Case Law Details

Case Name : Shri Pankaj Chimanlal Patel (HUF) Vs DCIT (ITAT Ahmedabad)
Appeal Number : ITA No. 3179/Ahd/2019
Date of Judgement/Order : 12/12/2018
Related Assessment Year : 2012-13
Courts : All ITAT (6102) ITAT Ahmedabad (421)

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.

FY ended AY 31.03.2011 AY:2011-12 31.03.2012 AY:2012-13 Total
Sale of Property Land at S.No.664 Land at S.No.726  
Sale Consideration 2,28,41,726 2,67,03,250  
LTCG 2,14,19,904 2,39,92,739 4,54,12,643
Ded. U/s 54F 1,96,92,819 1,50,94,718 3,47,87,537

(a) During the AY: 2011-12, the appellant sold a piece of land on 31.03.2011 at survey No.664 for a consideration of Rs.2,28,41,726 and earned capital gain of Rs.2,14,19 904. Out of this sale consideration, the appellant decided to invest in a residential house property at bungalow No. 10, Panchshil society, Usmanpura, Ahmedabad for a cost of Rs.3,78,00,000 and accordingly the appellant paid Rs.2,10,00,000 vide a Banakhat on 21.01.2011. Thus, the appellant claimed the new investment in residential house property of Rs.1,96,92,819 (proportionately) under section 54f in A.Y. 2011-12.

(b) Subsequently in a succeeding assessment year i.e. in AY:2012-13, the appellant sold another piece of land on 03.2012 at survey no.726/4/1 for a consideration of Rs.2,67,03,250 and earned capital gain of Rs.2,39,92,739. The appellant ias claimed deduction of Rs. 1,50,94,718 by investing Rs. 1,68,00,000 (3,78,00,000 – 2,10,00,000) in the same residential property being bunglow No. 10, Panchshil society, Usmanpura, Ahmedabad vide a registered sale deed 16.04.2012.

(c) The assessing officer has disallowed claim made u/s.54F accounting of Rs.1,50,94,718/- It is discussed in para 5 of the order. It is observed by AO that deduction under section 54F cannot be made for the same residential property in two different assessment The AO further observed that the interpretation of section 54F means the gain should arise from a single asset as words used are the original asset and not assets. It is further mentioned by AO that since the purchase could happens only once and that had happened on 21.01.2011, the same benefit cannot be extended to the second property in another assessment year.

6.3 The appellant contended that the disallowance made by the AO are not as per the provisions of the Act and hence not justified. The appellant’s submission has been reproduced above. The appellant also relied upon the case laws as mentioned in the submission.

6.4 The reasons for making the additions and the submission made by the appellant alongwith case laws relied upon have been carefully considered and found that the additions made by the AO are not justified for the following reasons:

i) Section 54F of the Act contains the provisions as under:

54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, one residential house in India] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

On going through the facts of the case and the provisions contained under section 54F of the Act as reproduced above, it is found that the appellant has complied all the conditions prescribed under that section. There is not a single condition which has not been fully complied with by the appellant. When the appellant complied all the conditions prescribed under the provisions of the said section, the disallowance of the claim of the appellant is not in accordance with the provisions of the Act, therefore, it is not found justified. The appellant’s claim is found as per law, so it is allowable. Hence additions made are deleted

ii) The appellant’s case is covered by the order of the Hon’ble ITAT, Mumbai, Bench “C” in the case of Smt. Anagha Ajit Panekar v/s ITO (2006) 9 SOT 685 (Mum.) in ITA No.3810 (Mum.) of 2003 dated June 14, 2006. The said order is reproduced below:

