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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
आदेश /O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is directed against the order passed by the learned Commissioner of Income-tax (Appeals)-14, Chennai, dated 28.08.2020 and pertains to assessment year 2016-17.
:-2-: ITA. No:844 /Chny/2020 2. The Revenue has filed the following grounds of appeal: 1. “The order of the learned CIT(A) is erroneous in law and facts and opposed to the facts and circumstances of the case. 2. The Ld. CIT(A) erred in allowing the appeal of the assesse relying on an ITAT decision rendered in 2005 against two later decision of Hon'ble High Court relied on by AO in the assessment order. 3. The Ld. CIT(A) ought to have followed the decision of Hon'ble High Court in the following cases i. CIT Vs VR Desai(Ker) 197 Taxman52. ii. Humayan Suleman Merchant Vs CCIT(Bom) 387 ITR 421. iii. OM Prakash Trivedi Vs Union of India(All) 287 ITR 11. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 3. The brief facts of the case are that, the assessee is an employee of State Government working as Section Officer in the High Court of Madras, had filed his return of income for the assessment year 2016-17 on 24.09.2016, declaring total income of Rs. 5,28,270/-. During the financial year relevant to assessment year 2016-17, the appellant along with his siblings sold a residential property on 23.03.2016 for a consideration of Rs. 2,84,00,000/- and received total consideration of Rs. 3,50,00,000/- in his bank account which includes his share of consideration and consideration of his siblings. The assessee has computed long term capital gains from sale of property and claimed exemption u/s. 54 of the Income-tax Act, 1961
:-3-: ITA. No:844 /Chny/2020 (hereinafter referred to as “the Act”) by paying a sum of Rs. 50 lakhs to the builder as advance money for purchase of property and also deposited a sum of Rs. 1,69,61,612/- in a capital gain deposit account scheme. The assessee had also claimed deduction u/s. 54EC of the Act for Rs. 50 lakhs towards investment in NHAI bonds.
During the course of assessment proceedings, the AO noticed that deduction claimed by the assessee u/s. 54 of the Act for a sum of Rs. 1,69,61,612/- is not eligible because, the assessee has failed to deposit unutilized amount of capital gains in capital gains deposit account scheme on or before due date of filing of return u/s. 139(1) of the Act. Therefore, rejected the claim of the assessee and disallowed deduction claimed u/s. 54 of the Act.
Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has filed a detailed written submission on the issue and contended that the assessee has satisfied conditions prescribed u/s. 54 of the Act, including depositing unutilized amount of capital gain into capital gain deposit account
:-4-: ITA. No:844 /Chny/2020 scheme in a nationalized bank. However, there is small delay in depositing unutilized amount in capital gains account deposit scheme, and for said technical breach deduction u/s. 54 of the Act cannot be denied.
The CIT(A) after considering relevant submissions of the assessee, and also by following certain judicial precedence including the decision of ITAT, Chennai Benches in the case of Shri. Madhuvan Prasad vs ITO, in ITA No. 2485/Mds/2004 dated 17.10.2005, held that the assessee is entitled for deduction u/s. 54 of the Act, because although there is a technical breach in not satisfying one of the conditions of depositing unutilized capital gains in capital gain deposit account scheme, but ultimately the assessee has invested entire capital gain amount for acquiring new residential house and such residential house has been acquired within three years from the date of transfer of original asset. Therefore, he opined that, the assessee is entitled for exemption and thus, directed the AO to delete additions made towards disallowance of deduction claimed u/s. 54 of the Act. The relevant findings of the CIT(A) are as under:
:-5-: ITA. No:844 /Chny/2020 9. I have carefully considered the assessment order and the written submissions of the appellant. In the case of Shri. Madhuvan Prasad in ITA No.2485/Mds/2004 dated 17.10.2005 for the Assessment Year 1996-97 the Hon'ble ITAT, Chennai on a similar issue has held as under:
In the instant case the appellant has apparently satisfied the ultimate objective of the section by investing in a residential house by way of construction within the time allowed u/s.54. What the appellant has Jailed to do is to make an investment in the capital gains account scheme as required u/s.54(2) within the time allowed for furnishing the return u/s.139(1). This, the appellant contends is only a technical breach. The appellant apparently intended to invest in a residential house which is obvious from the fact that he acquired the land within a short time after the end of the previous year and before the time allowed for filing the return and commenced construction later on the said land which was completed within the time allowed u/s.54(1). These acts of the appellant clearly go to show that appellant always intended to invest in a residential house by way of construction. It therefore appears that the failure to invest in the capital gains account scheme is only a technical default which given the circumstances and the peculiar facts should not be extended to such an extent as to deny the exemption u/s.54 when the ultimate purpose of the provision is achieved. To hold that the exemption should be forfeited for a technical breach does not appear to be the correct proposition particularly since the appellant pleads that he was not aware of the requirement to invest in the capital gains account scheme and also states that his objective was to invest in a residential house which is apparent from the fact that he has purchased a land and also constructed a house thereon. It is also seen that section 54E (since deleted} and sections 54EC and 54ED which require investment of the proceeds in specified assets, specifically provides that the exemption would be forfeited if the specified asset is given as a security for taking a loan. In section 54 we do not find any such provision and therefore in
