LTCG - selling old property & buying under-construction flat

Profit on sale of property used for residence.

 54.  [(1)]  [ ¹[Subject to the provisions of sub-section (2), where, in the case of an assessee  being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset  [***], being buildings or  lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased ], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

           (i)  if the amount of the capital gain [is greater than the cost of  [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

          (ii)  if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

 [(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme ¹¹ which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

           (i)  the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

          (ii)  the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Explanation.— ¹² [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

In case the assessee has purchased more than one house/flat within the period prescribed in section 54 (in case of PURCHASE, 1 year before OR 2 years after the date of transfer and in case of construction , 3 years from the date of transfer) ,then assesse has to decide that in respect of which property (ONLY ONE) he want to claim benefit

  K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.

B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).

"The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased."

https://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/%5B1981%5D132ITR0150%28Cal%29.htm

In the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 and 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 the house started by the assessee was not completed within the stipulated period of three years and some work was carried out thereafter.

"Commissioner of Income-tax v. R.L. Sood :- The assessee had paid a  sum of2,39,850 out of the total sale consideration of2,75,000 for  the purchase of the flat within the period of one year from the date of sale  of his old residential house. Thus, on payment of a substantial amount in  terms of the agreement of purchase dated September 25, 1981, i.e., within  four days of the sale of his old property, the assessee acquired substantial  domain over the new residential flat within the specified period of one  year and complied with the requirements of section 54 of the Act. Merely  because the builder failed to hand over possession of the flat to the assesee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. "