Admittedly, assessee had invested sale proceeds of original asset for purchase /construction of new house within the stipulated period and thus, complied with the requirement of substantive provisions and, was therefore, entitled to claim of exemption under section 54F.
IN THE ITAT, DELHI BENCH
N.K. BILLAIYA, A.M.
Sanjeev Sarin v. ITO
ITA No. 2692/Del/2018
28 September, 2018
Assessee by: P.C. Yadav, Advocate
Revenue by: Surender Pal, Sr. DR
This appeal by the assessee is preferred against the order of the Commissioner (Appeals)-13, New Delhi dated 28-2-2018 for assessment year 2013-14.
2. The sum and substance of the grievance of the assessee is that the Commissioner (Appeals) erred in sustaining the addition of Rs. 14,85,109 on the ground that assessee has not utilized the capital gain amount within the time prescribed under section 139(1) of the Act.
3. Briefly stated the facts of the case are that during the year the assessee has sold his 50% share in house property in New Delhi. The house property was sold for a consideration of Rs. 2.01 crores and half share of assessee works out of Rs. 1.05 crores. The assessee disclosed his share of long-term capital gain at Rs. 5915345 out of which exemption of Rs. 5334447 has been claimed under section 54 of the Act. The assessee purchased booking of flat in a project developed by Vardhman Infrahome Private Limited. The details of payment are as under :–
4. The assessing officer was of the opinion that the assessee has not fulfilled conditions mandatory for claiming exemption under section 54(1) of the Act as much as the assessee has not acquired residential house one year before or two year after the date of transfer of original asset. The assessing officer found that the assessee has paid Rs. 25,13,122 only. The assessing officer was of the firm belief that the assessee should have appropriate unutilized amount of capital gain under the capital gain scheme before the due date of filing of return accordingly the assessing officer allowed exemption only to the extent of Rs. 38,49,342 as against claim of Rs. 53,34,447. Addition of Rs. 14,85,109 was made.
5. Assessee carried the matter before the Commissioner (Appeals) but without any success. Drawn support from the decision of Hon’ble Supreme Court in the case of Prakash Nath Khanna (2004) 266 ITR 1 (SC) : 2004 TaxPub(DT) 1384 (SC).
The Commissioner (Appeals) was of the opinion that due date mentioned in section 54(2) of the Act would be the due date of return of income under section 139(1) or the date by which the assessee filed the return under section 139(4).
6. Before us the counsel for the assessee vehemently stated that the assessee had made substantial investment towards the purchase of new property and because builder could not complete the construction of the residential house, therefore, the claim of exemption cannot be denied as per CBDT Circular No. 471, dt. 15-10-1986 and 672, dt. 16-12-1993. Per contra the DR strongly supported the findings of the Commissioner (Appeals). The undisputed fact is that the assessee has made substantial investment towards the purchase of new residential house. The assessing officer himself has given exemption to the extent of Rs. 38.49 lacs as against the claim of Rs. 53.34 lacs. A similar issue arose before the coordinate bench in the case of Seema Sabharwal in ITA No. 272/Chd/2017 : 2018 TaxPub(DT) 1020 (Chd-Trib) relevant findings read as under :–
“8. We have heard the rival contentions. Before deliberating further on this issue we would like to reproduce the relevant provisions of section 54 of the Act herein under :–
“54. Profit on sale of property used for residence.–(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu Undivided Family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section , that is to say, —
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as. the case may be, the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new as set within the period specified in sub-section (1), then, —
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
9. A perusal of the above reproduced provisions of section 54 of the Act reveals that it deals with the capital gains earned on sale of property used for residence and as per the provisions of sub-section of section 54 of the Act, if an assessee, after sale of his residential property, has within a period of one year before or two years after the date of such transfer or within a period of three years, constructs a residential house, the capital gains will not be charged to tax upto the extent of the amount spent on the purchase or construction of residential house.
