Deduction u/s. 54F not available on unutilized consideration not deposited in specified accounts before due date

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

This appeal under section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenges the order dated 17-5-2002 passed by the Income Tax Appellate Tribunal (for short ‘the Tribunal’). The impugned order relates to assessment year 1996-97.

2. This appeal was admitted on 25-8-2004 on the following substantial questions of law :–

(a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in applying the provisions of section 54(F)(4) of the Income Tax Act, 1961?

(b) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessing officer has rightly computed the deduction under section 54F of the Income Tax Act, 1961, restricting the investment in the new asset at Rs. 35,00,000 and thus restricting the exemption under section 54F of the Act proportionately to the amount invested?

3. The undisputed facts leading to this appeal are as under: —

(a) On 29-4-1995, the appellant sold a plot of land in Mumbai for a consideration of Rs. 85,33,250.

(b) On 16-7-1996, the appellant entered into an agreement to purchase a flat for a consideration of Rs. 69,60,000.

(c) The appellant paid two installments of Rs. 10,00,000 each on 17-7-1996 and 23-10-1996 to the developer/builder i.e. before the due date for filing of return of Income under section 139(1) of the Act i.e. 31-10-1996.

(d) On 1-11-1996 the petitioner paid to the developer a further installment of Rs. 15,00,000 for purchase of flat pursuant to the agreement dated 16-7-1996.

(e) On 4-11-1996 the appellant filed his return of income for the assessment year 1996-97. This was after the due date of filing the return of income.

(f) On 13-3-2001, the assessing officer passed an assessment order under section 143(3) read with Section 147 of the Act. The assessment order determined the net consideration at Rs. 75.39 lakhs. Thereafter the assessing officer allowed a proportionate exemption of Rs. 31.55 lakhs (out of Rs. 35 lakhs paid till the filing of return) from Capital Gain Tax in terms of section 54F of the Act. However, the balance consideration of Rs. 43,84,334 which was payable for purchase of the flat pursuant to the agreement dated 16-7-1996 was brought to tax under the head ‘Capital Gains’. This on account of appellant’s failure to deposit the unutilized consideration for purchase of the flat in specified bank accounts in accordance with the scheme of Central Government as provided under section 54F(4) of the Act.

(g) Being aggrieved, the appellant- assessee filed an appeal to the Commissioner (Appeals) (CIT(A)). By order dated 19-10-2001, the Commissioner (Appeals) did record the fact that the appellant had obtained possession of the new flat on 27-1-1997. However, the order of the assessing officer dated 13-3-2001 was not disturbed.

(h) Being aggrieved the appellant carried the issue in further appeal to the Tribunal. By the impugned order, the Tribunal on an analysis of section 54F(4) of the Act, came to the conclusion that the appellant had only utilized Rs. 35,00,000 of the net consideration received on sale of land towards purchase of a flat before the due date of filing the return of income. Further, the balance of the net consideration had not been deposited in the specified bank account as mandated by section 54F(4) of the Act. Thus dismissing the appeal of the appellant- assessee.

4. It is in the backdrop of the above facts that the two substantial questions of law arise for our consideration: