Investment made in construction of new house before sale of original asset is also eligible for Sec. 54F relief: HC

Case Details: Bindu Premanandh v. CIT - [2022] 144 taxmann.com 194 (Kerala)

Judiciary and Counsel Details

• • S.V. Bhatti & Basant Balaji, JJ.
  • A. Kumar, P.J. Anilkumar, Smt. G. Mini, P.S. Sree Prasad & Ajay V. Anand, Advs. for the Appellant.

Facts of the Case

The assessee was an individual who purchased land (the original asset) in the year 2007. She also purchased another piece of land in the year 2007 and made payment to the builder for the construction of residential house property.

During the relevant year, she transferred the original asset and earned long-term capital gains. The construction of land that was handed over to the builder got completed within 3 years from the sale of the original asset.

The assessee filed return of income and claimed exemption under section 54F on the capital gain that arose out of the sale of the original asset. However, the Assessing Officer (AO) denied the exemption stating that the payments for the purchase of land and construction of the residential house were made before the sale of the original asset.

On appeal, the CIT(A) allowed relief to the assessee. However, the Tribunal reversed the order of the CIT(A). The matter reached the High Court.

High Court Held

The High Court held that section 54F provides for the purchase of residential house property either 1 year before or 2 years after the sale of the original asset. However, for construction, section 54F says it should be completed within 3 years of the sale of the original asset.

The Tribunal denied exemption to the assessee by stating that section 54F provides that construction of the residential house should be done after the date of transfer. The Tribunal gave importance only to the time of the payments made by the assessee for the construction of the new residential house.

The test ought to be when the new residential house was completed. Thus, if the construction of the new house is completed within 3 years from the date of sale of the original asset, the assessee was eligible for section 54F.

CIT(A) noted all the sequential events while disposing of the appeal but arrived at a quick finding to allow relief under section 54F. Therefore, the Tribunal’s order was set aside and the matter was remitted to CIT(A) for fresh consideration.

List of Cases Reviewed

• • ACIT v. Bindu Premnadh [IT Appeal No. 40 (Coach) of 2017, dated 30-11-2018 (para 7) set aside.

List of Cases Referred to

• • CIT v. Bharti Mishra [2014] 8 Taxcorp (DT) 56475 (Delhi) (para 4)
  • C. Aryama Sundaram v. CIT [2018] 97 taxmann.com 74/258 Taxman 10/407 ITR 1 (Mad.) (para 4)
  • Smt. Shantaben P. Gandhi v. CIT [1981] 6 Taxman 356/129 ITR 218 (Guj.) (para 5).