2020 (6) TMI 218 - AT - Income Tax

Exemption u/s 54F - Assessment Year in which the amount is taxable where the assessee had not constructed the house property within the period of 3 years - HELD THAT - Where the assessee had invested the long term capital gains in purchase of land towards construction of house but could not complete the construction before the expiry of 3 years as to pretend under law in the case of Sri Prasad Nimmagadda 2013 (5) TMI 74 - ITAT HYDERABAD held that on examination of section 54 and 54F it is found that the provisions contained in section 54 including the proviso are pari materia with section 54F and the proviso to section 54 lays down that if the amount of capital gain is not utilised towards construction of residential house within a period of 3 years from the date of transfer of original asset, then, it will be charged to capital gain under section fortify of the Act in the year in which the period of 3 years from the date of transfer of the original asset expires. In the case of Vegesina Kamala 2016 (3) TMI 88 - ITAT VISAKHAPATNAM the contention of the Commissioner of Income Tax that as per section 54F only unutilised portion of sale consideration is taxable in the previous year in which the period of 3 years expires from the date of sale of original asset, but the investment made in the vacant site has to be taxed in the year in which capital gain arose has expressly been rejected by the Tribunal and the Tribunal held that a since the assessee had offered to capital gain the long term capital gains after completion of 3 years from the date of sale of original asset, it was in accordance with law. Difficult to uphold the addition and direct the assessing officer to the addition if the assessee offered the long term capital gains to tax in the assessment year 2016-17. Subject to these observations, for the limited purpose of verification, we set aside the issue to the file of the learned Assessing Officer to grant exemption for the Assessment Year 2013-14 if the assessee offered the long term capital gains to tax in the Assessment Year 2016-17 - Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of exemption claimed under section 54 of the Income Tax Act, 1961 for not constructing a house within the specified period.
2. Interpretation of provisions regarding taxation of unutilized capital gains under section 54 of the Act.
3. Application of CBDT circular No. 667 dated 18/10/1993 for exemption eligibility.
4. Comparison of decisions in similar cases by different Tribunals regarding exemption under section 54 of the Act.

Analysis:
1. The case involved the disallowance of exemption claimed under section 54 of the Income Tax Act, 1961, due to the failure of the assessee to construct a residential house within the stipulated period of 3 years from the date of transfer of the old property. The Assessing Officer disallowed the exemption, which was upheld by the Commissioner of Income Tax (Appeals) in the order dated 29/7/2016.

2. The Tribunal analyzed the provisions of section 54 and 54F of the Act to determine the tax liability on unutilized capital gains. Referring to a previous judgment, it was held that if the capital gain amount is not utilized for construction within 3 years, it will be taxed in the year when the 3-year period expires. The Tribunal emphasized that the exemption claimed under section 54 cannot be denied solely based on the failure to complete construction within the specified period.

3. The assessee argued for exemption eligibility under section 54 of the Act by citing CBDT circular No. 667 dated 18/10/1993, which allows the cost of land to be considered for deduction under section 54. The Tribunal considered this argument in conjunction with the case laws cited by the assessee to support the claim for exemption despite the delay in construction.

4. By comparing decisions from different Tribunals in similar cases, the Tribunal found consistency in granting exemption under section 54 when the capital gains were invested in the purchase of land for house construction but the construction could not be completed within the 3-year period. The Tribunal referred to specific cases where the exemption was allowed even when construction was delayed, emphasizing the importance of following established legal interpretations.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to grant exemption for the Assessment Year 2013-14 if the long term capital gains were offered for taxation in the subsequent Assessment Year 2016-17. The decision was based on the interpretation of relevant provisions, case laws, and consistent legal principles applied in similar cases.