A bare reading of section 54F clearly shows that the assessee is entitled for exemption in case he/she purchase/constructs a one residential house in India within a period of two/three years after the sale of the any long term capital asset or purchases one year before the date of transfer. However, sub-clause (4) of section 54F clearly says that the unutilized portion of the net sale consideration [not utilized before the date of furnishing the return of income under section 139] which is otherwise liable for capital gain tax shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139(1).
Provided further that nothing contained in this sub-section shall apply where—
(a) the assessee,—
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.
The question arises for consideration are:
a) Whether the time limit for utilization of net sale consideration[without depositing in to capital gain scheme] for the purchase or construction of the new asset is before date for filing the return under section 139(1) or the due date for filing the return of income under section 139 (4).
b) Whether the due date mentioned in section 54F(4) for deposit of the unutilized portion of net sale consideration into the capital gain schemeis the due date for filing the return under section 139(1) or the due date for filing the return of income under section 139 (4).
Both are entirely different questions and the answers are clearly & unambiguously visible in the bare provisions of the section 54F without any need of interpretational aids.
Let’s start with the bare provisions:
Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house–
[(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 utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under , 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 such bank or institution as may be specified in, and utilised 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 utilised 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 :
[Emphasis supplied in bold and underline]
The clear meaning emanating from above is explained below with the help of an example: [It is assumed that assessee wants to construct new Res. House to take benefit of exemption provisions u/s 54F]
|1||Date of transfer of eligible long term capital asset||1st Jan. 2018|
|2||Assessment year concerned||2018-19|
|3||Due date of filing return of income u/s 139(1)||31st July 2018(extended to 31st August 2018)|
|4||Date of filing return of income u/s 139(4)||31st March 2019|
|5||time limit for utilization of net sale consideration for construction of the new asset [without depositing in to capital gain scheme]||31st March 2019|
|6||Time limit for deposit of unutilized portion of net sale consideration in capital gain scheme||31st August 2018|
|7||time limit for utilization of net sale consideration for the construction of the new asset [if deposited in capital gain scheme as per 6 above]||1st Jan. 2021|
Thus, as per section 54F(4), assessee has to utilize the net sale consideration for construction of new asset on or before 31st March 2019 [i.e. before the date of furnishing the return of income under section 139 if:
– He/she does not deposit the same in capital gain scheme upto 31st August 2018( extended from 31St July 2018) [i.e. Due date of filing return of income u/s 139(1)]; and
– Does not file return of income till date of utilization as above.
In other words, for enjoying the exemption u/s 54F without depositing the unutilized sale consideration in to capital gain scheme, assessee has to utilize the same up to 31.03.2019 [i.e. due date as per s. 139(4)] and keep the return pending till he utilizes the amount on or before 31.03.2019.
The rationale behind the above theory is that u/s 54F–
– No sub-section of section 139 is mentioned as regards time limit for utilization of the funds for the purchase or construction of the new asset
– Whereas, sub-section (1) of section 139 is specifically mentioned that too with prefix ‘in any case not later than’ as regards time limit for deposit of the funds in capital gain scheme
The above literal interpretation also finds its force from legislative intent behind enactment of section 54F which is to promote and encourage the low & middle income group for house construction. [Memorandum to the Finance Act, 1982, 134 ITR 128 (St.) and CBDT Circular No. 346, dated 30-6-1982 issued on introduction of section 54F by the Finance Act, 1982]
Judicial views on above, which appears to be fair and logical:
First of all, there is no requirement for claiming exemption under section 54,54F etc. that assessee should file his return of income before due date prescribed under section 139(1) – Mrs. Esther Christopher vs. ITO  9 taxmann.com 99 (MUM. – ITAT)
In the above case, assessee’s claim of exemption under section 54F was denied on ground that assessee had not deposited unutilized capital gain in capital gain account scheme within due date for filing return of income under section 139(1) – Assessee claimed that due date provided under section 139(4) should be considered. ITAT applied the ration of Hon’ble Apex Court in Prakash Nath Khanna v. CIT  266 ITR 1 wherein it was held that ‘due date’ means date for filing return under section 139(1) and not under section 139 (4) . It was further observed that had the intentions of the Legislature was to permit the assessee to deposit in to capital gain scheme up to time limit prescribed u/s 139(4) also, the use of the expression “section 139” alone would have been sufficed. The Legislature would not have said that 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. When the Legislature specifically refers to section 139(1), it cannot be stretched to permit the reference to section 139(4) also.
