Acquisition of Flat in an Under Construction Apartment: Is Construction or Purchase for sec. 54

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Case ID: 41251201722

Section 54 of the Income-tax Act, 1961

The acquisition of new flat in an apartment under construction should be considered as a case of “Construction” and not “Purchase”.



Mumbai -Trib

Mustansir I Tehsildar -vs.- ITO

18-Dec-2017

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Facts of the case

The assessee sold his share in a flat and consequent thereto, the long term capital gain was computed. The assessee had earlier booked under construction new flat before transfer of the old flat. The assessee had made payments to the builder much earlier to the date of transfer of old flat The assessee also made following payments subsequent to the date of transfer of old flat. The assessee treated the acquisition of new flat as a case of Construction. The assessing officer, however, took the acquisition of flat as a case of purchase of flat and denied the benefit of sec. 54

Held

  • As per the provisions of sec.54, the new flat is required to be constructed within 3 years from the date of transfer of old flat. Since the old flat was transferred on 05-12-2012, the assessee submitted that the time limit was available upto December, 2015 and the new flat was acquired before that date.

  • The assessing officer, however, took the acquisition of flat as a case of purchase of flat. Accordingly he took the view that the flat should have been purchased one year before or two years after the date of transfer, as per the requirements of sec. 54. Accordingly he held that the assessee should have purchased the new flat between 6.12.2011 and 4.12.2014

  • Hon’ble Bombay High Court has held in the case of Mrs. Hilla J B Wadia (216 ITR 376) has held that booking of flat in an apartment under construction must also be viewed as a method of constructing residential tenements

  • Section 54 of the Act provides the condition that the construction of new residential house should be completed within 3 years from the date of transfer of old residential house. According to Ld A.R, section 54 is silent about commencement of construction and hence commencement of construction can precede the date of sale of old asset. Hon’ble Karnataka High Court has held in the case of CIT Vs. J.R.Subramanya Bhat (1987)(165 ITR 571) that commencement of construction is not relevant for the purpose of sec. 54 and it is only the completion of construction.

  • Hon’ble Kerala High Court has held in the case of ITO vs. K.C.Gopalan (2000)(162 CTR 0566) that there is no requirement that the sale proceeds realised on sale of old residential house alone should be utilised.

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Coram: B.R. Baskaran (AM), Saktijit Dey (JM)

Counsel: Dr. K. Shivaram, Rahul K. Hakani

Appeal No.: I.T.A. NO. 6108/MUM/2017

Relevant A.Y.: 2013-14

In favour of: Assessee