2016 (12) TMI 447 - AT - Income Tax

Assessee qualifies for Section 54F benefit by timely property investment, source not mandated.

The Tribunal held that the assessee fulfilled the conditions under Section 54F by investing in a new property within the stipulated time, entitling them ... Disallowance of claim made by the assessee u/s 54F - Held that:- As per sec. 54F, if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged u/s 45 of the Act. Similarly, the requirement is to purchase new asset before one year or after two years of the date on which the transfer took place. In this case, the fact that the assessee has purchased the new asset within the stipulated time period under the act was not disputed by the Assessing Officer. The assessee relied on the judgment of Jurisdictional High Court in the case of R. Srinivasan (2010 (4) TMI 1128 - MADRAS HIGH COURT) and other Hon’ble Courts which support the assessee’s contention. The issue regarding whether the investment in a capital asset is required to be sourced from the capital gain or not has been considered by the Hon'ble P&H High Court in the case of Kapil Kumar Agarwal (2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT ) relied upon by the assessee. The High Court has held that sec. 54F nowhere envisages that the sale consideration received by the assessee from the original capital asset mandatorily should to be utilized for the purchase or construction of the new house property. The simple requirement is to invest in an asset within the stipulated time. In this case, the assessee has invested within the stipulated time. Therefore, we hold that the assessee is entitled for the deduction u/s 54F of the Act.- Decided in favour of assessee Issues Involved:1. Disallowance of claim made by the assessee under Section 54F of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance of Claim under Section 54F:The central issue in this case revolves around the disallowance of the claim made by the assessee under Section 54F of the Income-tax Act, 1961. The assessee sold a vacant land in Bangalore for Rs. 90 lakhs and claimed exemption under Section 54F to the extent of Rs. 81,76,700. The Assessing Officer (AO) observed that the assessee invested Rs. 56,54,000 from the sale consideration for purchasing a property in Mumbai, and the balance was funded by a bank loan. Consequently, the AO restricted the exemption to Rs. 51,36,785 (the amount invested from the sale consideration) and brought the remaining Rs. 30,39,915 to tax under capital gains.2. Appeal before the CIT(A):The assessee appealed before the Commissioner of Income-tax (Appeals) [CIT(A)], who confirmed the AO's addition. The CIT(A) relied on the decisions of the Mumbai Bench of the Tribunal in the case of Milan Sharad Ruparel vs ACIT and the Hyderabad Bench decision in the case of V. Kumar vs DCIT.3. Assessee's Argument:The assessee argued that the sale consideration of Rs. 90 lakhs was invested in a new property within two years from the date of sale, fulfilling the conditions under Section 54F. The assessee contended that the source of investment (whether from sale proceeds or borrowed funds) should not affect the exemption claim. The assessee relied on the jurisdictional High Court’s judgment in CIT vs R. Srinivasan and the P&H High Court in CIT vs Kapil Kumar Agarwal, which support the view that the source of funds is irrelevant for Section 54F exemption.4. Tribunal's Analysis and Judgment:The Tribunal held that Section 54F requires the purchase or construction of a residential house within specified periods but does not mandate that the sale consideration from the original asset must be used for this purpose. The Tribunal emphasized that the statute does not stipulate the source of investment for the new property. The Tribunal noted that the assessee had made the investment within the stipulated period and the investment exceeded the capital gains earned. Hence, the assessee was entitled to the benefit under Section 54F.5. Supporting Judgments:The Tribunal referred to several judgments supporting the assessee's claim:- CIT vs R. Srinivasan (Madras High Court): Held that even if sale proceeds are not invested in the new property, deduction under Section 54F is allowed.- CIT vs Ravindra Kumar Arora (Delhi High Court): Emphasized that the house need not be purchased in the taxpayer's name alone.- Late Mir Gulam Ali Khan vs CIT (Andhra Pradesh High Court): Stated that the word 'assessee' should be interpreted liberally to include legal heirs.- CIT vs Natrajan and CIT vs Gurnam Singh: Supported the view that the source of investment is not a factor for Section 54F deduction.6. Revenue's Argument:The Revenue argued that the loan was granted based on the repaying capacity of the assessee’s son and daughter-in-law, and the loan was repaid by them. The Revenue contended that the CIT(A) rightly confirmed the AO's order and distinguished the decisions relied upon by the assessee.7. Tribunal's Conclusion:The Tribunal concluded that the assessee fulfilled the conditions under Section 54F by investing in a new property within the stipulated time. The Tribunal set aside the lower authorities' orders and deleted the addition made by the AO, allowing the assessee's appeal.Final Order:The appeal of the assessee was allowed, and the order was pronounced in the open court on 10th November 2016, at Chennai.