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Income Tax Appellate Tribunal (ITAT) bench of Bombay has ruled that A taxpayer who books an under-construction flat and acquires it within three years of the sale of his old house will be entitled to a tax deduction
And its judgement says that:
"Booking of a flat in an apartment under construction must be viewed as a method of constructing residential tenements,"
According to ruling the benefits of Long Term Capital Gains (LTCG) from Accrued sale can only be taken if the investment in another house can be made with in a specified time.
According To section 54 of IT act, the time period to invest LTCG in new house is two years from the sale of the old house and if the new house is constructed by the taxpayer with in the period of three years from the date of sale of house then the benefit of tax is also availed.
In this case, the taxpayer sale his Byculla flat and invested his LTCGs worth Rs 78.4 lakh in under construction building in Mumbai Central. And in all over he paid Rs 1.04 crore to the Builder in instalments before and after the sale of his old flat.
The amount exceeded the LTCH amount therefore the taxpayer claimed his value of Rs 78.4 lakh deductible under section 54 and hence the LTCH is nil.
He said that section 54 provides the time period of 3 years and according to his condition he sold his house on December 5,2012 and therefore he has a time till December 5,2015 to invest in new house. He said thet the flat was acquired before the date and the tax authorities treated the booking of flat as a purchase which has 2 years of limit.
According to ITAT:
“Booking of a new flat in an under-construction apartment should be considered as a case of "construction" and not "purchase". The ITAT added that the construction can commence prior to the date of sale of the old asset. Earlier, judicial decisions of the Karnataka high court and Ahmedabad ITAT have also held that the date of commencement of the construction is not relevant, and it is only the completion of construction which is relevant for the purpose of section 54”.
In this case ITAT held that the time limit prescribed under section 54 has been met and regarding the payment made before the sale of old flat “there is no requirement that the proceeds realised from the sale of the old house alone should be utilized. Thus, the deduction claimed by the taxpayer was allowed in full”.
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