S. 54F — Assessees sold shares and earned long-term capital gains — The said gains were invested in purchasing land and building — The building was demolished and a new building was constructed — Whether the cost of construction of new building was eligib

4. (2010) 122 ITD 15 (Bang.)

M. Vijaya Kumar v. ITO

A.Y. : 2004-05. Dated : 25-1-2008

S. 54F — Assessees sold shares and earned long-term capital
gains — The said gains were invested in purchasing land and building — The
building was demolished and a new building was constructed — Whether the cost of
construction of new building was eligible u/s.54F — Held, Yes.

The assessees, husband and wife, sold shares and purchased
property, land and building in joint name. They demolished the building and
constructed a new building. They claimed benefit of S. 54F in respect of cost of
construction of house property. The Assessing Officer denied the benefit
thereby, holding that once the capital gains are invested in purchase of house
property, the application of S. 54F ends. The CIT(A) seconded the AO’s opinion.

On appeal, the Bangalore ITAT held in favour of the assessee
relying on the case of Union Co. (Motors) Ltd. and CBDT Circular No. 667, which
clarified that for exemption meant construction of a residential house after
demolishing the existing structure. It held that the existing structure was
demolished so as to make way for the new asset. The intention of the assessee
was to create and stay in a residential property. Hence the cost of construction
of new property is allowed as deduction u/s.54F.