Capital Gains Account Scheme preserves exemption but deduction must be proportionate under the statutory formula for new asset cost.

For computing deduction under the statutory capital-gains exemption, the deduction is calculated by applying the statutory formula equating deduction to capital gain multiplied by the ratio of cost of the new asset to net consideration; deposits into the Capital Gains Account Scheme preserve entitlement to exemption but do not change the computation method. Where the assessee neither showed actual utilization nor an irrevocable commitment of the deposited amount towards construction, the excess claimed cannot be treated as cost of the new asset and a proportionate disallowance is warranted; the appeal is dismissed.

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Issues: Whether, for computing deduction under section 54F of the Income-tax Act, 1961, the assessee is entitled to claim the entire amount deposited in the Capital Gains Account Scheme as cost of the new asset for deduction purposes, or only a proportionate deduction computed by applying the statutory formula in section 54F(1).

Analysis: Section 54F prescribes that the deduction equals the capital gain multiplied by the ratio of the cost of the new asset to the net consideration; section 54F(4) permits deposit in the Capital Gains Account Scheme to preserve eligibility for exemption but does not alter the computation method under section 54F(1). The figures in dispute are undisputed: net consideration, capital gain, actual construction expenditure and amount deposited in the Capital Gains Account Scheme. The disputed excess arises from arithmetic application of the statutory formula. The assessee produced no material to show that the deposit in the Capital Gains Account Scheme had been actually utilized or irrevocably committed to construction such that the entire claimed amount would form part of the cost of the new asset for computation purposes. Relevant authorities uphold that preservation of exemption by deposit does not waive the requirement to compute the deduction by the formula when the entire net consideration is not invested.

Conclusion: The deduction must be computed by applying the statutory formula in section 54F(1); the deposit in the Capital Gains Account Scheme preserves eligibility but does not automatically entitle the assessee to the entire claimed amount. The proportionate disallowance of Rs. 3,91,661/- is justified and the appeal is dismissed.

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