2003 (7) TMI 296 - AT - Income Tax

Summary

Issues Involved:

1. Eligibility for exemption under Section 54F of the Income-tax Act, 1961.
2. Compliance with the construction requirement within the specified period.
3. Validity of alternative plea regarding the assessment year for capital gains tax.

Detailed Analysis:

1. Eligibility for exemption under Section 54F of the Income-tax Act, 1961:

The assessee filed a return for the assessment year 1991-92, declaring an income of Rs.1,83,390, which included long-term capital gains from the sale of shares. The assessee claimed an exemption under Section 54F of the Income-tax Act, 1961, asserting that she had invested the entire sale proceeds in purchasing a residential plot and intended to construct a residential house within three years. The Assessing Officer (AO) denied the exemption, noting that the assessee had only purchased a plot and had not constructed a residential house within the specified period. The AO also highlighted that more than three years had elapsed since the sale of shares, and no construction had been initiated, thus failing to comply with Section 54F requirements.

2. Compliance with the construction requirement within the specified period:

The assessee contended that due to an ad interim injunction from a civil court in Agra, she was unable to construct the house within the stipulated three years. However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the injunction only restrained the transfer of the property, not the construction. The CIT(A) emphasized that the benefit under Section 54F could only be extended if the assessee had constructed a residential house within the specified period. The installation of a tube-well, construction of one room, and a boundary wall were deemed insufficient to qualify as a "residential house" under Section 54F. The CIT(A) also noted that the Central Board of Direct Taxes (CBDT) Circular No. 667, which allows the inclusion of the plot cost in the residential house cost, applies only if the house is constructed within the specified period.

3. Validity of alternative plea regarding the assessment year for capital gains tax:

The assessee argued that if the construction was not completed within the assessment year 1991-92, the capital gains should be taxed in the assessment year 1994-95, after the expiry of the three-year period. The CIT(A) rejected this plea, stating that the assessee had not deposited the sale proceeds in a specified bank account as required under Section 54F(4) of the Act. Furthermore, even after the three-year period, the assessee had not constructed the house, making the alternative plea invalid. The Tribunal upheld the CIT(A)'s decision, emphasizing that mere purchase of a plot does not satisfy Section 54F requirements, and the assessee failed to prove the construction of a residential house within the specified period.

Conclusion:

The Tribunal dismissed the appeal, concluding that the assessee did not comply with the provisions of Section 54F, as she failed to construct a residential house within the specified period. The purchase of a plot alone was insufficient, and the alternative plea regarding the assessment year for capital gains tax was invalid due to non-compliance with Section 54F(4). The Tribunal affirmed the AO's and CIT(A)'s decisions, rejecting the assessee's claims for exemption and alternative relief.