INCOME TAX ACT, 1961

Section 54

Capital gains - Deduction under section 54 - Agreement for construction of house interpreted as agreement for purchase - Construction completed within three years

Assessee sold certain property on 21-12-2011 and claimed deduction under section 54 investment in a new house property as per sale agreement dated 10-2-2006. AO disallowed deduction under section 54 on the ground that assessee entered into agreement dated 10-2-2006 and said date of agreement had to be treated as date of acquisition, which fells beyond one year period provided under section 54. Held: Section 54 requires an assessee to purchase residential house property either one year before or within two years after date of transfer of long-term capital asset, or if an assessee within a period of three years after said date has constucted a residential house. In the instant case, assessee had booked a semi furnished flat. In terms of related agreement assessee was to make payments in instalments and builder was to construct unfinished bare shell of a flat. Under these circumstances, agreement was for construction of new residential house and no purchase of a flat and since construction had been completed within three years of sale of original asset, assessee was entitled to relief under section 54 disallowance made by AO could not be sustained in view of CBDT Circular No. 672, dated 16-12-1993.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 54EC

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