A 54F exemption is allowed if construction is delayed for reasons beyond control.
Issue
Is a taxpayer eligible for an exemption under Section 54F of the Income-tax Act, 1961, if they are prevented from completing the construction of a new house within the statutory time limit due to external factors completely beyond their control, and they subsequently invest the recovered funds in another residential property?
Facts
- After selling a capital asset, the assessee, in order to claim an exemption under Section 54F, invested the entire sale proceeds in a residential plot with the clear intention of constructing a house.
- However, the builder never handed over possession of the plot to the assessee. This failure was due to a “national level dispute,” as the land for the project was taken over by the Central Government/NHAI for a highway project. The delay and ultimate failure of the project were therefore entirely beyond the assessee’s control.
- The Assessing Officer (AO) denied the Section 54F claim, arguing that since possession was never given and no construction was completed within the statutory period, the conditions of the section were not met.
- The assessee eventually had to surrender their rights to the stalled plot, received a refund from the builder, and immediately used that money to purchase a different residential property.
Decision
The court ruled decisively in favour of the assessee.
- It held that the assessee’s bona fide intention to construct a residential house was clear and undisputed, as evidenced by their initial investment of the full sale consideration.
- The failure to complete the construction within the prescribed time limit was due to reasons completely beyond the control of the assessee, making it impossible for them to comply.
- The assessee’s subsequent conduct—recovering the blocked funds and promptly investing them in another residential property—further proved their continuous and genuine intention to comply with the spirit of the law.
- Given these exceptional circumstances, the court concluded that the assessee was eligible for the deduction under Section 54F.
Key Takeways
- The Intent of the Taxpayer is Crucial: Section 54F is a beneficial provision intended to encourage investment in housing. The courts will often look at the genuine intention of the taxpayer. If the taxpayer has taken all possible steps to comply, they should not be penalized for failures that are caused by third parties or unforeseen external events.
- The Doctrine of Impossibility: The legal principle that “the law does not compel a man to do that which he cannot possibly perform” is often applied in such cases. The assessee could not be expected to construct a house on a plot of land that was never handed over to them.
- Substance Over Strict Timelines: When the failure to meet a statutory timeline is for reasons that are demonstrably beyond the taxpayer’s control, the courts may take a lenient view and allow the exemption, provided the taxpayer’s overall actions show a clear and continuous intent to fulfill the investment condition.
- The Chain of Investment is Recognized: The assessee’s act of recovering the original investment and promptly re-investing it in another eligible property was seen by the court as a continuation of the original investment plan, which solidified the legitimacy of their claim.
IN THE ITAT DELHI BENCH ‘B’
Rajni Kumar
v.
ITO, Ward 3 (1)
Vimal Kumar, Judicial Member
and S. Rifaur Rahman, Accountant Member
and S. Rifaur Rahman, Accountant Member
IT Appeal No. 3188 (DELHI) of 2023
[Assessment year 2017-18]
[Assessment year 2017-18]
SEPTEMBER 17, 2025
Sudhir Sehgal, Adv. for the Appellant. Rajesh Kumar Dhanesta, Sr. SR for the Respondent.
ORDER
S. Rifaur Rahman, Accountant Member.- The assessee has filed appeal against the order of the Learned Commissioner of Income-Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 27.09.2023 for the Assessment Year 2017-18 and the assessment order was passed under section 143(3) r.w.s. 263 of the Income-tax Act, 1961 (for short ‘the Act’).
2. Brief facts of the case are, assessee filed her return of income for the AY 2017-18 on 17.07.2017 declaring total income of Rs.2,95,190/-. The case was selected for scrutiny through CASS to verify the deductions/exemption from capital gains and investment in immovable property. The assessment was completed vide order dated 29.12.2019 accepting the returned income. Subsequently, ld. PCIT initiated proceedings u/s 263 of the Act and held that the assessment framed by the AO vide order dated 29.12.2019 is erroneous and prejudicial to the interest of Revenue due to the reason that the AO has not conducted any enquiry or investigation before allowing the benefits of capital gains. Accordingly, the direction was given to the AO to pass a fresh assessment order u/s 263 of the Act dated 31.03.2022. The AO passed the impugned assessment order u/s 143(3) r.w.s. 263 of the Act and denied the deductions claimed by the assessee u/s 54 of the Act by holding that assessee has only made the agreement for purchase of property but no possession was ever given to the assessee.
