2008 (10) TMI 563 - HC - Income Tax

Assessee Sold an immovable house property asst. yr. 1988-89 - It is the contention of the assessee that in the assessment year of sale, the assessee entered into an agreement for purchase and paid an advance of Rs. 3,50,000. The balance was paid and registered sale deed is taken in the next year.

Summary

Issues:
1. Interpretation of provisions under sections 54(1) and 54(2) of the Income Tax Act.
2. Eligibility of the assessee for exemption under section 54 of the Act.
3. Compliance with the due date for filing returns under section 139(4) of the Act.
4. Applicability of the Capital Gain Account Scheme.

Analysis:
1. The case involved the interpretation of sections 54(1) and 54(2) of the Income Tax Act concerning capital gains arising from the sale of a residential property. Section 54(1) provides conditions for exemption from capital gain tax if the assessee purchases or constructs a residential house within specified timelines. Section 54(2) requires the unutilized capital gains to be deposited in a specified account if not invested before the due date for filing returns under section 139.

2. The appellant contended that the capital gains were utilized for the purchase of a property within the stipulated period under section 54(2), even though the return was filed after the extended due date. The Revenue argued that the deposit should have been made before the initial due date, not the extended due date. The court held that the contention of the Revenue was untenable and cited a similar view taken by the Gauhati High Court in a previous case.

3. Regarding compliance with the due date for filing returns under section 139(4), the court noted that while the appellant did not file the return within the extended due date, the entire capital gains were utilized for the purchase of the property before the extended due date. The court acknowledged that there was a technical default in not filing the return within the extended due date but emphasized that the capital gains were utilized within the stipulated period under section 54(2).

4. The court referenced the Capital Gain Account Scheme and highlighted that the time limit for deposit under the scheme or utilization could be made before the due date for filing returns under section 139(4. Based on the discussions and precedents cited, the court ruled in favor of the assessee, allowing the appeal and answering the substantial question of law in favor of the assessee.