S. 54F exemption available for sum invested in land but non-construction of building due to Court order

By Accommodation Times Bureau
The course of events in the instant case shows that the assessee was really contemplating the construction of a residential house. This intention of the assessee is very clear from the fact that within days of the sale of her old property, the assessee had purchased the new site for constructing a residential house. The old property was sold on 8-6-2006. The new landed property was purchased immediately on 5-7-2006. The events of sale and purchase and their proximity clearly demonstrate that the assessee had purchased the property only for the purpose of constructing a residential house. The old property was sold for a consideration of Rs. 34,73,447, out of which the assessee was accountable for long-term capital gains of Rs. 32,77,450. The assessee has invested Rs. 33,88,160 for the purchase of the land, which is more than the quantum of long-term capital gains. This again demonstrates the fact that the assessee had arranged the transaction in such a bona fide manner so as to claim the exemption available under section 54F.

It is after the purchase of the property that the hell broke loose against the assessee in the form of civil litigation. The litigation started on 25-2-2008 and ended only on 19-9-2011. By that time the available period of three years to construct the house was already over, on 8-6-2009. The assessee was absolutely prevented from taking any single step in constructing the proposed residential house during this period of three years. The assessee was restrained by a competent Court from constructing a house and the status quo of the property at the time of purchase was ordered to be maintained. Where, on the one hand section 54F demands the assessee to construct the house within a period of three years, on the other hand, Civil Courts restrain the assessee from constructing a house throughout that period of three years. The assessee is in fact between devil and deep sea. It is an accepted principle of jurisprudence that law never dictates a person to perform a duty that is impossible to perform. In the instant case, it was impossible for the assessee to construct the residential house within the stipulated period of three years.

Now, the question is whether the assessee is still entitled for the benefit of section 54F or not.

A dominant factor to be seen in the instant case is that the entire consideration received by the assessee on sale of her old property has been utilized for the purchase of the new property. The purchase value of the property is more than the long-term capital gains taxable in the hands of the assessee. This fact is very crucial. The conduct of the assessee unequivocally demonstrates that the assessee was in fact proceeding to construct a residential house, based on which the assessee had claimed exemption under section 54F. Therefore, what is the reality? The reality is that the assessee has spent the entire consideration received on the sale of property towards the construction of the residential house. It is true that the assessee could not construct the house. But she has purchased the land utilizing the entire consideration received on the sale of the old property. It means that the assessee has invested the entire consideration received on sale of the old asset in acquiring/constructing a residential house property. In the special facts and circumstances of the instant case, it is necessary to hold that the amount utilized by the assessee to purchase the land was in fact utilized for acquiring/constructing a residential house. De facto speaking, that part of the construction of the house property which was not completed within the period of three years, is altogether a different matter. Without purchasing land, house cannot be constructed. The first step should be the purchase of land. That was done. No step could be put forward thereafter, for reasons already stated. Therefore, the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house.

In view of the above, the assessee is entitled for exemption under section 54F. The intention of the statute provided in section 54F has been fully satisfied by the assessee in the instant case. Therefore, the Assessing Authority is to be directed to grant exemption to the assessee under section 54F as claimed by the assessee.





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