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Capital gain exemption if Sale deed not done within 2 years: Beneficial provisions must be liberal to accommodate rules laid down broadly to verify compliance and must not be interpreted literally.
The common issue in various cases in capital gain exemption U/s 54 or 54F is whether the taxpayer would be eligible to the claim of deduction if the house was not registered within the period of three years or two years? In all such cases, the fact that the payment for the new asset was paid off within the specified time remains an indisputable fact. This was the issue in the case as under:
- SHEELA PUTTABUDDI vs. INCOME TAX OFFICER
(2022) 65 CCH 0344 BangTrib
Let us have a Short overview of the case:
- The case was related to exemption of Capital gains arising on sale of property used for residence.
- Assessee is a Doctor by profession.
- Return of income was filed & Assessee had disclosed income from profession, interest income and capital gains.
- Assessment was selected for scrutiny.
- During the course of scrutiny assessment, it was noticed that assessee had claimed a sum as exempt u/s 54.
- Details of the same were called for and it was noticed that the assessee has not invested in a residential house but paid a sum of Rs.1,26,00,000 to B for purchase agricultural land.
- It was evidenced by an unregistered agreement for purchase of agricultural land.
- No registered document was produced by assessee.
- Therefore, A.O. held that assessee has not made any investment in residential property for claiming exemption u/s 54.
- CIT(A) dismissed appeal of assessee and it was held as under:
– It is not disputed by assessee that new house property has been registered beyond period prescribed, i.e., two years after date of sale of house property or alternatively after three years permitted for construction of property.
—However, it is contended that the requirement of section is that capital gains must have been “utilized” within a specified period and funds must be out of control of the assessee.
—Assessee in instant case has indeed paid developer amounts of Rs.1.26 crores before filing return of income and also affirmed by Assessing officer in remand report
—Assessee’s claim of having utilized capital gains before filing return of income, has thus been fulfilled and assessee is eligible for claim of deduction u/s 54, in so far as assessment year 2015-2016 is concerned
—It is also relevant to consider registered sale deed dated 23.03.2018, wherein assessee has purchased residential house in which developer B is also a consenting witness to said sale deed who has made payment for and behalf of assessee and stamp duty also has been paid by him which clearly establish fact that advance paid by assessee to B was with an intention to reinvest proceeds of capital gains in acquiring a new property and consequently conditions as specified in section 54 having been complied
—Apex Court in case of Fibreboards (P) Ltd. v. CIT (2015) 376 ITR 596 (SC) had held that utilization of capital gains within period would suffice for making claim of deduction u/s 54G and there was no requirement to acquire asset intended within period specified, provided same has been acquired in due course
—In peculiar facts of present case, assessee has made advances to developer, which has culminated in a purchase of a new residential house, sourced by developer to fulfill his obligation of providing a residential house, which is also evidenced by recitals in sale deed, wherein he has affirmed receipt of advance and also paid for new asset
—In case of Sambandam Uday Kumar 345 ITR 389 [Karn]. Jurisdictional High Court had held that amounts paid within period of three years, would be eligible to claim of deduction under section 54, though house was not registered within period of three years or two years, considering fact that payment for new asset was paid off within specified time
—Utilisation of capital gains within time specified would entitle assessee to claim deduction under section 54, notwithstanding fact that new asset was registered beyond period specified under Act, which according to assessee was beyond her control and was to be liberally construed.
—It is held by various Courts that application of beneficial provisions must be liberal to accommodate rules laid down broadly to verify compliance and must not be interpreted literally, unlike charging sections which are to be construed strictly.
—Bonafides of assessee cannot be doubted, since assessee has made deposits into capital gains scheme immediately and thereupon made payments to developers to acquire new house property.
—Assessee was also prevented by reasonable cause since funds had already been utilized and was forced to acquire an asset due to reasons beyond her control.
—Section 54 being benevolent in nature, it should be liberal in interpreting provisions of section 54 considering the fact that the new house was eventually acquired, out of the same capital gains utilized, which has been brought on record and not in dispute.
—Assessee is entitled to claim deduction to extent of Rs.1,26,00,000 and direct A.O. to allow claim u/s 54 to said extent—Assessee’s appeal partly allowed.