2013 (1) TMI 61 - AT - Income Tax

Exemption u/s 54F - to be assessed in the year the claim is made OR in the year when the time for completion of house expires - Held that - Plain reading of section 54F clearly shows that deduction under this section is allowable only in case where the assessee within a period of one year before or two years after the date on which the transfer took place purchases, or has within a period of three years after that date constructed the residential house. No doubt the proviso to sub-section provides that in case the amount of capital gain has been deposited in the specified account as provided in sub-section (4) and the same could not be used for construction then such capital gain would be charged in the previous year in which the period of three years expires from the date of transfer of original asset. The proviso carves out an exception only in those cases where the amount had been deposited in the specified account and could not be used for the purpose of construction. As the money has not been deposited in the specified account, therefore, there is no question of application of the proviso. Not only construction never commenced but the assessee could not show any evidence that the assessee wanted to start the construction. If the tax is allowed to be postponed merely on the basis of purchase of plot then no assessee would pay correct taxes during the year and postpone the payment of taxes by merely purchasing the plot and that cannot be intention of the provisions of section 54F. Therefore, CIT(A) is right in denying the deduction u/s 54F to the assessee. Double taxation of income - Held that - No doubt as decided in Murlidhar Bhagwandas case (1964 (1) TMI 5 - SUPREME COURT) has held that the Tribunal has no power to give direction in respect of any other year which is not before the Tribunal. However, at the same time there is cardinal principle of taxation particularly in view of the Article 265 of the Constitution that the taxes can be collected only by process of law and therefore, no income can be taxed twice. As in the present case the assessee has voluntarily filed return declaring capital gain in AY 2011-12, therefore, the tax paid in that year would amount to double taxation if the capital gain is also taxed in AY 2008-09. Agreeing with the submissions that the taxes paid in 2011-12 needs to be adjusted against the capital gain liability during AY 2008-09, thus direct the AO to adjust the taxes already paid by the assessee in AY 2011-012 regarding the same capital gain after verification during the current year against the capital gain liability - appeal of the assessee partly allowed

Issues Involved:

1. Rejection of the assessee's claim by the CIT(A).
2. Assessment of capital gains exemption under Section 54F.
3. Timing of the assessment of capital gains.
4. Adjustment of taxes paid in a different assessment year.

Issue 1: Rejection of the assessee's claim by the CIT(A)

The assessee contended that the CIT(A)-II erred in rejecting their claim without appreciating the facts and without proper application of mind. The CIT(A) concluded that the deduction under Section 54F was not acceptable because the construction of the house had not commenced. The CIT(A) upheld the AO's decision, which disallowed the deduction under Section 54F due to the non-fulfillment of the construction requirement within the stipulated period.

Issue 2: Assessment of capital gains exemption under Section 54F

The assessee sold a property and invested in a plot intending to construct a residential house, claiming a proportionate deduction under Section 54F. However, the construction did not commence. According to Section 54F, the assessee must either purchase a residential house within one year before or two years after the sale or complete construction within three years. Since the construction was not completed, the AO disallowed the deduction. The Tribunal further clarified that the proviso to Section 54F(4) applies only if the unutilized amount is deposited in a specified account, which was not done in this case.

Issue 3: Timing of the assessment of capital gains

The assessee argued that the capital gain should be taxed only after the three-year period for construction expired, i.e., in AY 2011-2012. The Tribunal noted that the statute provides for the taxation of capital gains in the previous year in which the three-year period expires if the amount is deposited in a specified account. However, since no such deposit was made, the capital gain must be assessed in the year the claim was made, i.e., AY 2008-2009.

Issue 4: Adjustment of taxes paid in a different assessment year

The assessee voluntarily filed a return for AY 2011-2012, declaring the capital gain and paying taxes. The Tribunal acknowledged that while it cannot give directions for other assessment years, it is a cardinal principle of taxation that no income can be taxed twice. Therefore, the Tribunal directed the AO to adjust the taxes paid by the assessee in AY 2011-2012 against the capital gain liability for AY 2008-2009 after verification.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to deny the deduction under Section 54F due to the non-commencement of construction. However, it directed the AO to adjust the taxes paid by the assessee in AY 2011-2012 against the capital gain liability for AY 2008-2009 to avoid double taxation. The appeal was partly allowed.

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