• Am I entitled for LTCG tax exemption if the building is delayed

Sold property in June 2015, and paid for an apartment in a bldg where construction was ongoing. 95% of the cost already paid for, but construction is not complete yet. Expected to be complete in June 2017. If this gets further delayed, am I losing out on the exemption granted by IT rules? Pleas clarify.
Asked 7 years ago in Capital Gains Tax

Hi,

From the facts produced in the question, I assume you had opted for Exemption u/s 54 or 54F in AY 2016-17 Returns (FY 2015-16) and deposited the Capital Gain Amount/Sales Proceeds as the case may be in Capital Gain Accounts Scheme.

In that case, if the construction is not complete within 3 years from the date of sale (Jun 2018), then only the un-utilized amount shall be taxed as Capital Gain in your hands in AY 2019-20 (FY 2018-19).

Pradeep Bhat
CA, Bengaluru
542 Answers
94 Consultations

5.0 on 5.0

Dear Sir,

Firstly, let me tell you that under section 54/54F you have 3 years of time to get the construction completed. In your case it is till June 2018 and not 2017.

Additionally, there are ample number of judicial precedents which says that exemption will be allowed even if the construction is not completed within 3 years. Because what is important is investment of money in construction and not the completion of construction. Though, it's a litigative.

Please the below judgements;

The Judicial views on this issue are as under

In Sardarmal Kothari 302 ITR 286 (Mad) the Hon’ble Madras High court held that : Section 54F of Income tax 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. … “

Smt. Rajneet Sandhu vs. DCIT (2010) 133 TTJ 0064 (Chandigarh): In this case the construction of the house was not completed within the prescribed period. It was held that section 54F does not prescribe that the residential house should be completed within the prescribed period and benefit under s. 54F was allowed. It was held that thrust was on investment and not on completion.

Satish Chandra Gupta vs. Assessing Officer 54 ITD 508 (ITAT, Delhi Bench): The facts of this case were, the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years. However, the house was constructed and completed subsequently. Relief was given on the ground that the delay had occurred on account of reasons beyond the control of the assessee.

Narasimha Raju Rudra Rao vs. ACIT (35 taxmann.com 90) (Hyderabad-Tribunal) The co-ordinate Bench has decided as follows:•

Provision contained under section 54F being a beneficial provision has to be construed liberally. In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If the assessee has invested the money in construction of residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F.

Once the assessee demonstrates that the consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from availing benefit under section 54F.

In Pradeep Kumar Chowdhry vs. DCIT (ITAT Hyderabad) in ITA No.1520/Hyd/2013 dt.31.12.2014 – The aggrieved assessee submitted that the flat was not in a completely habitable state, though structures etc., were completed. This delay was entirely due to the reasons beyond the control of the assessee. The assessee submitted that he very honestly and sincerely desiring to avail the benefits conferred by the said section has acquired a new house and has paid monies as per the agreement with the builder. The time limit available for purchase of flat is three years in the case of assessee as the assessee had not purchased readymade flat but was purchasing a flat which was to be constructed and which is equivalent to constructing a residential house.

The Hon’ble Tribunal held that in the context of exemption u/s. 54F , the Real estate prices have soared up and, therefore, very few individual house are being constructed. It has been held by co-ordinate Benches that consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law would not disentitle the assessee from availing benefit u/s. 54F of the Act. The concept of reasonable delay will not apply . Section 54F is a benevolent provision. In this scenario, the only issue is whether the amount of consideration received on transfer invested by the assessee in a flat constructed within three years would amount to construction of a residential house within the time limit of three years. In short, we are of the opinion that a flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Further, as already pointed out even if only advance is given the benefit still will be available for exemption u/s. 54F.

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

If the investment is done than you can get exemption irrespective of date of registration / possession of new flat.

Vishrut Rajesh Shah
CA, Ahmedabad
928 Answers
38 Consultations

5.0 on 5.0

Hello Sir,

Yes, you will lose out on the exemption if the building is not constructed within a span of 3 years from the date of sale of your earlier property. But yes, it is subject to litigation so you may consider the cost impact of getting into a litigation before taking your call.

Regards

Keerthiga Padmanabhan

M.Com., CA, LLB

Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
27 Consultations

5.0 on 5.0

Hello Sir,

You will not be in a position to claim the benefit of tax exemption if your property is not completed in a span of 3 years from the date of your sale.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

Sir there is some ambiguity in the said cases. There are many case law in favour and unfavour of these type of cases.

But as per our view if you have invested the Capital gains in purchase of the property which is under construction then you can claim Capital gains exemption. Just take a letter from the builder that possession is given to you.

Shyam Sunder Modani
CA, Hyderabad
1408 Answers
164 Consultations

5.0 on 5.0

Once you made the payment, you complied with the regulations. The delay in handing over the apartment to you by the builder has no tax implication.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

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