ITAT deals with ‘booking’ amount paid to acquire a new house; distinguishes between Ownership and Investment

Booking of two residential houses before the date of transfer would not provide ownership rights to assessee, thus, he could not be deemed to be owning two residential houses on date of transfer.

Investment in new house by payment of booking amount would be deemed as valid investment for purposes of Section 54F relief.

The issues that arose before the Tribunal were as follows:

a)Whether assessee could be deemed to own two residential houses on date of transfer if he had only booked two residential houses?

b)Whether booking of residential flats could be deemed as investments for purposes of exemption under section 54F?

The Tribunal held in favour of assessee as under:-

1)Proviso to Section 54F(1) provides that if assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset then he will not be entitled to exemption.

2)The meaning of term ‘owns’ used in proviso to section 54F has a different meaning. The owner here, means a legal owner who is entitled to receive income from the property in his own right. In the absence of possession, registration, title, etc., question of assessing ‘income from house property under section 22 of Income-tax Act (the Act) doesn’t arise.

3)When a flat is booked assessee has a ‘right to acquire’ and this right is not equivalent to ‘own’ a house. Therefore, by mere booking of flats, it could not be said that assessee had ownership of the flats. Thus, assessee did not own more than one residential house on the date of transfer of original asset.

4)With regard to purchase of new residential house, the provision does not lay down a condition that a new house should either be complete or it should be purchased as a complete habitable house. The aim is to direct the minds of the society towards purchasing new residential houses so that the menace of shortage of houses is tackled to some extent.

5)CBDT vide circular No. 471 dated 15/10/1986 and circular No. 672 dated 06/12/1993 had also clarified that the amount paid towards booking is to be treated for ‘construction’ for the purpose of section 54/54F.

6)Hence, owning of a residential house at the time of transfer of the original asset has different meaning and acquisition of new asset ‘which is equivalent to purchase of new residential house’ has entirely different meaning. The CIT(A) had misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as ‘new asset’ in the Act. Therefore, investment in new residential house by payment of booking amount only had to be allowed.- RAM PRAKASH MIYAN BAZAZ V. DY. CIT [2014] 45 taxmann.com 550 (Jaipur - Trib.)