By TIOL News Service

BANGALORE, AUG 14, 2015: THE issue before the Bench is - Whether Sec 54F benefit is available to the assessee when construction work though has started but is not yet complete in all respects within the stipulated period. YES is the answer.

Facts of the case

The assessee is an individual. He filed return for relevant AY. During the year, assessee sold one property. The capital gain on sale of the aforesaid property was invested by the assessee in purchasing another house. The Assessee claimed deduction u/s 54F of the Act. To verify the claim of the Assessee, AO issued summons, u/s 131 of the Act. Response on behalf of assessee was recorded. Based on data collected, AO was of the view that the assessee had not satisfied the conditions laid down in Sec. 54F of the Act as assessee had not completed construction of the residential house within a period of 3 years from the date of sale of the property. Entire capital gains was brought to tax under the head LTCG. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The assessee pointed out that to claim deduction u/s. 54F of the Act, it was not a condition that the construction of the house should have been completed within the stipulated period of three years and that if it was proved that the consideration received on transfer of the asset giving rise to capital gains had been invested in the construction of residential house, the assessee was entitled to benefit of section 54F of the Act, though the construction was not complete in all respects. CIT(A) passed order in favour of Assessee. Aggrieved by the order of the CIT(A), the revenue preferred an appeal before the Tribunal.

After hearing parties, Tribunal held that,

++ in our view, the order of the CIT(A) does not call for any interference. It is clear from the order of the CIT(A) that the assessee had commenced construction of the building within a period of three years from the date on which the property on the transfer of which capital gain arose. In fact even at the stage of purchasing the plot of land on which construction was put up by the Assessee, the entire capital gain had been invested. The intention of the assessee was to construct a residential house and in this regard, we find that the assessee had applied for a sanction of the building plan and got sanction of the building plan as early as on 02.06.2010. The construction, however, could not be completed by the assessee, though construction had been started. The Karnataka High Court, in the decision rendered in the case of Sambandam Udaykumar, had taken a view that under the provisions of section 54F of the Act, the condition precedent was that the capital gain realized from sale of capital asset should have been parted by the assessee and invested in constructing a residential house. If the money is invested in constructing the residential house, merely because the construction was not complete in all respects and was not in a condition to be occupied within the stipulated period, that cannot be a ground for rejecting the benefit of deduction u/s. 54F to the assessee.

(See 2015-TIOL-1841-HC-KAR-IT)