3. The relevant issues under consideration are, the assessee sold an immovable property on 18.05.2016 for a consideration of Rs.1,25,00,000/- on which long term capital gain of Rs.92,57,020/- was declared in the return of income. The assessee claimed deduction arising out of abovesaid transaction by making an investment in immovable property of Rs.1,22,57,020/- u/s 54 of the Act on account of advance made for purchase of residential plot in M/s. Chintel’s International City (in short ‘M/s. Chintel’) situated in Sector 106, Gurugram. Since assessee has not got the possession of the abovesaid plot, the AO rejected the claim of the assessee.
4. Against the abovesaid denial of claim u/s 54F of the Act, aggrieved assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) sustained the addition made by the assessee.
5. Aggrieved, assessee is in appeal before us raising following grounds of appeal :-
“1. That the Ld. CIT(A) has erred in confirming the order of Assessing Officer and thereby, denying the deduction u/s 54 of the Act as claimed in the return of income amounting to Rs.1,22,57,020/-.
2. That the ld. CIT(A) has failed to appreciate the fact that the amount of Rs.1,22,57,020/- has been invested in purchase of residential plot, on which, the building was to be constructed and since the possession of plot was not handed over, the assessee was handicapped in proceedings with the construction of residential house.
3. That the Ld. CIT(A) has failed to appreciate the various agreements and other communications as submitted to the CIT(A) by the assessee to substantiate the fact that the assessee had fulfilled all the requirements and invested the entire money for purchase of residential plot and since the residential plot could not handed over to the assessee on account of various reasons by the builder, the residential house could not be completed within the stipulated time.
4. That the various judgements of different Benches of the ITAT as quoted before the Ld. CIT(A) have not been appreciated.”
6. At the time of hearing, ld. AR brought to our notice relevant facts of the case and submitted that the assessee has filed detailed submissions before the AO on the basis of observation made by ld. PCIT, Faridabad in his order passed u/s 263 of the Act. Further ld. AR submitted that the only dispute is with regard to claim of deduction u/s 54 of the Act as claimed by the assessee at the time of calculation of LTCG. He submitted that the sequence of events in the case of the assessee are as under:-
| (a) | Application dated 29.03.2016 was made by the assessee with M/s Chintel’s India Ltd for booking of Plot. (reference of the same is found in provisional letter dated 27.05.2016 as issued by the Company). |
| (b) | The sale of property for an amount of Rs.1.25cr was made on 18.05.2016. |
| (c) | The Assessee was provisionally allotted a plot with M/s Chintel’s India Ltd on 27.05.2016with Plot No. L-001. Provisional allotment letter dated 27.05.2016 is placed in the paper book. |
| (d) | Demand letter dated 27.05.2016 was issued by M/s Chintel’s India Ltd (placed in the PB at page-10 of PB) for amount of Rs.13,27,100/-, wherein it has been mentioned that amount of Rs.12,27,100/- has been paid and balance of Rs. 1,00,000/- is payable. |
| (e) | On 11.06.2016, Plot Buyer agreement was drafted and agreed upon (PB Pg-14-30), though it was finally received by the Assessee on 17.08.2019 only. |
| (f) | Demand letter dated 01.07.2016 was issued by M/s Chintel’s India Ltd (enclosed in the PB at page-11 of PB) for amount of Rs. 66,35,500/-, wherein it has been mentioned that amount of Rs. 13,27,100/- has been paid (payment acknowledgment enclosed in PB at page-12) and balance of Rs. 53,08,400/- is payable. |
| (g) | On 04.08.2016, payment of Rs. 52,55,316/- (53,08,400-1% of TDS i.e 53084/-) was duly paid from HDFC bank account of husband of the Assessee (enclosed in the PB at page-31). The said transaction is even evident from Form 26AS of the Assessee enclosed in the PB at page-33) |
| (h) | On 07.10.2016, payment of Rs. 59,71,950/- (60,32,273-1% TDS i.e 60322/-) was duly paid from HDFC bank account of husband of the Assessee (enclosed in the PB at page-31). The said transaction is even evident from Form 26AS of the Assessee enclosed in the PB at page-33. |
| (i) | So, till 07.10.2016, a total amount of Rs.1,25,54,366/- (i.e Rs.13,27,100/-, Rs.52,55,316/- and Rs.59,71,950/-) was paid by the Assessee. |
| (j) | Even an architect was namely Bezel Design & Communications Pvt Ltd was engaged for the layout designs and architectural purposes and an amount of Rs. 3 lac was advanced to the Company as advance on 09.10.2018. Relevant pages enclosed in the PB at pg-34-38. |
