R. Venkata Dhana Lakshmi (wife & legal heir of late R.Venkateswara Rao) Vs ITO (ITAT Visakhapatnam)
Income Tax Appellate Tribunal (ITAT), Visakhapatnam, partly allowed an appeal filed by the legal heir of a deceased assessee, granting a deduction under Section 54F of the Income Tax Act despite non-compliance with the deposit requirement. The assessee had sold four flats received as part of a development agreement, resulting in both long-term and short-term capital gains. While the ITAT upheld the assessment of these gains, it overturned the Commissioner of Income Tax (Appeals)’s (CIT(A)) decision regarding the Section 54F exemption.
Section 54F of the Income Tax Act provides an exemption from capital gains tax if the proceeds from the sale of a long-term capital asset are invested in a new residential property within a specified period. A key condition for claiming this exemption is either purchasing a new property within one year before or two years after the sale, or constructing a new property within three years. If the assessee doesn’t immediately reinvest the gains, they are required to deposit the uninvested amount in a Capital Gains Account Scheme with a designated bank.
In this case, the assessee had sold the flats in August/October 2009 (Assessment Year 2010-11) and claimed a Section 54F exemption for a new flat purchased in Victory House, Kukkatpally. Although the assessee had invested in the new property within the stipulated time, they failed to deposit the sale proceeds into the specified account. The Assessing Officer (AO) and subsequently the CIT(A) denied the exemption on this ground.
The ITAT, however, relying on the principle that beneficial provisions like Section 54F should be interpreted liberally, allowed the exemption. The tribunal noted that the assessee had demonstrably invested the sale proceeds in the new property, fulfilling the core objective of Section 54F. The ITAT cited a similar case, Ramaiah v. Income Tax Officer, where the Bangalore ITAT had allowed the exemption despite the absence of a deposit in the specified account, as the assessee had utilized the funds for acquiring the new asset within the stipulated time. The ITAT emphasized the “end utilization” of the sale consideration, focusing on the investment in the new property rather than the procedural lapse of not depositing the funds in the designated account. While confirming the assessment of capital gains, the ITAT directed the AO to verify the details of the new property acquisition and allow the Section 54F deduction.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
