SECTION 54F

[manoj gupta]

The assessee has sold land for Rs. 16 lacs on 29.01.2009 and purchased another land for Rs. 16 lacs before the date of sale for construction of house within 3 years from date of sale and availed exemption of Rs. 16 lacs under section 54F. As per the provisions of income tax act, he has to construct house upto 28.01.2012. But till date, he has not spent any amount on construction of house. Now, the A.O. wants to disallow exemption u/s 54F in the assessment year 2009-10 as the house is not constructed. our view is that since the time limit for construction of house ends on 28.01.2012, exemption can be withdrawan only in assessment year 2012-13 and not assessment year 2009-10. Pls. clarify the position with relevant case laws if any.

Thanks

 

[ROHAN THAKKAR]

Dear Sir,

Your case is clearly covered by the provisions of section 54F(4) which is reflected below:

(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.

 i.e., it conveys that the unutilised amount [if deposited in a Capital Gain Deposit Scheme Account (this point is not clarified in the above query)] in the capital gain deposit scheme account will be taxed in the year in which the period of 3 years expires.

AI Summary

Capital gain exemption under section 54F: unutilised deposits taxed when the construction period expires, withdrawal permitted. Amounts not utilised for purchase or construction before filing the return must be deposited in a capital gain deposit scheme account and, together with any amount already utilised, are deemed the cost of the new asset; if the deposited amount is not utilised within the three year period, the unutilised portion is charged as income in the previous year in which that period expires and may be withdrawn in accordance with the scheme.