The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has held that a taxpayer cannot be denied investment-related tax benefits if due to a builder's fault the taxpayer does not get timely possession of a house in which the reinvestment was made.
The Income-Tax Act provides for benefits relating to capital gains tax, where sale proceeds of any asset other than a house (section 54F) or sale proceeds of a house (section 54) are reinvested in a residential house property in India.
There is no capital gains tax if the purchase price of the residential house in which the reinvestment is made exceeds the sale proceeds. In other cases, the capital gains, and thus the tax outgo, is proportionately reduced.
There are conditions to be eligible for such tax-breaks. The original asset (or house) that has been sold must have been held by the taxpayer for more than three years (long-term capital asset). Also, the residential house property in which money is being reinvested has to be purchased within the specified period. At times, the house is not available for possession within the agreed time. Projects get stalled as builders have not got permission or have run out of funds.
This is common in Mumbai, Noida and Gurgaon, and results in the buyer losing tax benefits.