claim for deduction under section 54 and 54F of the Act

[murali Krishnamurthy]

My client has purchased land in 1978 for Rs.10000/- and thereafter in 1979 constructed building  investing a sum of Rs.100000/-He was using this property for self occupation. Around 1985 he made certain improvements amounting to Rs.100000/-. He entered into a development agreement and in lieu of the land and building he got 5 flats towards his share and the developer got 7 flats. The five flats were in different floors. Two on one floor and the remaining one on each floor. Owing to financial stringency, he sold three flats in a semi finished condition on as is where is basis.

Can the assessee claim deduction under 54 and 54F for the long term capital gains for the value of the seven flats?
Will there be any short term capital gains as the flats were sold on as is where is basis?

Kindly render your considered opinion with case law on the subject at the earliest.

[satyanveshi]

For the capital asset foregone by the client he had got 5 flats(some other capital assets) and therefore he has to pay tax on the long term capital gains accrued on this transaction. The construction cost of 5 flats to the builder is the sale consideration received and the land registered for the seven flats is only the lcost of acquisition alongwith the cost of the super structure and improvements can be claimed by him to arrive at the correct capital gains in this transaction. with regard to deduction u/s 54, yes he is entitled for deduction. However, in my opinion the deduction should be restricted to one flat. BUt recently the high court of Karnataka held that the duduction is available for more than one flat in the decision reported in 331 ITR 211. Most important thing is when the 5 flats acquired are sold definitely, tax on capital gains ( long term or short term depending on the period of holding) should again be paid. For the above proposition you may refer to the following decisions 89 ITD 73, 106 ITD 388, 260 ITR 491, 294 ITR 196, 23 DTR 140, 122 ITD 388, 323 ITR 40, 26 DTR 403, 124 TTJ 387 and finally 301 ITR 124.

[pawansingla]

Find:

  [2011] 12 taxmann.com 125 (PUNE - ITAT)    IT : Where consideration on sale of ancestral agricultural land was
adjusted against purchase price of a new residential bungalow on date
of transfer of said land, deduction under section 54F could not be
denied to assessee


[2011] 12 taxmann.com 125 (Pune - ITAT)

IN THE ITAT PUNE BENCH 'B'

Chetan Vithal Tupe*

v.

Assistant Commissioner of Income-tax, Cir. 1(2), Pune

SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NO. 416 (PUNE) OF 2009
[ASSESSMENT YEAR 2005-06]
MAY 31, 2011

Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption
of, in case of investment in residential house - Assessment year
2005-06 - Assessee derived income from capital gain on transfer of
ancestral agricultural land to MTCDC on 31-3-2005 - Sale proceeds were
claimed to be adjusted against purchase price of a new residential
bungalow which was booked with MTCDC on date of transfer of land
itself - Assessee claimed deduction under section 54F - Assessing
Officer denied deduction under section 54F on ground that bungalow
plan was sanctioned on 6-1-2007 and, thus, construction was not
started prior to due date of filing return for assessment year 2005-06
(i.e., 31-7-2005) and, as such, assessee should have deposited
consideration received on transfer of land in capital gains scheme in
bank which had not been done - Whether since entire purchase price was
adjusted against sale consideration by MTCDC on 31-3-2005 itself and
same was utilized by assessee in purchasing new residential house,
question of investing in capital gain scheme in bank did not arise -
Held, yes - Whether since entire purchase price of newly constructed
property was paid by assessee to MTCDC on 31-3-2005 itself, i.e., date
of transfer of agricultural land in question, assessee had substantial
domain over new residential house and, thus, deduction under section
54F was to be allowed to assessee - Held, yes

FACTS

The assessee derived certain income from capital gain on transfer of
an ancestral agricultural land to a company, 'MTCDC' on 31-3-2005. The
consideration receivable by the assessee on transfer of land was
claimed to be adjusted against a residential bungalow which was booked
with on the MTCDC date of transfer of land itself. It received the
possession of the newly constructed bungalow on 31-3-2008. The
assessee's claim of deduction under section 54F in respect of the
above investment in the construction of new residential bungalow was
rejected by the Assessing Officer on the ground that the bungalow plan
was sanctioned on 6-1-2007, and, therefore, the construction was not
started prior to the due date of filing of the return under section
139(1) for the assessment year 2005-06 (i.e., 31-7-2005), and, as
such, the assessee should have deposited the consideration received on
transfer of the land in the capital gains account with the bank which
had not been done. The Commissioner (Appeals) upheld the order of the
Assessing Officer.

On appeal:

HELD

On perusal of the material on record, it was found that the assessee
had transferred his ancestral agricultural land on 31-3-2005 to MTCDC
and, simultaneously, the receivable amount was adjusted towards a new
bungalow. The receipts clearly indicated that the assessee entered
into such an understanding with the company (MTCDC) on 31-3-2005
itself. According to the revenue, in case the construction was not
started prior to due date for filing of the return, i.e., 31-7-2005,
the assessee should have deposited the consideration received on
transfer of the land in the capital gains account with the bank which
had not been done in the instant case. There was no occasion for
depositing the amount in question as it was not received by the
assessee at any point of time. Had the assessee received the amount,
the provision of depositing in the above said manner would have arisen
but in the instant case, the amount receivable from the ancestral
agricultural land transferred in question had never been received by
the assessee at any point of time and on the date of transfer, it had
been appropriated towards purchase of a bungalow. [Para 7]

The provisions of sub-section (4) of section 54F specifically requires
that the amount of net consideration not appropriated towards
purchase/construction of residential house be deposited in the
specified account before the due date for filing of return under
section 139(1). Though the date of commencement of construction of
residential house was 6-1-2007 and the sanction plan also bore the
date after that, the stand of the revenue was that commencement of
construction was started much after the end of the year. The provision
states that the assessee should utilize the consideration on sale of
asset in buying a new residential house and if part of such
consideration is not appropriated for the acquisition of the new house
prior to the due date of filing of the return, the same should be
deposited in the capital gain scheme in the bank account. In the
instant case, the entire purchase price was adjusted against the
consideration by MTCDC on 31-3-2005 itself, and the same was utilized
by the assessee and the question of investing in the capital gain
scheme in the bank did not arise. In the instant case, the whole
amount had been adjusted by the company for new house against the sale
consideration. In fact, the assessee never received the above
consideration in his hands at any point of time. The possession of new
constructed bungalow had been given by the MTCDC to the assessee on
31-3-2008 and even otherwise as the entire purchase price of the new
house property was paid by the assessee to MTCDC on 31-3-2005 itself,
i.e., the date of transfer of the agricultural land in question, i.e.,
capital asset. Thus, the assessee had substantial domain over the new
residential house. Thus, deduction under section 54F was justified.
The same should be allowed. The Assessing Officer was to be directed
to allow the deduction as claimed by the assessee. [Para 8]

In the result, the appeal of the assessee was allowed. [Para 9]

CASES REFERRED TO

M.A.C. Khaleeli v. Dy. CIT [1994] 48 ITD 191 (Mad.) (para 5), P.K.
Datta v. ITO [2006] 10 SOT 66 (Pune) (URO) (para 5), CIT v. Mrs. Hilla
J.B. Wadia [1995] 216 ITR 376 (Bom.) (para 5) and CIT v. Smt. Brinda
Kumari [2002] 253 ITR 343/[2001] 114 Taxman 266 (Delhi) (para 5).

S.U. Pathak for the Appellant. Smt. L. Sunita Rao for the Respondent.