2022 (3) TMI 152 - AT - Income Tax

Deduction u/s.54 - sale consideration received in installments has been re-invested in new property by the assessee, and also claimed deduction under section 54/54F - AO held that the assessee has made certain payments with respect to purchase of new flat after the due date of filing of return of income u/s.139 - HELD THAT - Sub-section (4) of section 54/54F is attracted only to a case where the sale consideration is NOT utilized by the assessee either for purchase or for construction of a residential house. This sub-section 4 has NO application to a case, where the assessee invests the sale consideration derived from the transfer either in purchasing the property within one year or constructing the residential house within three years period as stipulated in Section 54F(1). In the present case the assessee though registered the old property as per Sale Deed dated 02-12-2014 but received the sale considerations only on 07-07-2015 and 12-10- 2015 respectively. The assessee also reinvested the sale considerations immediate on the receipt of the same which is well within 3 years period in case of construction of a residential house/flat. Thus the question of deposit in Capital Gains account does not arise in this case. Therefore, we set aside the orders of both the lower authorities and direct the AO to delete the disallowance made and allow the entire claim of deduction to the assessee. Thus, the ground of assessee appeal is allowed.

Summary

Issues Involved:
1. Restriction of deduction under Section 54 of the Income Tax Act.
2. Eligibility of re-investment in a residential property for deduction under Section 54/54F.
3. Compliance with the provisions of Section 139 and the Capital Gains Account Scheme.

Issue-wise Detailed Analysis:

1. Restriction of Deduction under Section 54:
The core issue revolves around the restriction of the deduction claimed by the assessee under Section 54 of the Income Tax Act. The assessee claimed a deduction of ?2,31,60,656, but the Ld. CIT(A) restricted it to ?48,00,572. The assessee argued that the restriction imposed by the CIT(A) was erroneous and sought the full deduction as initially claimed.

2. Eligibility of Re-investment in a Residential Property for Deduction under Section 54/54F:
The facts of the case show that the assessee, an NRI, sold a property and received the sale consideration in installments. The assessee re-invested the sale consideration in a new residential flat, which was an ongoing project, and claimed a deduction under Sections 54/54F. The AO disallowed the deduction for payments made after the due date of filing the return under Section 139, amounting to ?48,00,572, and determined the total taxable capital gain accordingly.

3. Compliance with Provisions of Section 139 and Capital Gains Account Scheme:
The AO's disallowance was based on the premise that the assessee did not deposit the sale consideration in a separate capital gains account before the due date of filing the return under Section 139. The CIT(A) upheld this view, relying on the Bombay High Court judgment in the case of Humayun Suleman Merchant, which emphasized the necessity of depositing the sale proceeds in a capital gains account if not immediately re-invested.

Tribunal's Analysis and Judgment:

1. Examination of Facts:
The Tribunal noted that the assessee received the sale consideration in two installments: ?1,20,00,000 on 07-07-2015 and the remaining ?1,20,00,000 on 12-10-2015. The assessee re-invested ?1,83,60,084 before 31-08-2015 and filed the original return on 31-08-2015. Subsequently, the assessee filed a revised return on 05-11-2015, after receiving the full sale consideration, claiming the entire deduction under Section 54/54F.

2. Differentiation from Humayun Suleman Merchant Case:
The Tribunal distinguished the present case from the Humayun Suleman Merchant case, noting that in the latter, the sale consideration was fully available before the due date of filing the return, whereas in the present case, the full consideration was received only after the due date. Therefore, the facts of the two cases were not analogous.

3. Reliance on Karnataka High Court Judgment:
The Tribunal found the Karnataka High Court judgment in the case of CIT vs. K. Ramachandra Rao more applicable. This judgment held that Sub-section (4) of Section 54 is attracted only when the sale consideration is not utilized for purchasing or constructing a residential house. It emphasized that if the sale consideration is re-invested within the stipulated period, the requirement to deposit in a capital gains account does not apply.

4. Supporting Judgments:
The Tribunal also referred to the Madras High Court judgment in the case of Ms. Moturi Lakshmi and other precedents, which supported the view that advance payments made for purchasing a residential property before the sale of the original asset should be considered for deduction under Section 54.

Conclusion:
The Tribunal concluded that the lower authorities did not appreciate the facts correctly and erroneously applied the Humayun Suleman Merchant judgment. It held that the assessee had re-invested the sale consideration within the stipulated period and was entitled to the full deduction under Section 54/54F. The Tribunal set aside the orders of the lower authorities and directed the AO to allow the entire claim of deduction, thereby deleting the disallowance of ?48,00,572.

Result:
The appeal of the assessee was allowed, and the order was pronounced on 28th February 2022 at Ahmedabad.