2015 (12) TMI 1075 - HC - Income Tax

Entitlement for claim for exemption under section 54F - whether the same amount of sale consideration had not been utilized towards the purchase of property prior to the date of sale as per the said provisions? - whether the assessee in order to avail benefit of Section 54F of the Act is required to utilize the amount for the purchase of the new asset from the sale proceeds of the original capital asset only? - ITAT deleted the addition - Held that - he assessee has to purchase or construct a house property during the period specified under Section 54F of the Act in order to get benefit thereunder. Section 54F of the Act nowhere envisages that the sale consideration obtained by the assessee from the original capital asset is mandatorily required to be utilized for the purchase or construction of a house property. No provision has been made by the statute that in order to avail benefit of Section 54F of the Act, the assessee has to utilize the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F of the Act. It has been categorically recorded by the Tribunal that the assessee had made investment in between February 2008 upto August 2008 i.e. well within the stipulated period. The property was purchased for ₹ 3.32 crores whereas the shares which were sold had resulted in capital gain of ₹ 1.93 crores. The investment was more than the capital gain earned by him. In the present case, the investment made by the assessee being within the stipulated time and more than the capital gain earned by him, the addition of ₹ 1,21,32,636/- was rightly deleted by the Tribunal under the head long term capital gain. Learned counsel for the revenue has not been able to point out any error in the approach adopted by the Tribunal reversing the findings recorded by the CIT(A) and the Assessing Officer, warranting interference by this Court. - Decided against revenue

Summary

Issues Involved:

1. Whether the Tribunal was legally correct in reversing the findings of the CIT (A) and the Assessing Officer regarding the disallowance of the claim for exemption under Section 54F of the Income Tax Act, 1961.
2. Interpretation and application of Section 54F of the Income Tax Act, 1961, particularly concerning the utilization of sale consideration for the purchase or construction of a new asset.

Detailed Analysis:

Issue 1: Tribunal's Reversal of CIT (A) and Assessing Officer's Findings

The appeals ITA Nos.12, 26, and 161 of 2015 were filed by the revenue under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT), which reversed the findings of the Commissioner of Income Tax (Appeals) [CIT (A)] and the Assessing Officer. The core issue was the disallowance of the claim for exemption under Section 54F of the Act, where the addition of Rs. 1.21 crores was made on account of capital gain. The CIT (A) upheld the addition, but the Tribunal allowed the appeal, relying on the decision of the Kerala High Court in the case of Income Tax Officer vs. K.C. Gopalan, which held that Section 54F does not restrict the source of the investment to the sale consideration alone.

Issue 2: Interpretation and Application of Section 54F

The substantial question of law was whether the assessee is required to utilize the amount of sale consideration from the original capital asset for the purchase or construction of a new asset to avail the benefit under Section 54F. The relevant portion of Section 54F was examined, which provides that capital gains are exempt if the cost of the new asset is not less than the net consideration from the original asset. The Finance Act, 1987, inserted sub-section (4) to Section 54F, mandating that unutilized net consideration must be deposited in a specified bank account under the Capital Gains Account Scheme before the due date for filing the return of income.

The court noted that Section 54F does not explicitly require the sale consideration itself to be used for the purchase or construction of the new asset. The Tribunal found that the assessee made the investment within the stipulated period and that the investment exceeded the capital gain earned. The Tribunal's findings were based on the precedent set by the Kerala High Court in K.C. Gopalan's case, which clarified that there is no statutory requirement for the sale consideration to be used directly for the new asset.

The Tribunal's decision was further supported by other judicial pronouncements, including CIT vs. Rajesh Kumar Jalan (Gauhati High Court) and CIT vs. Anandraj (Karnataka High Court), which reiterated that the utilization of the sale consideration itself is not mandatory under Section 54F. The court concluded that the Tribunal correctly interpreted and applied Section 54F, and the investment made by the assessee within the specified period entitled him to the exemption.

Conclusion:

The High Court dismissed the appeals, affirming the Tribunal's decision that the assessee was entitled to the benefit under Section 54F of the Income Tax Act, 1961, without the necessity of utilizing the sale consideration from the original capital asset exclusively for the new asset. The court found no substantial question of law warranting interference with the Tribunal's order.