1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax dated 25th July 1989, for the assessment year 1987-88, passed under section 263 of the Income-tax Act.
2. The assessee is an individual. She filed a return of income on 17-6-1987 declaring a total income of Rs. 2,60,380. While computing the total income, the assessee has claimed exemption under section 54F on the ground that she has constructed a residential house out of the sale proceeds of the shares within the time allowed under section 54F. The assessment was completed on 18-7-1988 on a total income of Rs. 2,69,406 accepting the exemption claimed under section 54F. The period of three years for the construction of the house expired on 16-4-1989, i.e., three years from the date of the transfer of the original asset.
The Commissioner of Income-tax while going through the assessment records found that on personal inspection of the newly acquired asset it was noticed that the residential house was still under construction on 16-4-1989 and that the same could not be occupied as on the said date. As the conditions prescribed under section 54F has not been fulfilled, the exemption grantee to the assessee was found to be incorrect. The assessment was therefore erroneous and prejudicial to the interests of revenue. Hence a show-cause notice was issued under section 263 of the Income-tax Act. In response to the said notice, the assessee's representative appeared before the CIT and claimed that major part of the construction has already been completed, leaving only a part of the work, such as laying of Mosaic, painting, etc. Therefore it was stated that the conditions provided under section 54F have been fulfilled and hence there is no case for modifying the assessment. The Commissioner of Income-tax after hearing the assessee's representative and relying upon the Inspector's report stating that the plastering work is to be done, fixation of doors to be carried out, flooring and fixing of electrical fittings is to be done, held that the assessee is not entitled to the relief under section 54F. Therefore, the CIT passed orders holding that the assessee has not complied with the conditions provided under section 54F. Hence, the Assessing Officer was directed to re-examine the assessee's claim and complete it after proper verification. The assessee is in appeal.
3. The contention of the learned counsel for the assessee was that the assessee sold the capital assets for a total consideration of Rs. 9,76,500. Out of that, she deposited a sum of Rs. 1,03,000 in the units of UTI within six months of the sale and has also spent a sum of Rs. 8,76,500 for the construction of a residential flat. It was stated that the assessee has spent a sum of Rs. 1,54,000 towards the cost of the land and a sum of Rs. 7,22,500 was spent towards the cost of construction up to 17-3-1989. Therefore, it was stated that the assessee had spent the entire net sale consideration towards the cost of construction of a house. Hence the assessee is entitled to the relief under section 54F. Insofar as the incomplete work is concerned, it was contended that major part of the construction of the house property was completed within the period stipulated under the provisions of section 54F and the entire amount of the sale consideration of the original asset was also spent. Therefore, even if a little work is left over to be completed, the assessee has to be considered as having complied with the conditions for the purpose of exemption under section 54F is beneficial provisions, which was intended as an incentive for the purpose of construction of residential houses. While interpreting such provisions it has to be interpreted so as to achieve the purpose for which it is intended, namely, promoting the construction of residential houses. The learned counsel also relied upon the circulars issued by the CBDT Circular No. 471 dated 15th October, 1986 clarifying the position that where investment was made in a flat under self-financing scheme of the Delhi Development Authority, the issuance of allotment letter is sufficient compliance of section 54 and section 54F of the Income-tax Act for the purpose of granting exemption, even though all the instalments due were not paid.
Similarly, circular No. 672 dated 16th December, 1993 was issued by the CBDT extending the benefits contemplated under Circular No. 471 for the acquisition of flats/houses under the schemes similar to the scheme of Delhi Development Authority. Relying upon the above circulars, it was stated that the intention of the Legislature was to encourage the construction of residential houses and as the assessee has admittedly invested the entire consideration houses and as the assessee has admittedly invested the entire consideration within the stipulated period of construction of a new residential house property, the Assessing Officer has rightly accepted the assessee's claim for exemption under section 54F and the CIT was not justified in holding that the assessee has not complied with the provisions contemplated under section 54F. The learned counsel also relied upon the decision of the Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 in support of his contention that a beneficial provision has to be construed liberally so as to promote the purpose for which it was introduced. The learned counsel also contended that even the property was subjected to property tax by the Municipal Corporation for the second half of 1988-89. Therefore, it should be presumed that the construction of the house property in dispute was completed as on 16-4-1989, i.e., within the period of three years.
4. The departmental representative, on the other hand, supported the order of the Commissioner of Income-tax. It was also stated that the house property under construction was not fit for occupation within the time stipulated under section 54F. Therefore, it should be concluded that the assessee has not constructed a residential house within the period of three years from the date of the transfer of the original asset. It was also stated that the Inspector of Income-tax has visited the property in dispute and found that lot of incomplete work was there as at the end of the period of three years. Therefore, it should not be considered that the assessee had constructed a residential house as contemplated under section 54F.5. We have heard the rival submissions and perused the material on record. From the material on record it is clear that the assessee claimed that the sale proceeds of the capital asset was invested in the construction of a residential house and in fact, the entire consideration was invested within the stipulated period of three years as per the provisions of section 54F. Therefore, the assessee is entitled for exemption under the said provision. This was accepted by the Assessing Officer. The CIT initiated action under section 263 on the ground of three years. Further, the CIT relied upon the report of the Inspector of Income-tax, who has stated that still certain work is to be completed so as to make it fit for occupation. The contention of the assessee was that the entire net sale consideration was invested on the construction of the building, excluding a sum of Rs. 1,03,000, which was deposited in the Units of UTI (Capital Gains Scheme) within six months from the date of the sale. According to the assessee, the entire net consideration was invested in the construction of the residential house and the entire construction of the structure was completed, though a little more work is to be completed so as to make it fit for occupation. As the entire net consideration was invested in the construction of the house property, it should be considered that the assessee has complied with the conditions specified under section 54F. But, however, the CIT did not accept the assessee's plea. He therefore restored the matter to the Assessing Officer for fresh consideration observing that the assessee has not complied with the conditions enumerated under section 54F. Before the Tribunal, the contention of the assessee was that the provisions of section 54F is a beneficial provision for promoting the construction of residential houses. Therefore, the said provisions has to be construed liberally and for achieving the purpose for which it was incorporated in the statute. In support of the said contention of the assessee relied upon the decision in the case of Bajaj Tempo Ltd. (supra). The assessee also relied upon certain circulars issued by the CBDT. One of the circulars was Circular No. 471, dated 15th October, 1986. This was issued by the CBDT clarifying the position that where an assessee acquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assessee has not paid all the instalments due under the said scheme. Later by another Circular No. 672, dated 16th December, 1993, the CBDT has issued clarification extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore, it was contended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self-financing scheme and pays the first instalment of the cost of construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same. Admittedly in the present case, the assessee had invested the entire net consideration within the stipulated period and in fact has even constructed the entire residential property, except some finishing to make it fit for occupation. As the assessee has substantially completed all the work of construction and has invested the entire net consideration, it has to be inferred that the assessee has complied with the conditions provided under section 54F. A similar case was considered by the Delhi Bench of this Tribunal in the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 and this Tribunal after considering the provisions of section 54 as well as section 55 held that the claim cannot be denied on the ground that the construction of the house started by the assessee was not completed within the stipulated period of three years and some work was carried out thereafter. The said decision also supports the assessee's contention. Under the above circumstances, especially in the light of the circulars issued by the Central Board of Direct Taxes, we hold that the Commissioner of Income-tax was not justified in revising the assessment of the Assessing Officer. Hence we set aside the order of the CIT and restore that of the Assessing Officer.