“Section 54F of the Income-tax Act, 1961 – Capital Gains – Exemption of, in case of investment in residential house – Assessment year 1997-98 – Whether there is no bar in &* section 54F for claiming deduction second time or third time for same property if cost of residential property is within capital gain arisen to assessee, provided deduction is claimed within time stipulated in section 54F – Held, yes – Assessee earned capital gain on account of sale of shares and claimed deduction under section 54F in respect of capital gain for purchase of residential flat on 18-8-1995 – Assessee had also earned capital gain in earlier assessment years 1995-96 and 1996-97 and had sought deduction under section 54F in respect of purchase of same residential flat – Whether since total capital gain arisen to assessee in all assessment years 1995-96 to 1997-98 was less than cost of flat, assessee was entitled to deduction under section 54F in relevant assessment year – Held, yes

FACTS

During the previous year relevant to the assessment year under consideration, the assessee earned capital gain on account of sale of shares and claimed deduction under section 54F in respect of capital gain for purchase of residential flat on 18-8-1995. The Assessing Officer having noted that in earlier assessment years 1995-96 and 1996-97, capital gain had arisen to the assessee in respect of sale of shares and the assessee had sought deduction under section 54F in those years also in respect of purchase of same residential flat, held that since the assessee had Already claimed deduction under section 54F in the assessment years 1995-96 and 1996-97, the assessee could not claim deduction in respect of same residential flat in the relevant assessment year. The Assessing Officer, therefore, denied deduction under section 54F to the assessee in the relevant assessment year. On appeal, the Commissioner (Appeals) held that since the assessee had not appropriated the sale consideration towards purchase of flat in the relevant assessment year deduction under section 54F could not be allowed to the assessee.

On second appeal:

HELD

There is no bar in section 54F for claiming deduction second time or third time for the same property if cost of the property is within the capital gain arisen to the assessee. In the instant case, total capital gain arisen to the assessee in all the three years 1995-96 to 1997-98 was less than the cost of flat. Further, from the language of section 54F it is clear that the Legislature has provided leverage to the assessee for claiming deduction under section 54F in the sense that the assessee can buy the property first and claim deduction later on, i.e., within one year or can have capital gain first and can claim deduction within two years by purchasing the residential fiat. In all the assessment years, these conditions were satisfied. Therefore, in respect of residential property till cost of purchase of property is exhausted by the claim of the capital gain but remaining in the time-frame stipulated in section 54F, deduction under section cannot be denied. If the assessee falls out of the time-limit in section 54F then probably department can have a case. The Commissioner (Appeals) dismissed the appeal of the assessee by interpreting sub-section (4) by holding that the assessee had not appropriated the sale consideration towards purchase of flat, but the Commissioner (Appeals) had ignored the main provisions of section 54F. Sub-section (4) has been inserted with a view to facilitate the assessee to claim the capital gain exemption when the assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of the Commissioner (Appeals) was accepted, it would frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, the order of Commissioner (Appeals) was set aside and the assessee was entitled to deduction under section 54F in the relevant assessment year. [Para 7]

EDITOR’S NOTE

It was also held by the Tribunal that the assessee was entitled to claim deduction of interest payment against rental income as from the confirmation of accounts filed by the assessee it was found that payment of interest had been reflected by the confirming party.

C.N. Vaze for the Appellant. Ashwini Mahajan for the Respondent.

ORDER

S.K. Pransukhka, Accountant Member. – This appeal is filed by the assessee against the order of CIT(A)-XXV, Mumbai dated 17-2 -2003.

2. The assessee has raised the following two grounds in this appeal:

“1. The ld. CIT(A) erred in confirming the disallowance of deduction for Long Term Capital Gains under section 54F amounting to Rs. 3,74,2 76

2. The ld. CIT(A) erred in disallowing interest payment of Rs. 25,200 for want of details even though the details was filed at the time of filing of return of income itself.”

