2017 (5) TMI 715 - AT - Income Tax

Denying exemption u/s 54F - assessee has not constructed a residential house on plot of land purchased for on 87.50 lakh before the expiry of 3 years prescribed time limit from date of transfer of original asset - alternative ground by A.R. that if the long-term capital gain is to be taxed in the A.Y. 2010- 11, then the AO therefore, be directed to reduce the long-term capital gains declared by the assessee in A.Y. 2013-14 - whether amount of capital gain can be charged to tax in the third year? The learned counsel has not been able to show that the assessee had complied with the said requirement of sub-s. (4) of s. 54F of the Act. Mere purchase of residential plot is not sufficient compliance of provisions of section 54F. What was expected from the assessee was to prove on record that the assessee had purchased or constructed a house within the period specified under section 54F, which the assessee had failed to prove on record. The AO rightly rejected the claim of the assessee and order of learned CIT (A) is on the correct footings, which requires no interference. Therefore, the above ground of appeal of the assessee are rejected. The assessee has offered long-term capital gain in A.Y. 2013-14 and paid taxes thereon. This means that the said amount of long-term capital gain is being taxed twice, which cannot be intention of the Legislature. Therefore, we direct the AO to verify the claim whether the assessee has disclosed this long-term capital gain amount in A.Y. 2013-14, and if found correct, the AO should reduce then the said amount be reduced from taxable long-term capital gain of A.Y. 2013-14, and resultant refund of tax if any would be adjusted against the demand of assessment year under consideration i.e. A.Y. 2010-

Summary

Issues Involved:
1. Disallowance of deduction under section 54F of the Income Tax Act, 1961.
2. Appropriate year of taxability of Long Term Capital Gain.
3. Double taxation of the same income.
4. Alternative plea for adjustment of income and refund.

Detailed Analysis:

1. Disallowance of Deduction under Section 54F:
The assessee's claim for exemption under section 54F amounting to ?99,40,150 was disallowed by the AO and confirmed by the CIT(A). The AO found that the assessee did not construct a residential house within three years from the date of transfer of the original asset, nor deposited the amount in a specified bank account as required under section 54F(4). The assessee had purchased three plots of land but failed to commence construction due to lack of approval from Town and Country Planning, Indore. The Tribunal upheld the disallowance, stating that mere purchase of plots does not suffice the conditions laid down in section 54F and the amount not utilized for construction or deposited in a specified account is taxable in the year of transfer.

2. Appropriate Year of Taxability of Long Term Capital Gain:
The assessee argued that the Long Term Capital Gain should be taxable in AY 2013-14, as the construction period of three years expired on 22.03.2013. The Tribunal noted that the assessee did not comply with the conditions of section 54F within the specified period. The Tribunal held that the exemption under section 54F is not available as the assessee neither constructed a residential house within three years nor deposited the amount in a specified account. Therefore, the capital gain is taxable in AY 2010-11.

3. Double Taxation of the Same Income:
The assessee contended that confirming the addition in AY 2010-11 resulted in double taxation as the same income was offered to tax in AY 2013-14. The Tribunal acknowledged this issue and directed the AO to verify the claim of the assessee that the Long Term Capital Gain was disclosed in AY 2013-14. If verified, the AO should reduce the taxable income of AY 2013-14 and adjust the resultant refund against the demand of AY 2010-11.

4. Alternative Plea for Adjustment of Income and Refund:
The Tribunal allowed the alternative plea of the assessee to the extent that if the Long Term Capital Gain is taxed in AY 2010-11, the AO should reduce the income of AY 2013-14. The Tribunal cited the case of Malayalam Plantation (India) Ltd. v. CIT, where it was held that the Tribunal could issue directions to avoid double taxation. The AO was directed to verify the assessee's claim and adjust the refund accordingly.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal upheld the disallowance of deduction under section 54F and confirmed the taxability of Long Term Capital Gain in AY 2010-11. However, it directed the AO to verify and adjust the income and refund to avoid double taxation. The order was pronounced on 27.03.2017.