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Case Number
Attorney(S)
  • Appellant by: Shri K. Balasubramanian, Advocate Tax Consultant
  • Respondent by: Shri Shaji P. Jacob, Addl. CIT
Judges
  • N.S Saini, A.M
  • V. Durga Rao, J.M
Acts
  • provisions of sub-section (4) of section 54F
  • provisions of sub-section(4)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Appellant by: Shri K. Balasubramanian, Advocate Tax Consultant
  • Respondent by: Shri Shaji P. Jacob, Addl. CIT
Judges
  • N.S Saini, A.M
  • V. Durga Rao, J.M
Acts
  • provisions of sub-section (4) of section 54F
  • provisions of sub-section(4)
See more information ...
Smart Summary

Comprehensive Summary of the Opinion (ITAT Chennai — 15 June 2012)

Factual and Procedural Background

The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-IX, Chennai dated 31.10.2011. During the year under consideration the assessee derived long-term capital gains of Rs. 38,64,751 on sale of shares (net sale consideration Rs. 51,75,000). In the return of income filed on 9.1.2009 the assessee claimed deduction under section 54F of the Income-tax Act of Rs. 27,44,063 for investment in a residential flat at Chennai.

The Assessing Officer (AO) disallowed the deduction on the ground that the due date for furnishing the return under section 139(1) was 31.7.2008 and that the assessee should have either invested the entire sale consideration in the residential flat or deposited it in a capital gains account on or before that date. The AO found that only Rs. 3,00,000 was paid to the builder before that due date and therefore disallowed deduction under section 54F.

On appeal the CIT(A) allowed deduction only to the extent of Rs. 3,00,000 (amount shown as paid on 2.5.2008) and disallowed the balance. The assessee appealed to the Tribunal challenging the denial of the full claimed exemption and contending that the return filed on 9.1.2009 (under section 139(4) / extended time) should govern the relevant cut-off for amounts utilized for purchase.

Legal Issues Presented

  1. Whether the assessee is eligible for deduction under section 54F with reference to amounts invested in the new residential house up to the date of furnishing the return of income under section 139 (here, the return filed on 9.1.2009) rather than only amounts invested before the due date for filing under section 139(1).
  2. Whether the CIT(A) and AO were correct in allowing deduction only to the extent of Rs. 3,00,000 (paid before the AO's assumed due date) and disallowing amounts invested after that date but before the date of filing the return under section 139(4).

Arguments of the Parties

Appellant's Arguments

  • The assessee filed the return of income on 9.1.2009, which he contended was within the extended time available under section 139(4), and therefore the date of furnishing the return under section 139 should be treated as the relevant date for application of section 54F.
  • The scheme of sections 54 and 54F is to encourage owning a house; hence a narrow and strict interpretation of section 54F(4) should not be adopted.
  • The assessee claimed that a major portion of the sale consideration (Rs. 15,00,000) was invested in the residential flat on or before 9.1.2009 and therefore the CIT(A) should have allowed exemption under section 54F to the extent of amounts so invested (i.e., additional Rs. 12,00,000 beyond the Rs. 3,00,000 allowed).
  • The appellant relied on certain precedents (CIT vs Jagriti Aggarwal; Fathima Bai vs ITO; CIT vs Rajesh Kumar Jalan) in support of his position that section 139 includes section 139(4) for the purposes of determining the relevant date.

Respondent's (Departmental Representative) Arguments

  • The DR supported the CIT(A)'s order and contended that the relevant due date for utilizing the capital gains was prior to filing and that the assessee had not complied with the requirements for claiming exemption for amounts not utilized prior to the due date.
  • The DR relied upon the decision of the Hon'ble Kerala High Court in CIT vs V.R. Desai ([2011] 197 Taxman 52) to the effect that where the proceeds were neither deposited in the notified capital gains account nor utilized for construction before the date of filing the return, exemption under section 54F was not admissible.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT vs Ms. Jagriti Aggarwal [2011] 245 CTR (P&H) 62 The opinion records that this decision holds that section 139 includes section 139(4). The Tribunal relied on this decision as supporting the view that the date of furnishing the return under section 139 includes the extended date under section 139(4); it treated this precedent as supporting the assessee's position.
Fathima Bai vs ITO [2009] 32 DTR (Kar) 243 Not specified in the provided opinion. Placed in reliance by the assessee; the Tribunal recorded that the assessee relied on this decision but did not articulate a detailed rule from it in the body of the order.
CIT vs Rajesh Kumar Jalan [2006] 206 CTR (Gau)361 Not specified in the provided opinion. Placed in reliance by the assessee; the Tribunal recorded the reliance but did not set out a distinct principle from this decision in the reasons.
CIT vs V.R. Desai [2011] 197 Taxman 52 Held that where the assessee neither deposited sale proceeds in the notified bank account under the capital gains account scheme nor utilized the proceeds for construction before the date of filing the return, exemption under section 54F was not admissible. Relied upon by the DR; the Tribunal considered this decision but found it distinguishable on facts and therefore not applicable to the present case.

