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2018 (12) TMI 756 - AT - Income TaxDeduction u/s 54F - taxability of capital gains on sale of capital asset - whether the capital gains required to be computed by applying section 50C or not? - Held that - When the assessee has invested the entire net consideration in acquiring the new house. As per section 54F, the conditions required to be satisfied for allowing the deduction u/s 54F is firstly, the asset transferred must be long term capital asset not being a residential house. The assessee should acquire the new house within one year before the transfer or within 2 years from the date of transfer or the assessee required to construct one residential house before one year or within 3 years from the date of transfer. The quantum of allowable deduction is, if the cost of the new asset is not less than the net consideration in respect of the original house, the whole of such capital gains should not be charged u/s 54. From the above, the net consideration is the full value of consideration received or accrued as a result of transfer but not the deemed consideration as defined in section 50C of the Act. Section 54F(1)(a) clearly makes the assessee entitled for the net consideration, if the whole of such amount is paid for acquiring the new house. In the instant case, there is no dispute that the assessee has paid the whole of net consideration for acquiring the new house. On identical facts this Tribunal in the case of DCIT, Circle-2(1), Vijayawada Vs. Dr.Chalasani Mallikarjuna Rao 2016 (10) TMI 1032 - ITAT VISAKHAPATNAM held that section 50C has no application in case the entire net sale consideration has been applied for acquiring the new house. - Decided in favour of assessee.
Issues Involved:
1. Deduction under Section 54F of the Income Tax Act, 1961. 2. Taxability of capital gains on the sale of a capital asset under Section 50C of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deduction under Section 54F of the Income Tax Act, 1961: The primary issue revolves around the eligibility for deduction under Section 54F of the Income Tax Act, 1961. The assessee sold a property for ?30,00,000 and invested the entire net consideration in acquiring a new residential house. The Assessing Officer (AO) allowed a deduction of ?30,36,735 under Section 54F but taxed the difference of ?8,80,175 as long-term capital gains, based on the market value assessed by the Stamp Valuation Authorities (SRO) under Section 50C. The assessee argued that since the entire net consideration was invested in the new house, there should be no case for invoking Section 50C, and the full deduction should be allowed under Section 54F. 2. Taxability of Capital Gains on Sale of Capital Asset under Section 50C: The AO computed the capital gains by adopting the market value as assessed by the Stamp Valuation Authorities under Section 50C, which was higher than the actual sale consideration received. The AO determined the capital gains and allowed the deduction under Section 54F for the amount invested in the new house, taxing the remaining amount as long-term capital gains. The assessee contested this, asserting that the entire net consideration was invested in the new house, thereby fulfilling the conditions for full deduction under Section 54F. Tribunal's Findings: Deduction under Section 54F: The Tribunal examined whether the capital gains should be computed by applying Section 50C when the assessee has invested the entire net consideration in acquiring a new house. According to Section 54F, if the cost of the new asset is not less than the net consideration from the original asset, the whole capital gains should not be charged. The Tribunal noted that "net consideration" means the full value of the consideration received or accruing as a result of the transfer, reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The Tribunal emphasized that the net consideration is the actual consideration received, not the deemed consideration under Section 50C. Taxability of Capital Gains under Section 50C: The Tribunal referred to previous judgments, including those by ITAT Jaipur and the coordinate bench of ITAT Vijayawada, which held that the deeming fiction under Section 50C applies only to Section 48 for computing capital gains and not to Section 54F. The Tribunal reiterated that for the purposes of Section 54F, the actual consideration received should be considered, not the deemed consideration under Section 50C. The Tribunal cited the case of DCIT, Circle-2(1), Vijayawada Vs. Dr. Chalasani Mallikarjuna Rao, where it was held that Section 50C does not apply if the entire net sale consideration is invested in a new house. Conclusion: The Tribunal concluded that the assessee is entitled to the full deduction under Section 54F as the entire net consideration was invested in acquiring the new house. The orders of the lower authorities were set aside, and the addition made by the AO was deleted. The appeal of the assessee was allowed, emphasizing that the provisions of Section 50C do not override the specific conditions laid out in Section 54F for claiming deductions on capital gains. Final Order: The appeal of the assessee is allowed, and the order was pronounced in the open court on 12th December 2018.
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