Decided on September 12,2014

Farida A. Dungerpurwala Appellant


B.R.Baskaran, Member (A) - (1.) THE appeal of the assessee is directed against the order dated March 29, 2010 passed by the learned Commissioner of Income -tax (Appeals) -25, Mumbai and it relates to the assessment year 2006 -07. The assessee is aggrieved by the decision of the learned Commissioner of Income -tax (Appeals) in confirming the rejection of claim for deduction under section 54 of the Act made by the assessee in her return of income. The assessee sold a residential flat on October 10, 2005 for a sum of Rs. 28,50,000. The assessee claimed a sum of Rs. 14,33,450 as deduction under section 54 in respect of cost of a new flat. The Assessing Officer noticed that the assessee had booked a flat in a project as per the sale agreement registered on December 4, 2002 for a consideration of Rs. 31,20,000. The assessee paid the abovesaid consideration in instalments. It is noticed that the flat was booked in the joint names of the assessee and her relative. According to the assessee, she obtained possession of the new flat on December 4, 2004. Before the Assessing Officer, the assessee submitted that the new flat should be considered as having purchased only on December 4, 2004, i.e., on the date on which he obtained possession. Under section 54 of the Act, the cost of new house purchased within one year prior to the date of sale of original residential house is also eligible for deduction. It appears that the cost of new flat worked out to about Rs. 34.86 lakhs and the assessee claimed 50 per cent of her share therein as deduction under section 54 of the Act.
(2.) THE Assessing Officer did not accept the contentions of the assessee that the date of possession of new house should be taken as the date of purchase. The Assessing Officer placed strong reliance on the decision of the jurisdictional High Court rendered in the case of CIT v. Mrs. Hilla J.B. Wadia : [1995] 216 ITR 376 (Bom) with the following observations: "As stated in the aforesaid paragraphs the Bombay High Court in the case of CIT v. Mrs. Hilla J.B. Wadia : [1995] 216 ITR 376 (Bom) has held that, what one has to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the society and whether she has made a substantial investment within the prescribed period which will entitle her to obtain possession of that flat so constructed. The Board has stated in the circular that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow up action and taking delivery of possession is only a formality." Accordingly, the Assessing Officer rejected the claim for deduction under section 54 of the Act.
(3.) THE learned Commissioner of Income -tax (Appeals) also confirmed the decision of the Assessing Officer with the following observations: "... The fact of having executed the agreement by way of registering the same on December 4, 2002 is not in dispute. The claim of the appellant that as per clause 14 of the agreement builder can terminate the agreement on non -payment of instalments, in the case of appellant is not found to be implemented though the appellant is found having defaulted the payment of instalments on certain occasions. The relevant and effective material facts are that the agreement was complete on all respects when it was executed by way of registering the same and the appellant paid earnest money and agreed to make the payment of instalments on the dates as mentioned in the agreement itself. Therefore, for the purpose of claiming deduction under section 54 of the Income -tax Act, the purchase of another property one year before the sale of property has to be construed from the date of execution of agreement through registration and not from the date of possession as claimed by the appellant. Therefore, I do not find any infirmity in the action of the Assessing Officer in disallowing exemption under section 54 of the Income -tax Act on capital gains on the sale of another property made much beyond the prescribed period of time as per the provisions of section 54 of the Income -tax Act.";

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