Dr. Anjanaiah v. ACIT (2019) 75 ITR 315 (Bang.)(Tribunal)
BRIEF FACTS: The assessee purchased land from the sale proceeds of property held by him, and constructed a nursing home and residential house thereon. On the residential house, he claimed exemption under section 54F of the Income-tax Act, 1961.
The Assessing Officer restricted the deduction under section 54F of Act to the proportionate amount utilised for construction of the residential house.
The CIT(A) thus upheld the disallowance made by the Assessing Officer.
On appeal before the Tribunal, the assessee contended that, exemption was to be granted on the total land and portion of building used for residential purposes as against exemption under section 54F restricted by the AO to the proportionate area of land used for residential purposes.
The Tribunal rejected the argument of the assessee and held that section 54F is very clear in respect of exemption being available to the assessee, in respect of either purchase of residential property or construction of residential property within the period of limitation prescribed therein.
However, the AO while computing the capital gains, had allowed Rs. 33,41,839 as the cost of land appurtenant to the residential house for which there was no basis. The Commissioner (Appeals) mentioned that the land on which the residential house constructed was Rs. 586.96 sq. m out of the total land 2543.25 sq. m. the Lower authorities failed to compute the vacant land appurtenant to the residential house and hence, the AO was directed to consider all these aspects for the purpose of computing the exemption under section 54F and capital gains payable by the assessee. The assessee was eligible for the benefit of indexation in computing the capital gains.
CONCLUSION: the provisions of Section 54F clearly provides that the exemption will be available only in case of buy of residential property within a period of 2 years or construct a residential property within a period of 3 years from the date of sale of residential house property. In above case the amount of net consideration was employed in land ,nursing home and a residential property on the same land. The AO is right to include proportionate value of land utilized in the residential property for giving exemption u/s. 54F. The rest of land on which a nursing home was established was not considered for the purpose of exemption.
EXEMPTION UNDER SECTION 54F. Here, we have listed below all the essentials –
• The exemption is available only for individuals or a Hindi Undivided Family (HUFs)
• The exemption is available for Section 54F of a capital gain on transferring any long-term capital asset barring a residential house
• The sale must proceed in the following manner to be eligible to claim the exemption-
(i) You need to buy a residential property one year before the date of selling the asset.
(ii) You need to buy a residential property within 2 years from the date of selling the asset.
(iii) You can construct a residential property within 3 years from the date of selling the asset.
• Investing only a part of the property will result in partial exception under Section 54F of capital gain. The total exemption is not allowed in such cases as the investment is not complete.
It’s imperative to understand the meaning of NET consideration as per section 54F of the Income Tax Act. To avail of the exemption, the assessee must reinvest the Net consideration. The term has been clearly defined under 54F.
Net consideration is the total value of consideration one receives based on transferring the long-term capital Assets. Any other expenditure related to the transfer is not included in this. To be more precise, Net consideration is the total value of consideration minus related expenditures.
DISCLAIMER: the case law produces here is only for knowledge and information of readers. The views expressed here are the personal views of the author and same should not be considered as professional advice.