Deduction u/s 54 was allowable in case capital gains were utilized within time specified but sale deed was not registered

Dr. Sheela Puttabuddi Vs ITO (ITAT Bangalore)

Conclusion: Utilisation of capital gains within time specified would entitle assessee to claim deduction under section 54, notwithstanding fact that new asset was registered beyond period specified under section 54, which according to assessee was beyond her control and was to be liberally construed.

Held: Assessee was a Doctor by profession and had derived capital gains from sale of flat on various dates and assessee claimed exemption u/s 54 to the extent of Rs.1,26,00,000.  AO and CIT(A) denied the claim of exemption for the reason that since assessee was not able to purchase a new asset by reinvesting in a new residential property within the stipulated time the exemption u/s 54 could not be granted to assessee. Assessee had sold the property on various dates during the relevant assessment year, namely, A.Y.2015-2016. Admittedly, assessee had neither purchased nor constructed the residential house within the due date specified and also the proceeds from the sale of original asset was deposited by the assessee in a capital gains account scheme with the State Bank of India. The solitary question which required to be adjudicated was whether assessee was entitled to the claim of exemption u/s 54 of Rs.1,26,00,000 even though the new residential house was registered beyond the stipulated period of 2 years as per the provisions of section 54 of the I.T.Act. It was held that considering the benevolent nature of section 54, the utilisation of the capital gains within the time specified would entitle assessee to the claim of deduction under section 54 notwithstanding the fact that the new asset was registered beyond the period specified under the I.T.Act, which according to the assessee was beyond her control and was to be liberally construed. It was held by various Hon’ble Courts that application of beneficial provisions must be liberal to accommodate the rules laid down broadly to verify compliance and must not be interpreted literally, unlike charging sections which were to be construed strictly. The bonafides of assessee could not be doubted, since assessee had made deposits into the capital gains scheme immediately and thereupon made payments to the developer to acquire the new house property. Assessee was also prevented by reasonable cause since the funds had already been utilized and was forced to acquire an asset due to the reason beyond her control. The section 54 of the I.T.Act being benevolent in nature, it should be liberal in interpreting the provisions of section 54 of the I.T.Act considering the fact that the new house was eventually acquired, out of the same capital gains utilized, which had been brought on record and not in dispute. Assessee was entitled to the claim of deduction to the extent of Rs.1,26,00,000 and directed AO to allow the claim u/s 54 to the said extent.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 18.11.2019. The relevant assessment year is 2015-2016.

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