with regard to the fact that the assessee can purchase a new house within one year before the date of transfer of the original residential house in order to avail of deduction under section 54 of the Act. The said deduction is also available if a new house.
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is purchased within two years after the date on which the transfer of original house took place, or |
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is constructed within a period of three years after the date on which the transfer took place. |
8. Thus, it is seen that the statute has prescribed different time limits for "purchase of a new house" and for "construction of a new house". There should not be any dispute that the expressions "purchase" and "construction" denotes two different kinds of actions. The deduction is available only if a new house is purchased within one year before the date of transfer of the original residential house. Thus, if a new house is constructed within one year prior to the date of transfer of the original residential house, the deduction under section 54 is not available.
9. In the instant case, the assessee along with her relative has entered into an agreement on December 4, 2002 with a builder. As per the registered sale agreement, the builder shall construct residential apartments on a piece of land and allot a specified flat to the assessee. As per the agreement, the builder constructed the residential apartments and finally handed over the possession on December 4, 2004. The moot question is whether the transaction of entering into an agreement with a builder for purchase of a flat that is going to be constructed is a case of "purchase" or "construction".
10. In this regard, we may gainfully refer to the decision rendered by the hon'ble Bombay High Court in the case of Mrs. Hilla J.B. Wadia (supra) wherein the hon'ble High Court has held that it is a case of "Construction". Following observations made by the High Court are relevant here (page 380) :
"In the present case, the assessee had transferred the property in which she had a half share and which was being used for the purpose of her residence to the society. The question is whether she can be said to have constructed a house property for the purpose of her residence within a period of two years from that date. This provision will have to be construed in the context of the manner in which such residential properties are now being constructed in a city like Bombay where, looking into the cost of land, co-operative housing societies are being formed for constructing a building in which flats are allotted to the members. This must also be viewed as a method of constructing residential tenements."
11. An identical question, i.e., whether the booking of flat with a builder is to be considered as a case of "purchase" or "construction" was examined by the Mumbai Bench of the Tribunal in the case of (Asst.) CIT v.Sunder Kaur Sujan Singh [2005] 3 SOT 206 (Mum) and the Bench came to the conclusion that it was a case of "Construction". The relevant observations are extracted below :
"The condition laid down in the case of purchase of the residential house is that the house must have been purchased one year prior to the sale of the capital asset or two years subsequent thereto. In the case of a residential house the condition laid down is that the residential house must have been constructed within three years after the sale of the capital asset. Therefore, for proper application of this section it has to be seen whether it is a purchase or a construction in the above case. Vide Board's Circular No. 471, dated October 15, 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 DDA and 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 allottee as per the schedule fixed by the DDA. As per Board's Circular No. 672, dated December 16, 1993 the Board after referring to the abovementioned 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 assessee by 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."
12. Another Mumbai Bench of the Tribunal has also considered an identical question in the case of [Kishore H. Galaiya v. ITO [2012] 137 ITD 229/24 taxmann.com 11 (Mum)] and has expressed identical view. The relevant observations are extracted below :
"6.1 In the present case, the assessee sold the old residential house on March 7, 1996 and the long-term capital gain arising on this account was Rs. 9,98,411. The assessee had booked a new residential flat with the builder jointly with his wife for a sum of Rs. 35,00,000. The assessee had paid booking amount of Rs. 1,00,000 to the builder before the due date of filing of the return of income under section 139(1) for the assessment year 2006-07 and the balance amount had been paid in instalments after the said date. The total amount paid by the assessee to the builder was Rs. 14,62,500 till February 16, 2009. In the back drop of this factual position, it is required to be seen whether the assessee had fulfilled the conditions of section 54 of the Act so as to make him eligible for claim of exemption under section 54 of the Act. The first condition is that the capital gain should have been invested in the purchase of new residential house within a period of two years from the date of transfer or for construction of new residential house within a period of three years from the date of transfer. In the present case, the assessee had booked the new flat with the builder and as per agreement, the assessee was to make payment in instalments and the builder was to handover the possession of the flat after construction. It has therefore to be considered as a case of construction of new residential house and not purchase of flat. This position has been clarified by the CBDT in Circular No. 472 dated December 16, 1993 in which it has been made clear that the earlier Circular No.471 dated October 15, 1986 in which it was stated that acquisition of flat through allotment by DDA has to be treated as a construction of flat would apply to co-operative societies and other institutions. The builder would fall in the category of other institutions as held by Mumbai Bench of the Tribunal in the case CIT (Asst.) v. Sunder Kaur Sujan Singh Gadh (Smt.) [2005] 3 SOT 206 (Mum) and therefore booking of the flat with the builder has to be treated as construction of flat by the assessee. Thus, in the present case, the period of three years would apply for construction of new house from the date of transfer of the old flat."
13. The ratio laid down in the abovesaid cases clearly show that the booking of a flat which is going to be constructed by a builder has to be considered as a case of "construction of flat". We have already noticed that the deduction under section 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction under section 54 of the Act in respect of the cost of new flat.
14. In view of the foregoing discussions, we are of the view that the assessee has not fulfilled the conditions prescribed under section 54 of the Act. Accordingly we uphold the decision taken by the learned Commissioner of Income-tax (Appeals) on the reasons discussed supra.
15. In the result, the appeal filed by the assessee is dismissed.
The order pronounced in the open court on the 12th September, 2014.