2017 (5) TMI 156 - AT - Income Tax

Disallowance of claim u/s 54F of the Income Tax Act, 1961 - capital gains which was deposited in capital gain account - As per the Assessing Officer, the assessee has not utilized the capital gain till the stipulated period of three years expired on 31.01.2015 - The assessee claims that since there was a dispute on the property in J.P Nagar and therefore the assessee could not carryout the construction on the said plot and accordingly the assessee has offered the capital gain in the Assessment Year 2013-14 - Held that - It is pertinent to note that in case the assessee could not invest the amount for purchase of new residential house or construction of new residential house before the date of furnishing the return of income, the amount shall be deposited by him in the capital gain account for availing the deduction under Section 54/54F of the Act - The consequence of non-utilisation of the capital gain within period of three years would lead to assessment of the capital gain to tax in the assessment year relevant to the previous year in which the three years expires. It is neither the discretion of the assessee nor the discretion of the Assessing Officer to assess the said amount to capital gain tax in the assessment year other than the year as provided in Section 54/54F and particularly as per proviso to sub-section (4) of the said section so long the amount is deposited in Capital Gain Account. Thus the addition made by the Assessing Officer for the year under consideration is not sustainable and the same is deleted. Appeal allowed - decided in favor of assessee.

Summary

Issues involved:
Disallowance of claim under Section 54F of the Income Tax Act for non-utilization of capital gains deposited in a capital gain account within the stipulated period.

Detailed Analysis:

Issue 1: Disallowance of claim under Section 54F
The appellant, an individual, sold immovable property and deposited the net consideration in a capital gain account to claim exemption under Section 54F. The Assessing Officer disallowed the claim as the appellant did not complete construction of a residential house within the stipulated period. The CIT (Appeals) upheld the disallowance. The appellant argued that part consideration was invested in a plot for house construction and the balance amount was deposited in the capital gain account, satisfying Section 54F conditions. The appellant also offered the capital gain in a subsequent assessment year. The Departmental Representative contended that failure to invest within the specified period disqualifies the claim. The Tribunal noted the appellant's investment in a plot for house construction and the expiration of the three-year period during assessment proceedings. As per Section 54F, unutilized capital gains deposited in the account are taxable in the year the three-year period ends. Therefore, the Tribunal allowed the appeal, stating the Assessing Officer can assess the capital gain as per Section 54F but not for the current year.

This judgment clarifies the conditions and consequences of claiming exemption under Section 54F, emphasizing the importance of timely utilization of capital gains deposited in a capital gain account for new asset purchase or construction to avoid tax implications.