2018 (1) TMI 1738 - AT - Income Tax

LTCG - exemption u/s 54F - time period allowed for constructing a new residential house - As per DR assessee admittedly did not deposit the unutilized amount in an account under Capital Gains Accounts Scheme and therefore was not eligible for claiming deduction u/s. 54F - Whether exemption could given under Section 54F of the Act where investment in a new residential house was made within three years from the date of transfer of the asset giving rise to the capital gains even when the assessee had not deposited the unutilized amount in Capital Gains Accounts Scheme before the due date prescribed for filing of return u/s. 139(1)? - HELD THAT - As decided in K. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT that once construction of a new residential house was completed within the three years period failure of the assessee in not depositing the unutilized sale consideration in a bank account under Capital Gains Accounts Scheme during the interregnum was not fatal to a claim u/s. 54F(1) of the Act. If assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in s. 54F(1) if the assessee wants the benefit of s. 54F then he should deposit the said capital gains in an account which is duly notified by the Central Government We are therefore of the opinion that assessee was eligible for claiming exemption u/s. 54F for the full amount utilized by it for construction of a new residential house within three year period allowed u/s. 54F(1). However whether assessee had completed the residential house within the said period and how much was invested by the assessee within the said period for such residential house requires verification by the ld. AO - We therefore set aside the orders of the authorities below and remit the issue back to the file of AO for the limited purpose of verifying the quantum of investment made by the assessee for construction of the new residential house within the period mentioned in Sec. 54F(1) of the Act and allow such deduction if the construction of the house was completed within a said period. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Restriction of claim under Section 54F of the Income Tax Act, 1961.
2. Utilization of sale consideration for construction of a residential house.
3. Requirement of depositing unutilized sale consideration in Capital Gains Accounts Scheme.

Issue-wise Detailed Analysis:

1. Restriction of Claim under Section 54F:
The assessee appealed against the restriction of her claim of Rs. 76,40,792/- under Section 54F to Rs. 37,73,230/- while computing capital gains on the sale of a property. The assessee sold equity shares for Rs. 81,00,000/- and claimed that the entire amount was used for acquiring land and constructing a residence. The Assessing Officer (AO) restricted the claim to Rs. 40,00,000/-, the amount withdrawn from her bank accounts and used for purchasing land by 31.07.2014, and taxed the balance as long-term capital gains.

2. Utilization of Sale Consideration for Construction:
The assessee contended that the construction of the residential house was completed before 15.03.2017, within the three-year period allowed under Section 54F(1). The AO's inspection confirmed ongoing construction and the presence of materials at the site. The assessee argued that the judgment in CIT vs. K. Ramachandra Rao supported her claim, stating that the completion of construction within the stipulated period negated the need for depositing unutilized amounts in a Capital Gains Accounts Scheme.

3. Requirement of Depositing Unutilized Sale Consideration:
The Departmental Representative argued that the assessee did not deposit the unutilized amount in the Capital Gains Accounts Scheme by the due date for filing the return (31.07.2014), making her ineligible for the full deduction under Section 54F. The Tribunal referenced the Karnataka High Court's decision in K. Ramachandra Rao, which held that if the construction of a new residential house is completed within three years, failure to deposit the unutilized sale consideration in a Capital Gains Accounts Scheme is not fatal to the claim under Section 54F(1).

Conclusion:
The Tribunal concluded that the assessee was eligible for the full exemption under Section 54F for the amount utilized in constructing the new residential house within the three-year period. However, the exact amount invested and the completion of the house within the stipulated period required verification. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the AO for verification of the quantum of investment and completion of construction within the specified period.

Final Judgment:
The appeal of the assessee was allowed for statistical purposes, and the case was remitted to the AO for further verification. The order was pronounced on January 9, 2018, at Chennai.