-
2017-04-05
Being some of the most beneficial and widely availed exemption provisions of the Income Tax Act, Sections 54 and 54F have certain conditions attached therein in order to avoid its misuse. The fulfilment of these conditions brings with it litigation so as to determine whether the assessee is eligible to claim the exemption. Some of the major factors causing litigation have been dates / duration relevant for the purpose of claiming exemption under the sections, purchase / sale of more than property, co-ownership/investment in joint names, claiming ancillary expenses etc. In this Insight, Taxsutra Database Editorial Team has made an effort to bring to its readers, a compilation of rulings pronounced by the HC and the Tribunals on the issues that arise while claiming of the aforesaid exemption.
A. Dates / Duration relevant for the purpose of claiming exemption u/s. 54 & sec. 54F
1. [TS-5100-HC-2017(Bombay)-O]
Date for deposit in specified account : For claiming exemption u/s 54F, the net consideration should be deposited in the specified account before due date for furnishing return u/s 139(1) & not Sec. 139(4); Allotment letter issued by the developer does not confer title until the agreement for sale under the provisions of the Maharashtra Ownership of Flats Act (MOFA) is registered - HC rules in favour of Revenue.
2. [TS-5032-ITAT-2017(CHENNAI)-O]
Utilisation of capital gain amount within extended period u/s 139(4) : Claim of exemption u/s 54F cannot be denied if the assessee has utilized the amount of capital gain earned towards consideration of new residential house within extended period u/s 139(4) - ITAT rules in favour of assessee; Holds that extended period u/s 139(4) has to be considered for the purpose of utilization of the capital gain amount; On the issue that assessee did not deposit the untilized amount in an account under the Capital Gains Account Scheme, holds that assessee had deposited the amount in an ordinary Savings Bank account, and made withdrawals therefrom only for the purpose of construction of a house, hence there was substantial compliance of the procedures.
3. [TS-5809-HC-2016(KARNATAKA)-O]
Date of purchase for purpose of sec. 54 : Date of MOU to be reckoned as date of purchase for purpose of benefit u/s. 54 though the sale deed was not registered before the period of 2 years - HC rules in favour of the assessee, upholds ITAT ruling wherein ITAT held that taking of physical possession or registration of the sale deed would be immaterial for determining date of purchase and period of holding for sec.54 exemption.
4. [TS-7142-ITAT-2016(CHENNAI)-O]
New asset demolished within three years of purchase : Assessee not entitled for deduction u/s 54F if he demolished the new asset being the residential house purchased by him, within the period of three years from the date of purchase - ITAT denies deduction u/s 54F to assessee; Holds that “The Parliament in its wisdom had enacted Section 54F of the Act in the Finance Act, 1982 with a view to encourage housing construction. Thus the intention of the legislation was not for destruction of residential building but for promoting the construction of the residential housing units. If the benefit of section 54 is extended where the new residential building is demolished without constructing another residential building within the time limit prescribed under the Act, then the purpose of the Act is defeated.”.
Investment prior to sale of property : Date of completion of construction and not date of commencement of construction relevant for purpose of sec.54 when investment in new property made prior to date of earning of capital gains - ITAT allows capital gains exemption u/s 54 to assessee for investment made in construction of a residential house; Rejects Revenue’s stand that construction of new house started much before earning of capital gains by assessee
Possession not received within 2 years : Delhi HC allows Sec 54 exemption though new property possession not received within 2 years - Ascribing wider meaning to ‘purchase’ u/s 54, HC holds that just entering into purchase agreement for new house and not getting possession of property would come under the ambit of ‘purchase’.
7. [TS-6111-ITAT-2014(MUMBAI)-O]
Investment in ‘under-construction property’ : Investment in ‘under-construction property’, not 'purchase', qualifies for 3-years extended period u/s 54F - ITAT grants Sec 54F exemption to assessee for investing capital gains (from sale of ancestral property) in acquiring ‘under construction residential house’.
B. Purchase / Sale of more than property
1. [TS-6904-ITAT-2013(HYDERABAD)-O]
Sale of two different properties : Sale of two different assets invested in "single" property eligible for Sec 54 & 54F exemptions - Capital gains exemption on sale of 2 different assets u/s 54 and 54F allowed for investment in a "single" new residential property; Sec 54 and 54F though applicable in different situations, do not bar claim for exemption under both sections.
Investment in independent units : SC allows Sec 54 benefit for house with independent units - SC rules in favour of assessee; Affirms Delhi HC decision that Sec 54/54F benefit is available in respect of a new residential house consisting of several independent units; Delhi HC had noted that physical structuring, whether lateral or vertical, of a new residential house cannot impact such claim for benefit.
C. Co-ownership in more than one residential house/Investment in Joint names
Co-ownership in 2 properties : SC dismisses SLP, HC denied Sec 54F benefit as assessee 'co-owner' of 2 houses - SC dismisses assessee’s SLP against Karnataka HC decision; HC had denied Sec. 54F capital gains benefit as assessee was 'co-owner' in more than one residential house at time of land transfer; HC had observed that “co-owner is the owner of a house in which he has share and that his right, title and interest is exclusive to the extent of his share and that he is the owner of the entire undivided house till it is partitioned”
Investment in joint names : Investment in joint name with spouse eligible for full exemption u/s 54F - Exemption u/s 54F from capital gains not to be restricted to share in property purchased in joint name since assessee was real owner; Sec 54F does not specify purchase of new house 'in the name' of the assessee
D. Improvement Expenses
[TS-6686-ITAT-2013(AHMEDABAD)-O]
Improvement expenses on new ready-made property eligible for Sec 54 exemption - Cost of improvement incurred even after purchasing new house, eligible for exemption u/s 54 against capital gains; Cost of purchase includes any capital expenditure incurred to make house property habitable; Purchase or construction, not mutually exclusive options u/s 54 exemption.
E. Actual sale proceeds vs. Deemed consideration u/s. 50C
Investment of actual sale-proceeds, not deemed consideration u/s 50C, relevant for exemption u/s 54 - ITAT rules in favour of assessee; Assessee has computed capital gains by adopting sale consideration of 60 lakhs received by him, whereas AO applied Sec 50C and computed gains adopting stamp duty valuation of Rs. 82 lakhs; Though ITAT approves application of deeming fiction u/s 50C for the purposes of computing capital gains, it clarifies that assessee needs to invest the sale proceeds and not the full value consideration u/s 50C in the new property for claiming Sec 54 exemption, states that “once the net sale consideration has been fully applied under the provisions of section 54 of the Act, then the deeming consideration as defined u/s 50C of the Act cannot be brought into the provisions of section 54F of the Act.”.
F. Amount paid to builder refunded
Assessee eligible to claim exemption u/s 54 even though amount invested got refunded back from the builders twice and were re-invested twice - ITAT rules in favour of assessee, holds that assessee can claim exemption u/s 54 keeping in view of her consistent efforts of keeping the sale proceeds duly invested.
G. New property settled in favour of daughter without consideration
[TS-5395-ITAT-2015(CHENNAI)-O]
ITAT allows Sec 54 exemption to assessee (an individual) for investing long term capital gains in new house property during AY 2011-12, despite new property settled in favour of assessee’s daughter immediately post investment - ITAT remarks that “As far as the settlement is concerned the assessee as a donor transferred the immovable property out of love and affection without consideration to the daughter donee and same is not regarded as transfer of a capital asset under a gift.. as per the provision of Sec 47(iii)”, holds that there is no difference between settlement and gift.
