2017 (10) TMI 1148 - AT - Income Tax

Eligible for exemption u/s 54 - eligibility criteria - assessee share in the utilization of capital gain - Held that - The assessee claims to have invested ₹ 20 lakhs (being of her share) for purchase of new asset. However, we notice that assessee appears to have shown a total investment ₹ 50 lakhs in aggregate i.e. 30 lakhs from personal account and ₹ 20 lakhs ( share) from joint account as against her obligation to the extent of ₹ 35 lakhs only. Also ambiguity exists on record as to whether the other joint owner (husband of the assessee) has availed claim of exemption, if any, upto ₹ 20 lakhs (being of his share only) or entire ₹ 40 lakhs made through joint account towards purchase in his own right. The assessee, in our view, would be entitled to exemption to the extent of ₹ 20 lakhs being 50% of her share in the utilization of capital gain subject to the satisfaction of the AO that the aforesaid claim of payments from joint account has not been simultaneously availed by other joint owner also. The other portion on the investment claimed from the personal account of the assessee is stated to have been made after furnishing the return of income but before extended the due date of filing of return of income. However, as noted above, once the return has been furnished, the subsequent payments made towards purchase would not be eligible for exemption unless the same was first deposited in capital gain account scheme and utilized therefrom. Therefore, the assessee is entitled to relief to the extent of ₹ 20 lakhs only out of indexed capital gain subject, however, to the necessary verification of the claim of the other joint-owner as noted above. The decision relied upon by the assessee does not spell anything different. The issue is set aside and remanded back to the file of AO for the limited purpose of verification of extent of claim made by other joint-owner on payment of ₹ 40 lakhs towards purchase made out of joint Bank account as elaborated earlier. The assessee shall be at liberty to adduce the necessary evidences in this regard and remove prevailing ambiguity. Appeal of the assessee is allowed in part for statistical purposes.

Summary

Issues Involved:
1. Entitlement to exemption under Section 54 of the Income Tax Act, 1961.
2. Validity of investment timing in relation to the due date for filing the return of income under Sections 139(1) and 139(4) of the Act.
3. Compliance with the Capital Gains Accounts Scheme, 1988.

Detailed Analysis:

1. Entitlement to Exemption under Section 54 of the Income Tax Act, 1961:
The assessee claimed exemption under Section 54 for the Long Term Capital Gain (LTCG) of ?35,23,326 arising from the sale of a jointly owned immovable property. The assessee argued that the entire LTCG was reinvested in a new residential property, thereby qualifying for the exemption. However, the Assessing Officer (AO) denied the exemption, stating that the conditions under Section 54 were not met, particularly regarding the timing of the investment.

2. Validity of Investment Timing in Relation to the Due Date for Filing the Return of Income under Sections 139(1) and 139(4) of the Act:
The AO observed that the assessee invested ?30 lakhs out of ?35 lakhs towards the purchase of the new property after the due date for filing the return under Section 139(1) but before the extended due date under Section 139(4). The AO held that the exemption could not be granted for investments made after the due date under Section 139(1). The CIT(A) partially upheld this view, allowing exemption only for ?5 lakhs invested before the due date under Section 139(1).

3. Compliance with the Capital Gains Accounts Scheme, 1988:
The CIT(A) noted that the assessee did not deposit the unutilized capital gain into the specified capital gains account scheme before the due date of filing the return under Section 139(1). According to Section 54(2), any unutilized capital gain must be deposited in such an account before the due date to qualify for the exemption. The Tribunal emphasized that the law requires the capital gain to be either utilized for purchasing a new asset or deposited in the specified account before the due date under Section 139(1). The assessee's claim that investments made before the extended due date under Section 139(4) should be considered was not aligned with the statutory provisions.

Tribunal's Conclusion:
The Tribunal acknowledged the assessee's investment of ?20 lakhs (50% share) from a joint account before the due date under Section 139(4). However, it noted ambiguity regarding whether the other joint owner (the assessee's husband) also claimed exemption on the same amount. The Tribunal directed the AO to verify the extent of the claim made by the other joint owner and granted partial relief to the assessee, allowing exemption for ?20 lakhs, subject to verification. The Tribunal remanded the case back to the AO for this limited purpose.

Final Order:
The appeal was allowed in part for statistical purposes, with the AO directed to verify the claim of the other joint owner and determine the appropriate exemption for the assessee.

Pronouncement:
The order was pronounced in open court on 18/09/2017.