:-6-: ITA. No:844 /Chny/2020 our considered view the purpose of section 54(2) is not to deprive the assessee of an exemption but only to avoid rectification. The ultimate object of the section having been satisfied namely to encourage construction houses, we are convinced that the utilization of the funds in constructing a residential house should be treated as sufficient compliance of section 54 and therefore hold that the appellant is entitled to the exemption u/ s.54 even in respect of the amount invested by way of construction of the residential house amounting to Rs.16,40,311/ - . Before we depart we may mention that the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd v State of Uttar Pradesh [(1979) 118 ITR 326 has observed as follows: "that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement, there is no such maxim known to the law." Unquote 10. The appellant has stated that he has reinvested the entire money in the capital gain account scheme and entered into a construction agreement with M/s. Ceebros Investments on 06.10.2016 within the period available for filing return of income u/s 139(4). The appellant contented that though there is a technical breach of not depositing the amounts into the capital gains account scheme within the due date specified u/s 139(1), the entire consideration was invested in construction of property, which was completed within 3 years being the time prescribed by the Act. The appellant stated that the. new property was given possession to him on January 2017 and the appellant has occupied the same on 29.04.2017. The arguments of the appellant deserve consideration. In respectful deference to the decision of jurisdictional ITAT in the case of Shri. Madhuvan Prasad, as cited supra, it was held that it therefore appears that the failure to invest in the capital gains account scheme is only a technical default which given the circumstances and the peculiar facts should not be extended to such an extent as to deny the exemption u/s.54 when the ultimate purpose of the provision is achieved. To hold that the
:-7-: ITA. No:844 /Chny/2020 exemption should be forfeited for a technical breach does not appear to be the correct proposition. In view of the above, all the grounds of appeal raised in this regard are treated as allowed.”
The Ld. DR referring to the grounds of appeal filed by the Revenue submitted that, although number of decisions of various High Courts held that in order to claim deduction u/s. 54 of the Act, the assessee should strictly comply with conditions therein, but, the CIT(A) allowed relief to the assessee, even though the assessee himself admits violation of conditions of depositing unutilized capital gain amount in capital gain deposit account scheme on or before due date for filing return of income u/s. 139(1) of the Act.
The ld. Counsel for the assessee, on the other hand referring to various judicial precedence, including the decision of Karnataka High Court in the case of CIT vs K Ramachandra Rao [2015] 277 CTR 522 (Karnataka), submitted that if assessee invests full amount of capital gain derived from sale of original asset for acquiring new residential house within three years from the date of transfer of original asset, then merely for technical breach, deduction claimed u/s. 54 of the Act cannot be denied. The Ld. Counsel for the assessee
:-8-: ITA. No:844 /Chny/2020 further referring to the decision of ITAT, Chennai in the case of ACIT vs Justice T.S. Arunachalam in ITA No. 2455/Chny/2017 dated 30.01.2018 submitted that on identical set of facts, the Tribunal allowed relief to the assessee. Therefore, there is no reason to interfere with the order of the Ld CIT(A) and their order should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee has sold a residential house and computed long term capital gain, after claiming deduction u/s. 54 of the Act, and also, said amount was invested in acquiring new residential house. In fact, the AO has accepted fact that the assessee has satisfied all conditions prescribed therein u/s. 54 of the Act, except the condition of depositing unutilized amount of capital gain in capital gain deposit account scheme on or before due date of filing return of income u/s. 139(1) of the Act. In other words, the assessee has satisfied a primary condition of acquiring new asset within three years from the date of transfer of original asset. The AO had also not disputed the fact, that the assessee has deposited unutilized portion of
:-9-: ITA. No:844 /Chny/2020 capital gains derived from sale of original asset in capital gain deposit account scheme, but only objection of the AO in denying the benefit of deduction u/s. 54 of the Act was that the assessee did not deposit unutilized portion of capital gains amount in capital gain deposit account scheme on or before due date for filing return of income.
