2021 (8) TMI 461 - AT - Income Tax

Appellate Tribunal rules in favor of taxpayer on deduction denial under Section 54F

Smt. Girija Varadaraju Versus The Income Tax Officer, Ward 3 (2) (3), Bengaluru.

The Appellate Tribunal ITAT Bangalore partially allowed the appeal by the assessee, addressing issues related to the denial of deduction under Section 54F ... Benefit of exemption u/s. 54F - assessee has not invested the net consideration in the capital gain account scheme within the time stipulated for filing return of income u/s. 139(1) - HELD THAT:- We agree with the contention of the ld. AR that even though the assessee has not deposited the consideration received on sale of long term capital asset in the capital gain account scheme within the due date prescribed u/s. 139(1) of the Act, the assessee is entitled for exemption u/s. 54F of the Act if the assessee has invested the net consideration in accordance with the provisions of section 54F of the Act in acquiring or construction of new residential house. Therefore, the contention of the ld. DR that the assessee has not deposited the amount in the capital gain account scheme as stipulated and not entitled to the benefit of exemption, even though she has invested the money in construction of new residential house is not correct. Assessee invested in the construction of new house, not in her name but in the construction of new residential house in the name of spouse - This issue has already been decided in the case of P.R. Seshadri [2009 (7) TMI 814 - KARNATAKA HIGH COURT]and held that if the assessee invested the net sale consideration in the time allowed in construction of new house in the landed property owned by the assessee’s spouse, that will not disentitle the claim of deduction u/s. 54F. There should be direct nexus of investment by the assessee in the residential house owned by assessee’s spouse. In other words, if it was given for some other purpose to her husband and if there is no nexus between the these two, then exemption u/s. 54F cannot be granted. However, the lower authorities have not examined the exact amount of net consideration invested in the construction of new residential house and the time limit in which it was invested by the assessee. In our opinion, these facts are to be examined by the AO so as to grant deduction u/s. 54F. We are inclined to remit the issue to the file of the AO to verify whether the claim of amount invested in the construction of new house on the landed property owned by the assessee’s spouse has actually been invested therein - Appeal by the assessee is partly allowed for statistical purposes. Issues:1. Denial of deduction under Section 54F of the Income Tax Act, 1961.2. Investment in the construction of a new residential house in the name of the spouse.3. Charging of interest under sections 234A and 234B of the Act.Issue 1: Denial of deduction under Section 54F of the Income Tax Act, 1961:The appellant contested the denial of deduction under Section 54F of the Income Tax Act, 1961 by the assessing officer and the CIT(Appeals). The appellant argued that she had invested a significant amount in the construction of a new residential house within the stipulated period, making her eligible for the exemption. The appellant relied on the decision of the Hon’ble High Court of Karnataka in support of her claim. The Tribunal agreed with the appellant's argument, emphasizing that the appellant's investment in the construction of the residential property should entitle her to the benefit of deduction under Section 54F. The Tribunal rejected the Revenue's contention that the appellant did not deposit the consideration in the capital gain account scheme within the prescribed time, stating that the exemption under Section 54F should not be denied solely on this ground.Issue 2: Investment in the construction of a new residential house in the name of the spouse:Another key issue was whether the investment made by the appellant in the construction of the new residential house, which was in the name of her spouse, would disqualify her from claiming the deduction under Section 54F. The Tribunal referred to previous judgments by the Hon’ble High Court of Karnataka, which clarified that investment by the assessee in the residential house owned by the spouse would not disentitle the claim for exemption under Section 54F. However, the Tribunal noted that the lower authorities had not examined the exact amount of net consideration invested in the construction of the house and the time limit within which it was invested. Consequently, the Tribunal remitted the issue to the assessing officer for further verification, emphasizing the necessity of a direct nexus between the investment and the residential property owned by the spouse.Issue 3: Charging of interest under sections 234A and 234B of the Act:The Tribunal acknowledged the mandatory and consequential nature of charging interest under sections 234A and 234B of the Act. While the appellant denied liability for such charges, the Tribunal clarified that the charging of interest under these sections is a statutory requirement. Consequently, the Tribunal upheld the charging of interest under sections 234A and 234B of the Act as mandatory and consequential.In conclusion, the Appellate Tribunal ITAT Bangalore partially allowed the appeal by the assessee for statistical purposes, addressing the issues related to the denial of deduction under Section 54F, investment in the construction of a new residential house in the name of the spouse, and the charging of interest under sections 234A and 234B of the Act. The Tribunal provided detailed analysis and references to relevant legal precedents to support its decision on each issue, ensuring a comprehensive examination of the appellant's contentions and the Revenue's arguments.