7. He further submitted that from the above sequence of events, it is clear that the assessee has sold the property on 18.05.2016 and in order to avail the benefit u/s 54 of the Act, the assessee either need to purchase the residential house within 1 year before or 2 years after the sale or construct the residential house within 3 years after the sale of property. He submitted that the assessee has already paid an amount of Rs.1,25,54,366/- till 07.10.2016 i.e. within 5 months from the sale of the property. The amount of Rs.1,25,54,366/- is sufficient in order to cover the capital gains of Rs.92,57,020/- as claimed by the assessee. He submitted that it is only due to unavoidable circumstances that the possession of the plot was not handed over to the assessee and the assessee was not able to start the construction.
8. Ld. AR further submitted that the reasons for delay of the project which was totally beyond the control of the assessee are :-
| (a) | The entire projects on the Dwarka Expressway Gurugram, where this residential site was located at sector 106, got unduly delayed by 10-12 years as both State Govt. Haryana and Delhi Government couldn’t construct the highway amicable. |
| (b) | It was the national level dispute and now off late Central Govt/NHAI has taken over the project of construction of the said Highway. |
| (c) | Project also got disrupted and delayed due to frequent NGT imposing restrictions on construction in Delhi NCR due to excessive pollution. |
| (d) | Even, the Builders i.e Chintels were badly involved in many frauds and delay sub standard projects causing loss of property and lives as per media reports. |
9. He submitted that as honest taxpayer, the assessee wanted to construct the House on the said residential site (which was allotted by M/s Chintel’s India Ltd) within three years i.e. 19.05.2019 from the date of sale proceedings of 18.05.2016, however, the Builder M/s. Chintel failed to hand over the residential site within the stipulated time frame as per verbal and written promise from the date of agreement dated 27.05.2016 / 11thJune 2016 and the said fact was even placed before the AO as well as CIT(A).
10. Ld. AR further submitted that it is very interesting to note that based on assurance from Builder M/s. Chintel at the beginning of the third year, an Architect was hired by the assessee for the construction of house during September 2018 and in record he was paid non-refundable advance of Rs.3,00,000 (BEZEL DESIG & Communication Pvt. Ltd.) which further proves the contention of the assessee.
11. He submitted that the deduction u/s 54 of the Act cannot be denied, as the delay in possession of residential site and further construction is delayed beyond three years due to the complete fault of the tricky and nefarious Builder M/s. Chintels Gurugram. He submitted that the provisions contained under section 54 and 54F being a beneficial provision have to be construed liberally.
12. In this regard, he placed reliance on the following case laws, wherein on similar basis, wherein the circumstances are beyond the control of the assessee and construction is delayed, the benefit of deduction u/s 54/54F has been allowed :-
| (a) | In CIT v. Mrs. Hilla J.B. Wadia 114 (Bombay), it was observed that the Board had stated in Circular No. 471,dated 15.10.1986 that when an allotment letter is issued to an allottee on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of flat under this scheme should be treated as cost of construction for the purpose of capital gains. |
| (b)Smt. | V.A. Tharabai v. Dy. CIT 276/50 SOT 537 (Chennai)/ITA No. 1894/MDS/2011 |
“11. It is after the purchase of the property that the hell broke loose against the assessee in the form of civil litigation. The litigation started on 25-2-2008 and ended only on 19-9-2011. By that time the available period of three years to construct the house was already over, on 8-6-2009. The assessee was absolutely prevented from taking any single step in constructing the proposed residential house during this period of three years. The assessee was restrained by a competent court from constructing a house and the status quo of the property at the time of purchase was ordered to be maintained. Where, on the one hand section 54F demands the assessee to construct the house within a period of three years, on the other hand, civil courts restrain the assessee from constructing a house throughout that period of three years. The assessee is in fact between devil and deep sea. It is an accepted principle of jurisprudence that law never dictates a person to perform a duty that is impossible to perform. In the present case, it was impossible for the assessee to construct the residential house within the stipulated period of three years.
12. Now, the question is whether the assessee is still entitled for the benefit of section 54F or not.
13. A dominant factor to be seen in the present case is that the entire consideration received by the assessee on sale of her old property has been utilized for the purchase of the new property. The purchase value of the property is more than the long-term capital gains taxable in the hands of the assessee. This fact is very crucial. The conduct of the assessee unequivocally demonstrates that the assessee was in fact proceeding to construct a residential house, based on which the assessee had claimed exemption under section 54F. Therefore, what is the reality? The reality is that the assessee has spent the entire consideration received on the sale of property towards the construction of the residential house. It is true that the assessee could not construct the house. But she has purchased the land utilizing the entire consideration received on the sale of the old property. It means that the assessee has invested the entire consideration received on sale of the old asset in acquiring/constructing a residential house property. In the special facts and circumstances of the present case, therefore, it is necessary to hold that the amount utilized by the assessee to purchase the land was in fact utilized for acquiring/constructing a residential house. De facto speaking, that part of the construction of the house property which was not completed within the period of three years, is altogether a different matter. Without purchasing land, house cannot be constructed. The first step should be the purchase of land. That was done. No step could be put forward thereafter, for reasons already stated. Therefore, the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house.
14. In view of the above, the assessee is entitled for exemption under section 54F. The intention of the statute provided in section 54F has been fully satisfied by the assessee in the present case. We, therefore, direct the assessing authority to grant exemption to the assessee under section 54F as claimed by the assessee.
15. As the appeal of the assessee is disposed of, the stay petition becomes infructuous and therefore liable to be rejected.
16. In result, the appeal filed by the assessee is allowed.
| (c)Abodh | Borar v. ITO [IT Appeal No. 5112 (delhi) of 2016, dated 18-11-2019] |
“6. We have heard the rival submission and perused the relevant finding given in the impugned orders passed by the authorities below and the paper book filed by the assessee. The only issue in the appeal is the denial of deduction claimed by the assessee under section 54 and 54F of the Act. It is an undisputed fact that, firstly, the assessee has earned capital gain and has invested the same in purchase of a residential plot; secondly, the assessee has made a total investment of Rs.63,03,005/- which is more than the exemption of Rs.52,90,424/- claimed by her; and lastly, the assessee made this investment within the prescribed period. This payment was made to the developer Omaxe Chandigarh Extension Developers Pvt. Ltd. Consequent to that, the developer issued allotment letter and also entered into an agreement dated 05.07.2011. As per the agreement the developer was supposed to hand over the possession of plot within 18 months from the date of allotment letter. However, the developer did not deliver the possession. Hence, the assessee could not complete the construction within the prescribed period of 3 years. This delay in construction was not attributable to the assessee. Thus, the AO and the CIT (A) have denied the exemption in view of the provision of section 54 and 54F of the Act. Further, the AO and the CIT (A) both have ignored the fact that the assessee has made a full payment to the developer and such payment was more than the amount of the deduction claimed by the assessee. Since, the delay was not on the part of the assessee but on the part of the developer and thus it was beyond the control of the assessee. In such circumstances, we are of the view that benefit of deduction cannot be denied to the assessee. Our view is supported by the judgment of coordinate bench of the ITAT in the case of Varun Seth v. ACIT ITA No. 1388/Del/2019 dated 14.05.2019, wherein it has been held as under:-
“9. The real issue in the present case is that new residential house has not been constructed within a period of three years from the date of the transfer of the residential property which resulted in the long-term capital gain. On this issue, the assessee’s contention has been that inspite of having made payment for the plot, the Jaypee (Developer) failed to offer possession and execute sale deed even up till the expiry of three years from the date of sale of property by him, because of reasons beyond his control which cannot be disputed. This vital fact assumes great significance as assessee had taken all the steps to make the investment for the purchase of house, and also assessee had deposited ? 25,10,000/- in the capital gain account with PNB so as to construct the house. This unequivocally demonstrate that assessee really intended to construct the new residential house thereon. It was based on this bonafide intention assessee had claimed exemption under section 54 of the Act. Without the purchase of land, house could not have been constructed. The first step was to purchase the land, which was done. Thereafter the developer was to handover the plot, so that assessee could have constructed the house within time allowed of 2 years. However, no step could be put forward thereafter because possession of land was not given by the Developer, for reasons beyond the control of the assessee. If an assessee sells his house property and utilises the money for acquiring a plot for the construction of the house and if facts and circumstances point out that assessee intended to construct the house, which has been found so, then it is clear that he wants to avail exemption as provided under the law. Now if the developer after receiving the money could not fulfill the obligation within time, then can assessee be held responsible for not complying the law.
10. The Hon’ble Supreme Court in the case of Sanjeev Lal v. CIT [2014] 365 ITR 389 (SC) has laid down the purposive interpretation of section 54 to give a liberal approach to the assessee who clearly intended to claim benefit of section 54. Their Lordships held that section 54 is a beneficial provision and is to be construed keeping in view the intention of the Legislature to give relief in the matter of payment of tax on the long-term capital gain, relevant observation of their Lordships reads as under: –
“22. In addition to the fact that the term “transfer” has been defined under section 2(47) of the Act, even if looked at the provisions of section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under section 54 of the Act, the Legislature does not want him to be burdened with tax on the long-term capital gain and, therefore, relief has been given to him in respect of paying income-tax on the long-term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income-tax Act and it is also said that equity and tax are strangers to each other, still this court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 3 SCC 359 this court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which sub-serve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the afore stated observations and the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provisions of section 54 read with section 2(47) of the Act, i.e., the definition of “transfer”, which would enable the appellants to get the benefit under section 54 of the Act.”
11. If we apply the law as clarified by the Hon’ble Apex Court, on the facts of the instant case, then we are of the opinion that the amount utilized by the assessee in the acquisition of land should be construed as amount invested in purchase/ construction of residential house. The intention of the statute as provided in section 54 has been fully satisfied by the assessee in the present case. Thus, on the facts of the present case, we hold that the assessee is entitled for exemption under section 54 of the Act and AO is directed to allow the exemption us/ 54.”
7. Respectfully following the above decision which is applicable on the facts of the present case also, we hold that assessee is entitled to the exemption claimed by her and direct the AO to delete the disallowance.”
| (d)ACIT | v. Vinay Girish Bajpai [I.T. Appeal No. 7676 (Mum) of 2019, dated 1-2-2022] |
“11. Upon careful consideration, we find that assessee has complied with the condition mention under section 54 of the IT Act to claim the exemption. As pointed out by the Ld. Counsel of the assessee above, the handing over of the possession was delayed due to fault on the part of the builder and assessee has complied with the necessary condition of payment as required. There is a due agreement and part amount was paid. Accordingly, in such situation, the decision of Hon’ble Supreme court in the case of Sanjeev Lal (supra) provides that part payment will also suffice the ingredients of transfer for the purpose of section 54 of the IT Act.
12. In this view of the matter, in our considered opinion, ld.CIT(A) has passed a reasonable order duly relying upon the decision of Hon’ble Bombay High court. Hence, we do not find any infirmity in the order of ld.CIT(A).
13. Hence, this appeal by the revenue stands dismissed.”
| (e) | ACIT v. Girish L Ragha [IT Appeal No. 116 (PNJ.) of 2014, dated 8-8-2014] –CIT v. Girish L. Ragha 449 (Bombay)/Tax Appeal no. 66 of 2015 |
“Section 54 of the Income-tax Act, 1961 – Capital gains – Profit on sale of property used for residence (Time period for Investment) -Assessee sold residential property – He entered into an agreement with a builder for purchase of a flat and invested sale proceeds in it within prescribed period of two years – He was required to get house and occupancy certificate within two years – After purchase of property, there was a civil suit filed by other parties and assessee could not complete construction and licence for constructing house was accordingly issued after 4 years – Whether since assessee had invested money within stipulated period and delay in obtaining occupancy certificate was beyond control of assessee, assessee would be entitled for deduction under section 54 – Held, yes [Para 3] [In favour of assessee].”