Sub-section (1) of section 54 of the Act is a substantive provision enacted with the purpose of promoting purchase/construction of residential houses. However, sub-section of section 54 is an enabling provision which provides that the assessee should deposit the amount earned from capital gains in a scheme framed in this respect by the Central Government till the amount is invested for the purchase/construction of the residential house. This provision, in our view, has been enacted to gather the real intention of the assessee to invest the amount in purchase/construction of a residential house. As per the provisions of sub-section (1) of section 54, the assessee has been given two years time to purchase and three years time to construct a residential house subsequent to the date of transfer of the original asset. At the time of the assessment proceedings, subsequent to the date of transfer of the original asset, an assessee may claim that he will invest the amount in purchase/construction of a new house, though not have taken any steps towards that direction till then. In such a scenario, there should not be any method or procedure before the assessing officer through which he could gather the real intention of the assessee, as the assessee, by saying so, may delay the taxation of the capital gains earned at least for three years from the date of transfer of original asset. Hence, sub-section (2) puts an embargo to the assessee to casually claim the benefit of section 54 at the time of assessment, without being any act done to show his real intention of purchasing/constructing a new residential unit, sub-section (2) therefore governs the conduct of the assessee that the assessee should put the amount of capital gains in an account in any such bank or institution specifically notified in this respect and that the return of the assessee should be accompanied by submitting a proof of such deposit, hence, sub-section (2) is an enabling provision which governs the Act of the assessee, who intends to claim the benefit of the exemption ‘provisions of section 54. The real purpose of the enabling provision is the compliance of the substantial provision of sub-section (1) to section 54 of the Act. Sub-section (2), in fact, regulates the procedure for the substantive rights of the exemption provisions under section 54 of the Act. This enabling section, in our view, cannot abridge or modify the substantive rights given vide sub-section (1) of section 54 of the Act, otherwise, the real purpose of substantive provision, i.e., sub-section (1) will got defeated. The primary goal of exemption provisions of section 54 is to promote housing. The procedural and enabling provisions of sub-section (2) thus cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. In our view, if the assessee at the time of assessment proceedings, proves that he has already invested the capital gains on the purchase/construction of the new residential house within the stipulated period, the benefit under the substantive provisions of section 54(1) cannot be denied to the assessee. Any different or otherwise strict construction of sub-section (2), in our view, will defeat the very purpose and object of the exemption provisions of section 54 of the Act, Our above view, is fortified with, the decision of the Hon’ble Karnataka High Court in the case of CIT v. Shri K. Ramachandra Rao, ITA No. 47 of 2014 c/w ITA No. 46/2014, ITA No. 494/2013 and ITA No. 495/2013, decided vide order dt. 14-7-2014 : 2015 TaxPub(DT) 1933 (Karn-HC) wherein the Hon’ble High Court has directly dealt with this issue while interpreting the identical worded provisions of section 54F(2) of the Act. The following question of law was framed by the Hon’ble High Court on this issue :–
“(2) When the assessee invests the entire sale consideration in construction of a residential house within three years from the date of transfer can he be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under section 139(1) of the Income Tax Act?”
10. The said question has been answered by the Hon’ble High Court in the following words :–
“As is clear from sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F(i), if the assessee wants the benefit of section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money construction is also not correct.”
11. Though the Hon’ble High Court in relation to the issue of claim of exemption under section 54F of the Act has held that what matters is the intention of the assessee to purchase/construct new house. The Hon’ble Karnataka High Court has held that if the intention is not to retain cash but to invest in construction or any purchase in property and if such investment is made within the period stipulated therein, than section 54F(4) is not at all attracted. We may clarify here that provisions of section 54(2) are almost identically worded as in section 54F(4) of the Act. Admittedly, in this case, the assessee has invested the amount for the purchase/construction of the house within the stipulated period as also observed above while deciding the first issue. The assessee has proved such investment during the assessment proceedings and, thus, the assessee has complied with the requirement of substantive provisions and, thus, is entitled to the claim of exemption under section 54F of the Act. In view of this, we direct the assessing officer to grant exemption to the assessee as permissible under the provisions of section 54 of the Act.”
7. Respectfully following the findings of the coordinate bench I set aside the order of the Commissioner (Appeals) and direct the assessing officer to allow the exemption as claimed by the assessee.
8. In the result, the appeal filed by the assessee is allowed.