The main legal point established in the judgment is the interpretation of the term 'purchase' under Section 54 of the Income Tax Act, 1961 and the application of the provision in determining the eligibility for exemption of capital gains.

Sanjiv Khanna, J.:--

1. Commissioner of Income Tax Delhi II, in this appeal which pertains to assessment year 2006-07 submits that the assessee, an individual has been wrongly granted benefit of Section 54 of Income Tax Act, 1961 (Act, for short). The respondent assessee contrary to the statutory mandate, it is submitted had not purchased the second property within two years from the date of sale of the first property. The secondary issue raised pertains to whether Rs. 5,00,000/- paid for cancellation of the earlier agreement for sale of the original property and Rs. 2,50,000/- paid as brokerage, could be allowed to set off from the sale consideration received.

2. The assessee in his return filed on 8th January, 2007 had declared a taxable income of Rs. 47,88,579/-, but as noticed above he had claimed benefit of Section 54 of the Act on sale consideration of Rs. 2 crores declared as income from capital gains on the sale of house property bearing No. B-383, New Friends Colony, New Delhi vide sale deed dated 3rd June, 2005 from the purchaser Bansi Lal Gupta. Under Section 54 of the Act, exemption of Rs. 37,86,273/- had been claimed, inter alia, on the ground that the said amount had been invested in purchase of a new residential property at Gurgaon. The assessee filed details before the Assessing Officer to establish that he had paid Rs. 61,15,000/- upto 12th May, 2006 for purchase of property at Gurgaon along with details, date of payments etc.

3. The Assessing Officer referred to the copy of the flat buyers agreement dated 9th February, 2006 between the assessee and the builder and observed that the ownership in the new property would be conferred on the date of issuance of occupation certificate. Further, the expected date of completion was 36 months from the date of the agreement dated 9th February, 2006 i.e. 8th February, 2009. He held that the assessee was not entitled to benefit of Section 54 as he had not purchased the new property within a period of one year before the sale of first property on 3rd June, 2005 or within two years from the date on which the transfer took place. The assessee had not constructed residential house within three years from 3rd June, 2005. Assessing Officer observed that legal ownership of the property never vested in the assessee within the aforesaid period and therefore, the purchase was not completed within two years which was the period stipulated and specified in Section 54 of the Act. He, accordingly, computed the long term capital gain, after granting benefit of indexation on cost of acquisition and cost of improvement, at Rs. 45,36,273/-. While examining the question of capital gains, the Assessing Officer also disallowed the claim of the assessee to the extent of Rs. 7,50,000/- as cost incurred for transfer.

4. On the second aspect, the finding of the tribunal is that the assessee had entered into an earlier agreement to sell for sale of the property at New Friends colony and had received Rs. 10,00,000/- from one Ashok K. Singhal. However, this agreement was cancelled to enable the assessee to enter into the transaction resulting in capital gains. Rs. 10,00,000/- was refunded to Mr. Ashok K. Singhal and Rs. 5,00,000/- was paid as cancellation charges. Rs. 2,50,000/- was paid to one Rajat Kapur who acted as a broker in the first deal. The payment of Rs. 2,50,000/- to Rajat Kapur as well as payment of Rs. 10,00,000/- and Rs. 5,00,000/- were by cheque and this is undisputed. The assessee had also filed several documents to support and show that there was an earlier transaction with Ashok K. Singhal. He had also filed copy of the receipt for Rs. 2,50,000/- executed by Rajat Kapoor indicating his PAN and other details.

5. In view of the aforesaid factual position, as discussed by the tribunal in paragraph 9 of their order, we do not think that the aforesaid payments can be challenged on the ground that they were not genuine or were not made. Finding of the tribunal are factual and cann