Sec. 54 relief available even if investment was made in new property before execution of sale deed


Where pursuant to agreement of sale, possession of flat was handed over and sale consideration was received, it amounted to sale of flat within meaning of section 2(47) even though sale deed was executed subsequent thereto and, in such a case, when sale proceeds were invested by assessee in construction of new flat even prior to execution of sale deed, same was eligible for deduction under section 54.

Refer full judgement:


[2017] 82 taxmann.com 164 (Chennai – Trib.)
IN THE ITAT CHENNAI BENCH ‘B’
Devichand Kanthilal Shah
v.
Income-tax Officer, Chennai
N.R.S. GANESAN, JUDICIAL MEMBER
AND A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
IT APPEAL NO. 3353 (MDS.) OF 2016
[ASSESSMENT YEAR 2013-14]
MAY  31, 2017 
D. Anand, Advocate for the Appellant. Supriyo Pal, JCIT for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member – This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -4, Chennai, dated 19.09.2016 and pertains to assessment year 2013-14.
2. The only issue arises for consideration is disallowance of exemption claimed by the assessee under Section 54 of the Income-tax Act, 1961 (in short ‘the Act’).
3. Shri D. Anand, the Ld.counsel for the assessee, submitted that the assessee sold a flat at Eastern Wing Block No.B, 5th floor, BBC Spring Field Apartments, Old No.5, EVK Sampath Road, Vepery, Chennai-7, for a total consideration of Rs. 72,00,000/-. In fact, the entire sale consideration was received on 20.04.2012. However, the sale deed was registered only on 06.06.2012. The Ld.counsel further submitted that there was agreement for sale executed on 09.04.2012. As per this agreement, the physical possession of vacant flat was handed over to the purchaser. Therefore, under Section 2(47) of the Act, there was a transfer of property even though the registration of the document is essential pre-condition for transfer of immovable property the value of which is exceeding Rs. 100/- under the common law. The assessee has, in fact, invested on 23.04.2012 to the extent of Rs. 25,00,000/- and on 05.05.2012 another Rs. 25,00,000/- and a sum of Rs. 2,00,000/- was invested on 03.08.2013 in a new flat. The Ld.counsel submitted that the Assessing Officer, after taking into consideration of the sale deed dated 06.06.2012, found that an investment was made by the assessee for construction of a new house only after the sale of existing property, therefore, he disallowed the claim of the assessee.
4. Shri D. Anand, the Ld.counsel for the assessee, further submitted that in view of agreement between the parties on 09.04.2012, there was a transfer of property as contemplated under Section 2(47) of the Act read with Section 53A of the Transfer of Property Act. According to the Ld. counsel, even though the registration of sale deed took place only on 06.06.2012, the physical possession was handed over to the assessee on 09.04.2012 itself. Therefore, in view of judgment of Apex Court in Mysore Minerals Ltd. v. CIT (239 ITR 775), the assessee has to be construed as owner of property. In other words, according to the Ld. counsel, the assessee continued to be in the possession of property as a beneficial owner, therefore, the assessee is entitled for exemption under Section 54 of the Act.
5. On the contrary, Shri Supriyo Pal, the Ld. Departmental Representative, submitted that it is an admitted fact that the assessee sold an immovable property for a total consideration of Rs. 72,00,000/-. The long term capital gain was worked to Rs. 51,04,741/-. After claiming indexation of cost of acquisition, the assessee claimed exemption under Section 54 of the Act on the ground that he invested in the new asset. According to the Ld. D.R., the property was, in fact, sold on 06.06.2012 and the investment was made before the date of registration of sale deed. Therefore, the Assessing Officer found that whatever investment made by the assessee in the construction of new property before the execution of sale deed cannot be allowed as deduction under Section 54 of the Act. Therefore, according to the Ld. D.R., the investment made by the assessee to the extent of Rs. 50,00,000/-cannot be allowed as deduction while computing taxable income under Section 54 of the Act.
6. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee executed a registered sale deed on 06.06.2012 in respect of transfer of flat at BBC Spring Field Apartments at Old No.5, EVK Sampath Road, Vepery, Chennai-7. Before execution of registered sale deed, the assessee had also entered into an agreement for sale on 09.04.2012. Clause 3 of said agreement for sale clearly shows that the assessee handed over the physical possession of property to the purchaser. Now the question arises for consideration is when the assessee handed over the physical possession of the property to the purchaser consequent to the agreement for sale dated 09.04.2012, whether the gain on transfer of property is exempted under Income-tax Act?
7. We have carefully gone through the provisions of Section 2(47) of the Act and Section 53A of Transfer of Property Act. When there was an agreement for sale and physical possession of the property was handed over to the purchaser and the purchaser is in enjoyment of the property as his own, this Tribunal is of the considered opinion that there was transfer of property under the Income-tax Act. The Income-tax Act, being a special enactment, the provisions of Section 2(47) of the Act for transfer of immovable property cannot be ignored. We are conscious of the fact that under the common law, for transfer of immovable property value of which is exceeding Rs. 100/-, a registered sale deed has to be executed. However, in view of the special provisions of Section 2(47) of the Act, such a requirement under the common law, may not be applicable while interpreting Section 2(47) of the Act. Therefore, even though the assessee executed registered sale deed on 06.06.2012, this Tribunal is of the considered opinion that there was a transfer of property within the meaning of Section 2(47) of the Act on 09.04.2012 when the assessee entered in to an agreement for sale and handed over the physical possession. If the transfer of property took place on 09.04.2012, the payments were made on 23.04.02012 and 05.05.2012 are after the sale of the property.
8. Even otherwise Section 54 of the Act clearly says that if the assessee, within a period of one year before or two years after the date on which the transaction took place, purchased or within a period of three years after that date, constructed a residential house in India, then the assessee is eligible for deduction under Section 54 of the Act. In this case, the investment was admittedly made one year before the date of sale of property. In view of language employed by Parliament in Section 54 of the Act, it is not the requirement that the sale consideration has to be invested in purchase of property. It is immaterial whether the assessee invested the sale consideration in purchasing of new flat on receipt of the money after the date of sale or one year before the sale of property. In this case, the assessee invested the sale consideration one year before the sale of property, therefore, the assessee is eligible for deduction under Section 54 of the Act. In view of the above, this Tribunal is unable to uphold the order of the lower authority. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to allow the claim of the assessee under Section 54 of the Act while computing taxable income.
9. In the result, the appeal filed by the assessee stands allowed

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