Section 54

Section 54 — the law in short

What the courts have decided on section 54, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sanjeev Lal v CIT Supreme CourtHelps taxpayer
  A court order delayed my sale deed. Does my s.54 exemption run from the agreement to sell?
  Yes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement.
• Krishnagopal B Nangpal v DCIT High CourtHelps taxpayerSuperseded by amendment
  I put the whole capital gain from one flat into several houses. For years before assessment year 2015-16, does s.54 allow that?
  Yes. The Bombay High Court held that the words 'a residential house' in s.54(1) as it stood before 1 April 2015 were descriptive of the nature of the asset and did not restrict the number of houses that could be bought. The assessee sold a flat in Mumbai and invested the proceeds in seven row houses at Pune under a joint venture agreement, and the exemption was allowed against the entire capital gain of Rs. 1,08,30,625. The Court agreed with the Karnataka High Court in Arun K. Thiagarajan and the Madras High Court in Tilokchand and Sons, and reasoned that if the restriction to one house had already been in the unamended provision there would have been no need for the 2014 amendment to insert the word 'one'. That amendment took effect from 1 April 2015, and from assessment year 2015-16 the position is the opposite.
• PCIT v Vembu Vaidyanathan High CourtHelps taxpayer
  I booked a flat in 2004 and only signed the agreement in 2008. Does my holding period run from the allotment letter?
  Yes. Applying CBDT Circulars 471 and 672, the Bombay High Court held that the date of allotment is the date on which the purchaser of a residential unit acquires the property, so the holding period runs from the allotment letter and not from the later agreement. The allottee gets title on the allotment letter; paying the instalments and taking possession come afterwards. The Revenue's appeal was dismissed and the gain stayed long-term.
• CIT v Gita Duggal High CourtHelps taxpayerSuperseded by amendment
  I got two independent floors from the builder. Is that one residential house for 54?
  Yes, for the years this decision governs. So long as the assessee acquires a building of several units that can conveniently and independently be used as residences, section 54 and 54F are satisfied and the exemption is not restricted to a single unit.
• CIT v Jagriti Aggarwal High CourtHelps taxpayerValidity unconfirmed
  I sold my house, bought the new one after 31 July but before the end of the assessment year, and never opened a Capital Gains Account — do I lose the section 54 exemption?
  No. The Punjab and Haryana High Court held on 3 October 2011 that the due date in section 54(2) for furnishing the return under section 139(1) is subject to the extended period allowed by section 139(4). Sub-section (4) is not an independent provision; it operates on the time allowed by sub-section (1) and must be read with it, functioning in effect as a proviso to it. So an assessee who buys or constructs the new house, or deposits the gain, before the section 139(4) date keeps the exemption. Here the sale was on 13 January 2006, the purchase on 2 January 2007, and the return filed on 28 March 2007.
• CIT v Ravinder Kumar Arora High CourtHelps taxpayer
  I paid the whole price of the new house but put my wife's name on the deed alongside mine. Will the officer cut my section 54F exemption to half?
  No. The Delhi High Court held that section 54F requires the assessee to purchase a house; it does not require the house to be purchased in his name only. Where the assessee provided the entire consideration, paid the stamp duty, corporation tax, commission and legal expenses, and the wife contributed nothing, he is the real and constructive owner and the conditions of the section are met. Adding a wife's name is conduct to be encouraged rather than penalised. The section is a beneficial provision to be construed liberally and purposively, and the exemption on the full Rs.3.18 crore was allowed. The Revenue's appeal was dismissed with costs.
• Prakash v ITO High CourtHelps departmentValidity unconfirmed
  I paid for the new house but it's in my son's name. Can I still claim 54F?
  No, on this view. The court held that ownership and domain over the new asset must run to the assessee from the sale of the original asset through to the purchase or construction; where the son became the owner, the assessee had no right over the property and section 54F was refused.
• CIT v Rajesh Kumar Jalan High CourtHelps taxpayerValidity unconfirmed
  I did not put the unused capital gain into the capital gains account scheme by the due date under section 139(1). Have I lost the section 54 exemption?
