2022 (1) TMI 598 - HC - Income Tax

Deduction u/s 54F - Withdrawal of Amount Deposited with the Bank of India in terms of Capital Gains Scheme Accounts, 1988 - rejecting the request of issuance of no objection certificate to the petitioner, who has already paid the advance tax which is more than the amount of Capital Gain tax that may be required to pay - HELD THAT - If a depositor other than the eligible company when desires to close its account an application needs to be made with the approval of the AO having jurisdiction over the depositor to the deposit office. The deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any Bank account of the depositor. Here is a case where it is not on account of the depositor having fulfilled the requirement of Section 54 F of the Act is choosing to close the account, but he has instead shown his inability to purchase any residential house and therefore, on payment of tax he has sought to close the account and permit the withdrawal of the remaining amount for the same to be utilised as may be legally permissible. However, for so doing he would be requiring not only the payment of the tax as provided u/s 54 F of the Act in the proviso clearly while reading the said provision and Section 45 of the Act. With no mechanism or modality provided for the withdrawal of the amount which at one point of time had been contemplated for the purchase of the residential premises from the amount of Capital Gains under the said scheme, the request had been made to the respondent for issuance of the No Objection Certificate to which for the apprehension ventilated before this Court, it has chosen not to issue the same. We see no reason for the authority concerned not to allow this. More particularly, on the entire amount the advance tax of ₹ 1.25 crore is already paid. It is given to understand that ordinarily the tax which is being offered from the professional income is over the period of time being regularly paid and at no stage the petitioner has defaulted. The said amount of ₹ 1.25 Crore is not to be adjusted against any possible loss which is quite unlikely and the same has been stated by way of an affidavit. It has been undertaken further that while filing of the return, physical copy shall be also given to the AO having the jurisdiction. With all possible loopholes having been plugged cementing the same with the affidavit tendered before this Court additionally pursuant to the submissions made by the learned senior standing counsel, Ms.Maithili Mehta, the action of the Assistant Commissioner, Income Tax dated 20.10.2021 whereby he denied to issue the No Objection Certificate for the balance withdrawal of the deposit deserves and warrants interference. From the robust facts which have been set out coupled with the circumstances which exist in the instant case and being convinced with the credibility of the petitioner as the assessee of income tax department over the years, the Court is of the opinion that this petition deserves to be permitted. We accordingly allow the present petition and direct the respondent authority concerned that from the part of the amount deposited in the Capital Gain Account Scheme, the amount which remains shall be permitted to be withdrawn. Let No Objection Certificate in respect of Account No.200116810000015 be issued within a period of one week from the date of receipt of a copy of this order.The petitioner, over and above the additional affidavit dated 01.12.2021 tendered before this Court, shall file an undertaking before the concerned Assessing Officer along the same line.

Issues Involved:
1. Rejection of No Objection Certificate (NOC) request by the respondent.
2. Compliance with Section 54F of the Income Tax Act, 1961.
3. Tax liability and payment of advance tax.
4. Legal precedents and their applicability.
5. Authority's refusal based on potential loopholes and enhanced tax liability.
6. Procedural requirements for withdrawing funds from the Capital Gains Account Scheme.

Detailed Analysis:

1. Rejection of No Objection Certificate (NOC) Request by the Respondent:
The petitioner challenged the order dated 28.10.2021, where the respondent rejected the request for the issuance of an NOC. The petitioner had paid an advance tax of ?1.25 crores, which was more than the required Capital Gain tax. The petitioner sought the NOC to withdraw funds deposited under the Capital Gains Scheme Accounts, 1988, to utilize them for purchasing land instead of a residential house as initially intended.

2. Compliance with Section 54F of the Income Tax Act, 1961:
The petitioner, a one-fourth owner of a parcel of land sold in December 2018, gained ?4.75 crores from the sale. He claimed exemption under Section 54F by depositing ?4.67 crores with the Bank of India. However, due to the inability to find a viable residential property within the stipulated three years, the petitioner sought to withdraw the funds and pay the applicable Capital Gain tax.

3. Tax Liability and Payment of Advance Tax:
The petitioner argued that the tax liability on the Capital Gain would not exceed ?1.25 crores, which had already been paid. The petitioner had also paid additional advance tax for his professional income and other sources. The respondent sought details of the sale deed, bank statements, and an indemnity bond, which the petitioner provided.

4. Legal Precedents and Their Applicability:
The petitioner relied on the Karnataka High Court decision in Professor P.N. Shetty vs. Office of Income-tax Officer, and the Madras High Court decision in Padma Swaminathan vs. Income Tax Officer. These cases supported the petitioner's claim for the issuance of an NOC based on the payment of applicable taxes and the inability to utilize the funds within the specified period.

5. Authority's Refusal Based on Potential Loopholes and Enhanced Tax Liability:
The respondent argued that the advance tax payment might not suffice due to potential claims for set-offs against losses and the final tax calculation at the assessment stage. The respondent emphasized that the petitioner could wait until filing the return for the Assessment Year 2022-2023 as per Section 54F(4).

6. Procedural Requirements for Withdrawing Funds from the Capital Gains Account Scheme:
The Capital Gains Account Scheme requires the depositor to apply for withdrawal with the approval of the Assessing Officer. The petitioner sought to close the account and withdraw the remaining funds after paying the due tax. The court noted that the petitioner had complied with all procedural requirements, including providing an indemnity bond and undertaking to file the return for the Assessment Year 2022-2023.

Conclusion:
The court found no reason for the respondent to deny the NOC, given the petitioner's compliance with tax payments and procedural requirements. The court directed the respondent to issue the NOC within one week, allowing the petitioner to withdraw the remaining funds from the Capital Gains Account Scheme. The petitioner was also directed to file an undertaking before the concerned Assessing Officer. The petition was allowed, and the respondent's action was deemed unwarranted.

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