We have given our thoughtful consideration to the reasons given by the AO to deny benefit of deduction u/s. 54 of the Act, and we ourselves do not subscribe to the reasons given by the AO for simple reason that first of all, deduction provided u/s. 54 of the Act is a beneficial provision to encourage purchase of house by any assessee’s, who sells his house and such provision should be construed literally to give benefit to the assessee. However, it does not mean that said benefit may be given to all assessee’s who are not satisfying conditions prescribed therein u/s. 54 of the Act. In other words, in a case where assessee satisfies all conditions, but there is a technical breach in satisfying any one of the condition, then such technical breach needs to be viewed literally to give benefit, in light of the intent of legislature by way of section 54 of the Act. In this case, the assessee has
:-10-: ITA. No:844 /Chny/2020 satisfied all conditions, except there is a technical breach in one of the conditions of depositing unutilized capital gain amount in capital gains deposit account scheme on or before due date for filing return of income u/s. 139(1) of the Act, however, such deposits has been made on or before extended due date for filing return of income u/s. 139(4) of the Act. Admittedly, in the present case, the due date for filing return of income was on 05.08.2016, whereas, the appellant had deposited unutilized amount of capital gains in capital gain deposit account scheme on 19.09.2016, with a delay of 45 days. The assessee has explained reasons for depositing unutilized amount of capital gains in capital gain deposit account scheme, and further claimed that ultimately he has invested entire amount of capital gain for acquiring new asset within three years from the date of transfer of original asset.
In our considered view, when the assessee has satisfied all conditions including depositing unutilized portion of capital gain in capital gain deposit account scheme, then for minor technical breach, benefit of deduction u/s. 54 of the Act cannot be denied. This view is fortified by the decision of various High Courts including the decision of Hon’ble Karnataka High Court
:-11-: ITA. No:844 /Chny/2020 in the case of CIT vs K Ramachandra Roa, (supra), where on identical set of facts, the Hon’ble High Court held that when assessee utilizes entire sale consideration within three years from the date of transfer of land, he could not be denied exemption u/s. 54 of the Act. The ITAT, Chennai bench in the case of ACIT vs Justice. T.S. Arunachalam (supra), has taken a similar view and held that for technical breach, benefit of deduction u/s. 54 of the Act cannot be denied, when assessee has satisfied all conditions prescribed therein. In this case, there is no dispute with regard to the claim of the assessee, and is entitled for deduction, because the assessee has satisfied conditions prescribed therein u/s. 54 of the Act, and also deposited unutilized amount of capital gain in capital gain deposit account scheme in a nationalized bank. Though, there is a delay of 45 days, but the assessee has utilized full amount of capital gains for acquiring new residential house within three years from the date of transfer of original asset. Therefore, we are of the considered view, that the assessee is entitled for deduction u/s. 54 of the Act. The AO without appreciating facts disallowed deduction claimed u/s. 54 of the Act. The CIT(A), after considering relevant facts has rightly allowed relief to the assessee and thus, we are inclined to
:-12-: ITA. No:844 /Chny/2020 uphold the findings of the CIT(A) and reject grounds taken by the Revenue.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the court on 16th November, 2022 at Chennai. Sd/- Sd/- (जी. मंजुनाथ) (महावीर �सह ) (G. MANJUNATHA) (MAHAVIR SINGH) उपा�य� /Vice President लेखासद�य/Accountant Member
चे�ई/Chennai, �दनांक/Dated, the 16th November, 2022 JPV आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF