2018 (1) TMI 1065 - AT - Income Tax

Eligibility to exemption u/s.54F - denial of claim because prior to investment in flat, the assessee deposited sale proceeds of original assets in FDR account and not in capital gain account scheme - Held that - The assessee sold his flat on 2nd April, 2008 for a consideration of ₹ 30,40,000/- - entire sale proceed was invested in term deposit on 07.04.2008 because he was under bonafide belief that it would meet the requirements of Sec.54 i.e. investment of sale proceeds in a bank account and its investment in a house within two years from the date of transfer of original asset - Return of Income was filed on 22.07.2009 (Due date in terms of Sec. 139(1) and 139(4) was 31.07.2009 and 31.03.2011 respectively). He acquired a new flat on 21.11.2009 out of proceeds of term deposit and such acquisition was within two years from the date of sale of original capital asset. Thus he satisfied the primary requirement of Sec.54(1). Although the failure of the assessee to deposit the sale proceeds in a Capital Gains Account Scheme, 1988 for intervening period was undoubtedly a technical default, he should not be penalized for the same because he satisfied the real intent as well as essence of the provisions by depositing the sale proceeds in FDR since beginning, not using it for any other purpose and investing the sale proceeds in acquisition of a new house within statutory period of 2 years. Sec.54 is an incentive provisions and it should be interpreted and applied liberally as held by the honourable Supreme Court in the case of Bajaj Tempo Ltd. Vs. C.I.T. (1992 (4) TMI 4 - SUPREME Court). - Decided in favour of assessee

Summary

Issues:
Appeal against the decline of deduction u/s.54F of the IT Act.

Analysis:
The appeal was filed by the assessee against the CIT(A)'s order regarding the decline of the claim of deduction u/s.54F of the IT Act for A.Y.2009-10. The assessee, an individual deriving income from various sources, including capital gains, had claimed exemption u/s.54F. The Assessing Officer (AO) denied the claim as the assessee had not purchased a new flat within the stipulated time. The CIT(A) upheld the AO's decision, leading to the current appeal.

During the assessment, it was found that the assessee had indeed invested in a new flat within the required time frame but had deposited the sale proceeds in a term deposit instead of a Capital Gain Account Scheme. The AO and CIT(A) rejected the claim based on this technicality. However, the ITAT found that the assessee had fulfilled the primary requirement of Sec.54(1) by investing in a new house within two years of the sale of the original asset. The ITAT emphasized that Sec.54 is an incentive provision to encourage investment in residential properties and should be interpreted liberally.

Referring to previous judgments, the ITAT highlighted that the legislative intention behind Sec.54 was to provide relief to taxpayers. The ITAT concluded that the assessee should not be penalized for a technical default, as the real intent of the provision was satisfied. Following the principles of purposive interpretation and harmonious construction of tax laws, the ITAT allowed the appeal, stating that there was no merit in the AO's decision to decline the exemption u/s.54F.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing the liberal interpretation of Sec.54 to promote investment in residential properties. The judgment was pronounced on 29/11/2017.