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2011 (5) TMI 164 - AT - Income TaxDeduction u/s 54F - assessee has transferred his ancestral agricultural land on 31-3-2005 to MTCDC and simultaneously the receivable amount was adjusted towards bungalow which included plot Nos. 37 to 43 totalling to 17,336 sq.ft. including bungalow on plot No. 37 - There is no occasion for depositing the amount in question as it was not received by the assessee at any point of time - provisions of sub-section (4) of section 54F of the Act specifically requires that the amount of net consideration not appropriated towards purchase/construction of residential house be deposited in the specified account before the due date for filing of return under section 139(1) of the Act - the whole amount has been adjusted by the company for new house against the sale consideration - assessee has substantial domain over the new residential house - Decided in the favour of assessee
Issues Involved:
1. Denial of deduction under section 54F of the Income Tax Act. 2. Correctness of the computation of long-term capital gains. Detailed Analysis: 1. Denial of Deduction under Section 54F of the Income Tax Act: The primary issue in this case revolves around the denial of a deduction amounting to Rs. 63,00,552 under section 54F of the Income Tax Act. The assessee transferred ancestral agricultural land to M/s. Magarpatta Township Development and Construction Ltd. (MTCDC) on 31-3-2005 and claimed a deduction under section 54F, asserting that the sale proceeds were reinvested in a residential house. The authorities, including the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], denied the deduction on several grounds: - The bungalow plan was sanctioned on 6-1-2007, after the transfer date. - The construction did not start before the due date for filing the return under section 139(1) of the Act for the assessment year 2005-06 (31-7-2005). - The assessee did not deposit the consideration received in a capital gains account with a bank. The assessee contended that the consideration for the land was adjusted against the cost of a new bungalow and plots, and the possession of the bungalow was received within three years from the transfer date. Furthermore, the entire purchase price was adjusted by MTCDC on the transfer date, negating the need to deposit the consideration in a capital gains account. The Tribunal found merit in the assessee's arguments, referencing several precedents: - In M.A.C. Khaleeli v. Dy. CIT, the Tribunal allowed a deduction under section 54F where the assessee, a builder, transferred sale consideration to his construction division. - In P.K. Datta v. ITO, the Tribunal allowed a deduction even though the property was not yet ready, as substantial payment was made to the builder. - The Bombay High Court in CIT v. Mrs. Hilla J.B. Wadia and the Delhi High Court in CIT v. Smt. Brinda Kumari held that substantial payments within the stipulated period justified deductions under section 54F, even if construction was incomplete. Given these precedents and the fact that the entire purchase price was adjusted on the transfer date, the Tribunal concluded that the deduction under section 54F was justified and directed the AO to allow the deduction as claimed. 2. Correctness of the Computation of Long-Term Capital Gains: The second issue pertains to the computation of long-term capital gains. The AO calculated the gains at Rs. 77,24,527, while the assessee claimed it should be Rs. 14,23,976 after the deduction under section 54F. The Tribunal's decision to allow the deduction under section 54F directly impacts the computation of long-term capital gains. With the deduction granted, the taxable long-term capital gain is reduced to Rs. 14,23,975, as initially computed by the assessee. Conclusion: The Tribunal allowed the appeal, directing the AO to grant the deduction under section 54F and accept the assessee's computation of long-term capital gains. The decision underscores the importance of substantial investment and compliance with stipulated conditions for claiming deductions under section 54F.
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