Acquisition of an apartment under a builder-buyer agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset. The Tribunal held that even in a case where construction of new asset commenced before the date of sale of original asset, the assessee is eligible for deduction of the amount of investment made in the new asset
FACTS
During AY 11-12, the assessee had long-term capital gain arising from the sale of shares and same was claimed as deduction u/s. 54F of the Act. The assessee claimed exemption u/s. 54F by contending that it had purchased a residential apartment by entering into an apartment buyer’s agreement and having made a payment of Rs. 1,42,45,000.
The AO was of the view that the assessee has not purchased the house but has made payment of instalment to the builder for construction of the property. The AO noted that the shares were sold on 13th July, 2010. Whereas the assessee had started investing in the new asset with effect from 18th August, 2006, that is, three years and 11 months before the date of sale. The AO further noted that around 90% of the total investment in the new asset has been made before the date of sale of the original asset. The AO denied claim for deduction u/s. 54F of the Act.
On appeal, CIT(A) confirmed the addition. The assessee preferred an appeal to the Tribunal.
Decision
Referring to the Delhi High Court in the case of CIT vs. Kuldeep Singh [(2014) 49 taxmann.com 167 (Delhi)], the Tribunal held that acquisition of an apartment under a builders-buyers agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset.
With respect to the question, viz., whether the construction of new asset even if commenced before the date of sale of the original asset, the assessee is eligible for deduction of the amount of investment made in the property, the Tribunal relied on the decision in the case of CIT vs. Bharti Mishra [(2014) 41 taxmann.com 50 (Delhi)]. The Tribunal held that the assessee has purchased a house property, i.e., a new asset, and is entitled to exemption u/s. 54F of the Act despite the fact that construction activities of the purchase of the new house started before the date of sale of the original asset, which resulted into capital gain chargeable to tax in the hands of the assessee. The Tribunal reversed the order of the lower authorities and directed the AO to grant deduction u/s. 54F.