Income Tax--Current Issues
Practice Update
V.K. Subramani
ELIGIBILITY FOR EXEMPTION UNDER SECTION 54 WHEN
AGREEMENT FOR CONSTRUCTION MADE BEFORE SALE OF RESIDENTIAL PROPERTY
When a residential house is sold/transferred, the taxpayer
can reinvest the capital gain in another residential house to avail tax
exemption to legally avoid income-tax thereon. The Finance Act, 2019 increased
the scope for availing this exemption by permitting purchase or construction of
two residential houses in India on the condition that the amount of capital
gain does not exceed Rs. 200 lakhs.
Thus if the capital gain on sale of a residential house
exceeds Rs. 200 lakhs, the assessee can avail exemption under section 54 for
only one residential house purchased or constructed by him subsequently.
In Pr. CIT v. Akshay Sobti (2020) 188 DTR (Del) 158
the tenant paid maintenance charges as per the terms of the agreement with
owner. It was held that amount cannot be considered for the purpose of
computation of income under the head 'Income from house property'. Also, the
assessee had booked a semi-finished flat before the sale of one residential
property. The property was handed over to the assessee subsequent to the sale
of residential property and exemption was claimed under section 54. The claim
was allowed by the court by citing CBDT Circular No. 672, dated 16th
December, 1993 in which reference was made to Circular No. 471, dated
15th October, 1986 wherein it was stated that acquisition of flat through
allotment by DDA has to be treated as construction of flat and this would apply
to co-operative societies and other institutions. The builder in this case, the
court observed would fall in the category of other institutions. Since the
assessee has occupied the property within the stipulated time and fulfilled
other conditions, the exemption under section 54 has to be granted.
It is worth noting that when the assessee and developer
enter in to JDA it may be stated that the developer must provide accommodation
to the assessee until the project is completed. The developer when provides
such accommodation, the expenditure so incurred by him would not be included in
sale consideration for computing capital gain for assessee-land owner and the
developer can also claim the expenditure so incurred as business deduction
under section 37. (P. Madhusudhan v. Asstt. CIT (2020) 189 DTR (Mad) 163).