Case Law Details

Case Name : Sunayana Devi Vs. ITO (ITAT Kolkata)
Appeal Number : ITA No. 996/Kol/2013
Date of Judgement/Order : 13/09/2017
Related Assessment Year : 2004-05
Courts : All ITAT (4863) ITAT Kolkata (355)

Sunayana Devi Vs. ITO (ITAT Kolkata)

Since assessee had invested the sale consideration in construction of a residential house within three years from the date of transfer, deduction under section 54F could not be denied under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1).

Assessee had utilised the net consideration in construction of a house within the period of three years from the date of transfer, the question would be whether the absence of deposit of unutilised net consideration in a specific bank account as is required under section 54F(4) of the Act, should the assessee be denied the benefit of deduction under section 54F of the Act. On this issue the learned Counsel for the assessee brought to our notice the decision of the Hon’ble Karnataka High Court in the case of CIT, Bangalore v. K.Ramachandra Rao (2015) 277 CTR 522 (Karnataka). In the aforesaid decision the assessee had not deposited the unutilised net consideration in a specific bank account as is required under section 54F of the Act. The assessee had however invested the net consideration in construction of a residential house within the period contemplated under section 54F(1) of the Act. The Hon’ble Karnataka High Court had to decide whether the assessee could be given a deduction of benefit under section 54F(1) of the Act. The Hon’ble Karnataka High Court held that if the assessee invests the entire consideration in construction of the residential house within three years from the date of transfer he cannot be denied deduction under section 54F of the Act on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1) of the Act. In the light of the aforesaid decision of the Hon’ble Karnataka High Court and in the light of the admitted factual position that the assessee invested the sale consideration in construction of a residential house within three years from the date of transfer, we are of the view that the assessee should be given the benefit of deduction under section 54F of the Act on the sum of Rs. 16,50,000 also and cannot be denied the benefit the said benefit for the reason that he had not complied with the requirements of section 54F(4) of the Act. Thus in effect the assessee would be entitled to deduction under section 54F of the Act of Rs. 20,31,839 viz., for the investment of Rs. 3,50,000 in purchase of the land, Rs. 31,839 stamp duty and registration charges and Rs. 16,50,000 utilized for construction of a residential house within this period specified in section 54F(1) of the Act. The assessing officer is accordingly directed to allow deduction under section 54F of the Act a sum of Rs. 20,31,839.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is an appeal by the assessee against the order dated 25-2-2013 of Commissioner (Appeals)-Siliguri relating to assessment year 2004-05.

2. The assessee has filed the revised grounds of appeal :–

“1. (a) For that on the facts and in the circumstances of the case, the learned Commissioner (Appeals) was not justified in confirming the addition of Rs. 21,00,000 made by the assessing officer on account of capital gains applying the provisions of section 50C.

(b) For that since the investment made by the assessee amounting to Rs. 20,31,839 as per the provisions of section 54F is more than the value of net consideration received amounting to Rs. 20 lacs, learned Commissioner (Appeals) ought to have deleted the entire addition of Rs. 21 lacs made under section 50C.

2. For that on the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in not allowing the entire exemption claimed under section 54F of Rs. 20,31,839 but only granting a part relief to the extent of Rs. 6,10,000 only.

3. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”

3. At the time of hearing the learned Counsel for the assessee submitted that ground no. 2 of the revised grounds of appeal alone be taken up for adjudication and the other grounds are not pressed.

4. The issue that needs our consideration is as to whether the assessee should be given the benefit of deduction under section 54F of the Income Tax Act, 1961 (Act) as claimed by the assessee.

5. The Assessee is an individual. During the previous year she sold 16 cottah of land for a sale consideration of Rs. 20,00,000 on 9-12-2003. The value adopted by the Registrar of Assurances for the purpose of stamp duty and registration of the property sold by the assessee was a sum of Rs. 41,00,000. As per the provision of section 50C of the Act the assessee had to adopt the stamp duty valuation as full value of consideration received on transfer for the purpose of computation of long term capital gain. The computation of long term capital gain as given by the assessee was as follows :–

C. Income from Long Term Capital gains :
Sale proceeds of 16 cottahs
Land at mouza Mandalaguri 20,00,000.00
Less: Indexed cost of acquisition:
10 cottah (86-87) 43,396 x 463/140 = 1,43,517
06 Cottah (87-88) 20.000 x 463/150 = 61,733 2,05,250.00
17,94,750.00
Less : Exemption under section 54F
i) Purchase cost of Home sted
Land for construction of
Residence on 29-7-2004 3,81,839
ii) Deposit with SBI, Capital
Gain a/c scheme 16,50,000 20,31,839.00
NIL____

6. The assessing officer however computed LTCG as given below by applying the provision of section 50C of the Act and substituting the value adopted for the purpose of stamp duty and registration as the full value of consideration received on transfer :–

Full value of consideration of 16 cottah land sold Rs. 41,00,000
Less: Index cost of acquisition
(i) 10 cottah purchased on 9-9-1996
(43,396 X 463/140) Rs. 1,43,517
(ii) 6 cotah purchase on 21-4-1987
(20,000 X 463/150) Rs. 71,733 Rs. 2,05,250
Long Term capital Gain Rs. 38,94,750

7. It can be seen from the computation of long term capital gain by the assessee that the assessee had claimed exemption under section 54F of the Act. Under section 54F(1) of the act if the long term capital gain derived on transfer of a capital assets is, within a period of one year or two years before the date on which the transfer took place purchased or has within a period of three years after the date constructed a residential house, the capital gain would be allowed as a deduction. Sub section 4 of section 54F of the Act impose another condition for claiming deduction under section 54F(1) of the Act. provides as follows :–

“Section 54F

(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 utilized 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 utilized 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 utilized 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”

8. It can be seen from the provision of sub-section 4 of section 54F of the Act that where the net consideration received on transfer of a capital asset is not invested in purchase of construction of a new asset before the date for filing the return of income under section 139 of the Act, it has to be deposited in a specified bank account within the due date for filing the return of income for the relevant assessment years as is prescribed under section 139(1) of the Act. It is not in dispute that the assessee purchased land for construction of a residential house. The date of the purchase is 29-7-2004. The consideration paid by the assessee for purchase of the property was Rs. 3,50,000. The assessee had paid stamp duty and registration charges of Rs. 31,839. The Commissioner (Appeals) treated the investment in purchase of the land as eligible for deduction under section 54F of the Act and there is no dispute before the Tribunal on this aspect. The Commissioner (Appeals) had not allowed the stamp duty and registration charges of Rs. 31,839. In our view this sum should be considered as utilization by the assessee in purchase or construction of a new asset. To this extent order of the assessing officer and Commissioner (Appeals) is not correct and they are directed to allow the deduction to the extent of Rs. 31,839 under section 54F of the Act.

9. The remaining unutilised net consideration with the assessee was a sum of Rs. 16,50,000. As per the provision of section 54F(4) of the Act the assessee if he wants to claim exemption under section 54F of the Act, the net consideration received on transfer of the capital asset, to the extent it is not utilized for the purpose of purchase of a new asset, had to be deposited in a specified bank account on or before the due date of filing the return of income under section 139(1) of the Act. The cut off date for such deposit for assessment year 2004-05 is 31-7-2004.

10. The assessing officer with a view verify the date by which the unutilized net consideration on transfer of the property which gave rise to long term capital gain was invested in a specified bank account, called upon the assessee to file the required details. The assessee did not file the required details. In such situation the assessing officer proceeded to compute long term capital gain at a sum of Rs. 38,94,750, which we have set out in paragraph 6 of this order.

11. Aggrieved by the order of assessing officer the assessee preferred appeal before Commissioner (Appeals).

12. We have observed that Commissioner (Appeals) considered purchase of land as to the extent of Rs. 3,50,000 as eligible for deduction under section 54F of the Act. We have already held that stamp duty and registration charges of Rs. 31,839 should also be eligible for deduction under section 54F of the Act. With regard to the remaining unutilised net consideration of Rs. 16,50,000 the assessee filed details of the deposit of the said sum in specific bank account as is required under section 54F(4) of the Act. The details of the various dates of deposits as furnished by the assessee before Commissioner (Appeals) reveal the following decision :–

31-7-2004 Cash deposited out of sale proceeds of land Rs. 2,60,000
2-8-2004 Cheque issued from UBI savings bank a/c (deposited on 30-7-2004, Xerox of deposit slip enclosed) Rs. 13,90,000
3-8-2014 cheque sent for clearance to UBI (-) Rs. 13,90,000
8-1-2005 Interest credited by bank Rs. 3,791
12-2-2005 New cheque issued form S.B.A/c, UBI