| (f) | Similarly we also rely upon the following case laws: |
| (i) | In the case of CIT v. Mrs. Shakuntala Devi 222/389 ITR 366 (Karnataka) it was held that the date of agreement to purchase should be taken as the date of purchase of the new property. As such if assessee has entered into the agreement to purchase and invested the capital gain, it is immaterial that part of the consideration is yet to be paid or registration has not been completed. Deduction u/s. 54 should be allowed. |
| (ii) | In the case of Pr. CIT v. C. Gopalaswamy 78/[2016] 384 ITR 307 (Karnataka) it was held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat. |
| (iii) | In the case of CIT v. R.L. Sood 227/245 ITR 727 (Delhi) it has been held that since substantial amount of the consideration was paid within the time, the deduction u/s. 54 will be available though the possession and registration was made later. |
| (iv) | In the case of Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP.) it was held that section 54 of the Act only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, it takes years and years. Therefore, confining to two years’ period for construction and handing over possession thereof is impossible and unworkable under section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54. |
| (v) | In the case of Hasmukh N. Gala v. ITO 49 (Mumbai) it was held that completion of the construction or possession of the residential house is not material if assessee has invested the substantial part of the money for acquisition or construction of residential house. In such a case deduction u/s. 54 or 54F cannot be denied. |
| (vi) | In the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 (Mad.) the Madras High court held that Section 54F of Income tax Act is a beneficial provision for promoting the construction of residential house and requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. The condition precedent for claiming benefit u/s. 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief. |
| (vii) | In the case of Smt. Rajneet Sandhu v. Dy. CIT 210/[2012] 49 SOT 7 (Chandigarh) (URO) (Chandigarh) where the construction of the house was not completed within the prescribed period, it was held that section 54F does not prescribe that the residential house should be completed within the prescribed period and benefit under section 54F was allowed. It was further held that thrust was on investment and not on completion. |
| (viii) | In the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 (Delhi) (ITAT, Delhi Bench) where the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years and the house was constructed and completed subsequently, the Delhi Bench granted relief on the ground that the delay had occurred on account of reasons beyond the control of the assessee. |
| (ix) | In the case of Narasimha Raju Rudra Rao v. Asstt. CIT 90/143 ITD 586 (Hyderabad – Trib.) the ITAT held as under: |
| (a) | Provision contained under section 54F being a beneficial provision has to be construed liberally. In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If the assessee has invested the money in construction of residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F. |
| (b) | Once the assessee demonstrates that the consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from availing benefit under section 54F. |
| (x) | In the case of Pradeep Kumar Chowdhry v. Dy. CIT 81/69 SOT 36 (Hyderabad – Trib.) where the construction was not completed within the prescribed time, it was held that Section 54F is a benevolent provision. The only issue is whether the amount of consideration received on transfer is invested by the assessee for the construction of a flat. It was further held that a flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Further, as already pointed out even if only advance is given the benefit still will be available for exemption u/s. 54F. Refer – Vishal Dutt v. ITO 337 (Mum. – Trib.). |
| (xi) | In the case of Mrs. Seetha Subramanian v. Asstt. CIT [1996] 59 ITD 94 (Mad. – Trib.) it was held that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. In order to get the benefit under section 54F, the assessee need not complete the construction of the house and occupy the same. Similar views have been expressed in the under mentioned cases also: Asstt. CIT v. M. Raghuraman 11/169 ITD 315 (Chennai – Trib.), Smt. Babitha Kemparaje v. CIT 43/167 ITD 125 (Bangalore – Trib.), Bhavna Cuccria v. ITO 306/ 165 ITD 124 (Chandigarh – Trib.), Kannan Chandrasekar v. ITO 284/165 ITD 223 (Chennai – Trib.). |
| (xii)PCIT | v. Dilip Ranjrekar 317 (Karnataka) |
“Where AO rejected assessee’s claim for deduction under sec. 54 on ground that construction of new property was not completed within a period of three years as prescribed in section 54, in view of fact that delay was beyond control of assessee because construction was put up by builder, impugned order passed by Tribunal allowing assessee’s claim was to be upheld”
13. Ld. AR brought to our notice that the AO as well as ld. CIT(A) has mainly objected towards the date of agreement i.e. 17.08.2019 and has held that the execution of the purchase agreement has been done after the time period as allowed u/s 54 of the Act. In this regard, it was duly explained even during the course of assessment as well as ld. CIT(A) proceedings that, it was only due to the fact that the Shri Narender Kumar (husband of the Assessee) was a working Brigadier of Indian Forces at that point of time and being in such a responsible position was extremely busy. It was only that the collection of the final agreement got delayed. But it is again a matter of fact that the Non-Judicial Stamp papers on which the agreement was executed relates to 11.06.2016. So, it is only that the purchase agreement was handed over in 2019.