3. The relevant facts in this case are that capital gain has arisen to the assessee on account of sale of shares amounting to Rs.3,83,976 out of sale consideration of Rs.5,08,040. The assessee sought deduction under section 54F in respect of capital gain for purchase of residential flat on 18-8-1995 at Rs. 9,00,000. The Assessing Officer further observed that in earlier assessment years i.e. 1995-96 and 1996-97, capital gain has arisen to the assessee in respect of sale of shares and assessee has sought deduction under section 54F in those years also in respect of purchase of same residential flat. The Assessing Officer was of the view that since the assessee has already claimed deduction under section 54F in assessment year 1995-96, the assessee cannot claim deduction in respect of same residential flat in the relevant assessment year. Therefore, the Assessing Officer denied deduction under section 54F to the assessee in the relevant assessment year. For the sake of better understanding, transaction of sale of shares, capital gain and deduction claimed by the assessee is depicted hereunder in the form of chart :

F.Y. Ended AY.

 

31-3-1995 1995-96 31-3-1996 1996-97 31-3-1997 1997-98 Total

 

Sale consideration 3,24,865 1,25,240 5,08,040 9,58,145
Long Term Capital Gain 2,71,815 92,270 3,83,976

 

7,48,061

 

Deduction under section 54F 2,71,8 15 92,670 3,74,2 76 7,38,761

4. The issue was carried before CIT(A) in appeal. The contention raised by the assessee before CIT(A) was that all the conditions for claiming deduction under section 54F has been fulfilled by the assessee in all these three assessment years; therefore, deduction under section 54F cannot be denied to the assessee in the relevant assessment year. The conditions to be fulfilled for claiming deduction under section 54F as stated by the assessee are as under :

(i) Assessee should be an individual or HUF

(ii) Capital gains should arise form Long Term Capital Gain other than residential house.

(iii) Assessee has within a period of one year before or within two years after the sale of such long-term capital asset purchased or within three years have constructed a residential house.

(iv) The new house purchased is not sold within 3 years from date of purchase/construction.

(v) The cost of new residential house is more than the deduction under section 54F shall be proportionate to sale of asset of the cost of new assets vis-a-vis the capital gains.

(vi) The assessee should not own any other residential house other than the new house.

(vii) The assessee should not purchase any other new residential house within year or construct any other new residential within three years.

The ld. CIT(A) decided the issue against the assessee considering sub-section (4) of section 54F by observing that as assessee has not appropriated the sale consideration towards purchase of flat in the relevant assessment year, deduction under section 54F cannot be allowed to the assessee. The ld. CIT(A) decided the issue only considering sub-section (4) of section 54F making it as a central issue. Aggrieved by the order of ld. CIT(A), the assessee has come in appeal before us.

5. The ld. AR reiterated the same submissions as were made before ld. CIT(A) and further argued that as per the language of section 54F if assessee purchased the flat within one year before or within two years of the arising of capital gain, the assessee shall be entitled to deduction under section 54F. Since in the relevant assessment year the flat was purchased on 18-8-1995 and same was sold on 13-6-1996, it was very well within the time-limit laid down in section 54F. Emphasis of argument of ld. AR was that since the flat was purchased within one year before the arising of capital gain, assessee was entitled to deduction under section 54F. The Id. AR also referred to sub-section (4) of section 54F and argued that assessee had purchased the flat in 1995 from his own fund which has been replaced by the capital gain during the relevant assessment year and it is equivalent to the appropriation of the same for the purchase of residential flat.

6. The ld. Departmental Representative, on the other hand, contended that assessee had claimed deduction under section 54F in respect of same property for the three assessment years and in the relevant assessment year it cannot be said that assessee had appropriated sale consideration for the purchase of residential flat, as the flat was already purchased by the assessee on 18-8-1995. Therefore, the ld. Departmental Representative submitted that ld. Assessing Officer as well as ld. CIT(A) was justified in denying the deduction under section 54F.

