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Capital Gain exemption-Sec 54F

Started by pr50, December 15, 2011, 11:15:13 PM

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The CG amount from sale of a residential flat was deposited in the CG A/c of SBI, and another under-construction flat was booked to be purchased from this amount. After two instalments were paid from this Account, the property went into litigation, which went up to the Supreme Court, and was eventually ruled in the Builder's favour. However, as a result of this, the construction was delayed, and took over 4 years (as against the 3 years specified under Sec 54F).The bulk of the payments from the CG account were made after the expiry of the 3 year period.
However,  (a) the funds have been put in the CG A/c, the intent has clearly been to use the funds purely for a residential property, as specified under the Act ;(b) The CG A/c has been opened within the time frame specified; (c) The Funds in the CG A/c have not (and cannot) be used for any other purpose; (d) The Agreement has been duly Registered – within the 3 year period; (e) Most important, the construction delay has been on account of factors totally beyond the control of the purchasers. All this should imply that the intent of the Legislature has been fully met.
Would these amounts still be disallowed exemption from CG Tax?  Would there be any sense in appealing the decision assuming it would be unfavourable?     


sec. 54F is enacted with an intention to encourage the housing sector. In the circumstances, the intention is, atleast in my opinion, definitely fulfilled. If you see the provisions of sec. 54EC is also, the funds received on account of capital gains should be utilised for infrastructure facilities and not for any other purpose. Further, the said funds can be utilised for any other purpose after the lackin period is expired. In the same way, in 54F also, if the funds are utilised for construction/purchase of the house and that house cannot be sold within 3 years which means that after 3 years the same can be sold and the funds thereon can be utilised for any other purpose the beneficiary intened to.  Coming to the problem on hand, the person is helpless and what has happend is not in his control and therefore, if the decision is against, need not hesitate to go for further appeal thinking about the sense or not, definitely, the same should be appealed against. We are not sure of any final outcome and it is worth trying. Nobody will assure  final decision, however, one thing is certain,  we may read a case law in the name of the person in future what ever may be the final outcome.  please go ahead and file an appeal.

ashutosh majumdar

I think you have received excellent advice from satyenveshi. I am reminded of the following words from the judgement of the SC in Commissioner Of Income-Tax vs Hindustan Electro Graphites Ltd 243 ITR 48

"If additional tax could be levied in such circumstances, it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. It shocks the very conscience if in the circumstances Section 143(1A) could be invoked to levy the additional tax. The following observations by the Constitution Bench of this Court in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 are apt (page 597) :

A humane and considerate administration of the relevant provisions of the Income-tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with 'an evil eye and unequal hand'."

I think these observations are applicable to your facts.


Unfortunately, the decision reported in 243 ITR 48 is reversed by Apex Court in the later decision reported in 251 ITR 200 but that doesnot mean the words stated therein have lost its value. The question framed before it is reversed. I dont mean to say that what has been stated sri Ashutosh Mujamdar is incorrect. Infact, I support his argument and only to share that the quoted case law is reversed by Apex Court in a later decision cited above. 


Thank you so much for your excellent advise, Mr Satyanveshi and Mr Asutosh Majumdar. Most gratefully acknowledged and appreciated. I'll wait for the Final Assessment Order and then take action accordingly. 

sai prasad

sec.54 or for that matter any  beneficial provision need to be complied with strictly and non compliance would only negate the claim.Perhaps  for a charging provison , inability or any thing beyong one's control are accepted.