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Tax exemption on property sale - section 54

Sharad (Associate) (35 Points)

25 April 2015

I purchased an apartment in Lucknow in the year 2000 - first purchase, direct from the builder. The property was purchased under an Unregistered Sale Agreement (with Letter of Allotment, etc.). I now propose to sell this property, and reinvest the proceeds in a new property in Lucknow. Will I be able to claim capital gains exemption under Section 54 of the Income Tax Act on the sale of the first property? Or will the exemption be denied because the property was not purchased under a registered sale deed?

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CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 25 April 2015

Dear Sharad,

Go through the following for better understanding.

The Bombay High Court in the case of CIT vs. Dr. Laxmichand Narpal Nagda [1995] 78 Taxman 219 (Bom.) held that taking into consideration the letter as well as spirit of section 54, the word 'purchase' is not used in the sense of legal transfer. Further, the High Court held that in this case the assesse had paid the full consideration, obtained the possession of the flat and it was actually put to use and, hence, exemption under section 54 was clearly available, though no registered purchase deed was executed.