|CORAM:||Annapurna Gupta (AM), Sanjay Garg (JM)|
|CATCH WORDS:||capital gains, exemption, new residential house|
|COUNSEL:||M. S. Vohra|
|DATE:||February 5, 2018 (Date of pronouncement)|
|DATE:||February 12, 2018 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 54: If agreement for purchase of new residential house is made and entire purchase price is paid within three years from the date of transfer of the old asset, exemption u/s 54 is available. It is not required that the house must be completed within 3 years. The requirement in s. 54(2) that the capital gains should be deposited in the CGAS scheme is merely an enabling provision. If the assessee shows during assessment proceedings that the capital gains have been reinvested in the new residential house, exemption cannot be denied merely the amount was not deposited in the CGAS|
(i) Admittedly, the capital gain had arisen to the assessee on 17.9.2012 and the amount was paid by the assessee to the builder for purchase of a new house on 9.9.2014 i.e. within 2 years of the date of transaction of sale of the house property. The Assessing officer denied the claim because as per the agreement with the builder, the house was to be completed within 4 years, whereas, as per the provisions of section 54 of the Act, the house should have been constructed within 3 years from the date of receipt of the capital gains. Though the assessee has relied upon various cases wherein liberal construction has been taken by the Tribunal as well as various High Courts which is in consonance of the object for which the exemption provisions of sections 54 & 54F of the Act have been enacted i.e to promote purchase and construction of residential houses. Various courts have held that if assessee invests the amount in purchase / construction of building within the stipulated period and the construction is in progress, then the benefits of exemptions, cannot be denied to the assessee.
(ii) Reliance in this respect can be placed on the decision of the Jurisdictional High Court of Punjab & Haryana in the case of ‘Mrs. Madhu Kaul Vs. CIT’ ITA No. 89 of 1999 vide order dated 17.1.2014 and further on the decision of the Hon’ble Calcutta High Court in ‘CIT s Bharati C.Kothari’ (2000) 160 CTR 0165 and also on the decisions of the various Coordinate Benches of the Tribunal.
(iii) We have also gone through the provisions of sections 54 & 54F of the Act and we do not find any such distinction as drawn by the CIT(A) or any such dissimilarity in the wordings of the provisions from which any such conclusion can be drawn that u/s 5 4 F of the Act the investment is to be considered and / or that u /s 54 of the Act, the house must be completed within the stipulated period of three years or that investment is not be considered.
(iv) We may further point out here that even the decision of the Hon’ble Calcutta High Court is in relation to the provisions of section 54 only, wherein, the Hon’ble Calcutta High Court has categorically held that if agreement for purchase of residential flat is made and the entire amount is paid within three years from the date of sale, the basic requirement for claiming relief u/s 54(1) of the Act is to be taken as fulfilled. The issue, thus, is squarely covered in favour of the assessee by the various decisions of the Hon’ble High Court.
(v) Now the second point on which claim has been denied to the assessee is that the assessee did not deposit the amount of sale receipt in the capital gains account scheme before the due date for filing of return u/s 139(1) of the Act.
(vi) The Ld. Counsel for the assessee in this respect has submitted that since the provisions of section 54 are beneficial provisions promoting purchase / construction of residential houses, hence, liberal construction should be taken to the provisions. He has further submitted that since the assessee had complied with the investment of the amount earned in purchase / construction of other house, within the stipulated period, hence, substantial compliance has been made by the assessee.
(vii) On the other hand, Ld. DR while referring to the provisions of section 54 of the Act, has submitted that the assessee was required to deposit the capital gains in the relevant scheme and since the said requirement under the provisions was not complied with, hence, the assessee is not entitled to claim for the benefit under the exemption provisions of section 54 of the Act.
(viii) 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 (1) 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.
(ix) 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 (2) 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.
(x) 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.
(xi) 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.
(xii) 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 u/s 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.
(xiii) 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.
(xiv) Our above view, is fortified with the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. 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 dated 14.7.2014 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 IT Act?”
(xv) 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 54 F(i), if the assessee wants the benefit of Section 54 F, 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 54 F(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 in construction is also not correct.”
(xvi) Though the Hon’ble High Court in relation to the issue of claim of exemption u/s 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.
(xvii) 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 u/s 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 saeciton54 of the Act.