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Section 54 vs amount of investment

Eswar Reddy S (CFO- at NHTF) (58213 Points)

28 July 2014

Dear Experts , One of our client purchased a house property to get benifit exemption u/s 54. He has paid cheque partly and balance by taking loan . is the exemption limited to the amount paid ? loan still outstanding

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4 Replies

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 28 July 2014

exemption of 54 is available to the extent amt invested or capital gains, whichever is lower. ....... amt invested includes both amt. paid by cheque/cash and paid by taking loan.

CA Mitesh N Kothari (9821662799) (391 Points)
Replied 29 July 2014

Agree with Tribhuvan

Z ( ) (2960 Points)
Replied 29 July 2014

Exemption is available in FULL, it would be very narrow and literal interpritation of the word "invested" & "purchase" if you take that amount should actually be paid

There are few case laws on this

Purchase can be on cash basis or on credit basis

CIT v. T.N. Aravinda Reddy [1979] 123 Taxman 290/120 ITR 46 (SC)

The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’.

Ishar Singh Chawla vs. Deputy Commissioner of Income-tax [2010] 130 TTJ 108(MUM.)(UO) wherein it was held that” nowhere it has been mentioned in section 54 that same funds must be utilized for purchase of another residential house. requirement of law is that, assessee should purchase residential house within specified period and source of funds is quite irrelevant"

There are other judgements also