2005 (9) TMI 508 - AT - Income Tax

Deduction u/s 54F - Capital gains - Purchase of a new residential property and for such re-investment - HELD THAT - In the instant case, admittedly, the funds had been utilized for purchase of property on 1-12-1997 and in the interregnum, the same were not kept deposited in a specified bank account. There is no material to conclude that in the interregnum, the funds were utilized for the purchase or for construction of the new property. Therefore, the assessee has not fulfilled the conditions of section 54F(4). Similarly, the plea of the assessee that the provisions be construed liberally so as to further its objective is also not tenable having regard to the clear provisions of law discussed above, which required the assessee to comply with the same. The assessee, not having complied with the conditions specified in sub-section (4) of section 54, the exemption has been rightly denied by the lower authorities. In the result, the appeal of the assessee is dismissed.

Summary

Issues:
Claim of deduction under section 54F denied due to technical breach.

Analysis:
The appeal pertains to the denial of exemption under section 54F of the Income Tax Act by the Assessing Officer, upheld by the CIT(A), regarding the capital gain earned by the assessee on the sale of shares during the relevant assessment year. The Assessing Officer rejected the claim for exemption under section 54F on the grounds that the conditions specified in the said section were not fulfilled by the assessee. Specifically, the net consideration from the sale of shares was required to be appropriated towards the purchase of a residential property within the stipulated time frame, or deposited in a designated account as per the Capital Gains Accounts Scheme, 1988. The Assessing Officer found that the assessee failed to meet these requirements as the net consideration was neither appropriated nor deposited as mandated.

In the appeal before the CIT(A), the assessee argued that although the net consideration was not deposited in a designated account, it was used solely for the acquisition of a residential property. The assessee contended that the denial of exemption was merely a technical breach, as the funds were utilized for the intended purpose. The CIT(A), however, upheld the denial of exemption, stating that the essential condition under section 54F(4) was not met by the assessee.

During the appellate proceedings, the assessee's counsel reiterated that the denial of exemption was based on a technicality and emphasized that the sale proceeds were utilized exclusively for investment in the new house property. The counsel argued that despite not depositing the funds in a specified account, the conditions of section 54F were substantively fulfilled. The counsel relied on various legal precedents and urged for a liberal interpretation of the exemption provisions.

The Tribunal, after considering the submissions and relevant legal provisions, dismissed the appeal. It held that the failure to deposit the net consideration in a specified account as required by section 54F(4) disentitled the assessee from exemption. The Tribunal distinguished the case from previous decisions where exemption was granted based on specific factual circumstances. It emphasized that the assessee's non-compliance with the statutory conditions warranted the denial of exemption, rejecting the argument for a liberal construction of the provisions. Consequently, the appeal of the assessee was dismissed, upholding the decision of the lower authorities to deny the exemption under section 54F.