Capital gain reinvested/delayed flat possession

[sunil1967]

I sold my Flat in Aug 2011 & Gain from this is Long Term . I bought (in resale ) under construction flat in Oct 2011 & agreed possession in builder buyer agreement is Sept 2012 .

My question is if possession is delayed beyond July 2014 ( that is 3 years after sale of old flat ) than what will be my liability ?

I will be paying 100% of LTCG  to builder before July 2014 but for sure builder will not offer possession .
8)

[shobha nagrani]

Sir, what will be the state of construction in July 2014. Will it be habitable? What about the OC? Will it have been applied for/ granted?

I remember there is a judgement that if the assessee has done his part of the bargain but the flat is not complete owing to some technical issues from the builder's part, then the assessee cannot be penalized. I'll post that judgement soon.

[sunil1967]

Sir, what will be the state of construction in July 2014. Will it be habitable? What about the OC? Will it have been applied for/ granted?

I remember there is a judgement that if the assessee has done his part of the bargain but the flat is not complete owing to some technical issues from the builder's part, then the assessee cannot be penalized. I'll post that judgement soon.

This flat is from Unitech  . Structure may be ready but plaster / flooring / white wash may not be there . Moreover i would have paid more than 80% of flat cost in next one year . Flat will be delayed by builder by 3 to 4 years due to builder's poor financial condition.

[shobha nagrani]

Sir,

I think this judgement will help you:

CIT vs. Sambandam Udaykumar (Karnataka High Court)
(22.4 KiB, 756 DLs)


S. 54F does not require construction to be complete within specified period

The assessee sold shares for Rs. 4.18 crores and, within 12 months, invested Rs. 2.16 crores thereof to construct a house property and claimed exemption u/s 54F. However, as even after the expiry of 3 years of the date of transfer, the construction of the house was not complete and sale deed not executed, the AO & CIT (A) denied relief u/s 54F though the Tribunal granted it. On appeal by the department to the High Court, HELD dismissing the appeal:

S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief (Sardarmal Kothari 302 ITR 286 (Mad) followed)

Here also, the construction was not complete but Court allowed relief.

[ashutosh majumdar]

A somewhat narrow/ strict view has been taken here:

IN THE INCOME TAX APPELLATE TRIBUNAL

'D' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL
MEMBER

ITA No.2147(Mds)/2011

Assessment Year : 1995-96

Smt.Seshu Jaggaiah,
C/o CNGSN & Associates,
20-Raja St., T.Nagar,
Chennai-600 017.
PAN AAKPK5993J.
Vs.

The Income-tax Officer,
Business Ward XIV(2),
Chennai.
(Appellant) (Respondent)

Appellant by : Shri B.Ramakrishnan, FCA
Respondent by : Shri KEB Rengarajan, Jr.Standing Counsel

Date of Hearing : 20th March, 2012
Date of Pronouncement : 20th March, 2012

O R D E R
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:


Dr. O.K. Narayanan, Vice-President – This appeal filed by the assessee relates to the assessment year 1995-96. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-XII at Chennai, dated 21-10-2011. The appeal arises out of the order passed under section 143(3), read with section 254 of the Income-tax Act, 1961.

2. The assessee in the present case, had sold a property in Chennai on 27-2-1995 for a consideration of Rs. 95 lakhs. In filing her return of income, the assessee claimed exemption under section 54 and returned a total income of Rs. 4,56,710/-. The claim of deduction under section 54 was rejected by the assessing authority and the income was determined at Rs. 81,60,000/-. The matter was taken up before the Income-tax Appellate Tribunal. The Tribunal remitted back the file to the Assessing Officer to consider the issue of disallowance under section 54 after giving a finding on the genuineness of the claim of the assessee that she had given advances towards purchase of a property to construct a residential house. The Tribunal also directed to re-examine the question of setting off of short-term capital loss arising on sale of shares.

3. In the consequential assessment done by the Assessing Officer, the deduction under section 54 was again negatived and also the short-term capital loss was held to be speculative in nature.

