2020 (1) TMI 156 - AT - Income Tax

Tribunal grants deduction under Section 54 of Income-tax Act for new residential house purchase

Shri Dharamchand Bafna Versus The Income Tax Officer, Ward 2 (2) (1), Bangalore

The Tribunal allowed the appeal, granting the deduction under Section 54 of the Income-tax Act, 1961. The assessee fulfilled the requirements of Section ... Deduction u/s. 54 - Denial of claim as assessee failed to comply with the requirements of section 54(2) i.e., not depositing the unutilized capital gain in a designated bank account within the due date prescribed u/s.139 - assessee failed to comply with the requirements of section 54(2) Capital gain utilized in purchasing the new asset within a period of two years from the date of transfer - HELD THAT:- It is not disputed that the assessee did not deposit the unutilized long term capital gain in the designated bank account as per section 54(2) of the Act. Nevertheless, he has completed the purchase of a new asset within a period of two years from the date of transfer. In such circumstances, courts have taken a view that there is no requirement to satisfy the condition u/.s 54(2) Decision in the case of CIT v. K. Ramachandra Rao [2015 (4) TMI 620 - KARNATAKA HIGH COURT] also supports the plea of the assessee. The Hon'ble High Court took the view that the question of deposit of unutilised capital gain will come up for consideration only when the capital gain is not utilised in construction of house property and when it is so utilised for construction of house property, then there is no need to make a deposit in the specified bank account. The decisions rendered in the context of section 54F of the Act will also apply to section 54 of the Act, because both the sections are in pari materia the same, on the aspect of deposit of unutilized capital gain in specified bank account. In view of the aforesaid decisions of the Hon'ble Karnataka High Court, we are of the view that the assessee is entitled to deduction u/s. 54 - Decided in favour of assessee. Issues Involved:1. Denial of deduction under Section 54 of the Income-tax Act, 1961.2. Non-compliance with Section 54(2) regarding the deposit of unutilized capital gains in a designated bank account.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 54:The core issue in this appeal was whether the revenue authorities were justified in denying the benefit of deduction to the assessee under Section 54 of the Income-tax Act, 1961. The facts of the case are straightforward: the assessee sold a residential property and sought to claim exemption on the long-term capital gain by investing in another residential property. The assessee initially purchased a site intending to construct a residential house but later bought another residential house within the stipulated period.The Tribunal observed that Section 54(1) provides two options for claiming deductions: either purchasing a residential house or constructing one. The Tribunal held that there is no prohibition against the assessee changing the mode of investment from construction to purchase, as long as the other conditions of Section 54 are satisfied. Therefore, the assessee was entitled to the deduction under Section 54, despite initially purchasing land with the intent to construct and later purchasing a residential house.2. Non-compliance with Section 54(2):The second issue was the non-compliance with Section 54(2), which mandates depositing the unutilized capital gain in a designated bank account within the due date prescribed under Section 139 of the Act. The assessee did not comply with this requirement but completed the purchase of a new asset within two years from the date of transfer.The Tribunal referred to the decisions of the Hon'ble Karnataka High Court in the cases of Pr.CIT Vs. R. Srinivas and Fathima Bai Vs. ITO, which held that if the capital gain is utilized in purchasing a new asset within the time permitted by Section 54(1), there is no necessity to deposit the unutilized capital gain in a designated account. The Tribunal also cited the case of CIT v. K. Ramachandra Rao, where it was held that the requirement to deposit unutilized capital gains arises only if the gains are not utilized within the stipulated period.Given these precedents, the Tribunal concluded that the assessee was entitled to the deduction under Section 54 without the need to deposit the unutilized capital gains in a designated bank account.Conclusion:The Tribunal allowed the appeal by the assessee, granting the deduction under Section 54 of the Income-tax Act, 1961. The Tribunal's decision was based on the interpretation that the assessee fulfilled the requirements of Section 54(1) by purchasing a new residential house within the stipulated period, thus negating the need for compliance with Section 54(2). Consequently, the appeal was allowed, and the assessee was granted the claimed deduction.Pronouncement:The judgment was pronounced in the open court on December 30, 2019.