As the earlier cheque has been misplaced by bank

Rs. 13,90,000

12-2-2005 Cheque sent for clearance to UBI (-) Rs. 13,90,000
1-3-2005 Cheque cleared form UBI Rs. 13,90,000
22-4-2005 Cash withdrawn for construction (-) Rs. 30,000
22-4-2005 Cheque issued for purchase of building materials (-) Rs. 1,79,594
22-4-2005 to 20-9-2005 (except 4-7-2005) Cheques issued/cash withdrawn for construction of Building/for purchase of Building materials (-) Rs. 6,17,450
4-7-2005 Interest received Rs. 18,120
Closing Balance (Dr.) Rs. 8,44,867

13. It can be seen that the assessee had deposited on or before 31-7-2004 which was the due date of filing the return of income under section 139(1) of the Act. Rs. 2,60,000 to this extent the Commissioner (Appeals) held that the assessee was entitled to deduction under section 54F of the Act. With regard to the remaining sum of Rs. 13,90,000 (16,50,000-2,60,000) since the deposit was made after 31-7-2004 (after due date under section 139(1) of the Act) the Commissioner (Appeals) held that the assessee will not be entitled to the benefit of deduction under section 54F of the Act.

14. At the time of hearing the learned Counsel for the assessee pointed out that the admitted factual position as it emanates from the various documents filed by the assessee before Commissioner (Appeals) and the remand report of the assessing officer is that the assessee had utilised the unutilized net sale consideration of Rs. 16,50,000 in construction of a residential house. This would be clear from the annexure to the remand report dated 2-6-2009 viz., the spot inquiry conducted by the Inspector of the Income Tax. In the inquiry report dated 30-3-2009 of the Inspector of the Income Tax it has been stated as follows :–

“As per your direction, I visited the locality in which the building property of the assessee stands which is found located at the bye-lane of Sister Nivedita Road at Gurung Busty, Pradhan Nagar, Siliguri and which is also found can be viewed opposite of the location of the office premises of West Bengal State Electricity Board, Pradhan Nagar, Siliguri. The structure of the building is found with building plan for Ground plus three storied residential purposes. Therein, I met Smt Sunayana Devi, who assisted me throughout my enquiry. As per my sport inquiry Smt Sunayana Devi told and also showed me documentary proof like application made to the Chief Executive Officer, Siliguri Municipal Corporation and also certificate from the Ward Councillor certifying the completion of building. As per the documents and also of the replies of the query regarding the construction and completion period of the building, it was told by the assessee that she had started constructing the residential house building during the period 2005 and completed during the period 2006. To ascertain the same, further discreet inquiries were made with the locals of the locality and the consequence of all reply were found in the affirmative. During my spot inquiry of each floor, it was found that the building is totally used by the assessee for her family residential purposes only and were not found to have been let-out or sold to any third party or parties.”

15. The Commissioner (Appeals) however was of the view that in the present assessment year what is relevant is only the deposit of unutilized net consideration received on transfer of the capital gain in a specified account as is required under section 54F(4) of the Act and the question regarding completion of the construction will have to be examined only in the assessment year in which the time limit for constructing a new house expires. The following were the relevant observations of Commissioner (Appeals) :–

“ As per the remand reports submitted by the learned assessing officer it was not conclusively proved that the residential house was completed within 3 years from the date of sale of land. But the fact remains that the assessee has constructed a residential house on the land purchased by her which has not been disputed by the learned assessing officer. The Courts have held that exemption under section 54F cannot be denied on the ground that the construction was not completed within the stipulated period. As the assessee has purchased land and thereafter constructed residential house thereon although Completion Certificate has not been issued by the municipal authorities the assessee is eligible for exemption under section 54F to the extent of investment of Rs. 3,50,000 made for purchase of land for the purpose of construction of residential house thereon. For this assessment year the assessing officer, while examining the claim of exemption under section 54F, is required to restrict himself to see whether the assessee has fulfilled the basic requirements as per the provisions of law for availing such exemption. Only after expiry of the stipulated period from the date of transfer of asset as per the provisions of section 54F the assessing officer should examine whether the assessee has fully complied with the requirement of purchase of new house or construction of new house. If the assessee has failed to comply with the requirement of purchasing new house or constructing new house within the stipulated time frame from the date of transfer of asset as per the provisions of section 54F, the assessing officer is justified in withdrawing the exemption granted. In such circumstances the withdrawal of exemption under section 54F is justified in the year the stipulated time period for purchase of new house or construction of new house expires.

Considering the above facts I hold that the assessee is entitled to exemption under section 54F to the extent of investment of Rs. 3,50,000 made for purchase of land for the purpose of construction of residential house thereon and deposit of Rs. 2,60,000 made in the Capital Gains Account Scheme by the assessee by the due date of filing of return under section 139(1) of the Act. Thus the assessee is allowed exemption of Rs. 6,10,000 under section 54F of the Act. The dis-allowance of exemption under section 54F of the Act of the entire Capital Gain by the learned assessing officer was not justified as the claim of exemption under section 54F to the extent of Rs. 6,10,000 to the assessee is held to be justified.”

16. After considering the remand report and the Inspectors report it is clear that the construction of a residential house was completed by the assessee within the period of three years from the date of transfer as is required under section 54F(1) of the Act. The absence of completion certificate cannot be a ground to deny the benefit of deduction under section 54F of the Act. The ld.counsel for the assessee in this regard has placed reliance on the decision of the Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari 302 ITR 286 (Mad). The Hon’ble Madras High Court in the aforesaid decision in the context of deduction under section 54F of the Act came to the conclusion that it would be enough if the assessee establishes that he has invested the entire net consideration within the stipulated period. The Chennai Bench of ITAT in the case of Mrs. Seetha Subramanian v. ACIT 59 ITD 94 (Mad) also took a view that investment of the net consideration for construction of the house has alone to be seen for allowing deduction under section 54F of the Act.

17. Having come to the conclusion that the assessee had utilised the net consideration in construction of a house within the period of three years from the date of transfer, the question would be whether the absence of deposit of unutilised net consideration in a specific bank account as is required under section 54F(4) of the Act, should the assessee be denied the benefit of deduction under section 54F of the Act. On this issue the learned Counsel for the assessee brought to our notice the decision of the Hon’ble Karnataka High Court in the case of CIT, Bangalore v. K.Ramachandra Rao (2015) 277 CTR 522 (Karnataka). In the aforesaid decision the assessee had not deposited the unutilised net consideration in a specific bank account as is required under section 54F of the Act. The assessee had however invested the net consideration in construction of a residential house within the period contemplated under section 54F(1) of the Act. The Hon’ble Karnataka High Court had to decide whether the assessee could be given a deduction of benefit under section 54F(1) of the Act. The Hon’ble Karnataka High Court held that if the assessee invests the entire consideration in construction of the residential house within three years from the date of transfer he cannot be denied deduction under section 54F of the Act on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1) of the Act. In the light of the aforesaid decision of the Hon’ble Karnataka High Court and in the light of the admitted factual position that the assessee invested the sale consideration in construction of a residential house within three years from the date of transfer, we are of the view that the assessee should be given the benefit of deduction under section 54F of the Act on the sum of Rs. 16,50,000 also and cannot be denied the benefit the said benefit for the reason that he had not complied with the requirements of section 54F(4) of the Act. Thus in effect the assessee would be entitled to deduction under section 54F of the Act of Rs. 20,31,839 viz., for the investment of Rs. 3,50,000 in purchase of the land, Rs. 31,839 stamp duty and registration charges and Rs. 16,50,000 utilized for construction of a residential house within this period specified in section 54F(1) of the Act. The assessing officer is accordingly directed to allow deduction under section 54F of the Act a sum of Rs. 20,31,839. The appeal of the assessee is thus partly allowed.

18. In the result the appeal of the assessee is partly allowed.

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Category : Income Tax (26966)
Type : Judiciary (11143) Trending (506)
Tags : ITAT Judgments (5045) Section 54F (159)

One response to “Can exemption U/s. 54F be denied for non-deposit of amount in specific bank account”

  1. vswami says:

    OFFHAND
    The view taken in favor of taxpayer, following the cited KAR HC Judgment , cannot be logically faulted, for more than one reason. For a discussion of the hyper-technical contra view taken by the BOM HC, look up the published Article @ https://taxguru.in/income-tax/sec-54f-brain-teaser.html

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