2) Under section 54F(4), assessee has to utilize amount for purchase or construction of new asset before date of furnishing return of income under section 139, and in absence of any mention of any sub-section of section 139, it cannot be interpreted that section 139 should be read as section 139(1). Assessee, though not deposited the unutilized funds in specified capital gain a/c scheme before the due date u/s 139(1), having utilised the entire capital gains by purchasing a house property before the extended due date under s. 139(4), he/she is eligible for exemption under s. 54. [Fathima Bai vs. ITO (2009) 32 DTR (Kar) 243, CIT vs. Jagtar Singh Chawla  33 taxmann.com 38 (P & H), CIT vs. Jagriti Aggarwal (2011) 15 taxmann.com 146 (P & H), Nipun Mehrotra vs. ACIT (2008) 110 ITD 520 (Bangalore), RKP Elayarajan vs. DCIT  23 taxmann.com 206 (Chennai – Trib.), P.R. Kulkarni (HUF) vs. ACIT (2011) 135 TTJ (Bang.) 630, Anil Kumar Aurora vs. ITO (2013) 37 CCH 221 (Mum.)]]
[Interestingly, in none of the above cases, court had an occasion to deal with a situation that assessee deposited funds in capital gain scheme after due date specified u/s 139(1). In all the above cases the common fact was that assessee retained the unutilized funds with him & there was no deposit at all in capital gain scheme, however, funds were somehow utilized for purchase/construction of new asset before extended period allowed by s. 139(4). Accordingly, exemption u/s 54/54F was rightly allowed.
In this view of the matter, the decision in case of Smt. Rosamma Korah (supra) requires reconsideration. Though Hon’ble ITAT laid down the correct principle as regards time limit for deposit in to capital gain account scheme, the case was remanded to AO without appreciating the fact whether or not the funds were actually reinvested in new asset within extended time allowed u/s 139(4) of the Act. Further, reliance placed by Hon’ble ITAT on the decision of Kerala High court in case of CIT vs. V.R. Desai, (2011) 197 TAXMAN 52 was also misplaced. In V.R. Desai’s case, the Hon’ble Kerala High Court rejected claim u/s 54F by observing that new asset was constructed using borrowed funds & consideration for transfer of long term capital asset was actually not utilized by the assessee either for construction of new residential house or for depositing the same in any bank under the notified scheme of 54F of the Act. ]
Contrary views, though in favour of assessee, not in line with the clear provision of the law:
CIT vs. Rajesh K. Jalan (2006) 206 CTR (Gau) 361
Capital gains—Exemption under s. 54—Time-limit for making deposit under the scheme—Only s. 139 is mentioned in s. 54(2)—Sec. 139 cannot mean only s. 139(1) but means all sub-sections of s. 139—Therefore, assessee can fulfill the requirement of s. 54 of depositing the unutilised portion of the capital gain on sale of residential property in notified scheme upto the expiry of time-limit for filing return under s. 139(4).
Muthuletchumi J. vs. DCIT (2012) 34 CCH 193 (Cochin Trib.)
Where an assessee has not furnished the return of a previous year within the time allowed under s 139 (1), the same can be filed before the expiry of one year from the end of the relevant assessment year under s 139 (4). Hence, time limit for purpose of making investment in Capital Gains Account scheme may also be taken as the time limit prescribed u/s 139 (4).
With due respect to the ITAT, in author’s opinion, the extended period as per section 139(4) has to be considered only for the purpose of utilization of amount of capital gain for purchase / construction & not for the purpose of deposit of unutilized portion in to capital gain account scheme, for which the time limit is only up to due date specified u/s 139(1).
Note: Wef A.Y 2017-18 belated return u/s 139(4) can be filed till the end of the relevant Assessment year or the completion of assessment, whichever is earlier.
As per settled principles, statutory provisions must ordinarily be construed according to their plain meaning and no words should be added, altered or modified unless it is plainly necessary to do so to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute. If the language employed in any section is clear, unambiguous & prone to only one meaning, true meaning of a provision of law has to be determined on the basis of what it provides by its clear language. Further, Case laws should be used as shield & not sword. Never use any case law reference merely on the basis of gist/ head-note of the decision. The above chaos by various courts/counsels was a result of superficial references to judicial precedents.
Other Article from the Author – Section 80P and income from investments – Co-operative Credit Societies- a nightmare
(Republished With Amendments)