2018 (11) TMI 595 - AT - Income Tax

Determination of long term capital gain - Denying the benefit claimed u/s 54F - investment made in one more residential house property - Held that - As per the provision of Section 54F of the Act, the assessee is entitled to exemption for investment made in a second residential house property from out of the long term capital gains. Merely because the assessee has invested in more than one house property, he cannot be denied rightful exemption on an investment made on the second house property. The assessee claims that the amount of ₹ 40 Lakhs/- investment by him for the purchase of the residential plot by way of advances to M/s Amit Enterprises should be considered for exemption u/s 54F of the Act, as investment in a second house property. We find force in these arguments. Hence we direct the Assessing Officer accordingly. Deeming provisions of Section 50C application to Section 54F - investment of net sale consideration for construction of new residential house property - Held that - We find that the Visakhapatnam Bench of the Tribunal in the case of DCIT vs. Dr. Chalasani Mallikarjuna Rao 2016 (10) TMI 1032 - ITAT VISAKHAPATNAM as held the assessee has invested net sale consideration for construction of new residential house property. Though, the full value of consideration as defined u/s. 50C of the Act is more than the net sale consideration as referred in section 54F(1) of the Act, once the net sale consideration has been fully applied under the provisions of section 54 of the Act, then the deeming consideration as defined u/s. 50C cannot be brought into the provisions of section 54F of the Act. Therefore, we are of the view that the assessee is eligible for exemption u/s. 54 of the Act, therefore, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value as per the provision of section 50C of the Act. Therefore, we direct the A.O. to allow the exemption u/s. 54 - thus we direct the Assessing Officer to re-compute the capital gains

Summary

Issues:
1. Denial of exemption u/s 54F of the Income Tax Act by the Commissioner of Income Tax (Appeals).
2. Interpretation of Section 50C in relation to Section 54F of the Act.

Issue 1: Denial of Exemption u/s 54F:
The appeal challenged the order of the Commissioner of Income Tax (Appeals) denying the exemption claimed under Section 54F of the Income Tax Act for Assessment Year 2013-14. The appellant disputed the erroneous determination of long term capital gain and the denial of benefits under Section 54F. The Assessing Officer contended that the appellant was the owner of more than one residential house at the date of transfer of the long term capital asset, which did not comply with the conditions of Section 54F. The appellant claimed to have invested in two residential flats and spent on house construction, seeking exemption under Section 54F. The First Appellate Authority upheld the denial of exemption.

Issue 2: Interpretation of Section 50C in relation to Section 54F:
The debate centered on whether the deeming provisions of Section 50C of the Act could be applied to Section 54F. The appellant argued that the net sale consideration should be the basis for investment in a new residential house property, not the full value of consideration as defined under Section 50C. Citing the decision in DCIT vs. Dr. Chalasani Mallikarjuna Rao, the appellant contended that the full value of consideration under Section 50C should not govern the meaning of full value of consideration in Section 54F. The Tribunal held that the net sale consideration should be considered for exemption under Section 54F, even if the full value of consideration was higher. The Tribunal directed the Assessing Officer to re-compute the capital gains and examine the appellant's claim of investing in a second house property for exemption under Section 54F.

In conclusion, the Appellate Tribunal in Kolkata allowed the appeal for statistical purposes, directing the Assessing Officer to grant exemption under Section 54F for the investment made in a second residential house property. The Tribunal clarified that the deeming provisions of Section 50C should not affect the application of Section 54F, emphasizing that the net sale consideration should determine eligibility for exemption. The decision was based on the interpretation of relevant legal provisions and precedents, ensuring the appellant's entitlement to tax benefits as per the Income Tax Act.