14. He submitted that it is also a matter of fact that, since the possession of the plot could not be handed over to the assessee till March 2022 and the assessee’s husband had retired from the Armed forces and had to settle, post retirement, it was considered appropriate to get rid of the property and buy a new residential plot to settle the family. Hence, the site was sold on 08.04.2022 for a consideration of Rs.1,65,00,000 and a new House No.27, Sector 123, New Sunny Enclave, Kharar Mohali (PB) was purchased on 09.05.2022 for a sum of Rs.2,10,00,000 thus reinvesting the entire sale proceeds to buy a new residential property and the relevant documents in this regard are placed in the paper book at pages- 46-69.
15. In view of his submissions as above, in conclusion, he submitted that the non-completion of the house was beyond the control of the assessee and the assessee had already paid a sufficient amount to M/s Chintel for purchase of plot and thus the benefit of section 54 of the Act cannot be denied to the assessee.
16. On the other hand, ld. DR of the Revenue submitted that the assessee has not verified the conditions laid down u/s 54 of the Act and those conditions are not satisfied by the assessee. Therefore, the assessee is not eligible to claim deduction u/s 54F of the Act, he supported the findings of the lower authorities.
17. Considered the rival submissions and material placed on record. We observe that the issue under consideration is, the assessee has sold a property and claimed deduction u/s 54F of the Act. We observe that assessee has booked residential plot from M/s. Chintel on 27.05.2016 and assessee was granted provisional allotment letter dated 12.07.2015 and the same is placed in the paper book. Accordingly, assessee made payment to M/s. Chintel in three installments totaling to Rs.1,25,54,366/-and the relevant evidence of payments are already placed on record. Accordingly, assessee claimed the deduction u/s 54F of the Act. The issue under consideration is, the AO observed that as per the provisions of section 54F, the assessee need to purchase the residential house within one year before or two years after the sale or construct a residential house within three years from the date of original sale. The issue under consideration is that assessee could not complete the construction of the residential house due to the reason that M/s. Chintel has not handed over the respective plot of land to the assessee and the assessee was not able to start the construction. It was brought to our notice that the reason for delay of project was due to following reasons :-
| (a) | The entire projects on the Dwarka Expressway Gurugram, where this residential site was located at sector 106, got unduly delayed by 10-12 years as both State Govt. Haryana and Delhi Government couldn’t construct the highway amicable. |
| (b) | It was the national level dispute and now off late Central Govt/NHAI has taken over the project of construction of the said Highway. |
| (c) | Project also got disrupted and delayed due to frequent NGT imposing restrictions on construction in Delhi NCR due to excessive pollution. |
| (d) | Even, the Builders i.e. Chintel were badly involved in many frauds and delay sub standard projects causing loss of property and lives as per media reports. |
18. Due to the above reasons, the assessee was prevented from initiating the construction of the residential house and it is in fact beyond the control of the assessee. Here the issue under consideration is whether the assessee is eligible to claim the deduction u/s 54F of the Act if the assessee is prevented from completing construction of the project within the statutory period and the same is beyond the control of the assessee. In the given case, it is brought to our notice that assessee was prevented to have the control of the plot or handed over to the assessee within time to complete the construction of the residential house in time. It is clearly a situation where assessee could not to get the possession of the plot of land and it was brought to our notice that due to national level dispute and the Central Government/ NHAI has taken over the project of construction of the highway because of that the whole project was delayed beyond the control of the assessee.
