2018 (3) TMI 724 - AT - Income Tax

Restriction of claim made u/s.54F while computing capital gains arising on sale of a property - whether exemption could given under Section 54F of the Act where investment in a new residential house was made within three years from the date of transfer of the asset giving rise to the capital gains, even when the assessee had not deposited the unutilized amount in Capital Gains Accounts Scheme, before the due date prescribed for filing of return u/s.139(1)? - Held that - Once construction of a new residential house was completed within the three years period, failure of the assessee in not depositing the unutilized sale consideration in a bank account under Capital Gains Accounts Scheme, during the interregnum was not fatal to a claim u/s.54F(1) of the Act. See CIT vs. K. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT Assessee was eligible for claiming exemption u/s.54F of the Act for the full amount utilized by it for construction of a new residential house within three year period allowed u/s.54F(1) of the Act. However, whether assessee had completed the residential house within the said period and how much was invested by the assessee within the said period for such residential house, requires verification by AO. We therefore set aside the orders of the authorities below and remit the issue back to the file of the AO for the limited purpose of verifying the quantum of investment made by the assessee for construction of the new residential house within the period mentioned in Sec.54F(1) of the Act and allow such deduction, if the construction of the house was completed within a said period. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Restriction of the claim under Section 54F of the Income Tax Act, 1961.
2. Requirement to deposit unutilized sale consideration in an account under the Capital Gains Accounts Scheme.

Issue-wise Detailed Analysis:

1. Restriction of the claim under Section 54F of the Income Tax Act, 1961:
The assessee sold equity shares for ?81,00,000 and claimed a deduction under Section 54F of the Income Tax Act, 1961, for the amount used in acquiring land and constructing a residence. The Assessing Officer restricted this claim to ?37,73,230, allowing only the withdrawals made up to ?40,00,000 from the bank accounts for the purchase of land by 31.07.2014. The remaining ?41,00,000 was brought to tax as long-term capital gains. The assessee contended that the construction was completed within the stipulated period of three years, as per Section 54F(1), and thus, the entire amount should be eligible for exemption.

2. Requirement to deposit unutilized sale consideration in an account under the Capital Gains Accounts Scheme:
The Departmental Representative argued that the assessee did not deposit the unutilized amount in the Capital Gains Accounts Scheme by the due date for filing the return, which was 31.07.2014, making the assessee ineligible for the full deduction under Section 54F. The assessee countered that the construction was completed within the three-year period, and thus, the requirement to deposit the unutilized amount was not applicable, referencing the judgment in CIT vs. K. Ramachandra Rao (277 CTR 522).

Judgment:
The Tribunal considered the rival contentions and reviewed the orders of the authorities below. It referred to the Karnataka High Court's decision in the case of K. Ramachandra Rao, which held that if the construction of a new residential house is completed within three years, the failure to deposit the unutilized sale consideration in a Capital Gains Accounts Scheme is not fatal to a claim under Section 54F(1). The Tribunal opined that the assessee was eligible for claiming exemption for the full amount used for constructing the new residential house within the three-year period stipulated under Section 54F(1). However, it required verification by the Assessing Officer to confirm whether the construction was completed within the said period and the exact amount invested.

Conclusion:
The Tribunal set aside the orders of the authorities below and remitted the issue back to the Assessing Officer for the limited purpose of verifying the quantum of investment made by the assessee for constructing the new residential house within the period mentioned in Section 54F(1) of the Act. The appeal of the assessee was allowed for statistical purposes.