Court's Reasoning and Analysis

The Tribunal began by identifying the statutory provision at issue — sub-section (4) of section 54F — and reproduced the operative portion which treats as relevant the amounts "which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139."

The Tribunal noted the undisputed facts: the assessee realized long-term capital gains of Rs. 38,64,751 and filed the return of income on 9.1.2009. The Tribunal framed the narrow factual dispute as whether deduction under section 54F should be computed with reference to (a) the amounts utilized for purchase before the due date for filing under section 139(1) (as taken by the lower authorities), or (b) the amounts utilized for purchase before the date of furnishing the return under section 139 (which, in the assessee's case, was 9.1.2009).

Applying the plain language of sub-section (4) of section 54F, the Tribunal held that only amounts actually utilized by the assessee for the purchase of the new residential house before the date of furnishing the return under section 139 would be eligible for computation of deduction under section 54F(1). The Tribunal therefore rejected the narrower interpretation (adopted below) limiting qualifying investments only to those made before an earlier due date.

Because the assessee filed the return on 9.1.2009, the Tribunal concluded that amounts invested in the residential property up to that date would be relevant for computing the exemption. The Tribunal observed that the assessee claimed that Rs. 15,00,000 had been so invested on or before 9.1.2009.

The Tribunal set aside the orders of the lower authorities on this issue and directed the Assessing Officer to verify the amount actually invested by the assessee before the date of furnishing the return under section 139 and then to allow deduction under section 54F(1) with reference to that amount, giving the assessee a reasonable and proper opportunity of being heard before adjudicating the issue afresh.

The Tribunal also considered the decision relied upon by the DR (CIT vs V.R. Desai) and found it distinguishable on the facts: in Desai the proceeds were neither deposited in the notified scheme nor utilized for construction but were allowed to be retained by a partnership firm for business purposes. The Tribunal therefore did not consider the Kerala High Court decision applicable to the facts before it.

Finally, the Tribunal noted that its view was supported by the decision of the P&H High Court in CIT vs Jagriti Aggarwal (supra), which it read as holding that section 139 includes section 139(4).

Holding and Implications

Holding: The appeal is ALLOWED.

Core ruling: The Tribunal held that amounts actually utilized by the assessee for purchase of a new residential house before the date of furnishing the return under section 139 (here, the return filed on 9.1.2009) qualify for computation of deduction under section 54F(1). The Tribunal set aside the orders of the lower authorities on this point and remanded the matter to the Assessing Officer to verify the amounts invested before the date of furnishing the return and to allow deduction as per law after affording the assessee a proper opportunity of hearing.

Direct consequences for the parties:

  • The CIT(A) and AO's orders limiting the exemption to Rs. 3,00,000 are set aside on this issue.
  • The AO is directed to verify the appellant's claimed investment (the assessee claimed Rs. 15,00,000) made before the date of furnishing the return (9.1.2009) and to grant deduction under section 54F(1) to the extent legally permissible after verification and hearing.

Broader implications: The Tribunal applied an interpretation of section 54F(4) that treats the date of furnishing the return under section 139 (including section 139(4) where applicable) as the relevant cut-off for amounts utilized for purchase. The opinion does not expressly claim to create new binding precedent beyond the order in this appeal.

Order pronounced on 15th June, 2012 by the Income-tax Appellate Tribunal, Chennai (Judicial Member: V. Durga Rao; Accountant Member: N.S. Saini).

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    R.K.P. Elayarajan v. Dy. Cit Circle I Vellore

    PER N.S. SAINI, ACCOUNTANT MEMBER This is an appeal filed by the assessee against the order of the CIT(A)-IX, Chennai, dated 31.10.2011.

    2. The assessee has taken the following grounds of appeal: 1.1 Orders of the authorities below are contrary to law, weight of evidence and probabilities of the case. 1.2. Authorities below erred in disallowing the claim of the appellant u/s 54F to the tune of ` 27,44,063.

