2013 (1) TMI 237 - AT - Income Tax

Deduction u/s 54F - allowable with reference to sale consideration actually received on sale of plot of land at Lonavala reinvested in construction of the residential house OR the full value of consideration deemed to have been received as adopted by the AO - whether the appellant was entitled to deduction u/s 54F in respect of construction of only one of the two floors constructed above the existing residential house when the appellant explained that both the floors constituted one house only? - Held that - Provisions of section 54F (1) states that the provisions of section (a) and (b) read with the explanation on net consideration decides if any chargeable capital gains u/s 45 exists or not subject to the conditions specified therein. As per the provisions of section 54F(1)(a) no capital gains are chargeable u/s 45 if the cost of the cost of the new asset is not less than the net consideration in respect of the original asset. The principle of proportionate exemption vide clause (b) above is put into service. It is a settled issue that the provisions of section 54F are code by itself. Thus, provisions of sections 45, 48, 50C and 54F suggest that there is nothing to bar benefits of exemption u/s 54F in respect of the capital gains relatable to the FVC as per the deemed fiction u/s 50C. Clause (a) of section 54F(1) specifies that if the cost of the new asset is not less than the net consideration in respect of the original asset, there is no chargeable capital gains u/s 45. In the instant case, the cost of the new asset is Rs. 17,65,752/- and net consideration as defined is ..the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer i.e. Rs. 16,87,000 as per sec 50C and Rs. 8 lakhs as per the sale deed. The said clause (a) refers to the provisions of section 45. In the given facts of the instant case, no chargeable capital gains arises u/s 45, thus, in this case, with investment of Rs. 17,65,752/- in new asset, the cost of the new asset is not less than the net consideration (NC) in respect of the original asset. Of course, the net consideration has two variants depending on FVC adopted and in this case, the NCs are quantitatively lesser than the cost of the new asset leaving no chargeable capital gains u/s 45. Therefore, the assessee is not chargeable to any capital gains considering the given facts of the case and also the said clause (a) of section 54F(1). The cost of the new asset is Rs. 24 lakhs and net consideration as defined is ..the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer i.e. Rs. 36 lakhs as per sec 50C and Rs. 20 lakhs as per the sale deed. Therefore, it is case where the cost of the new asset is not less than net consideration u/s 50C and more than the net consideration as per the sale deed. Therefore, the decision of the Tribunal in this case is distinguishable on facts. Therefore, clause (a) of section 54F(1) of the Act does not apply. Where the assessee invested total full value consideration of Rs. 16,87,000/- (as per the SRO) in the residential house, which is one house only as it has only one kitchen, and these FVC is less than the invested amounts of 17,65,752/-, during the specified period, the assessee is not chargeable to tax on the capital gains u/s 45. Therefore, considering the provisions of section 54F(1)(a) the order of the CIT(A) is not proper in denying exemption in respect of the capital gains relatable to the deemed full value of the consideration mentioned in section 50C of the Act. Accordingly, the grounds raised by the assessee are allowed and in favour of the assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Eligibility for deduction under Section 54F of the Income Tax Act.
3. Interpretation of "full value of consideration" under Section 50C.
4. Determination of capital gains and eligibility for exemption.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed 13 days late. The assessee, a Member of Parliament, attributed the delay to his political engagements and busy schedule. The Tribunal found the delay condonable due to the small duration and reasonable cause provided, thus admitting the appeal.

2. Eligibility for Deduction Under Section 54F:
The assessee claimed deduction under Section 54F for the capital gains reinvested in constructing two additional floors on an existing residential property. The CIT(A) restricted the deduction to the capital gains computed on the actual sale consideration received (Rs. 8,00,000) and not on the deemed full value of consideration (Rs. 16,87,000) as per Section 50C. The Tribunal noted that the assessee invested Rs. 17,65,752 in the new asset, which was more than both the actual and deemed sale considerations, thus fulfilling the conditions under Section 54F(1)(a). Consequently, the assessee was entitled to the full deduction.

3. Interpretation of "Full Value of Consideration" Under Section 50C:
The Tribunal examined whether the deemed full value of consideration under Section 50C should be considered for computing the exemption under Section 54F. It was held that Section 50C creates a fiction only for computing capital gains under Section 48 and does not extend to Section 54F. Therefore, the capital gains for exemption purposes should be computed based on the actual sale consideration received.

4. Determination of Capital Gains and Eligibility for Exemption:
The Tribunal emphasized the distinction between the actual sale consideration and the deemed consideration under Section 50C. The CIT(A) had erred in denying the exemption for the capital gains computed on the deemed consideration. The Tribunal clarified that the cost of the new asset (Rs. 17,65,752) exceeded both the actual and deemed sale considerations, thereby making the entire capital gains eligible for exemption under Section 54F.

Conclusion:
The Tribunal allowed the appeal, granting the assessee full exemption under Section 54F for the capital gains, irrespective of the deemed full value of consideration under Section 50C. The decision underscored the principle that the deeming fiction of Section 50C does not affect the computation of exemption under Section 54F.

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