2019 (2) TMI 152 - AT - Income Tax

Denial of exemption claimed by the assessee u/s 54 - non-deposit of capital gain in the Capital Gain Account within the due date - Held that - The provisions of Income-tax Act very clearly says that in case the capital gain was not invested it has to be deposited in a specific account within the due date for filing return of income. The due date of 31.07.2012 was further extended to 31.08.2012 by CBDT. Therefore the assessee had to deposit the money on or before 31st August 2012. In this case the assessee admittedly deposited the amount on 27.08.2012. Therefore there cannot be any disallowance on this ground. Now coming to completion of building this Tribunal is of the considered opinion that what is contemplated in the provisions of Income-tax Act for claiming exemption under Section 54 of the Act is investment of funds for the purpose of construction. The moment assessee invested the entire capital gain for the purpose of purchasing a residential house or construction of residential house the condition stipulated in the provisions to claim exemption is satisfied therefore the Assessing Officer cannot disallow the claim of the assessee. Assessing Officer is not disputing the fact that the assessee has invested the funds. What is disputed is that the construction was not completed. In view of judgment of Madras High Court in Sardarmal Kothari (2008 (6) TMI 15 - MADRAS HIGH COURT and Mrs. Seetha Subramanian (1996 (4) TMI 164 - ITAT MADRAS-C) and the CBDT circular No.471 dated 15th October 1986 and in No.672 dated 16th December 1993 mere investment of the capital gain in the construction of residential premises is more than sufficient for claiming exemption under Section 54 of the Act. Therefore in the second ground of disallowance also the Assessing Officer fails. CIT(Appeals) rejected the claim of the assessee on the ground that it is not fit for human habitation. Since the construction was admittedly in progress it may not be fit for human habitation as claimed by the Revenue authorities. But the fact is that the assessee has invested the entire capital gain in purchasing the land and to construct the building which is not in dispute. CIT(Appeals) rejected the claim of the assessee on the ground that it is not fit for human habitation. Since the construction was admittedly in progress it may not be fit for human habitation as claimed by the Revenue authorities. But the fact is that the assessee has invested the entire capital gain in purchasing the land and to construct the building which is not in dispute. - Decided in favour of assessee.

Summary

Issues:
Denial of exemption claimed under Section 54 of the Income-tax Act, 1961.

Detailed Analysis:

1. Exemption Claimed by Assessee:
The assessee sold a flat and land, reinvested the proceeds in purchasing land, and constructing a residential building. The dispute arose regarding the completion of the construction to claim exemption under Section 54 of the Act.

2. Arguments by Assessee:
The counsel argued that the capital gain was invested within the due date, as per CBDT guidelines. The completion of the residential building was not a prerequisite for claiming exemption, citing relevant legal precedents.

3. Revenue's Position:
The Revenue contended that the building was not completed, and the electricity connection was temporary, indicating incomplete construction. They argued that the property was not fit for human habitation.

4. Tribunal's Analysis - Capital Gain Deposit:
The Tribunal noted that the capital gain was deposited within the extended due date, meeting the statutory requirement. Therefore, disallowance on this ground was unwarranted.

5. Tribunal's Analysis - Completion of Building:
The Tribunal emphasized that the key requirement for exemption was the investment of funds for construction. Legal precedents supported that completion of the building was not mandatory. As the assessee invested the entire capital gain in constructing the property, the claim for exemption was upheld.

6. Judicial Precedents Considered:
The Tribunal referred to the Madras High Court's judgment and CBDT circulars, emphasizing that mere investment in construction sufficed for claiming exemption under Section 54 of the Act.

7. Decision and Conclusion:
The Tribunal set aside the lower authorities' orders and directed the Assessing Officer to grant the exemption under Section 54 as claimed by the assessee. The completion of construction was found to be in progress, supporting the assessee's case.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the statutory compliance with the provisions of the Income-tax Act for claiming exemption under Section 54.