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Budget 2018 Expectation: Need to revise time limit to construct or purchase new house

January 24, 2018 67452 Views
S.Krishnan
CA

1. Introduction

Lot of litigations take place with regard to claiming benefits under sections 54/54F of the Income-tax Act (the Act) by the assessees even though the new house could not be purchased within a period of 2 years from the date of sale(transfer) of old capital asset for various reasons or construction of new house could not be completed on account of delay in sanctioning of plan etc. The litigations mostly surround cases where completion of house did not take place within 3 years from the date of sale (transfer) of old capital asset.

2. Note on decisions favouring assessees

The Supreme Court in the case of Sanjeev Lal v. CIT [2014] 46 taxmann.com 300/225 Taxman 239/365 ITR 389 following the principles laid down in Oxford University Press v. CIT [2001] 115 Taxman 69/247 ITR 658 (SC) with regard to purposive construction has held that where assessee having executed an agreement to sell in respect of a house property, purchased a new residential property within one year from date of agreement to sell but in view of fact that subsequently sale deed could not be executed within prescribed time for reason that assessee had been prevented from dealing with said residential house by an order of a competent court, a valid 'transfer' took place within meaning of section 2(47) by executing agreement to sell and, consequently, relief under section 54 of the Act was to be granted to the assessee in respect of purchase of new residential property.

The Karnataka High Court in the case of CIT vs. Shakuntala Devi [2016] 75 taxmann.com 222 (Kar,) has held that utilization of capital gains in construction of residential house within a period of two years would suffice to claim exemption under section 54 of the Act irrespective of fact that neither sale transaction was concluded, nor registration had taken place within 2 years. The time limit proposed for claiming exemption under section 54 of the Act at that time -assessment year 2003-04- was 2 years from the date of sale (transfer).

There are scores of decisions in favour of asseeees rendered by various High Courts and Tribunal Benches in this regard.

3. Reason for amendment in section 54/54F of the Act

As noticed in the previous paragraph though judicial authorities are liberal in extending the benefits of exemption in case of impossibility of performance on the part of the assessee or no fault of the assessee in cases of delay in completing the new residential house neverthelessit is not always practically possible/ advisable for the asseeees to seek legal remedy because of time delay and cost of litigation.

Generally, for big project or township, the developers take minimum 5 years before handing over the possession of the property to the buyers. In such cases if a buyer gets the possession of new house after 3 year, it may not be possible for him to claim Sec. 54/54F exemption without any litigation.

Therefore, suitable amendment is needed to allow section 54/54F exemptions to genuine taxpayers who invest in a project developed by a builder registered under the Real Estate Regulation and Development (RERA) Act, 2016. RERA is considered as one of the landmark legislations passed by the Government of India. Its objective is to reform the real estate sector in India, encouraging greater transparency, citizen centricity, accountability and financial discipline. This is in line with the vast and growing economy of India as in future many people will be investing in real estate sector.

Therefore a time limit of 5/6 years for roll over of investment from the date of sale (transfer) of capital asset may be granted under sections 54/54F of the Act to claim benefits under these sections by way of suitable amendment to these sections in the new Finance Bill.

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