2000 (2) TMI 846 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under Section 54F of the Income Tax Act for capital gains.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 54F:

The central issue in this appeal is the deletion or addition of Rs. 1,30,330 made by the Assessing Officer (AO) on account of capital gain, holding that the assessee is entitled to deduction under Section 54F of the Income Tax Act.

Facts of the Case:
- The assessee sold 150 shares of C.J. Ltd. in June 1992, which were purchased before 1981, for Rs. 2,07,375.
- The assessee claimed exemption under Section 54F for the amount invested in constructing residential premises at Mawal Village up to 15th October 1992.
- The AO disallowed the exemption, stating that the investment in the new house was made before receiving the sale proceeds, which was against the provisions of Section 54F.

Assessing Officer's Observations:
- The AO argued that the investment in the new house must start after the sale proceeds of the old assets, as per the provisions of Section 54F.
- The AO noted that the assessee had invested Rs. 2,72,500 in the construction of the new house from 11-11-1988 to 8-5-1991, before the sale of shares on 17-6-1992.
- Only two entries of Rs. 18,240 were invested after the sale of shares, which the AO allowed for exemption.

Revenue's Argument:
- The Revenue contended that the conditions under Section 54F were not met as the investment in the new house was not made within one year before the sale of shares.
- The Revenue argued that the CIT(A) wrongly interpreted Section 54F and misapplied the Karnataka High Court decision in CIT v. J.R. Subramanya Bhat (1987) 165 ITR 571.

Assessee's Argument:
- The assessee argued that it is not necessary for the same amount received from the sale to be invested in the new house.
- The assessee contended that the completion of the new house is the material point, not the timing of the investment.
- The assessee relied on several decisions, including CIT v. Smt. Beena K. Jain (1996) 217 ITR 363 (Bom.), to support their claim.

Tribunal's Analysis:
- The Tribunal noted that no investment was made in the new house within one year before the sale of shares.
- The Tribunal reviewed the case of Smt. Beena K. Jain, where the relevant date was when the flat was ready for occupation and possession was obtained. However, the Tribunal found this case not applicable as the investment in the new house was not within one year before the sale of shares.
- The Tribunal also reviewed the case of J.R. Subramanya Bhat and found it not applicable as the events in that case were within the parameters of Section 54F.
- In V.M. Dujodwala's case, the Tribunal found the facts distinguishable as the possession of the new flat was beyond the control of the assessee, unlike the present case.

Conclusion:
- The Tribunal concluded that the assessee's house was complete by 8-5-1991, and the subsequent small investments and certificate of completion were attempts to come within the purview of Section 54F.
- The Tribunal held that the conditions under Section 54F were not fully complied with as the required investment was not made within one year before the sale of the original asset.
- The Tribunal set aside the CIT(A)'s order and maintained the AO's addition of Rs. 1,30,330 in respect of long-term capital gain.

Result:
- The appeal of the revenue is admitted, and the assessee is not entitled to exemption under Section 54F.