By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi, Chartered Accountants
Section 54 – Even if an assessee acquires a
new house on credit i.e. the payment for which may be made in future, the
assessee cannot be denied the benefit of deduction u/s. 54.
FACTS
For AY 2007-08,
the assessee in his return of income filed u/s. 139(1) returned long term
capital gain of Rs. Nil after deduction of Rs. 51,27,000 u/s. 54 of the
Act. This sum of Rs. 51,27,000 comprised
of Rs. 35,00,000 deposited in Capital Gain Account and Rs. 15,27,000 paid to
Ajay Enterprises, a builder, for booking the flat. During the course of assessment proceedings,
the Assessing Officer, on examination of receipts issued by the builder,
noticed that the assessee had booked two flats viz. A-907 and C-408 and payment
of Rs. 15,27,000 to the builder comprised of Rs. 5,77,000 for Flat No. A-907
and Rs. 9,50,000 for Flat No. C-408. The
assessee admitted that the amount of Rs. 9,50,000 invested for flat no. C-408
was wrongly considered u/s. 54. The
Assessing Officer (AO) worked out capital gain after indexation to be Rs.
49,78,349 and allowed deduction of Rs. 40,77,000 u/s. 54 – comprising of Rs.
35,00,000 deposited in capital gain account and Rs. 5,77,000 paid to builder
for flat A-907. The AO assessed long
term capital gain to be Rs. 9,01,349.
Aggrieved the assessee preferred an appeal
to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal
to the Tribunal where it was contended that the assessee has upto 4.12.2008
invested a total sum of Rs. 61,74,683 for purchase of a new house, therefore
there was substantive compliance of section 54 by making required investment in
the new house within the period specified u/s. 54. For this proposition reliance was placed on
the following decisions –
I) ITO vs. Smt. Sapana
Dimri [2012] 50 SOT 96 (Delhi)
ii) CIT vs. Ms. Jagriti Aggarwal [2011] 339 ITR 610 (P & H)
iii) Kishore H. Galaiya vs.
ITO [2012] 137 ITD 229 (Mum)
iv) CIT vs. Rajesh Kumar
Jalan [2006] 286 ITR 274 (Gau)
v) K. S. Ramchandran vs.
ITO [IT Appeal No. 941 (Mds.) of 2011]
HELD
The Tribunal noted that the assessee had not
surrendered or offered the amount of Rs. 9,50,000 for addition. Before the AO
the assessee stated that the amount of Rs.9.50 lakh should not be considered as
investment u/s. 54. Even without considering
this amount of Rs. 9.50 lakh, the actual investment by the assessee in purchase
of eligible new house within the specified period of 3 years was more than the
long term capital gain.
Even if an assessee acquires a new house on
credit i.e. the payment for which may be made in future, the assessee cannot be
denied the benefit of deduction u/s. 54 because what is required by sub-clause
(i) is that cost of new house should be equal to or more than the amount of
long term capital gain.
The requirement to invest in a bank account
under the capital gain account scheme is a procedural requirement to ensure
that investment is made in a residential house as claimed in the return of
income. Merely because of technical breach / non-compliance the benefit due to
the assessee by the legislature cannot be denied particularly when there is
substantive compliance made. Section 54
is a beneficial section and as held by the Apex Court in Bajaj Tempo Ltd.
vs. CIT [1992] 196 ITR 188 (SC) the provisions of a beneficial section
should be construed liberally.
For the above stated reasons and having
considered the ratio of the decisions relied upon by the assessee, the Tribunal
deleted the addition of Rs. 9,01,349.
The Tribunal allowed the appeal filed by the
assessee.
