2009 (7) TMI 118 - HC - Income Tax

Capital Gains - Tribunal hold that the capital gain arising from the transfer of shares which was chargeable to tax in the assessment year 1990-91 but which in view of the provisions of section 54F of the Act became liable to be taxed in assessment year 1993-94 should be computed in accordance with law applicable to the assessment year 1993-94 held that - From a plain reading of section 54F of the Act we are of the considered opinion that the amount of capital gains which has not been utilised under section 54F has to be charged under section 45 as income of the previous year after the expiry of three years from the date of sale of the asset which in the present case is for the assessment year 1993-94 decided in favour of the Revenue and against the assessee

Summary

Issues:
Interpretation of provisions of section 54F of the Income-tax Act, 1961 regarding computation of capital gains arising from the transfer of shares and its taxation in different assessment years.

Analysis:

The case involved a question of law referred by the Income-tax Appellate Tribunal, Allahabad, regarding the computation of capital gains arising from the transfer of shares and its taxation in different assessment years under section 54F of the Income-tax Act, 1961. The assessee had sold shares in 1990-91 and wanted to avail the benefit of section 54F by depositing the net consideration in the bank but failed to utilize it within the specified period. The capital gains became liable to be taxed in the assessment year 1993-94. The assessee claimed deductions based on the provisions applicable in 1990-91, but the Assessing Officer applied the amended provisions effective from April 1, 1993. The Commissioner allowed the benefit of indexed cost as per the provisions applicable from April 1, 1993. The Tribunal held that the capital gains were chargeable in 1990-91 but became taxable in 1993-94 due to section 54F.

The main contention was whether the provisions applicable at the time of the transfer in 1990-91 or those applicable in 1993-94 should govern the computation of capital gains. The assessee argued for the application of the law in force in 1990-91, while the Revenue relied on the specific proviso to section 54F, which dictates the taxation of capital gains in the year when conditions are not met. The court considered the proviso to section 54F, emphasizing that it determines when capital gains are to be taxed in case of failure to fulfill conditions within the specified period. The court noted that the Income-tax Act addresses such situations by providing for the taxation of capital gains in the year following the expiry of the specified period. The court highlighted that the petitioner did not challenge the validity of the proviso to section 54F(4) through writ proceedings.

Upon a thorough examination of section 54F, the court concluded that the unutilized capital gains under section 54F must be charged as income of the previous year after three years from the date of sale, which in this case was the assessment year 1993-94. Consequently, the court answered the question in favor of the Revenue and against the assessee, affirming the taxation of capital gains in the assessment year 1993-94 as per the provisions of section 54F. No costs were awarded in the judgment.