19. It is brought to our notice that due to the above reasons, assessee has surrendered the right of the plot with M/s. Chintel and claimed the refund of Rs.1,65,00,000/- on 08.04.2022 and relevant evidence of the same are placed at pages 46 to 59 of the paper book. Subsequently, assessee purchased new residential property for Rs.2,10,00,000/- on 09.05.2022 in New Sunny Enclave.
20. The short issue in this case is, the assessee has sold the property and invested the whole sale consideration in purchase of a plot for the purpose of construction of residential plot, however due to beyond control of the assessee the same plot was never handed over to the assessee even beyond the period of limitation allowed u/s 54/54F of the Act i.e. 3 years from the sale of original asset. As per the records available on record, the assessee had invested all the sale consideration in purchase of the abovesaid plot and due to the reasons beyond the control of the assessee, the assessee could not commence the construction of the residential house. It is also brought to our notice that the assessee had finally gave up the rights on the abovesaid plot and purchased the residential property beyond the period of limitation. From the above facts available on record, it is beyond the control of the assessee to construct the residential property within the period allowed u/s 54F of the Act.
21. In the similar situation, Hon’ble Karnataka High Court in the case of CIT v. Sambandam Udaykumar 150/345 ITR 389 (Karnataka) held that section 54F is a beneficial provision for promoting construction of residential house and in the given case also, assessee has utilized the funds for the purpose of construction of residential house and all the funds were utilized within the period of three years. Merely because the approval and construction of the property was completed beyond the period of three years, the same is not disentitled the assessee from the benefit of exemption u/s 54F of the Act. Similar views were expressed by Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 (Madras), coordinate Bench of this Tribunal in the case of Subramanian Swaminathan v. ACIT 72/201 ITD 487 (Delhi – Trib.) and ITAT Bangalore Bench in the case of Sharda Mohan Shetty v. ITO 122/201 ITD 21 (Bangalore – Trib.)
22. Hon’ble Bombay High Court in the case of Girish L Ragha (supra) held as under :-
“3. We are in respectful agreement with the view taken by the Delhi High Court to come to the conclusion that the purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of the litigation. In the present case, the learned Tribunal has noted that the assessee has sold the property on 01.12.2009 and the assessee has made the payment on 16.03.2010. The assessee was required to get the house and occupancy certificate on or before 01.12.2011. But however, the assessee got the occupancy certificate of the property on 17.01.2014. The learned Tribunal further noted that the assessee submitted the documentary evidence to show that after purchasing the property there was a civil suit filed by the other parties and the assessee could not complete the construction and the licence for constructing the house was accordingly delayed. The learned Tribunal further noted that CIT (A) in his order relied upon the decision of the Madras High Court in the case of CIT V/s Sadarmal Kothani, (2008) 302 ITR 286 (Chennai) wherein, it is held that in order to get the benefit under Section 54 of the Income Tax, the assessee need not complete the construction of the house and occupy the same. It is further noted that the assessee has invested the money and the occupancy certificate is delayed which is beyond the control of the assessee then the assessee is entitled for deduction under Section 54 of the Act. The learned Tribunal as such found that the assessee was entitled for deduction under Section 54 of the Act and consequently, dismissed the appeal of the Revenue. Considering the said facts and the ratio of the judgment referred to herein above, we find that there is no substantial question of law which arises for consideration in the present appeal under Section 260A of the Income Tax Act, 1961. Hence, no case is made out by the appellant for interference in the order passed by the Income Tax Appellate Tribunal. The appeal stands accordingly rejected.”
23. From the above decision, it is clear that provisions of section 54F are beneficial provision and the same has to be applied as per the peculiar situation of each case. In the given case, the assessee was intended to construct a residential house and accordingly, invested the whole purchase consideration in plot of land and it is fact on record that it is beyond the control of the assessee to get the plot of land to initiate the construction of the plot on time due to various reasons as discussed above and finally assessee has to forego the rights of the plot of land and finally invested the recovered amount from M/s. Chintel in the new property. In this peculiar situation and condition beyond the control of the assessee, in our considered view, assessee is eligible to claim the deduction u/s 54F of the Act.
24. In the result, the appeal filed by the assessee is allowed.