    I.T.A.No. 106/12 :- 2 -: 1.3. Learned Commissioner of Income-tax (Appeals) erred in confirming the decision of the assessing officer to the effect that appellant did not deposit the sale consideration, on sale of shares, in capital gains account scheme before due date for furnishing return and hence appellant is not eligible for deduction u/s 54F, except to the extent of Rs.3 lakh, allowed by CIT (A) u/s 54F, which amount was paid by the appellant to the builder before the said due date for construction of a flat at Velachery Chennai. 1.4 They failed to appreciate that appellant not having filed his return of income for AY 2008-09 within the time allowed u/s 139(1), is eligible to do so till 31-3-2009 which is the extended time u/s Sec.139(4) and accordingly he filed it on 9-1-2009. 1.5 The authorities below failed to appreciate the schema of Sec.54, 54F etc., ie., to encourage owning of house so that shortage of housing can be overcome and that the appellant invested the major portion of the sale consideration in a residential which is the only house owned by appellant and therefore, too narrow and strict interpretation of sec.54F(4) of the Act may not be called for. 1.6 Without prejudice to the above, the authorities below failed to appreciate that appellant having filed his return of income on 9-1-2009 ie., before the extended due date of filing of return under Sec.139(4) he is entitled to exemption u/s 54F to the extent of amounts paid to the builder before 31.3.2009 ie., ` 15,00,000. 1.7 Therefore, learned CIT (A) having allowed only ` 3 lakhs, ought to have allowed the balance ` 12,00,000 also u/s 54F. 1.8 Reliance for the above proposition is placed on the following case laws.

    a) CIT vs Ms. Jagriti Aggarwal [2011] 245 CTR (P&H) 62

    b) Fathima Bai vs ITO [2009] 32 DTR (Kar) 243

    c) CIT vs Rajesh Kumar Jalan [2006] 206 CTR (Gau)

    I.T.A.No. 106/12 :- 3 -:

    3. The sole issue involved in this appeal is that the CIT(A) erred in confirming the action of the Assessing Officer in not allowing deduction u/s 54F of the Act except to the extent of ` 3 lakhs allowed by the CIT(A) since the assessee had not deposited the sale consideration in the capital gains account scheme before the due date for furnishing of return.

    4. The brief facts of the case are that during the year under consideration the assessee derived long term capital gains of ` 38,64,751/- on sale of shares. The assessee claimed deduction u/s 54F of the Act for ` 27,44,063/- in his return of income on the ground that he has invested the capital gains in acquisition of a residential flat at Chennai. The Assessing Officer found that the due date for filing of return of income by the assessee was 31.7.2008 and the assessee should have either invested the entire sale consideration in the residential flat or in capital gains account with any authorized bank on or before 31.7.2008. The Assessing Officer observed that the assessee has furnished copy of sale deed for transfer of the undivided share of land in his favour by the flat promoter wherefrom it is seen that it is executed on 19.9.2008 which is after the due date for filing of return of income by the assessee u/s 139(1) of the Act. The assessee could produce evidence to the extent of payment of ` 3 lakhs only to the flat promoter before the above due date. Therefore, the

    I.T.A.No. 106/12 :- 4 -: Assessing Officer did not allow deduction u/s 54F of the Act to the assessee.

    5. On appeal filed by the assessee, the CIT(A) allowed the deduction of ` 3 lakhs paid for the purchase of residential property and disallowed the balance capital gains of ` 24,44,063/- for the reason that the agreement for purchase of residential property with the builder M/s Mehta Havens Ltd was entered into on 2.5.2008 and ` 3 lakhs was paid on the very same day which was before the due date of filing of the return of income on 31.7.2008.

    6. Being aggrieved, the assessee is in appeal before us.

    7. The A.R of the assessee submitted that the assessee not having filed his return of income for assessment year 2008-09 within the time allowed u/s 139(1) was eligible to do so till 31.3.2009 which was the extended time u/s 139(4) and accordingly, he filed his return of income on 9.1.2009. He further submitted that both the Assessing Officer and the CIT(A) failed to appreciate the scheme of section 54 and 54F which is to encourage owning of house so that shortage of housing can be overcome and that the assessee has invested major portion of the sale consideration in a residential house which was the only house owned by the assessee nad therefore, too narrow and strict interpretation of section 54F(4) of the Act may not be called for.

    I.T.A.No. 106/12 :- 5 -: He submitted that the assessee having filed his return of income on 9.1.2009 which was before the due date for filing of return of income u/s 139(4) was entitled to exemption u/s 54F to the extent of amount paid to the builder before 31.3.2009 i.e ` 15 lakhs. Therefore, the CIT(A) should have allowed deduction of the balance amount of ` 12 lakhs u/s 54F also. He placed reliance on the following decisions:

    a) CIT vs Ms. Jagriti Aggarwal [2011] 245 CTR (P&H) 62

    b) Fathima Bai vs ITO [2009] 32 DTR (Kar) 243

    c) CIT vs Rajesh Kumar Jalan [2006] 206 CTR (Gau)361

    8. On the other hand, the ld. DR fully justified the order of the CIT(A) and filed a copy of the decision of Hon'ble Kerala High Court in the case of CIT vs V.R.Desai, [2011] 197 Taxman 52, and submitted that the Hon'ble High Court has held that as the assessee neither deposited the sale proceeds for construction of the building in the bank before the date of filing return nor was the sale proceeds utilized for construction of new property, exemption claimed u/s 54F was not admissible.

