2019 (7) TMI 1058 - HC - Income Tax

Unutilized capital gain to tax as per Section 54 F(4) - Withdrawal of unutilized amount from the Capital Gain Account Scheme after 3 years - interpretation of the phrase wholly or partly employed in the proviso - unutilized capital gain amount under Section 54 F 4 has to be charged under Section 45 as income of the previous year - entitlement to the withdrawal of the amount deposited under Sub-Section (4) of Section 54F of the Act under the capital gain account subject to deduction of tax - HELD THAT - Proviso appended to Section 58 4 f has to be read as a whole along with the Clauses a and b therein which would explain the real intendment of the phrase not utilized wholly or partly . In the context, the proviso to Section 54 F 4 becomes an integral part of the enactment acquiring the tenor and colour of the main provision. To make the provision workable, the arguments of the petitioner that the Clauses a and b of the proviso need not be addressed to, cannot be countenanced for the reasons aforesaid. Thus, it can be held that on reading of the provision as a whole along with Clauses a and b to the proviso, the intention of the Legislature would be gathered that the unutilized capital gain amount under Section 54 F 4 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 capital asset which in the present case is the assessment year 2016-17. In the circumstances, the assessee is entitled to the withdrawal of the amount deposited under Sub-Section (4) of Section 54F of the Act under the capital gain account subject to deduction of tax applicable to the case on hand. The respondent shall consider the petitioner s application in Form G submitted in terms of the observations made hereinabove. With the aforesaid observations and directions, writ petition stands disposed of.

Summary

Issues Involved:
1. Legitimacy of the claim made by the respondent in Annexure-A1.
2. Approval of the petitioner’s application in Form-G and cessation of alleged harassment.
3. Entitlement to exemplary compensation for damages and losses.
4. Interpretation of Section 54F(4) of the Income Tax Act, 1961, particularly the phrase "wholly or partly".

Detailed Analysis:

1. Legitimacy of the Claim Made by the Respondent in Annexure-A1:
The petitioner requested the court to order the respondent to submit his claim made in Annexure-A1 under oath. The petitioner had filed a return of income for the assessment year 2016-2017, and a show-cause notice under Section 142(3) of the Income Tax Act, 1961, was issued to tax the unutilized deposit in the capital gain account scheme. The petitioner argued that the respondent failed to properly interpret the scope of Section 54F(4) and its proviso, particularly the phrase "wholly or partly."

2. Approval of the Petitioner’s Application in Form-G and Cessation of Alleged Harassment:
The petitioner sought approval for the application in Form-G submitted in 2015 and requested the cessation of harassment if the respondent could not establish the legitimacy of the claim in Annexure-A1. The court examined the provisions of Section 54F(4) and the relevant judgments, including the case of Ranjit Narang Vs. Commissioner of Income Tax, which clarified that unutilized capital gains must be charged under Section 45 as income of the previous year after three years from the date of sale of the asset.

3. Entitlement to Exemplary Compensation for Damages and Losses:
The petitioner sought exemplary compensation for damages and losses caused. The court did not specifically address this request in the judgment but focused on the interpretation of the relevant sections of the Income Tax Act to determine the legitimacy of the claims and the petitioner’s obligations.

4. Interpretation of Section 54F(4) of the Income Tax Act, 1961:
The core issue revolved around the interpretation of Section 54F(4) and its proviso, particularly the phrase "wholly or partly." The court emphasized that the statute prescribes when capital gain is to be offered to tax and that the amount deposited in a Nationalized Bank under the capital gain account scheme is construed as an investment in a new asset. If the amount deposited is not utilized within the specified period, the unutilized capital gain is chargeable under Section 45 of the Act.

The court referred to previous judgments, including R.S. Sharma Vs. Income Tax Officer and CIT Vs. Khoobchand M. Makhija, to support its interpretation. It concluded that the phrase "not utilized wholly or partly" applies to the unutilized amount remaining in the capital gain deposit account after three years from the date of transfer of the original asset. This interpretation aligns with the legislative intent and ensures the provision is workable.

Conclusion:
The court held that the unutilized capital gain amount under Section 54F(4) must be charged under Section 45 as income of the previous year after the expiry of three years from the date of sale of the capital asset. The petitioner is entitled to withdraw the deposited amount, subject to applicable tax deductions. The respondent was directed to consider the petitioner’s application in Form-G in light of these observations. The writ petition was disposed of with these directions.