No need to deposit in Capital Gain Scheme if house is purchased within time limit of section 54F

Ashok Kapasiawala v. ITO [2015] 63 taxmann.com 284 (Ahmedabad - Tribunal)
Issue:
 

Whether exemption under Section 54F could be denied to assessee who had purchased a new residential house within 2 years from the date of transfer of original asset on ground that he had not deposited the amount in capital gain account scheme before the due date of filing of return under section 139(1)


The tribunal held in favour of assessee as under-

• A combined reading of sections 54F(1) and 54F(4), makes it clear that the assessee would be entitled to exemption under section 54F in the event he purchases new asset within two years from the date of transfer of original asset or the amount is utilized before the date of furnishing the return under section 139. In a case it is not utilized for the purpose of aforesaid and within the period aforementioned, section 54F(4) mandates the assessee to deposit such amount in capital gain account scheme before due date of filing of return under section 139(1).
• Therefore, there is no ambiguity in the provision; so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return under section 139(1).
• In the instant case, the return was filed by assessee in response to a notice issued under Section 148 and not under section 139(1). Therefore, the contention of the assessee was that he should be allowed exemption under section 54F even if had not deposited the amount in capital account scheme.
• The Karnataka High Court in the case of CIT v. K. Ramachandra Rao [2015] 56 taxmann.com 163 held that when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer, he could not be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1).
• Under section 54F (1), the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. Hence, as per judgment of Karnataka High Court, the provisions of section 54F(4) would not be attracted if assessee has purchased or constructed the residential house within period prescribed under section 54F(1).
• In the instant case, there was no dispute with regard to the fact that the assessee had purchased a new asset within two years from the date of transfer of the original asset. Therefore, following the ratio laid down by the Karnataka High Court in the case of K. Ramachandra Rao (supra), the court directed Assessing Officer to re-compute the assessed income after granting the benefit of section 54F to the assessee.

Mother can’t be deemed as owner of house purchased by minor-daughter out of her own income

SMT. S. UMA DEVI v. COMMISSIONER OF INCOME-TAX [2015] 62 taxmann.com 64 (Hyderabad - Tribunal)

Facts:

• Assessee had sold a capital asset and invested a part of sales consideration in a new residential house so as to claim exemption under section 54F.
• She owned more than one residential house on date of transfer of original asset. However, one residential house was owned by her minor daughter.
• Commissioner denied Section 54F exemption on the ground that assessee would be deemed as owner of house owned by her minor daughters. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• By virtue of fiction created by Section 64(1A), the incomes of properties owned by the two minor daughters were clubbed in the hands of the assessee since the date of purchase of the said properties.
• The investment for purchase of said properties has come from the independent sources of these daughters, which has been accepted by the department.
• Simply by virtue of inclusion of rental income of minor daughters under Section 64(1A) in the income of assessee, it could not be presumed that the assessee was owner of property purchased by minor daughters. Thus, the findings of the learned CIT were factually incorrect and legally unsustainable. Hence, assessee would be eligible for exemption under Section 54F.

Cost of additions or improvements on habitable house is also eligible for section 54F relief

Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka high Court)

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F

Facts

• Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.
• The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.
• Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court

The High Court held in favour of assessee as under-

• As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".
• In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.
• On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.
• The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.
• Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption.