CA Neil Ganatra
“The amount of the capital gain 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 (two years after the date on which the transfer took place) or construction of the new asset within (a period of three years n which the transfer took place) the period specified in
(i) the amount not so utilised shall be charged under section 45 as the 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 such amount in accordance with the scheme aforesaid.
Herein the section mentions that if the amount invested in the new asset is less than the capital gain amount then the remaining amount should be deposited in the capital gain scheme account. Now the points of disputes are;
1. To claim exemption, is it necessary to deposit the remaining amount in capital gain account within time limit prescribed u/s 139(1)?
2. Whether exemption is available to an assessee, if he fails to deposit the amount in capital gain account within prescribe time limit, however, deposits the entire amount after the prescribe time limit?
3. Is it possible to claim exemption under section 54 though the whole capital gain amount was neither invested nor deposited in capital gain account but was utilized later?
There are judgments wherein Similar questions were observed by Hon’ble Gauhati High Court (in CIT v. Rajesh Kumar Jalan (2006)) and ITAT Bangalore (in Shri Nipun Mehrotra v. ACIT (2008)), favored the assessee and allowed the exemption wherein the amount was not deposited in capital gain account within the prescribed time limit. However, in similar situation, Hon’ble ITAT Delhi (in Taran Birsingh Sahni (2006)) took the contrarily view and disallowed the claim of the assessee.
One point to notice in in all the above cases was, the assessee invested the money in new house property within the one year before or two years after the transfer and he failed to deposit the amount in capital gain account, i.e. the whole capital gain amount was not invested before the due date of filing return of income u/s 139(1).
The Hon’ble Gauhati High court took the view that the section mentioned in the section 54(2) above refers time limit of section 139 and not the 139(1) alone. Section 139 includes section 139(4) wherein time limit for filing belated return is one year from the end of assessment year or completion of assessment whichever is earlier. The court also referred the judgements of State of Maharashtra v. Santosh Shankar Acharya and Bhavnagar University v. Palitana Sugar Mill P. Ltd. to discuss the well known principal of construction of statutes that the Legislature engrafted every part of the statute for a purpose. The legislative intention is that every part of the statute should be given effect. The Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the Legislature will not be accepted except for compelling reasons.
Therefore, 54(2) – Capital Gain Account Scheme can be interpreted as under, to avail exemption;
– If the full amount of the capital gain is invested in new residential house property within the time limit u/s 139(1)
– Full amount of capital gain is not invested within time limit u/s 139(1), but it is utilized within the time limit u/s 139(4) though nothing is deposited in the capital gain account within time limit u/s 139(1).
In section 54(2) two sections are mentioned viz. 139 and 139(1). It must be understood that there are two different sentences in which both these sections are referred. In the first sentence with reference to utilization of the amount section 139 is mentioned without mentioning any sub section. While in the second sentence with reference to deposition of amount in capital gain account, section 139(1) is specifically mentioned. Which means though nothing in deposited in capital gain account, exemption u/s 54 can be availed if the full amount of capital gain is utilized within time limit u/s 139(4) as section 139 mentioned in the act for that purpose includes all subsections. However, if the amount is not actually utilized within the time limit, exemption can’t be claimed by depositing the amount after due date mentioned u/s 139(1). If the assessee wants to deposit the amount in capital gain account, the deposition has to be within the time limit mentioned u/s 139(1).
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(Republished With Amendments)