2020 (1) TMI 214 - AT - Income Tax

Disallowance of the deduction u/s 54 - amount contributed by the Appellant s husband towards reinvestment in new house property - whether exemption u/s.54 of the Act are to be denied in the absences of nexus between sale consideration received on sale of old asset and source of investment in new house? - HELD THAT - On mere reading of provisions of Section 54 of the Act, it would be clear that statute has not laid down condition for the assessee in order to get the benefit of Section 54 of the Act, the actual sale consideration received on sale of original asset should be utilized for acquisition of new house property. The only condition required to be fulfilled is that assessee should purchase a new house property within a period of one year before or after the date on which the transfer of his property took place or he should have constructed a house property within a period of two years after the sale of original asset. There is no provisions under Section 54 of the Act stipulating that assessee should utilize the amount which he obtained by way of sale for meeting the cost of new house. It is settled principle of interpretation of statute that Court do not have power to go beyond the terms of statute where the benefits are granted subject to fulfillment of certain conditions. The Courts cannot impose some other conditions in order to give benefit conferred by the statute. SEE K.C. GOPALAN 1999 (9) TMI 955 - KERALA HIGH COURT We hold that benefit u/s.54 of the Act cannot be denied on the ground that sale proceeds of the original asset sold was not utilized for the purpose of purchase of new asset. Accordingly, we reverse the findings of the lower authorities and direct Assessing Officer to allow the benefit u/s.54 to the extent of investment made in new house. - Decided in favour of assessee.

Summary

Issues:
- Denial of deduction under Section 54 for the amount contributed by the appellant's husband towards reinvestment in a new house property.
- Interpretation of Section 54 in relation to reinvestment in a new house property and the conditions required for availing the deduction.
- Whether the sale consideration received on the sale of the original asset must be utilized for the acquisition of a new house property to claim the benefit under Section 54.

Issue 1: Denial of Deduction under Section 54:
The appellant appealed against the order of the Commissioner of Income Tax (Appeals) denying the deduction under Section 54 for the amount of ?70.32 lakhs contributed by the appellant's husband towards reinvestment in a new house property. The appellant argued that the legislative intention of Section 54 is to provide deduction for reinvestment in a new house property out of long-term capital gains, without specifying that the amount must come from the seller. The appellant contended that the provision should be interpreted liberally in favor of the taxpayer and cited relevant case law to support this argument.

Issue 2: Interpretation of Section 54 and Conditions for Deduction:
The Assessing Officer restricted the capital gains under Section 54 to ?79.13 lakhs, alleging that the new house was purchased using funds from the appellant's spouse, not from the sale proceeds of the original asset. The appellant contended that Section 54 does not require a direct nexus between the sale consideration and the cost of the new asset, emphasizing compliance with all other conditions under Section 54. The appellant cited decisions from various High Courts to support the argument that the statute does not mandate using the sale proceeds for the new asset's cost.

Issue 3: Utilization of Sale Consideration for New House Property:
The core issue revolved around whether the exemption under Section 54 could be denied due to the absence of a direct link between the sale consideration received from the original asset and the source of investment in the new house property. The Tribunal held that Section 54 does not impose a condition that the sale proceeds must be used for purchasing the new asset, emphasizing that the statute only requires the acquisition of a new house property within the specified time limits. Relying on precedents, the Tribunal concluded that the benefit under Section 54 cannot be denied based on the source of funds used for acquiring the new property.

Conclusion:
The Tribunal allowed the appeal, overturning the lower authorities' decision to deny the benefit under Section 54. The Tribunal held that the appellant was entitled to the deduction for the investment made in the new house property, irrespective of the source of funds used for the purchase. The judgment emphasized that the statute does not mandate a direct link between the sale consideration and the cost of the new asset, and the benefit under Section 54 should not be denied on such grounds.