4. In first appeal, the Commissioner of Income-tax(Appeals) allowed the issue of short-term capital loss, but confirmed the disallowance of deduction under section 54. It is on that issue of section 54 that the assessee has come in second appeal before us, which is for the second time.

5. The only ground raised by the assessee in the present appeal is that the Commissioner of Income-tax(Appeals) has erred in confirming the denial of deduction under section 54 of the Income-tax Act, 1961.

6. We heard Shri B.Ramakrishnan, the learned chartered accountant appearing for the assessee, and Shri KEB Rengarajan, the learned standing counsel appearing for the Revenue.

7. In the first round of second appeal, the Income-tax Appellate Tribunal has directed to adopt the fair market value of the property at Rs. 2 lakhs per ground. On that basis the Assessing Officer has worked out capital gains at Rs. 72,49,400/-. The claim of the assessee is that she has purchased a vacant plot at Akshaya Colony for a consideration of Rs. 8,92,136/-, admeasuring 2400 sft.. The plot was purchased for constructing a residential property therein. The further contention of the assessee towards deduction under section 54 is that the assessee has given advances to three parties for acquiring the new property and that the same was not complete because the property was neither constructed by those persons nor the advances were returned in time. Ultimately, the Assessing Officer found that the construction of the property was completed only during 2001-02 and as such the assessee had not purchased any residential house either one year prior or two years after the date of transfer and also no residential property was constructed within three years from the date of transfer. The deduction was denied.

8. The case of the assessee is that the assessee was prevented from depositing the sale proceeds in the capital gains account, as she had advanced the money with an intention to purchase a property. The advances were made to Shri K.Rajaneenath, Shri K.Madhuvan Prasad and M/s.Natco Organics Ltd. The total of the advances comes to Rs. 50 lakhs. It is her case that the said amount was advanced for purchase of a residential house. Those parties did not hand over the house, nor did they return the advance in time. So the assessee could not either construct a house herself or acquire a property herself or deposit the proceeds in the designated account. Therefore, it is the case of the assessee that the assessee could not perform what was not possible of performance. She relied on the concept of lex non cogit ad impossibilia.

9. The assessee also relied on the decision of the Jodhpur Bench of the Income-tax Appellate Tribunal in the case of Jagan Nath Singh Lodha v. ITO, [2005] 148 Taxman 1 (Jodh).

10. We considered the issue in detail. The case of the assessee is that the assessee could not comply with the provisions of section 54 within the time prescribed for reasons beyond her control, inasmuch as the money, which was blocked by her by paying advances to procure the property, was not realized within the time and, therefore, she could not make any alternative investment within the prescribed time. It is the case of the assessee that the acquisition of the property has been completed in 2001-02 and, therefore, deduction under section 54 may be granted, condoning the period of delay caused in complying with the time limit prescribed under section 54.

11. There are instances of decisions rendered by various Benches of the Tribunal in extending the benefit of deduction available under section 54 even when the conditions were complied with by the assessee beyond the prescribed period. But, in such cases the assessees could not have satisfied the conditions by performance, as the assessees were prevented by sufficient reasons. The assessees were prevented from performing the conditions by virtue of supervening impossibilities, either by way of judicial restraint or by any other cogent reasons beyond the control of the assessee.

12. In the present case, the constraint stated by the assessee is that the advances given by her to acquire the property were not returned to her in time, nor property was acquired. As pointed out by the Assessing Officer, the payment of advances for the purpose of acquiring the property itself has not been proved by the assessee. In addition to that, it is to be seen that the advances were given on the basis of an agreement between the parties and the assessee. Those advances are stated to have not been received back within the time. That cannot be a supervening impossibility by operation of any uncontrollable events. Payment of advance and return of the same are all matters of normal commercial agreements. Such things as such cannot act as supervening impossibilities.

