By TIOL News Service

NEW DELHI, DEC 02, 2013: THE issues before the Bench are - Whether in the context of property, the term "construction" and "maintainence" are identical and Whether renovation or extension are covered by the term “construction” for the purpose of giving benefit u/s 54F. And the verdict goes in favour of the assessee although the question of law left open.

Facts of the case

Assessee, an individual, had sold property in Ghaziabad for Rs.45 lacs. During assessment, AO made two additions. Firstly, benefit u/s 54F was denied and capital gains of Rs.51,71,994/- was brought to tax. The second addition made by the AO u/s 68. On appeal, CIT(A) had deleted addition made u/s 68 on the basis that it was entirely unjustified. AO himself in the remand report accepted the factual position. Since stamp duty was paid on circle rates, assessee had declared capital gains of Rs.51,71,994/- as per Section 50C(1). The said sale consideration had not been disturbed or objected to by the AO. Assessee had purchased a fully built up property at Anand Vihar, Delhi for Rs.50 lacs and was sanctioned loan of Rs.80,00,000/- from a nationalised bank by mortgaging this property. AO observed that as per Section 54F, assessee was required to complete construction of a residential house within three years from the date of the sale of the capital asset and held that there was neither the need for the assessee to reconstruct nor renovate the purchased property as it was already fully constructed. AO referred to the bills produced by the assessee and had recorded that eight bills pertain to period prior to the date of purchase. AO had not disturbed the quantum of money spent on construction as declared by the assessee at Rs.59,98,451/-. The total amount spent on construction itself, as was noticeable, was substantial and even more than the purchase value as declared. The loan with mortgage was obtained by the assessee a few days before execution of the sale deed.

On appeals, CIT(A) permitted assessee to adduce additional evidence and had referred to the remand reports given by the AO. CIT(A) specifically recorded the difference in the earlier construction as per the plan sanctioned by the DDA and the new construction. It was clear that the property was initially constructed way back in 1989. CIT(A) had highlighted the new construction, the area constructed and mentioned the difference between the old and new construction. It had referred to the notice issued by the Assistant Engineer mentioning unauthorised construction, deviations from sanctioned building plans and that the construction should be demolished. CIT(A) relied on certificate issued by the Architect, in which it was stated that the earlier structure was demolished and thereafter, new construction was made on the plot. Thus, it was concluded that it was a case of new construction after demolition, the said factual finding was also affirmed by the tribunal.

Held that,

++ the word “construction” in Blacks’ Law Dictionary, 6th Edition at page 312 has been defined to mean to build; erect; put together; make ready for use. The word “construct” is distinguishable from maintaince, which means to keep up, to keep from change, to preserve. The word “construction” for the purpose of Section has to be given realistic, practical and a pragmatic meaning keeping in mind the object and purpose of the provision. Section 54F is a beneficial provision as an earlier capital asset, which is sold, is replaced by a new capital asset in form of a residential house, which should be purchased or constructed within the time period stipulated;

++ we need not examine the contention of the Revenue that cases of renovation or even extension are not covered by the term “construction” in Section 54F of the Act. The said issue is left open to be decided in an appropriate case. In the case at hand, we find that the factual finding recorded by the first appellate authority and affirmed by the tribunal show that it is a case of “construction” under Section 54F of the Act. Section 54F of the Act requires that construction should be carried out within a period of three years from the date of sale of the capital asset. In the present case, the construction was carried out within the outer limit of three years. On this aspect, there is no dispute. The appeal is accordingly dismissed.

(See 2013-TIOL-963-HC-DEL-IT)