2018 (12) TMI 822 - AT - Income Tax

Disallowance of deduction u/s 54F - whether deduction under s.54F is available in respect of capital gains arising from sale of more than one long term capital assets, not being residential house (original asset) against the construction or purchase of one residential house (new asset)? - whether capital gains of multiple years can be claimed against purchase/construction of same new residential house i.e. new asset subject to fulfillment of other conditions? - Held that - The identical issue of allowability of Section 54F of the Act on sale of multiple assets came up for consideration before the co-ordinate bench in the past. Useful reference can be made to Anagha Ajit Panekar 2006 (6) TMI 256 - ITAT MUMBAI ; Krishnadevi Kejriwal 2010 (6) TMI 769 - ITAT MUMBAI and ACIT vs. Mahindrakumar Jain 2017 (8) TMI 480 - ITAT DELHI as quoted in the appellate order of CIT(A). The object of Section 54F is to encourage an assessee to convert any of his long term assets into a residential house subject to the condition that assessee does not own more than one residential house other than the new residential house on the date of transfer of long term asset. The Section, thus, in essence, offers some incentives to a tax payer to change its unproductive assets into a residential house. The action of the assessee is thus in conformity with the object and purpose of Section 54F of the Act. To say that the assessee is entitled for deduction in respect of capital gains arising from sale of only one long term capital asset and conversion thereof in residential property would in effect seriously limit the object and purpose of Section 54F of the Act. If the interpretation of any long term asset as suggested by Revenue is read to mean deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of broader expression any long term asset in distinction to expression a long term asset as used in Section 10(38) of the Act. Thus, the legislative intent when gathered from the distinct language used, it is clear that a narrower interpretation would fail to achieve manifest purpose of the deduction provision. We thus, prefer to avoid a construction which would reduce the legislation to futility and grant broader construction to bring effective result on availability of such deduction. As a corollary, the decision of the co-ordinate bench in favour of the assessee is, in effect, harmonious interpretation of Section 54F of the Act and not necessarily a liberal interpretation of the deduction provision. We are thus of the view that the decision of the Hon ble Supreme Court in Diipkumar & Co. 2018 (7) TMI 1826 - SUPREME COURT OF INDIA does not hinder the claim of assessee. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of deduction under Section 54F of the Income Tax Act, 1961.
2. Interpretation of the term "original asset" in Section 54F.
3. Applicability of Section 54F for multiple long-term capital gains against a single residential property.
4. Judicial precedents and their applicability to the case.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 54F:
The Revenue appealed against the CIT(A)'s order, which deleted the disallowance of ?1,50,94,718/- claimed by the assessee under Section 54F of the Income Tax Act, 1961. The AO had disallowed the deduction on the grounds that the assessee had already claimed a similar deduction in the preceding assessment year (AY 2011-12) for the same residential property.

2. Interpretation of the Term "Original Asset" in Section 54F:
The AO argued that the term "original asset" used in Section 54F implies singularity, meaning that the deduction can only be claimed for the sale of a single asset. The AO further stated that the purchase of the new residential property could only happen once, which had already occurred in AY 2011-12, thus disallowing the deduction for AY 2012-13.

3. Applicability of Section 54F for Multiple Long-term Capital Gains Against a Single Residential Property:
The CIT(A) referred to judicial precedents, notably the cases of Anagha Ajit Panekar and Mrs. Krishnadevi Kejriwal, where it was held that there is no bar in Section 54F for claiming deductions multiple times for the same property, provided the cost of the property is within the capital gains arisen to the assessee and the claims are made within the stipulated time frame. The CIT(A) found that the assessee had complied with all conditions prescribed under Section 54F, and hence, the disallowance by the AO was not justified.

4. Judicial Precedents and Their Applicability to the Case:
The Tribunal noted that the issue of allowability of Section 54F for multiple assets had been judicially interpreted in favor of the assessee in several co-ordinate bench decisions. The Tribunal referred to the decisions in the cases of Anagha Ajit Panekar, Mrs. Krishnadevi Kejriwal, and ACIT vs. Mahindrakumar Jain, which supported the assessee's claim for deduction under Section 54F for multiple long-term capital gains against a single residential property.

The Tribunal also addressed the Revenue's argument for strict interpretation of beneficial provisions in light of the Supreme Court's decision in Dilip Kumar & Co., emphasizing that the object of Section 54F is to encourage the conversion of long-term assets into residential houses. The Tribunal concluded that a narrower interpretation would limit the purpose of Section 54F and lead to absurd results.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the deduction under Section 54F for multiple long-term capital gains against the purchase of the same residential property, emphasizing that the assessee had complied with all conditions prescribed under the section. The appeal of the Revenue was dismissed.