13. In the present case, similar arguments of the assessee are nothing but naive, as two out of the three persons to whom advances were made by the assessee, are her own sons. When the assessee got the money on sale of the property, she handed over the money to her sons and they enjoyed the money for quite a long time and thereafter returned the money to the assessee and again thereafter she constructed the residential property beyond three years of the prescribed time limit and now seeking deduction under section 54 on the ground of supervening impossibilities in performing the conditions under section 54. These events lead us to a reasonable belief that the contentions of the assessee are not sustainable in law.

14. In result, this appeal filed by the assessee is dismissed.

Order pronounced in the open court at the time of hearing
on Tuesday, the 20th of March, 2012 at Chennai.
Sd/- Sd/-
(Challa Nagendra Prasad) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 20th March, 2012.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.

[sunil1967]

Thanks Shoba ji & Ashutosh ji for helping me . I need references of such cases as backup ...

I must say this is one of the best forum on IT to find solutions for complex cases..

[sandzz72]

 I sold some land in July 2009 and earned capital gain of 3 crore and invested 2.5 crore in an under construction flat with a builder in July 2009 to gain exemption under Sec54 F. I paid proportionate tax on the balance 50 lakhs. Allotment Letter was issued on 20 July 2009.

Now 3 years have passed since I paid the amount and got allotment of flat but the builder has not completed the project in time and may take atleast another 2/3 years.He does not have OC.Builder after much persuasion is willing to refund the money in installments.

What are my options in view of recent judgements since delay is caused by builderand 3years have passed since i recieved my allotment letter.
Pls advise status of the money returned? I plan to reinvest about 1.5cr in another residential property with a reputed builder?
Thanks.

[balas]

Hi Mr. Sunil,

Additional contribution..Pls reference this article citing various case laws too.  In essence you ar eligible for deduction U/s 54F though building is still under construction beyond the threshold period of three years.

http://taxguru.in/income-tax/allowability-of-exemption-us-54f-if-builder-does-not-complete-construction-of-house-within-three-years.html

Hope this helps.

Rgds
Bala FCA LLB.

[balas]

Hello Mr. Sandz,

Please refer the link posted earlier by me and circular referred in that write up.  Allotment letter is the basis on which 54F can be availed off. In addition, the judgement go in favour of the assessee wherein delays are caused by builder. On the part of the assessee, investment is done and this intent is good enough for 54F.

Coming to your second part,  on the refund of money inliew of property by builder, (presume no gain or loss ) and your investment in property, the original tax exemption should renew. In all probability the A.O may disallow the LTCG benefit availed earlier due to no investment in reality but you need to pursue that you had completed your investment originally in time and failure was on the part of builder. The legislative intent is to the benefit of the assessee / residential unit investor should need to be put forth. In addition your intent / actual reinvestment of the amount in another Residential unit on the refunded amount (the original LTCG) should go in your favour. In effect in your case, the the three year threshold is getting extended but is no fault of yours. I hope you have a strong case.

Let me also do a search if there are any precedents similar in nature and shall post in here.

Hope this helps.

Rgds
Bala FCA LL.B











*********
I sold some land in July 2009 and earned capital gain of 3 crore and invested 2.5 crore in an under construction flat with a builder in July 2009 to gain exemption under Sec54 F. I paid proportionate tax on the balance 50 lakhs. Allotment Letter was issued on 20 July 2009.

Now 3 years have passed since I paid the amount and got allotment of flat but the builder has not completed the project in time and may take atleast another 2/3 years.He does not have OC.Builder after much persuasion is willing to refund the money in installments.

What are my options in view of recent judgements since delay is caused by builderand 3years have passed since i recieved my allotment letter.
Pls advise status of the money returned? I plan to reinvest about 1.5cr in another residential property with a reputed builder?
Thanks.

