Question And Answer
Subject: Claim u/s 54F of the Income Tax Act, 1961
Querist: Ruchi Bhansali
Answered by:
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Date: September 29, 2021
Query asked by Ruchi Bhansali

The assessee during the year under consideration sold unlisted shares on 16.06.2017 taxable as LTCG and claimed the deduction u/s 54F of the Act on account of amount invested in Residential House Property

As per department the assessee is ineligible to claim deduction u/s 54F of the Act as he owned two residential house property, apart from the new residential property.

Assessee has executed registered agreement for assignment of the flat owned by him on 05.04.2017. The assessee has received more than 97% of the consideration as on 30.04.2017 and accordingly gave the possession of the said flat. Affidavit of the purchaser stating that he has taken the possession on 30.04.2017 was submitted.

Final registered sale deed was executed on 27.06.2017. AO is of the opinion that since the final sale deed was executed on 27.06.2017, as on the date of sale of shares i.e 16.06.2017 assessee is owner of more than two house properties, whereas the assessee’s claim is that when he has handed over the possession on 30.04.2017 and also received substantial consideration on 30.04.2017 and the balance amount was also received prior to 16.06.2017, the transaction is completed on 30.04.2017 when the possession was given. Registration of sale deed is mere formality which is executed later on.

Whether the AO is justified in denying claim u/s 54F of the Act in the case of assessee?

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Section 54 of the Income-tax Act, 1961 (Act) was inserted vide Finance Act, 1982 (1982) 135 ITR 25 with a view to encourage house construction.

Further, the proviso to section 54(1) of the Income-tax Act, 1961 was amended vide Finance Act, 2000 (2000) 243 ITR 65. According to the Memorandum explaining the Finance Bill, 2000 (2000) 242 ITR 117 it has been expressly clarified that deduction under this section may be available to an individual or Hindu undivided family as long as the assessee has one and not more than one house existing on the date of transfer.

As we understand, it is contended by the assessee that the date of sale of the second house property is before the sale of shares.

A reference can be drawn to the provisos of section 50C of the Act, where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer.

Thus, it is evident that, where a registered agreement is entered into before the Final registered sale deed, the preceding agreement should be considered as the point of transfer of the capital asset.

From an alternate perspective, The Hon’ble Bombay High Court in the case of PCIT v. Vembu Vaidyanathan [2019] 413 ITR 248 (Bombay) [SLP dismissed in PCIT v. Vembu Vaidyanathan [2019] 108 339 (SC)] held that date of allotment would be date on which purchaser of a residential unit can be stated to have acquired property.

Since the purchaser has made substantial payment and has been allotted the possession of the property, it could be said that the purchaser has acquired the property, and that the assessee has transferred the same.

Therefore, on the above inference, the Ld. AO ought to allow the assessee the deduction under section 54F of the Act.

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