Section 54F of the Act should be construed liberally to encourage investments in residential houses, and completion or occupation of the house is not a requirement to claim the benefit.

1. The revenue has preferred this appeal against the order passed by the Tribunal granting benefit to the assessee, upholding the order of the Commissioner under section 54F of the Income-tax Act, 1961, (For short, hereinafter referred to as, 'the Act'). The assessee Sri. Sambandam Udaykumar filed his return of income for the year 2006-07 on 11.10.2006 declaring an income of Rs. 2,13,68,271/-. The case was selected for scrutiny, Notices under sections 143(2) and 142(1) were issued to the assessee. In response to the above notice, the authorised representative of the assessee appeared and submitted the details called for. The said details disclosed that during the year relevant to the assessment year 2006-07, the assessee sold the shares of M/s. Assess Technologies India Pvt. Ltd. for a consideration of Rs. 4,18,08,725/-. Part of the proceeds of the said sale consideration has been invested in purchase of house property to the extent of Rs. 2,16,61,570/- and accordingly claimed exemption under Section 54F of the Act. Necessary inquiries in this regard were conducted by the Revenue. The report was submitted on 3.12.2008. The report disclosed that Villa No. 58, Adarsh Palm Retreat, Outer Ring Road, Marathahalli, Bangalore, belongs to Sri. S. Udaykumar, the assessee. Photographs produced showed the progress of construction of the Villa. The sworn statement of Mr. Varsha, Senior Marketing Executive of M/s. Adarsh Group showed that the construction activities are stopped at present. The flooring work, electrical work, fitting of door shutters and window shutters are still pending. Therefore the assessing authority came to the conclusion that the construction is not complete even after lapse of three years of time from the date of transfer of the said shares on which the capital was derived. The assessee has only entered into an agreement of sale for construction with M/s. Adarsh Developers and paid an advance of Rs. 1,23,26,050/- as on 31.03.2006 towards the cost investing in house property. Therefore he held that the assessee has neither purchased the property within the period of two years nor constructed the property within the period of three years after the date of transfer of the asset, on which the capital gain was derived, and Section 54F of the Act is not applicable to the assessee. Therefore after taking into consideration the tax paid, he raised a demand for Rs. 32,31,701/-.

2. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). After considering the various judgments relied on, the Appellate Commissioner held that the house which the assessee intends to purchase/construct is not even fit to be called as a house, not to speak of residential house. It is neither been purchased nor constructed in the true sense of the term. Hence the assessee is not eligible to the benefit under Section 54F of the Act. Therefore, he dismissed the appeal. Aggrieved by the said order, the assessee preferred an appeal to the tribunal.

3. The Tribunal held that the material on record discloses that there was no dispute with regard to the fact that the assessee had invested Rs. 2,16,61,670/- as on 31.10.2006 within twelve months from the date of realization of sale proceeds of shares. The builder's letter set out the details of payment made by the assessee to the builder. Further, it disclosed that substantial construction was completed as on 12.11.2008 i.e., within three years period from the date of sale of shares giving rise to capital gain and only minor fittings like window shutters and some electrical work were required to be made. In other words, the villas were substantially ready and habitable with water connection and also temporary electrical connection. Therefore, the Tribunal was of the opinion that the authorities below were not justified in depriving the exemption legitimately claimed by the assessee under section 54F of the Act. Therefore, they allowed the appeal, direc