Shri Pankaj Chimanlal Patel (HUF) Vs DCIT (ITAT Ahmedabad)
The essential controversy in the instant case is whether deduction under 54F of the Act is available in respect of capital gains arising from sale of more than one long term capital assets, not being residential house (original asset) against the construction or purchase of one residential house (new asset). The incidental issue that arises is whether capital gains of multiple years can be claimed against purchase/construction of same new residential house i.e. new asset subject to fulfillment of other conditions. The Revenue seeks to deny the deduction on two grounds (i) the expression used in Section 54F(1) is ‘transfer of any long term asset’, which connotes singularity and (ii) the action of ‘purchase’ can happen only once.
Deduction under s.54F of the Act essentially depends upon the extent of utilization of the sale proceeds in the new asset. The benefits of Section 54F of the Act also stands denied where the assessee owns more than one residential house other than new asset on the date of transfer of the original asset. The object of Section 54F is to encourage an assessee to convert any of his long term assets into a residential house subject to the condition that assessee does not own more than one residential house other than the new residential house on the date of transfer of long term asset. The Section, thus, in essence, offers some incentives to a tax payer to change its unproductive assets into a residential house. The action of the assessee is thus in conformity with the object and purpose of Section 54F of the Act. To say that the assessee is entitled for deduction in respect of capital gains arising from sale of only one long term capital asset and conversion thereof in residential property would in effect seriously limit the object and purpose of Section 54F of the Act.
To delineate further, an incidental situation may also crop up whether capital gains deduction with reference to Section 54F of the Act would apply with respect to a solitary transaction and not on whole of several different transactions of capital assets in the form of equity, mutual fund and so on. If the interpretation of ‘any long term asset’ as suggested by Revenue is read to mean deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of broader expression ‘any’ long term asset in distinction to expression ‘a’ long term asset as used in Section 10(38) of the Act. Thus, the legislative intent when gathered from the distinct language used, it is clear that a narrower interpretation would fail to achieve manifest purpose of the deduction provision. We thus, prefer to avoid a construction which would reduce the legislation to futility and grant broader construction to bring effective result on availability of such deduction.
As a corollary, the decision of the co-ordinate bench in favour of the assessee is, in effect, harmonious interpretation of Section 54F of the Act and not necessarily a liberal interpretation of the deduction provision. We are thus of the view that the decision of the Hon’ble Supreme Court in Dilipkumar & Co. (supra) does not hinder the claim of assessee.
FULL TEXT OF THE ITAT JUDGMENT
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-4, Ahmedabad (‘CIT(A)’ in short), dated 21st September, 2016 arising in the assessment order dated 13.02.2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2012-13.
2. The Revenue in its appeal has impugned the action of the CIT(A) in deleting the disallowance of deduction under s.54F of the Act amounting to Rs.1,50,94,718/-.
3. Briefly stated, the assessee is an HUF and derives income by way of capital gains and other sources. It filed its return of income for AY 2012-13 in question declaring total income of Rs.1,17,44,790/-. The return filed was subjected to scrutiny assessment. In the course of assessment proceedings, the AO noticed that the assessee had claimed deduction under s.54F of the Act of Rs.1,50,94,718/- on sale of plot of land against a new residential house property. It was further noticed that the assessee had already made such claim of deduction on sale of another land in the preceding AY 2011-12 also. The AO accordingly concluded that the assessee could not make claim of double deduction towards investment of sale proceeds arising out in two different assets in two different assessment years against the purchase of same residential property. To arrive at such conclusion, it was observed by the AO that deduction under s.54F of the Act arises from a single asset as the words used are ‘original asset’ and not ‘asset(s)’. It was further observed by the AO that since the purchase as contemplated in Section 54F of the Act could happen only once and that has already happened in the preceding assessment year 2011-12 on 21.01.2011, the benefit towards purchase of new asset cannot be extended to capital gains on sale of another original asset in another assessment year. The AO accordingly refused to entertain the claim of deduction of the assessee under s.54F of the Act.
5. The CIT(A) referred to the decision of Co-ordinate bench on the identical issue in the case of Anagha Ajit Panekar (2006) 9 SOT 685 (Mumbai) & Mrs. Krishnadevi Kejriwal ITA No. 93/Mum/2009 & Ors. order dated 25thJune, 2010 and adjudicated the issue in favour of the assessee. The relevant operative para of the order of the CIT(A) reads as under:
“6. I have carefully considered the submissions and have also gone through the assessment order. The only ground of appeal is against the additions of Rs.1,50,94,718/- made by the AO by disallowing the claim of the appellant made u/s 54F of the Act. Brief facts of the case are as under:
6.1 The appellant is an HUF and derives income by way of capital gain & other sources. It had filed its return of income for A. Y.2012- 13 on 19-7-2012 declaring total income of Rs.1,17,44,790/- During the course of asstt. proceedings, the AO noticed that the appellant had claimed exemption u/s 54F of sale of plot of land bearing S.No.726/4/1, FP No. 32/1 admeasuring about 2158.05 sq. mtrs. against the new residential house property, though it had already made such claim of exemption in A.Y. 2011-12 on sale of land bearing S. No. 664 FP No. 218/1 admeasuring about 1052 sq. mtrs. In other words it was the contention of AO that the assessee could not make claim of double, exemption against the same residential property. The appellant vide reply dt.23-1 -2015 submitted before the A.O. that there was no bar of claiming such exemptions provided the time limit is satisfied and funds from sale of two assets were utilized in the new property. However the AO has rejected the same for the reasons stated in para-5.2 to 5.5 of the asstt. order.
6.2 The deduction claimed under section 54F is as under.
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