    9. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the undisputed relevant facts of the case are that the assessee derived long term capital gain of ` 38,64,751/- on net sale consideration of long term capital asset of ` 51,75,000/- during the

    I.T.A.No. 106/12 :- 6 -: year under consideration. In respect of the above long term capital gain of ` 38,64,751/-, the assessee claimed in his return of income filed on 9.1.2009 exemption u/s 54F of ` 27,44,063/- on the ground of investment in purchase of new residential flat. It is not in dispute that the assessee is eligible for exemption u/s 54F in respect of his investment made in new residential flat. The only dispute before us is whether the assessee is eligible for deduction u/s 54F with reference to the amount of ` 3 lakhs which he invested for the purchase of new residential house before 31.7.2008 as held by the CIT(A) or with reference to ` 15 lakhs which was invested by the assessee upto 9.1.2009 as claimed by the assessee before us.

    10. The assessee, in support of his contention, has placed reliance on the decisions of CIT vs Ms. Jagriti Aggarwal [2011] 245 CTR (P&H) 62, Fathima Bai vs ITO [2009] 32 DTR (Kar) 243, and CIT vs Rajesh Kumar Jalan [2006] 206 CTR (Gau)361.

    11. On the other hand, the DR supported the order of the CIT(A) and placed reliance on the decision of the Hon'ble Kerala High Court in the case of CIT vs V.R.Desai, [2011] 197 Taxman 52.

    12. We find that the relevant provisions of sub-section (4) of section 54F is as under:

    I.T.A.No. 106/12 :- 7 -: "4 The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139

    13. Thus, in the instant case, we find that the eligible new asset was not purchased within one year before the date on which the transfer of the original asset took place. Thus, the amount which is not utilized by the assessee for the purchase of new asset before the date of furnishing the return of income u/s 139 was required to be deposited as per the provisions of sub-section(4) for availing deduction u/s 54F in respect of those amounts also. In other words, as per the plain language employed in the above sub-section(4), only the amount which was actually utilized by the assessee for the purpose of purchase of the new residential house before the date of furnishing of the return of income u/s 139 shall only be eligible for computation of deduction u/s 54F(1) of the Act. We find that in the instant case it is not in dispute that the return of income for the relevant year was filed by the assessee on 9.1.2009, which is the date of furnishing of return of income u/s 139 by the assessee. Thus, in our considered view, the amount utilized by the assessee for purchase of new residential house before 9.1.2009 qualifies for consideration with reference to which deduction u/s 54F(1) is to be computed. Thus, the CIT(A) was

    I.T.A.No. 106/12 :- 8 -: not justified in holding that only the amount which was utilized by the assessee before 31.3.2008 only qualifies for deduction u/s 54F of the Act. The assessee claimed before us that ` 15 lakhs was utilized by him for the purchase of new residential flat on or before 9.1.2009. We, therefore, set aside the orders of the lower authorities on this issue and direct the Assessing Officer to verify the amount which was invested by the assessee before the date of furnishing of return of income u/s 139 by the assessee and thereafter allow the deduction u/s 54F(1) with reference to the said amount as per law. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue afresh.

    14. Before parting with this appeal, we would like to observe that the decision relied on by the DR is distinguishable on facts and is not applicable for deciding the issue under consideration. In that case, the Hon'ble Kerala High Court found that consideration for transfer of long term capital asset was actually not utilized by the assessee either for construction of new residential house or for depositing the same in any bank under the notified scheme of 54F of the Act. The Hon'ble High Court found that the assessee allowed the partnership firm to retain the consideration amount with the firm for its business purposes. We find that the facts involved before us are not similar and the issue involved is also quite different. The issue before us is

    I.T.A.No. 106/12 :- 9 -: whether the amount which was utilized by the assessee for making investment in purchase of new residential house before the date of filing of return u/s 139(4) qualifies for deduction u/s 54F(1) or only the amount which was utilized for investment in purchase of new residential house before the due date of filing of return u/s 139(1) alone qualifies for deduction u/s 54F(1) of the Act. We find that on the above issue view taken by us above in this order is fully supported by the decision of the Hon'ble P&H High Court in the case of CIT vs Jagriti Aggarwal (supra) wherein it was held that section 139 includes section 139(4) also. Therefore, the appeal of the assessee is allowed in the manner indicated above.

    15. In the result, the appeal of the assessee is allowed. Order pronounced on Friday, the 15th of June, 2012, at Chennai Sd/- Sd/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER Dated: 15th June, 2012 Copy to: Appellant/Respondent/CIT(A)/CIT/DR

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    Comments

    R.K.P. Elayarajan v. Dy. Cit Circle I Vellore
    (Jun 15, 2012)