2020 (3) TMI 1226 - AT - Income Tax

Exemption u/s. 54F - Whether assessee could avail benefit u/s 54F if the construction of new asset commenced before the sale of old assets? - Whether the amount paid for land used for new asset should be considered for purpose of section 54F? - HELD THAT - The condition preceded and for claiming benefit under the provision is that capital gain realised from sale of capital asset should have been invested either in purchasing a residential house or and constructing a residential house. In the present facts of case assessee utilised part of sale consideration earned from sale of 2 parcels of land in construction of residential house, which started on 13/01/2014 (which is within one year prior to the sale of capital asset) and, construction was completed in financial year 2016-17 (which is before expiry of 3 years from the sale of capital asset). Admittedly assessee has used sum towards construction of new asset and balance has been offered to tax. Under these circumstances, we do not find any violation of requirement to claim exemption u/s. 54F, as per decisions relied upon by Ld.AR in case of CIT vs J.R Subramanya Bhat 1986 (6) TMI 7 - KARNATAKA HIGH COURT and CIT Vs. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT assessee is eligible to claim exemption under section 54F. We therefore direct Ld. AO is directed to compute the capital gains considering claim in consonance to decisions of Hon ble Karnataka High Court mentioned herein. Whether additional deduction being construction cost incurred after filing the return of income but before expiry of 3 years from the date of sale of original assets land should be considered while computing exemption under section 54F even though assessee failed to claim it in the return of income? - HELD THAT - It is observed that, as rightly argued by Ld. Sr. DR that, one has to verify the manner in which assessee invested in the vacant plot. Also, that this issue has not been considered by Ld.AO, and therefore in our view it is appropriate to set aside this issue back to Ld. AO. Needless to say, that assessee shall be granted proper opportunity of being represented in support of this claim. Accordingly, Additional ground raised by assessee stands allowed for statistical purposes,

Issues Involved:

1. Whether the assessee could avail benefit under section 54F if the construction of the new asset commenced before the sale of old assets.
2. Whether the amount paid for land used for the new asset should be considered for the purpose of section 54F.
3. Whether additional deduction of ?2,79,64,068/- being construction cost incurred after filing the return of income but before expiry of 3 years from the date of sale of original assets should be considered while computing exemption under section 54F even though the assessee failed to claim it in the return of income.

Issue-Wise Detailed Analysis:

1. Benefit under Section 54F for Construction Commenced Before Sale of Old Assets:

The Tribunal examined whether the assessee could claim the benefit of section 54F even if the construction of the new residential house had commenced before the sale of the original asset. The Tribunal noted that section 54F is a beneficial provision aimed at promoting the construction of residential houses and should be construed liberally. The Tribunal referred to the decisions of the Hon'ble Karnataka High Court in CIT vs. J.R. Subramanya Bhat and CIT vs. Ramachandra Rao, which supported the view that the exemption under section 54F could be claimed if the construction was completed within three years from the date of transfer of the original asset. Given that the construction commenced within one year prior to the sale and was completed within the stipulated period, the Tribunal found no violation of the conditions for claiming the exemption. Accordingly, the Tribunal directed the AO to compute the capital gains considering the claim in consonance with the decisions of the Hon'ble Karnataka High Court.

2. Consideration of Amount Paid for Land under Section 54F:

The Tribunal addressed whether the cost of acquiring the land on which the new residential house was constructed should be included in the total cost for claiming exemption under section 54F. The Tribunal referred to the decision of the Hon'ble Madras High Court in CIT vs. Aryamma Sundaram, which held that the cost of land could not be segregated from the cost of the constructed house property for the purpose of section 54F. The Tribunal noted that the assessee had invested a significant amount in acquiring the land and further amounts in constructing the house. The Tribunal concluded that the assessee was eligible to claim the exemption under section 54F for the total amount spent on the new asset, including the cost of the land. Therefore, the Tribunal allowed the assessee's appeal on this ground and dismissed the revenue's appeal.

3. Additional Deduction for Construction Cost Incurred After Filing Return:

The Tribunal considered whether the assessee could claim an additional deduction for the construction cost incurred after filing the return of income but before the expiry of three years from the date of sale of the original assets. The Tribunal referred to the decision of the Hon'ble Supreme Court in Goetz (India) Ltd vs. CIT, which allowed a claim not made in the original return if it was otherwise eligible. The Tribunal noted that the assessee had not claimed the additional deduction in the original return due to oversight and that the issue did not require new facts to be investigated. However, the Tribunal observed that the AO had not verified the manner in which the assessee invested in the vacant plot. Therefore, the Tribunal set aside this issue back to the AO for verification and directed that the assessee be granted proper opportunity to support the claim. The Tribunal allowed the additional ground raised by the assessee for statistical purposes.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, granting the exemption under section 54F for the total amount spent on the new asset, including the cost of the land, and directed the AO to verify the additional deduction for the construction cost incurred after filing the return. The appeal filed by the revenue was dismissed.

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