[rs0711]

Hi,

I bought a flat in resale in a project from Unitech in June 2010. It was originally launched in May 2009. As per the agreement, the builder has indicated the duration of completion of the project as 30 months from the date of agreement (i.e. somewhere near to Dec, 2011. It's now been delayed more than 1 year and there is still no sign of possession until next 1-2 years.
As per the agreement, Unitech has indicated a penalty of Rs. 5/Sqft in case of delay in possession beyond the said period.
Now, my question is, Is there any way we can drag the Unitech to court for delaying in possession of the flat? If yes, what would be the procedure for the same and what all facts we would have to produce to fight against the builder?

Waiting for the advice from the experts in the forum.

Thanks in Advance,
Rakesh

[ani4861]

I am not sure whether this is the correct way to post a query i.e. as reply to an already ongoing discussion topic, but this is very related.

Say, I have sold my residential property this month i.e. July 2013 and incurr long term capital gain tax. However, I have already booked (i.e. entered into an agreement and completed the registration formalities) a new residential property say in June 2010 when the construction work had just been initiated. I got possession of the flat (evidence possession letter from the developer) also in July 2013, then can this be considered as reinvestment of the sale proceedings in a new residential property? In short, for purposes of IT exemption, is the registration date of the agreement or the possession date of the new property considered while determining the time period of the reinvestment?

[casurendra]

In ur case the benefit of sec 54 will be available in case the total payments are made within the span of 3 years and that the agreement to buy the property under construction is alrady entered into within that period. It is immaterial to consider the actual possession date - i.e. the actual possession date may extend beyond the expected date per agreement for sale for diverse reasons.

[sarang]

Hi,
I have a flat which I want to sell. Following are the dates of events. I want to know if I can claim LTCG or I will need to pay STCG in this case.

14-Sep-2009 - Agreement to Sale
30-Mar-2011 - Occupation Letter (please note this is not possession)
05-Jul-2011 - Last installment against part possession
29-Nov-2011 - Completion Certificate by Corporation
31-Mar-2012 - Possessoin Letter
01-Nov-2013 - I want to sell flat.

Please note that the occupation letter mentioned that the flat construction is complete and you can start your interior work/furniture work. The final possession will be issued after completion. Physically I got the possession and I started to live in this flat. But because technically the builder could not give possession letter before completion certificate from corporation and all buildings/amenities were not complete, so he delayed the possession letter.

In this case, can I consider the occupation letter or demand letter for part possession as the start date for calculation of 36 months?

Thanks for your valuable inputs.

BR,
Sarang

[kanit_1988]

As per section-2(29A) of Income Tax Act,1961,any capital asset which is not a short term capital asset is a long term capital asset i.e. any capital asset held by assessee for a period of more than 36 months is a long term capital asset.
For the purpose of capital gain, transfer is defined as any transaction involving the allowing of the possession of any immovable property in part performance of a contract in the nature of section-53A of Transfer of Property Act,1882.Therefore if you have taken actual possession of property on 30-03-2011,you may calculate holding period from that date as in the hands of the builder the capital gain/income from business or profession will be charged on this date, therefore you may be regarded as the holder of the property from that date.
I hope it will help.

Thank You

[Packar]

I had sold my flat for Rs 50 lacs on 3-5-2012 by way of sale deed but prior to registering the sale deed I had agreed with the purchaser that I would re paint the flat and do all the repairs in the bathroom and WC and balcony before handing over the physical custody of the flat inspire of a concluded sale deed within six month.Hence I was busy in getting the said flat repaired as agreed the was a delay from my side in investing in capital bonds for a period of SIX MONTHS for Rs.50 lacs, which I should Have done it with in period of six month from the date of sale deed I.e receipt of consideration of Rs.50 lacs.I after doing the repairs in the flat to the satisfaction of the purchaser gave custody of the flat to the purchase after a period Seven months from the date of sale deed ,BUT I took a letter from the purchaser in my favour that flat has been repaired to his entire satisfaction and custody has been handed over to him.
I wish to know whether I can claim benefit of sec 54 EC.   Further  I fear that it may be dis allowed and I may have to pay tax.
I wish to have sone Tribunal,High Court or. Supreme Court judgements in this respect for which I may obliged and thank you for the same