TAX TIPS: Am I eligible for exemption under Section 54?

Q. I sold my residential house in January 2023 for a consideration of Rs 50 lakh. I had purchased an unfinished flat in February, the sale consideration for which was paid between August 2021 and December 2021. The consideration for unfinished flat was, thus, paid much before the sale of my residential house. I entered into an agreement in respect of unfinished flat for completing the same for which agreement was entered in February 2023 so as to complete the construction of the unfinished flat for a sum of Rs 52 lakh. I had paid a sum of Rs 30 lakh between August 2021 to December 2021. The balance amount for the finishing the construction has been paid in February 2024. I have claimed the exemption under Section 54 of the Act in my tax return for the assessment year 2024-25. Please let me know whether the claim made by me would be allowable. Surinder Pahwa, Patiala

A. You should be able to get the exemption under Section 54 of the Income-tax Act 1961 (The Act). In similar circumstances, the Income-tax Appellate Tribunal (Ahmedabad Branch) has held that under the provisions of Section 54 of the Act, there is no mention about the date of start of construction of a residential house. The Section only requires that construction of a residential house should be completed within the time specified in the aforesaid Section. The exemption claimed by the assessee was allowed by the ITAT.

You can therefore, refer to the decision of the Ahmedabad Bench in the case of Jignesh Jaysukhlal Ghya vs. DCRT ITA No. 324/AHD/2020 as and when query is raised by the department.

In your case, it seems construction has been completed within a period of one year. There should not be any problem in getting the exemption under Section 54 of the Act.

Tax liability on firm’s asset

Q. We are a partnership firm registered with the Registrar of Firms. It was formed with four partners. Two of the partners contributed their capital by land parcels and the rest of the partners contributed their capital through the banking channels. Subsequently, the firm has been reconstituted in April 2024 by introducing two more partners who have contributed their capital by a bank transfer. At the time of the reconstitution, the land held by the partnership was revalued on the basis of the approved valuer’s report. The land as held by the firm was valued by the valuer at Rs 1 crore. The difference between the book value and value as per valuer’s report was credited to the capital account of the partners. Please let me know whether the difference between the book value of the land and revalued amount would be taxable and if so, who will be liable to pay such tax. Nitish Kansal, Mohali

A. You should refer to the decision of the Supreme Court in the case of CIT vs. Mansukh Dyeing and Printing Mills (449 ITR 439) in which it has been held that the revaluation of a capital asset held by the firm and crediting the amount of increase in value of such a capital asset to the partners' capital account is a transfer which is covered under section 45(4) of the Act. Thus, any profit/gain arising from such increase in value shall be taxable in the hands of the firm under the aforesaid Section.

Is simultaneous deduction for same asset allowed?

Q. I filed my Income-tax return in assessment year 2018-19 within the prescribed time. The assessment was completed and my claim for deduction under Section 54 of the Act as well as under Section 54F was disallowed. The claim has been disallowed by holding that a deduction under Section 54 and 54F of the Act cannot be claimed simultaneously in respect of the same asset and further, the payment for the purchased consideration for the new house was made prior to one year before the sale of the original asset though the purchase was within one year before the sale of the residential house. My appeal before the first appellate authority is pending. I shall be thankful if you could let me know to advice as to whether the contention of the Assessing Officer is correct in accordance with the provisions of the Act. Abhijit Singh, Panchkula

A. There is no bar under the provisions of the Act that an assessee cannot claim the deduction simultaneously, under Section 54 and 54F of the Act in respect of the same asset. The requirement of the Act is that the residential house should be purchased within one year before or within two years of the date of the sale of a capital asset. In case you comply with the requirements specified in Section 54 and 54F of the Act, there is no reason that the claim under Section 54 and 54F of the Act in respect of the said asset should be allowed.

In similar circumstances, Pune Bench of the Appellate Tribunal has held that there is no bar in the Act for simultaneous claim under Section 54 and 54F of the Act and such a claim would allowable provided the requirements specified in the two section are complied with.

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