The date of the purchase agreement with the builder cannot be used to determine eligibility for Section 54 relief. ITAT

ITO v. Sanjay Vasant Jumde – [2023]

During the relevant assessment year, the assessee, an Indian non-resident, sold his bungalow and realized long-term capital gains. In order to acquire an apartment before the year before to the year of sale, the assessee entered into an agreement with the builder. The possession of such an apartment was obtained two months after the bungalow’s sale date. On the long-term capital gains so made, the assessee claimed the cost of the flat as a deduction under section 54 and submitted the corresponding income return.

The Assessing Officer (AO) considered the date of the agreement with the builder as the date of the flat acquisition during the assessment processes. He concluded that the assessee was not eligible for the section 54 exemption since the new property he had bought was more than a year old when the old one was sold.

The decision of the AO was likewise affirmed by the Dispute Resolution Panel (DRP). Angered by the decision, the assessee immediately filed an appeal with the Pune Tribunal.

The Tribunal determined that the assessee and the builder had a contract in place for the assessee to purchase an apartment in the building. According to the agreement, the developer will build the building and give the assessee ownership of the apartment. At the time of the agreement, the apartment wasn’t ready, therefore a new building had to be built. Assessee was granted the right to purchase the apartment following building construction due to this arrangement.

This was an agreement for acquiring the apartment and not a selling deed. There would have been a selling deed rather than an agreement if the apartment had been ready. As the developer had sent assessee a letter of ownership following the bungalow’s selling date, it is clear that the assessee only took possession of the new apartment after the sale date.

The day that the assessee fully paid the consideration for the apartment being ready for occupancy and took possession of the apartment is also a significant date that has to be considered.

The residential property did not exist at the time the agreement was signed, which was an undeniable reality. In order to qualify for an exemption under section 54, the date that the apartment was put into possession should be considered the actual purchase date.