2017 (10) TMI 1143 - AT - Income Tax

Eligible for exemption u/s 54 - eligibility criteria - Held that - We are of the opinion that unless the assessee has violated the provisions of section 54 in such a way that by allowing the exemption, the purpose of the legislation would be defeated, the assessee cannot be denied the exemption. In the case before us, we find that the assessee has invested in purchase of the residential flats within two years after sale of the original asset and is eligible for exemption u/s 54 of the Act subject to the fulfillment of the other conditions stipulated in the section. As we have already held that the deposit in Term Deposit A/c can be considered as compliance u/s 54(2) of the Act, provided the assessee has deposited the entire capital gains and has not availed any loan against the said A/c and has utilized the same for purchase of the new property. The issue is therefore, set aside to the file of the AO only for verification of this aspect. The other objection of the AO that the new property is purchased in the joint names of the assessee and his son also is not sustainable in view of the decision of the Hon ble Delhi High Court in the case of CIT vs. Ravinder Kumar Arora 2011 (9) TMI 343 - DELHI HIGH COURT . Assessee s appeal is treated as allowed for statistical purposes.

Issues:
1. Compliance with Section 54(1) and 54(2) of the Income Tax Act.
2. Interpretation of time limits for investment under Section 54.
3. Clarification on the use of term deposit account for capital gains.
4. Joint ownership of the new property and its impact on exemption under Section 54.

Compliance with Section 54(1) and 54(2) of the Income Tax Act:
The case involved an appeal against the order of the CIT (A) regarding exemption of capital gains under Section 54F of the Act for the assessment year 2013-14. The assessee claimed that the purchase of a residential apartment within two years of selling a property fulfilled the requirements of Section 54(1) and 54(2). The AO disallowed the claim as the capital gains were not deposited in the capital gains account scheme (CGAS) as required by Section 54(2). However, the tribunal noted that the assessee had deposited the funds in a term deposit account, arguing it was a technical defect and not a violation of the conditions. The tribunal agreed that the defect was technical and allowed the exemption, subject to fulfilling other conditions.

Interpretation of time limits for investment under Section 54:
The tribunal considered the timeline of events, including the sale of the property, deposit of capital gains, and purchase of the new residential flats. The assessee relied on decisions from the Gauhati High Court and Punjab & Haryana High Court to support the argument that the investment was made within the period allowed for filing the return of income under Section 139(4). The tribunal acknowledged the liberal construction of beneficial provisions like Section 54 and emphasized the legislative intent to encourage house construction. It held that the assessee's investment within two years of the sale made them eligible for exemption under Section 54, subject to meeting other conditions.

Clarification on the use of term deposit account for capital gains:
The tribunal examined the features of the CGAS and the term deposit account where the capital gains were deposited. It noted that the CGAS required specific conditions for deposit and withdrawal, while the term deposit had similar features without the specific nomenclature. The tribunal concluded that the term deposit could be considered compliant with Section 54(2) if the entire capital gains were deposited and not utilized for other purposes before investment in the new property.

Joint ownership of the new property and its impact on exemption under Section 54:
The AO raised an objection regarding the new property being purchased in joint names with the assessee's son. However, the tribunal cited a decision of the Delhi High Court to support that joint ownership did not impact the eligibility for exemption under Section 54. Consequently, the tribunal treated the assessee's appeal as allowed for statistical purposes, emphasizing compliance with the legislative intent and conditions of Section 54 for granting exemptions.

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