Mrs. Shakuntala Devi v. DDIT (International
Taxation)
A.Y. : 2005-06. Dated : 23-6-2009
S. 54 — Where assessee paid advance to a builder for
purchase of a house, but due to inability to arrange funds, could not purchase
the property and got the advance back, the conditions of purchase/construction
within time specified in S. 54 are not satisfied. In such a case, exemption
can be denied only on expiry of time period of 3 years from date of transfer
of original asset.
Facts :
During the previous year relevant to assessment year
2005-06 the assessee sold two flats — one at Prithvi Apartments and another at
Embassy Diamante, Bangalore. Long-term capital gain arising on sale of these
two flats was worked out at Rs.46,51,537. The assessee advanced a sum of
Rs.98,69,970 to the builder towards the purchase of the flat at Embassy
Habitat. Accordingly, it claimed the sum of Rs.46,51,537 to be deductible
u/s.54 of the Act. In an order passed u/s.143(3) r.w.s. 147 of the Act, the
Assessing Officer stated that the assessee failed to furnish either the
registered sale deed or the purchase agreements to substantiate her claim both
for sale of two properties and also for purchase of the flat at Embassy
Habitat. He also noted that the statement of affairs as on 31-3-2006 did not
reflect the flat at Embassy Habitat as her asset. He held that the since the
title of the property was not transferred to the assessee the provisions of S.
54 were violated and accordingly, he denied the exemption claimed by the
assessee u/s.54 of the Act.
The CIT(A) confirmed the order of the AO.
Aggrieved, the assessee preferred an appeal to the
Tribunal. On behalf of the assessee it was submitted that the assessee had
entered into an agreement for purchase of a house and had paid an advance, but
subsequent to the payment of advance the assessee could not raise the
necessary funds for purchase of the flat and therefore, the agreement entered
into by the assessee was terminated and cancelled and the assessee received
back the advance paid by her. It was also contended that it is premature to
decide upon denial of exemption. It was submitted that unutilised amount is to
be brought to tax in the assessment year relevant to the previous year in
which the period of three years from the time of transfer of original asset
ends. For this proposition reliance was placed on provisions of S. 54(2) of
the Act which provides for depositing the amount of gain into a Capital Gain
Account and utilisation therefrom within the prescribed time period. Upon
failure to utilise the amount deposited in Capital Gain Account for purchase
or construction within the prescribed time period, the unutilised amount is
charged to tax in the previous year relevant to the assessment year in which
the period of three years from the time of transfer of original asset (that
resulted in the capital gains arising in the first place) ends.
Held :
Since the transaction entered into by the assessee did not
culminate into purchase of residential house either one year before or two
years after the date of transfer nor a residential house was constructed
within a period of three years after the date of transfer, the CIT(A) was
justified in denying the claim of exemption u/s.54 of the Act.
As regards the alternative contention raised the Tribunal
restored the issue to AO with a direction to decide the same as per facts and
law, after providing due opportunity of hearing to the assessee.
