Time to revise capital gain tax rules for property sale?

Tarunkumar G Singhal 15 June 2016

The Section 54 of the Income-tax Act provides relief from taxation in respect of profit on sale of a residential house provided the assessee has purchased a house within two years or constructed a house within three years from the date of such transfer. Similarly, Section 54F provides relief from taxation of capital gain on transfer of any other long-term capital asset provided the assessee purchases or constructs a residential house within two or three years from the date of such transfer, as the case may be, subject to satisfaction of other conditions stipulated in Section 54F.

These days, due to shortage of land and increasing population and considerations of quality of life, safety, security and availability of other modern amenities at par with advanced societies, there is vertical expansion in Mega Cities and the purchase of flats in a residential tower or in self-contained gated residential complexes is quite common. It is quite common for taxpayers desiring to avail of exemption u/s 54 or 54F, to purchase flats in such residential towers and to invest entire sale proceeds of their existing house or other assets in the purchase. Normally, taxpayers invest the entire capital gains accruing on the sale of the old asset immediately for purchase of an under-construction flat in a new residential tower i.e. well within the time limits stipulated in Section 54 or 54F, as the case may be.

However, the construction of such residential towers or complexes generally takes more than two-three years. This is because it is now virtually impossible for the builder or developer to complete the construction while complying with other municipal regulations for large residential towers or complexes. This makes the handover of possession of flat to the buyer within two-three years limit stipulated in Sections 54 and Section 54F.

The assessing officers are very rigidly applying the time limits laid down in Sections 54 and 54F, and denying the exemption available to the taxpayers. Various tax tribunals and high courts have liberally interpreted the time limits specified in Sections 54 and 54F and have granted exemption to taxpayers if the taxpayer had invested the long term capital gains on the sale of the existing house property or other asset within the time limits specified in aforesaid sections.

Please refer to CIT vs B.S. Shanthakumari (2015) 233 Taxman 347 (Kar)(HC), Pradeepkumar Chowdhry vs DCIT (ITA No. 1520/Hyd, 2013 dated 31.12.2014(Hyd)(Trib), S. UmaDevi vs CIT (2015) 169 TTJ 487 (Hyd)(Trib) and catena of similar other decisions.

Still, assessing officers are not giving due recognition to such favourable judicial decisions and are raising huge demands on the taxpayers. As a result, a large number of appeals are pending before various appellate and judicial authorities on this issue.

In the interest of rendering justice to the taxpayers and advancing the underlying objective of Sections 54 and 54F, the Central Board of Direct Taxes (CBDT) should accept the ratio of such favourable judicial decisions. The Board should also issue an appropriate circular or instructions to assessing officers to the effect that deduction or exemption under Section 54 and 54F should be allowed, if the taxpayer has invested the amount of eligible capital gains within two-three years, as the case may be, for the purchase or construction of a new house or flat so that the genuine taxpayers are not put to hardship. The huge backlog of accumulated litigation on this score can also be cleared. It would be better to amend Sections 54 and 54F and extend the specified time limits at least to five years in view of the changed realties of the real estate sector and its regulations.

(The Author is a practising Chartered Accountant in Mumbai)

Comments

User

sankaran

10 years ago

It is a good Idea.Any thing left to the discretion of assessing officers is a weapon in their hands.There hardly any body uses a weapon for the good of clients

sankaran

10 years ago

It is a good Idea.Any thing left to the discretion of assessing officers is a weapon in their hands.There hardly any body uses a weapon for the good of clients