CIT Vs K Ramachandra Rao (Karnataka High Court)
Conclusion: Assessee was entitled to claim deduction under section 54F as investment in putting up a residential construction could be made on a site owned by him to be eligible for exemption and if the intention was not to retain cash but to invest in construction or any purchase of the property and if such investment was made within the period stipulated therein, then Section 54F(4) was not at all attracted and exemption was allowable.
Held: Assessee computed Long Term Capital Gains before claiming exemption under Section 54B and 54F. During the course of assessment proceedings, assessee’s was asked to substantiate the claim made for exemption under section 54B and 54F. Assessee stated in the year 2005 i.e. on 31.3.2005 a sum of Rs.31,00,000/- had been contributed towards house construction. Till that date a loan of Rs.2,10,00,000/- was taken from Bank which was also utilized for construction. Therefore to the extent of 1,36,00,000/- he claimed exemption for construction of the house. After considering the said reply AO held assessee had admitted that the land sold was a capital asset. Assessee claimed to have utilized 14,00,000/- in the previous year towards house construction. It was not clear as to whether the amount of Rs.1,36,00,000/- claimed to have been spent for house construction was inclusive of 14,00,000/- spent earlier. Further it was held assessee ought to have deposited the unutilized sale consideration in a Bank account under the Capital Gains Accounts Scheme. Therefore, assessee’s claim for exemption under Section 54F was disallowed. Aggrieved by the said order, assessee preferred an appeal to CIT (Appeals). Appellate Authority held assessee’s investment in construction subsequent to the date of sale and investment in the eligible project even after the project of the house was started beyond one year will be eligible for exemption under Section 54F. However investment was made prior to more than one year before the date of transfer was not eligible for exemption. Accordingly, he granted exemption. Revenue preferred an appeal challenging the said order. Tribunal had affirmed the said order. It was against the said order Revenue had preferred the said appeals. It was held that all investments in the said construction after 27.8.2003 within a period of three years there from was eligible for exemption. Therefore, the argument that such investment in putting up a residential construction could not be made on a site owned by him to be eligible for exemption was without any substance. Both the Appellate Authorities had rightly extended the benefit to the assessee and there was no error committed by them which calls for interference. Section 54 (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which was duly notified by the Central Government. In other words, if he want of claim exemption from payment of income tax by retaining the cash, then the said amount was to be invested in the said account. If the intention was not to retain cash but to invest in construction or any purchase of the property and if such investment was made within the period stipulated therein, then Section 54F(4) was not at all attracted and therefore the contention that assessee had not deposited the amount in the Bank account as stipulated and therefore, he was not entitled to the benefit even though he had disinvested the money in construction was also not correct. Accordingly, the appeal was dismissed.