  Not necessarily. The Gauhati High Court dismissed the Revenue's appeal and upheld the exemption for the whole gain of Rs 29,73,048. Section 54(2) requires the unutilised gain to be deposited before the date of furnishing the return of income under section 139, and section 139 there cannot mean only section 139(1); it means all the sub-sections, including sub-section (4). So an assessee who utilises the gain before the time allowed by section 139(4) has complied. The Court applied the settled rules that a beneficial provision is construed to advance its purpose and that no words are to be added to a plain provision.
• CIT v Mrs Hilla J.B. Wadia High CourtHelps taxpayer
  I sold my house and put the money into a flat a co-operative society is building. The building is not finished. Have I constructed a house for section 54?
  Yes, on these facts. The Bombay High Court held that a member who acquires the right to a specific flat in a building being constructed by a co-operative society, and who pays substantially the whole cost of that flat within the statutory period, has constructed a house property for the purposes of section 54. The test is domain over the flat and investment in it. Formation of a society to build flats is simply the way residential tenements are constructed in a city like Bombay, and the section must be read in that context. The reference was answered in favour of the assessee.
• Syeda Bibi Sadiqa v DCIT ITATHelps taxpayerValidity unconfirmed
  Is there a ceiling on the interest I can deduct on a house that is let out?
  No. The Tribunal held that the property was let out during the year — rent of Rs 4,74,69,381 having been received — and that there is accordingly no maximum limit on the deduction for interest on borrowed capital. The proof accepted was a certificate from the lending bank, supported by the same deduction having been claimed and allowed in earlier years, and by a finding that the loan had not been taken afresh for any renovation of the property.
• Latafat Hussain v ITO (ITAT Jaipur) — stamp value taken on the agreement date because part of the price came by account payee cheque, in AY 2010-11 ITATHelps taxpayerValidity unconfirmed
  My agreement to sell was in 2005 and the sale deed was registered in 2009, and I took a small part of the price by account payee cheque on the agreement date. Can I use the 2005 stamp value, and does the ten per cent tolerance band help me for an old year?
  On the agreement-date point, yes. The Tribunal directed the Assessing Officer to compute the gain on the stamp (DLC) value as at the date of the agreement, 3 January 2005, and not the date of registration, because Rs.35,000 of the consideration had been received by account payee cheque at the time the agreement was executed and the bank statements were on record. On the tolerance band, the order gives you less than it appears to: paragraph 10 records that on the 2005 value the difference between the agreed consideration and the DLC value was 9.34 per cent, "which is less than the prescribed 10 %" band, but that sentence follows a recital of what the assessee's representative demonstrated, and the operative direction at paragraph 10.2 rests on the agreement-date proviso alone and says nothing about the band. Do not cite this order as authority that the ten per cent band reaches back to AY 2010-11.
• Harminder Kaur v ITO ITATHelps taxpayer
  I filed a belated return and only invested after 31 July. Can the AO deny my 54 exemption?
  Not on that ground, if the investment came before the belated return was filed. The Tribunal read sub-section (4) of section 139 as in substance a proviso to sub-section (1), so the section 54 reinvestment period runs to the extended filing date, and booking a flat with a builder counts as purchase even without possession or a registered deed.
• CBDT Circular 672 CBDT Circulars & InstructionsHelps taxpayer
  My client's flat was allotted by a co-operative society, not the D.D.A. Does Circular 471 still help?
  It depends — on whether the society's scheme is similar. The Board decided that where the terms of the schemes of allotment and construction of flats or houses by co-operative societies or other institutions are similar to those in para 2 of Circular 471, those cases may also be treated as cases of construction for s.54 and s.54F. The comparison with para 2 is the whole of the test, so the work is in showing the similarity, not in citing the circular.
• CBDT Circular 471 CBDT Circulars & InstructionsHelps taxpayer
  Is a flat allotted under a self-financing scheme a purchase or a construction for s.54 and s.54F?
  Construction. The Board decided that allotment of a flat under the Self-Financing Scheme of the D.D.A. is to be treated as a case of construction, not purchase, so the three-year window applies rather than the one-year-before or two-years-after window. In reaching that view the Board recorded that the allottee gets title on the issue of the allotment letter and that paying the instalments and taking possession come afterwards — a sentence that has since done a great deal of work outside s.54 and s.54F.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.