Disallowance of exemption u/s. 54 F

[AriramaNadar Ramakrishnan]

One of my assessee has sold his property on 21.03.2007 and we arrived long-term capital gain amount Rs. 92,67,000/-. But the assessee has filed his return of income on 29.07.2008 and not made any deposit into Capital Gain Account. Also he has purchased new assets of one residential property on 24.08.2007 for Rs. 39,00,000/-, for that, he has executed sale agreement on 20.04.2007 without made any advance amount. In this circumstance, we have claimed exemption u/s. 54 F for Rs. 39,00,000/- as the assessee invested the amount within six month from the date of Transfer. But, the Income Tax Officer has disallowed this and demanded the tax. Now we want justification with case law reference.

[DEV KUMAR KOTHARI]

Provide full facts about eligibility for 54 F benefit, Why the AO has disallowed?

[AriramaNadar Ramakrishnan]

Dear Mr. Dev Kumar Kothari, Thanks for receiving your reply. Please note the eligibility for 54 F benefit - i.e. the earner of long-term capital gain can get the exemption under this section to the extend of long-term capital gain amount; for that, either he has made purchased/constructed new residencial property within one year before or he should purchase/construct new residencial property within three years the date on which the transfer of the original asset took place for the value which higer than the capial gain amount earned within three. For getting this exemption, either he has to made the new asset befor the furnish his return of income u/s. 139 (1) or deposit the capital gain amount into Capital Gain Account with any nationalized bank within the period of six months time. In our case, he has not any deposited into capital gain account and furnished his return of income on 29.07.2008 (Due date was 31.07.2007 u/s. 139(1)). But he has made new assets within six months. The AO has disallowed with the reason mentioned that he has not made deposit into capital gain account and furnshined the return of income was not u/s. 139(1). Hence the claim of exemption u/s. 54 F was disallowed and added back to return of income.

[DEV KUMAR KOTHARI]

It is not necessary that a capital gain deposit a/c should be opened if a new house is constructted or purchased and for that purpose funds are invested before due date to file return (31.07.07 in this case ). (See. Section 54F (4). In this case assessee has purchased new assets of one residential property on 24.08.2007 for Rs. 39,00,000/-. 24.08.07 is after the due date (31.07.07). Therefore, apparently there was requirement to open capital gain a/c by 31.07.07 and the AO may be considered to be justified in disallowing the claim. However, in case funds have been used ( including committed by issue of cheques to vendor) for purchase of new house before 31.07.07, then case can be made out that to the extent of Rs.39 lakh, it was not necessary to deposit money in capital gain a/c as the money was already paid/ committed to vendor. So check the details of contract to purchase new house, paymeents made before 31.07.07, if not paid at least committment made before 31.07.07 to the vendor, so that it can be said that the sum of Rs.39 lakh is actually used by way of payment or kept ready for purchase of house. If assessee is otherwise eligible for deduction u/s 54F, on the basis of investment made, in new house, late filing of return will not affect his entitlement of deduction u/s 54F. In fact entitlement to claim deduction u/s 54F is not affected even if return is not filed, in case assessee is not otherwise required to file a return a claim as per provisions can be considered in own computation and need not to file return. ( I hope I have not missed any provision requiring filing of return to clam S. 54F benefit). S. 54F is a part of computation of capital gain, so if gross total income is not exceeding basic exemption , then it may not be necesary to file return. You can file appeal, on proper representation of facts and on purposive construction the CIT(A) may allow relief.

AI Summary

Capital gains exemption under section 54F hinges on deposit or committed investment before the return due date. Exemption under section 54F was denied because the assessee filed the return late and did not deposit proceeds into a Capital Gain Account by the six month deadline; however, if the purchase funds were actually paid or irrevocably committed before the return due date, a Capital Gain Account deposit may be unnecessary and the exemption may be allowable on proof of such commitment.