Hi Nareshji,
Suppose it'd been the other way round: your client had made thepayments within 2 years AFTER the transfer of the asset but he'dbeen issued the Letter of Possession after the expiry of 2 yearsfrom the date of transfer of the original asset. Then, in thatevent, would you or would you not have argued that since thepayments were made well within the allotted time of 2 years for thepurchase of the house, the client was eligible for exemption u/s54F, even if he took physical possession of the house after 2 yearshad lapsed from the date of transfer?Normally we come across cases where an assessee has made the payment(s) towards purchase of house before the deadline of 2 years and haseven got the allotment letter issued in his favour, but he hadn'tyet moved into the house (or hadn't yet acquired some sort of rightof passage on it in the sense that nobody can trespass the propertywithout his permission) by the time the period stipulated u/s 54Fcame to an end. But in your case, since we want to drag the date ofpurchase down to the point where it is within one years BEFORE thedate of transfer of the asset, we have to do a volte-face and arguethat the payments from 2002 till May 2005 didn't create anyinalienable right to property in our favour. I don't know what thefine print in the documents says, but prima facie, it appears theonus to prove that an inalienable right over the residential flathad been created in your client gradually over the period of 3 yearswhile the assessee was making the payments lies on the AO. Paymentsmade gradually over a period of time as such certainly don't make usthe owner of a property, till the time we've got some right ofpassage (which doesn't necessarily mean having some documentaryevidence, incidentally) over that property. The finalallotment/handing over of possession would depend upon fulfillmentof other conditions as well. The AO wants to set the clock behind byearlier than 1 year to deny you the exemption. But I don't thinkhe's being fair, if indeed you have a letter of possession thatcategorically and unambiguously states that the risks and rewards ofownership were shifted to your client on the date of issue of thepossession letter, and not before.If you had sold this property say in 2007 (assume the last paymenttowards the property was made in 2004—36 months before the sale),would the AO have readily agreed to treat the CG as LTCG? No! Hewould then have taken the stand that the date of issue of possessionletter was the date of purchase! STCG fetches more revenue! It's ahypothetical scenario, but there's nothing that prevents you fromadvancing this as an argument.We do have case laws where the courts have ruled that "purchase" inSection 54F should be given a commonsensical meaning—if we've made aseries of payments in pursuance of a contract which is binding onthe authority in the sense that we get an irrevocable right toacquire that piece of property by way of the issue of a letter ofallotment in our favour, we'd be said to have "bought" that propertyon the date the letter of allotment/possession bears.In the case of CIT v. Smt. Beena K. Jain [1994] 75 Taxman 145(Bom.), the registration of the sale deed had taken place a bitlater than the actual handing over of the flat and the AO had deniedthe exemption u/s 54F as mere possession, he argued, didn't amountto "purchase". The court ruled that the relevant date for thepurposes of section 54F is when the petitioner paid the fullconsideration amount on the flat becoming ready for occupation ANDobtained possession of the flat.In your case, it seems the transaction of purchase of the flat gotCRYSTALLIZED upon the issue of the possession letter. Till the timeyour client hadn't had that letter, his right to buy that flat wasrevocable. Therefore, he "purchased" the flat on the date he got itspossession.All the best,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "CA.Naresh"
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