2012 (8) TMI 1100 - HC - Income Tax

Summary

Issues involved: The judgment deals with the assessment of capital gains and the entitlement to exemption under Section 54F of the Income Tax Act.

Assessment of Capital Gains:
The assessee sold a residential house in the assessing year 1996-1997, resulting in a net capital gain of Rs. 1,38,17,596. Following the sale, the assessee entered into an agreement for the purchase of another property but the transaction fell through. After litigation, the assessee obtained a refund of Rs. 20,00,000 from the failed transaction. Out of this amount, Rs. 17,40,000 was reinvested in a capital gain account. Subsequently, the assessee purchased a residential flat for Rs. 66,08,630 and sought a deduction of Rs. 51,63,464 under Section 54F, which was initially allowed by the Assessing Officer.

Entitlement to Exemption under Section 54F:
The Assessing Officer later issued a notice under Section 154, contending that the assessee was only entitled to exemption under Section 54, not Section 54F. This led to a dispute regarding the correct computation of the exemption. The CIT appeals and the Appellate Tribunal upheld the disallowance of exemption for Rs. 20,00,000, but granted partial relief under Section 54F for Rs. 6,67,493.

Rectification and Appeal:
The assessee filed a Misc. Petition under Section 254(2) seeking rectification to claim exemption for the full amount of Rs. 77,50,000 instead of the initially allowed Rs. 51,63,464. The petition was dismissed, prompting the assessee to appeal to the High Court.

Substantial Question of Law:
The main issue before the Court was whether the Assessing Officer, in a rectification order under Section 154, should grant benefits under Section 54 even if the assessee did not specifically claim it. The Court framed this question for consideration.

Court Decision:
The Court found that there were errors in the computation of benefits under Section 54F and directed a fresh consideration by the Assessing Officer. The matter was remanded for further investigation into whether the assessee met all requirements under Section 54. The Assessing Officer was instructed to consider the claim for deductions under Section 54 as per the law. Ultimately, the appeal was allowed in favor of the assessee.