2006 (8) TMI 126 - HC - Income Tax

Benefit under section 54 - sale of house property - Whether, assessee was entitled to claim benefit under section 54 of the Income-tax Act, 1961, on the entire amount received by him on account of sale of his house property? - - From a plain reading of s.s. (2) of section 54 it is clear that only section 139, is mentioned in section 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax u/s 139 - it is the case of the assessee that the respondent/assessee could fulfil the requirement u/s 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence up to March 30, 1998, inasmuch as the return of income-tax for the assessment year 1997-98 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-section (4) of section 139 - we answer the question formulated in the present case in positive

Issues Involved:
1. Eligibility for exemption under Section 54 of the Income-tax Act, 1961.
2. Interpretation of "purchase" and "sub-lease" under Section 54.
3. Compliance with Section 54(2) regarding the deposit of unutilized capital gains.
4. Applicability of Section 139(1) versus Section 139(4) for filing returns.

Detailed Analysis:

1. Eligibility for Exemption under Section 54 of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to claim the benefit under Section 54 of the Income-tax Act, 1961, on the entire amount received from the sale of his house property. Section 54 is a beneficial provision aimed at providing relief from capital gains tax on the sale of residential property if the proceeds are reinvested in another residential property within a specified period.

2. Interpretation of "Purchase" and "Sub-lease" under Section 54:
The Assessing Officer (AO) rejected the exemption claim on the grounds that the assessee had only taken a sub-lease, which does not qualify as a "purchase" under Section 54. However, the first appellate authority held that even a lease amounts to a transfer within the meaning of the Transfer of Property Act, 1882, citing Supreme Court decisions in R.K. Palshikar (HUF) v. CIT and A. R. Krishnamurthy v. CIT. The Income-tax Appellate Tribunal (ITAT) further supported this by stating that the assessee had entered into agreements to purchase the flat and had taken possession within the stipulated period, thus complying with Section 54(1).

3. Compliance with Section 54(2) Regarding the Deposit of Unutilized Capital Gains:
The AO also contended that the assessee did not comply with Section 54(2) by failing to deposit the unutilized capital gains in the Capital Gains Deposit Scheme before the return filing date under Section 139(1). The first appellate authority partially agreed, allowing exemption only for the amount utilized up to August 31, 1996. However, the ITAT ruled that Section 54(2) does not explicitly confine the return filing date to Section 139(1) and can include Section 139(4). Thus, the assessee's compliance with Section 54(1) by purchasing a new asset within the stipulated time was deemed sufficient.

4. Applicability of Section 139(1) versus Section 139(4) for Filing Returns:
The ITAT interpreted that the term "Section 139" in Section 54(2) includes all sub-sections, not just Section 139(1). This broader interpretation allows the assessee to fulfill the requirements of Section 54 up to the extended date under Section 139(4). The High Court upheld this interpretation, emphasizing that legislative intent should not be rendered redundant and that statutory provisions must be construed according to their plain meaning.

Conclusion:
The High Court upheld the ITAT's decision, affirming that the assessee was entitled to the full benefit under Section 54 for the entire capital gain amount. The court emphasized a liberal interpretation of beneficial provisions and confirmed that compliance with Section 54(2) includes the extended filing period under Section 139(4). The appeal was dismissed, and each party was ordered to bear its own costs.

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