2021 (7) TMI 727 - AT - Income Tax

Tribunal grants full Section 54F exemption, emphasizes investment in residential house

Smt. Chandrakala Shashidhar Versus The Income Tax Officer Ward 5 (2) (4) Bengaluru.

The Tribunal allowed the assessee's appeal, reversing the CIT(A)'s order that restricted the exemption under Section 54F of the Income Tax Act. The ... Exemption u/s 54F - sale consideration of plots was not deposited in capital gains scheme on or before the due date of filing of the return u/s 139(1) - HELD THAT:- As per section 54F of the I.T.Act, exemption is to be granted if the stipulated conditions are fulfilled and the assessee’s case does not fall under the exceptions to exemption specified in the proviso to section 54F(1). As per section 54F(4), the requirement of depositing the amount in Capital Gain Account Scheme (CGAS) arises only if the following conditions are not satisfied: (a) Net consideration invested in new asset within one year before the date on which the transfer of the original asset took place, or (b) Not utilized by the assessee for purchase or construction of the new asset before the date of furnishing of return of income u/s 139 of the I.T.Act. If above conditions are not satisfied, only then, such unutilized amount has to be deposited in CGAS before due date for filing return of income u/s 139 of the I.T.Act. Also, the section firstly referred in section 54F(4) of the I.T.Act is section 139 of the I.T.Act which also includes section 139(4) of the I.T.Act, which would be 31st March, 2016 in the given case. If the amount has been incurred before this date, 139(1) of the I.T.Act due date for depositing into CGAS scheme becomes applicable only when the amount has not been spent before the due date for filing return of income u/s 139(4). The words used in provisions of section 54F of the I.T.Act are `purchased’ or `constructed’ and the condition precedent for claiming benefit under such provision is the capital gain realized from sale of a long term capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respects or such building is yet to be completed fully or the building not being in a fit condition for being occupied, would by itself not be a ground for the assessee to be denied the benefit u/s 54F Assessee would be entitled to the benefit u/s 54F of the I.T.Act once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects.Thus we hold that the assessee is entitled to the benefit of section 54F of the I.T.Act in its entirety. Appeal filed by the assessee is allowed. Issues Involved:1. Whether the CIT(A) was justified in confirming the A.O.'s order restricting the exemption u/s 54F of the I.T.Act.Issue-wise Detailed Analysis:1. Restriction of Exemption u/s 54F:The primary issue in this case was whether the CIT(A) was justified in confirming the A.O.'s order, which restricted the exemption under Section 54F of the Income Tax Act. The assessee had sold plots and invested the sale consideration in a villa project. However, the A.O. restricted the exemption because the assessee did not deposit the sale consideration in the capital gains scheme before the due date of filing the return under Section 139(1) of the I.T.Act.Facts of the Case:The assessee sold plots for Rs. 1,19,04,500 and invested the same in a villa project. She claimed an exemption of Rs. 1,16,34,752 under Section 54F. The A.O. restricted the exemption to Rs. 24,44,124, stating that the balance amount was not deposited in the capital gains account scheme within the due date of filing the return under Section 139(1) of the I.T.Act.CIT(A)'s Findings:The CIT(A) held that the assessee failed to prove the house was constructed within three years from the date of sale of the original asset. The completion certificate from the builder did not suffice unless issued by the local municipal authority. Additionally, the electricity bill was not in the assessee's name. Therefore, the CIT(A) confirmed the A.O.'s addition of Rs. 92,10,629.Assessee's Grounds of Appeal:The assessee argued that the CIT(A)'s order was erroneous and bad in law. The assessee contended that the house was constructed within three years, and the completion certificate from the builder should be considered valid. Furthermore, the assessee cited the Karnataka High Court's judgment in CIT v. K.Ramachandra Rao, which held that exemption under Section 54F should not be denied merely because the amount was not deposited in the capital gains account scheme if it was invested in a residential house within three years.Tribunal's Analysis:The Tribunal examined Section 54F and noted that the exemption is granted if the assessee invests the sale consideration in a residential house within three years. The requirement to deposit the amount in the capital gains account scheme arises only if the amount is not utilized for purchase or construction before the due date of filing the return under Section 139. The Tribunal relied on the Karnataka High Court's judgment in CIT v. K.Ramachandra Rao, which clarified that if the entire sale consideration is invested in constructing a residential house within three years, the exemption cannot be denied for not depositing the amount in the capital gains account scheme.Judicial Precedents:The Tribunal also referred to other judicial pronouncements, including CIT v. Smt.B.S.Shanthakumari, Pr.CIT v. Sri.C.Gopalaswamy, and CIT v. Sambandam Udaykumar, which supported the view that the exemption under Section 54F should be granted if the investment is made in a residential house within the stipulated period, even if the construction is not fully complete.Conclusion:The Tribunal concluded that the assessee was entitled to the benefit of Section 54F in its entirety. The appeal filed by the assessee was allowed, and the order of the CIT(A) was reversed.Order:The appeal filed by the assessee is allowed. The order was pronounced on the 14th day of July, 2021.