No denial of section 54F due to non completion of construction
Question : Where assessee had invested net sale consideration on transfer of long-term asset in construction of a residential house property, Whether deduction of section 54F could be denied merely because the construction of house was not complete in all respects within 3 years of transfer ?
Where assessee had invested net sale consideration on transfer of long-term asset in construction of a residential house property, deduction of section 54F could not be denied merely because the construction of house was not complete in all respects within 3 years of transfer
HIGH COURT OF KARNATAKA
Commissioner of Income-tax, Bangalore
v.
Smt. B.S. Shanthakumari
IT APPEAL NO. 165 OF 2014
JULY 13, 2015
FACTS OF THE CASE :
It would emerge from perusal of records that immediately after sale of the property on 06.10.2008, assessee purchased another residential plot on 13.10.2008 and on 02.06.2010 she obtained approval of the building plan from the local authority namely Bruhat Bengaluru Mahanagara Palike and commenced the construction. However, it was not completed within 3 years i.e., on or before 05.10.2011. Hence, the assessing officer during the course of assessment proceedings issued summons under Section 131 of the Act to the assessee to verify as to whether the assessee had invested the capital gains in the construction of the residential house. Pursuant to the same, the husband of the assessee appeared and answered the query raised by the assessing officer. To a pointed question No.3 put to the husband of the assessee by the Assessing Officer as to whether he has constructed the residential house within a period of three years, he has stated as under:
“I got the construction plan approved by the BBMP on 02.06.2010. But, due to certain financial constraints, I could not complete the construction within the stipulated period”.
the assessee during the appellate proceedings had produced the photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction.
HELD
(1) Section 54F of the Act is a beneficial provision which promotes construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it has been incorporated in the Statute. The intention of the Legislature in inserting this provision was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired.
(2) A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in 3 years and/or make it habitable.
(3) The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and if assessee is able to establish that he had invested the net consideration within the stipulated period, he would be entitled to get the benefit of Section 54F .
(4) Though such construction of building may not be complete in all respects that by itself would not disentitle the assessee to the benefit flowing from Section 54F .
(5) AO was not justified in denying Section 54F relief since assessee had invested entire consideration in a residential house property and also produced material evidence before the CIT(A) to demonstrate that the construction was on the verge of completion by producing photographs.