2013 (1) TMI 744 - AT - Income Tax

Exemption claimed u/s 54 denied - whether the assessee cannot claim exemption both u/s 54 and 54F for investment in the same house - Held that - Sec. 54 and 54F apply under different situations. While sec. 54 applies to long term capital gain arising out of transfer of long term capital asset being a residential house, sec. 54F applies to long term capital gain arising out of transfer of any long term capital asset other than a residential house. However the condition for availing exemption under both the sections is purchase or construction of a new residential house within the stipulated period. There is also no specific bar either u/s 54 and 54F or any other provision of the Act prohibiting allowance of exemption under both the sections in case the conditions of the provisions are fulfilled. In the facts of the present case, since long term capital gain arises from sale of two distinct and separate assets viz., residential house and plot of land and the assessee has invested the entire capital gain in purchase of a new residential house, in our view, he is entitled to claim exemption both u/s 54 and 54F of the Act. We therefore direct the AO to delete the addition of ₹ 44,05,302/-. - Decided in favour of assessee.

Summary

Issues involved:
1. Denial of exemption claimed under sections 54 and 54F of the Income Tax Act.
2. Interpretation of provisions of sections 54 and 54F regarding investment in residential houses.

Analysis:
1. The appellant challenged the denial of exemption under sections 54 and 54F by lower authorities, claiming that both sections are independent and not mutually exclusive. The Assessing Officer (AO) disallowed the exemption claimed under section 54, adding back the amount to the total income. The appellant contended that the Act does not restrict claiming exemptions under both sections for investment in the same residential property. The CIT(A) upheld the AO's decision, stating that sections 54 and 54F operate independently and cannot be combined for a larger exemption benefit. The CIT(A) rejected the alternative argument regarding the nature of the property transferred. The appellant further argued before the ITAT that both sections deal with different assets and require investment in a house, emphasizing that the interpretation of the lower authorities was incorrect. The ITAT analyzed the provisions of sections 54 and 54F, concluding that the appellant had invested the entire capital gain from the sale of two assets in a new residential house, entitling the appellant to claim exemptions under both sections.

2. The ITAT highlighted that sections 54 and 54F apply to distinct long-term capital assets, with section 54 pertaining to residential houses and section 54F to other assets. Both sections require investment in a new residential house within a specified period. The ITAT noted that the appellant had sold two separate assets, a residential house, and a plot of land, and purchased a new residential house for an amount exceeding the total capital gain. The lower authorities' interpretation that the appellant needed to invest in two houses for claiming exemptions under both sections was deemed incorrect. The ITAT emphasized that the Act does not prohibit claiming exemptions under both sections if the conditions are met. Consequently, the ITAT directed the AO to delete the addition made to the total income. The ITAT dismissed an additional ground as academic in light of the decision on previous grounds.

This comprehensive analysis of the judgment provides a detailed overview of the issues involved, the arguments presented by the parties, and the reasoning behind the ITAT's decision in resolving the matter related to the denial of exemptions under sections 54 and 54F of the Income Tax Act.