2008 (6) TMI 373 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Assessing Officer is right in treating the unsuccessful investment of long-term capital gains in the Row house No. 30 as purchase of new asset as per sub-section (1) of section 54F and in treating the cancellation of said purchase of row house in June 1997 as transfer of new asset in violation of conditions in sub-section (3) of section 54F.
2. Whether such cancelled purchase of new asset provides necessary immunity from attracting the provisions of sub-section (4) of section 54F relating to depositing the capital gains in the bank.
3. Whether Assessing Officer and CIT(A) were justified in rejecting the assessee's claim that the construction of Flat No. 5 in the under construction building named Abhijit, is the new asset and not the cancelled purchase transaction of Row house No. 30.
4. Whether the depositing money in Capital Gains Scheme in the bank as per the provisions of section 54F(4) is still a relevant condition even though the capital gains are invested in row house under bona fide belief by the assessee.
5. Whether the purchase of 'block of shares' of the M/s. Sonzol Finance and Investment (P.) Ltd. as a part of the scheme to become entitled to the allotment of Flat No. 5 in the Abhijit, should be treated as the investment of long-term capital gains in the construction of the new asset.
6. Whether the assessee's successful reinvestment in the construction of the Flat No. 5 in Abhijit building, subsequent to cancellation of the row house, should be treated as investment in purchase of new asset u/s 54F.
7. Whether the assessee's investment in Flat No. 5 in Abhijit is the case of purchase or the case of construction and whether applicable limitation of time period is two or three years.

Summary:

Issue 1:
The Tribunal examined whether the Assessing Officer was correct in treating the investment in Row House No. 30 as the purchase of a new asset u/s 54F(1) and its subsequent cancellation as a transfer violating the conditions of u/s 54F(3). The Tribunal concluded that the cancellation of the agreement by the assessee was justified under the doctrine of caveat emptor and should not be considered as a transfer of a new asset. Therefore, the decision of the lower authorities in treating the row house as the new asset was misplaced.

Issue 2:
The Tribunal addressed whether the cancelled purchase of the new asset provided immunity from the provisions of u/s 54F(4) regarding depositing the capital gains in the bank. It was held that since the capital gains were already paid to the seller of the row house and there was no mala fide intention, the assessee could not have complied with the condition of depositing in the bank. Thus, there was no violation of u/s 54F(4).

Issue 3:
The Tribunal evaluated whether the Assessing Officer and CIT(A) were justified in rejecting the claim that the construction of Flat No. 5 in the Abhijit building was the new asset. It was determined that the investment in the block of shares of M/s. Sonzol Finance and Investment (P.) Ltd., which entitled the assessee to Flat No. 5, should be treated as an investment in the construction of the new asset.

Issue 4:
The Tribunal considered whether depositing money in the Capital Gains Scheme was still relevant given the bona fide belief of the assessee in investing in the row house. It was concluded that due to the peculiar circumstances, including the genuine intention to invest in a residential house, the assessee did not violate the provisions of u/s 54F(4).

Issue 5:
The Tribunal examined whether the purchase of the block of shares of M/s. Sonzol Finance and Investment (P.) Ltd. should be treated as an investment in the construction of the new asset. It was held that the purchase of shares and the entitlement to Flat No. 5 were interlinked and should be considered as a composite transaction, thus qualifying as an investment in the construction of the new asset.

Issue 6:
The Tribunal addressed whether the successful reinvestment in the construction of Flat No. 5 in Abhijit building should be treated as an investment in the purchase of a new asset u/s 54F. It was concluded that the investment in the flat was within the three-year period and should be treated as an investment in the construction of the new asset.

Issue 7:
The Tribunal evaluated whether the investment in Flat No. 5 in Abhijit was a case of purchase or construction and the applicable time limitation. It was determined that the investment was a case of construction, and the applicable