7. We have considered the rival submissions and have gone through the orders of authorities below. Undisputed fact as we have stated earlier was that flat was purchased by the assessee on 18-8- 1995 for Rs.9,00,000 and assessee having capital gain in assessment years 1995-96, 1996-97 and 1997-98 have claimed deduction for all these three years as per chart given above, which shows that in total the assessee has claimed deduction not more than Rs. 9 lakhs. In our consideration, there is no bar in section 54F for claiming deduction for the same property if cost of the flat is within the capital gain arisen to the assessee. In this case, total capital gain arisen to the assesee in all these three years is Rs.7,48,061 against the cost of flat 9 lakhs. Now to examine the case of the assessee from the language of section 54, it will be useful to reproduce section 54F as under:

“54F. Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereinafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (thereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section.”

Sub-section (4) of section 54F is as under :

“(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 way 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.”

We find that from the language of section, Legislature has provided leverage to the assessee for claiming deduction under section 54F in the sense that assessee can buy the property first and claim Reduction later on i.e., within one year or can have capital gain first and can claim deduction Within two years by purchasing the residential flat. In all these three assessment years, these conditions were satisfied. Therefore, in our consideration, in respect of residential property till cost of purchase of flat is exhausted by the claim of the capital gain but remaining in the time-frame stipulated in section 54F, deduction cannot be denied. If assessee falls out of the time-limit in section 54F then probably department can have a case. The Id. CIT(A) has dismissed the appeal of the assessee by interpreting sub-section (4) by holding that assessee has not appropriated the sale consideration towards purchase of flat, but Id. CIT(A) has ignored the main provisions of section 54F. Sub-section (4) has been inserted with a view to facilitate the assessee to claim the capital gain exemption when assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of CIT(A) is accepted, it will frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, we set aside the order of the CIT(A) and allow the ground of the assessee.

8. As regards second ground, the Assessing Officer disallowed (sic) the interest of Rs. 25,300 claimed by the assessee against rental income for want of evidence. The ld. CIT(A) also confirmed the same.

9. It was stated before us by the Id. AR that assessee has submitted the confirmation of accounts from the borrower reflecting the payment of interest and ld. AR also referred to the same confirmation appended in the paper book. The ld. Departmental Representative relied on the orders of authorities below. We find from the confirmation of accounts filed by the ld. AR that payment of interest has been reflected by the confirming party. Therefore, we set aside the order of the CIT(A) in this regard also and allow this ground of the assessee.

10. In the result, this appeal filed by the assessee is allowed.”

(iii) The appellant’s case is further found covered by the order of Hon’ble ITAT, Mumbai ‘A’ Bench in the case of Mrs. Krishnadevi Kejriwal v/s. ITO in ITA No.93/Mum/2009 & 2961/Mum/2008 dtd 25- 06-2010. The operative para of the said order is reproduced below :

“13. As discussed for the earlier assessment year above, the A.O. has originally completed the assessment in A.Y. 2003-04 and reopened the assessment in A.Y. 2002-03. However, the capital gain in this year was only Rs.3,81,324/- on the sale of 5,000 shares of M/s. Bolton Properties Ltd. For the reasons discussed above in the other appeal the A.O. is directed to treat the capital gain as genuine and allow the deduction under section 54F. One of the contentions: for disallowing the deduction under section 54F was that the assessee has claimed similar investment in earlier year on the same property. There was no restriction that the assessee cannot claim investment in house property over a period of 2 years. This issue was discussed elaborately by the ITAT “C” Bench, Mumbai in the case of Smt. Anagha Ajit Patnekar vs. ITO 9 SOT 685 wherein it was held as under: –

