Tuesday, April 12, 2016

Cancellation of agreement on non-completion of construction of house won't effect sec. 54 relief

Facts
a)  Assessee earned capital gain on sale of a residential house property. Thereafter, he paid certain amount to one 'M' for purchase of another residential house property and, accordingly, claimed exemption under section 54.
b)  In terms of agreement, 'M' had to transfer house property to assessee after getting it constructed. However, in view of failure of 'M' to complete construction of property, purchase agreement was cancelled and amount was refunded to assessee.
c)  Assessing Officer (AO) taking a view that assessee neither purchased nor constructed a new house property within the time-limit stipulated in section 54, rejected his claim for exemption.

d)  The CIT(A) confirmed the order of AO. Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-
1)  The High Court in the case of CIT v. Smt. B. S. Shanthakumari [2015] 60 taxmann.com 74 (Kar.) held that completion of construction within prescribed time-limit is not mandatory and what is necessary is that the construction should have been commenced.
2)  It was not disputed that construction of property for which agreement was entered into with 'M' had already begun. The question whether the above agreement finally fructified was a different matter altogether.
3)  Assessee had for all practical purposes satisfied the conditions under section 54 and earnestly demonstrated his intention to invest the capital gain in a residential house.
4)  Therefore, even though said transaction did not eventually materialize and 'M' had to refund the amount to assessee, still exemption under section 54 was to be allowed- [2016] 68 taxmann.com 43 (Bangalore - Trib.)
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