Section 54- registration of sale deed

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steven (Querist)
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04 April 2016 Mr X and Mrs Y are owner of property. They have sold the property in 01 april 2014 for 50 lakh(purchased for 15 lakh) and kept the money in Capital gain account scheme.
They have now jointly bought under-construction property in Mumbai on 01st Jan 2016 worth 95 lakh and have made initial payment of 20 lakh to developer. Remaining amount will be paid over period of 5 years as and when developer demand. As on 01st April 2016 the developer has only issued letter of allotment. The sale deed will be registered in 01st june 2017.

Would appreciate clarification on below point
1) For claiming exemption u/s 54 new house should be purchased within 2 years. IT act has not defined the term purchase. In above case can Mr X and Mrs Y claim exemption based on letter of allotment or is it necessary that the sale deed should be registered for claiming exemption. Kindly note Registration of sale deed is compulsory In Maharashtra.
2) For claiming exemption u/s 54 is it necessary to officially get the possession of property from developer within 2 years/3 years.
3)if new property is purchased by Mr X, Mrs Y and therir son Mr Z with equal rights. Can they still claim exemption u/s 54 as Mr Z was not the co owner in the asset that was sold

Soumitra Basu

Soumitra Basu (Expert)
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06 April 2016 Since section 54 is the beneficial section it has to interpret liberally. Payment for purchase of flat will be treated as Investment for Purchase of Flat. The allotment letter will strengthen the case. However, in the given case 2/3rd of the Total Investment will be treated as investment.

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