“There is no bar in section 54F for claiming deduction second time or third time for the same property if cost of the property is within the capital gain arising to the assessee. In the instant case, total capital gain arisen to the assessee in all the three years 1995-96 to 1997-98 was less than the cost of flat. Further, from the language of section 54F it is clear that the Legislature has provided leverage to the assessee for claiming deduction under section 54F in the sense that the assessee can buy the property first and claim deduction later on, i.e., within one year or can have capital gain first and can claim deduction within two years by purchasing the residential flat. In all the assessment years, these conditions were satisfied. Therefore, in respect of residential property till cost of purchase of property is exhausted by the claim of the capital gain but remaining in the time-frame stipulated in section 54F, deduction; under section cannot be denied. If the assessee falls out of the time-limit in section 54F then probably department can have a case. The Commissioner (Appeals) dismissed the appeal of! the assessee by interpreting sub-section (4) by holding that the assessee had not appropriated the sale consideration towards purchase of flat, but the Commissioner (Appeals) had ignored the main provisions of section 54F. Sub-section (4) has been inserted with a view facilitate the assessee to claim the capital gain exemption when the assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be Mrs. Krishnadevi Kejriwal expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of the Commissioner (Appeals) was accepted, it would frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, the order of Commissioner (Appeals) was set aside and the assessee was entitled to deduction under section 54F in the assessment year.”

14. Accordingly the assessee is entitled to claim deduction under section 54F on the property purchased in A. Y. 2002-03 since the long term capital has arisen within one year from the purchase of the above property. The A.O. is directed to allow deduction under section 54F as claimed.”

As the facts of the appellant case are identical to the facts of the cases decided by the Hon’ble ITAT, Mumbai in above mentioned two cases, the appellant’s case is found squarely covered by the above mentioned two case laws. Therefore, the additions made by the AO are not found justified, hence additions are deleted. This ground of appeal is allowed.”

6. Aggrieved, the Revenue preferred the appeal before the

7. The learned DR for the Revenue relied upon the order of the AO and submitted in furtherance that Section 54F is a provision meant for exemption/deduction from the taxable income of the assessee and therefore, lessens the burden on the assessee at the cost of other tax This being so, the provision of Section 54F of the Act requires to receive strict interpretation and the burden of showing availability of deduction shifts squarely on the assesse. The assessee is thus required to show that his case for deduction comes within the parameters laid down in the aforesaid provision. For this proposition, the learned DR referred to recent judgment of the constitutional bench in Dilipkumar and Company (2018) 9 SCC 1. The learned DR pointed out that multiple deduction for the purchase of same asset is not permissible in view of the express language of Section 54F of the Act as the concept of liberal construction of beneficial provisions has been done away with. The learned DR thus sought reversal of the order of the CIT(A).

8. The learned AR, on the other hand, submitted that the issue involved is no longer res integra and has been judicially interpreted in favour of the assessee by several co-ordinate benches as referred to and relied upon by the CIT(A).

9. We have carefully considered the rival submissions. 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. It will be apt to refer to Section 54F(1) of the Act with which we are presently concerned:

“54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term  capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45 :

[Provided that * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

[underline is ours]

10. We find at the outset that the identical issue of allowability of Section 54F of the Act on sale of multiple assets came up for consideration before the co-ordinate bench in the past. Useful reference can be made to Anagha Ajit Panekar (supra); Krishnadevi Kejriwal (supra) and ACIT vs. Mahindrakumar Jain (2017) 84 com141 (Del) as quoted in the appellate order of CIT(A). In the light of the aforesaid decisions, the order of the CIT(A), in our view, cannot be faulted.

11. However, to address the concern of Revenue for strict construction of beneficial provisions in the light of Dilip Kumar & Co. (supra), we notice that the 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.

12. 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.

13. 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.

14. In the result, the appeal of the Revenue is dismissed.

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One Comment

  1. vswami says:

    OFFHAND
    The concluding observations of the ITAT in para. 13 seem to make for a sound and valid reason for dismissing the stance of the Revenue placing heavy reliance on the SC Judgment in Dilip Kumar & Co’s case. Why to say so ?- Suggest to find the Answer, which should be more than obvious, from a mindful reading of the concluding Para. 53 of that Judgment. For a dilation, look up the related Post on FB and LInkedin.
    courtesy.

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