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Sec 54 – Date of possession of new property is to be considered in the case of constructed property: ITAT Mumbai

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Sec 54 of Income Tax Act – Date of possession of new property is to be considered in the case of constructed property: ITAT Mumbai

Sunil Amritlal Shah & Rita Sunil Shah (ITA No.4069 & 4070/MUM/2023)

Facts:
1. The assessee has sold flat number 1802 in FIONA , Hiranandani estate, Ghodbunder Road, Thane jointly owned along with his wife Mrs. Rita Shah for a consideration of ₹ 138 lakhs on 10/2/2011.

2. The assessee has claimed deduction under section 54 of The Income Tax Act on the entire long-term gain. For this purpose, assessee entered into an agreement for sale with Builder Runwal CapitaL and India Private Limited on 25-07-2009 for purchase of property On 2/2/2011, the assessee was granted possession of the flat by the builder after receipt of occupancy certificate and when the building was inhabitable.

3. Assessee claimed the deduction u/s 54 of the Income Tax Act of capital gain earned on sale of old flat. Assessee considered the date of possession i.e., 02/02/2011 as the date of acquisition of property. The ld. AO held that date of acquisition of property is 25/07/2009.

4. As per provisions of section 54 of the Act , if assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India , then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, in this case it would be exempt. Thus, assessee having sold property subject to capital gain on 10/02/2011 , assessee could have purchased house property from 11/02/2010 till 09/02/2013.

5. As assessee purchased new house property on 02/02/2011 claimed deduction of long term capital gain in terms of provisions of section 54 of the act. The learned assessing officer took date of purchase agreement 25/7/2009 as date purchase of property , the deduction under section 54 of the act was not allowed.

ITAT Mumbai held as below:
1. In Akshay sobti & ors. (2020) 423 ITR 0321 (Delhi) Hon Delhi high court held that booking of bare shell of a flat is a construction of house property and not purchase, therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the LT. Act.

2. By entering into an agreement to purchase, the assessee has acquired right to purchase the property and did not purchase the property as same was under construction.

3. Hence, we hold that assessee is entitled to deduction u/s 54 of the act on purchase of new property considering the date of possession , when it is completed, as the date of purchase of property as agreement to purchase the property was for under construction property.

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