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Facts
The assessee sold an immovable property, declared a long-term capital gain of Rs. 28,81,917/-, and claimed a deduction under Section 54F of the Income Tax Act for investing in the construction of a residential property on his spouse's land. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) disallowed the deduction, observing that the capital gain amount was not deposited into a specified Capital Gains Account Scheme as per Section 54F(4) and the construction started after the due date for filing the return of income.
Held
The Tribunal held that Section 54F is a beneficial provision, and considering the COVID-19 pandemic period which extended limitation, the assessee substantially complied with the requirements. Despite not depositing the amount in a capital gains account scheme, the funds were kept in a regular bank account and demonstrably utilized for the construction of the residential house for the spouse whose income was below taxable limits. The Tribunal, relying on precedents, allowed the deduction under Section 54F.
Key Issues
Whether the assessee is eligible for deduction under Section 54F of the Income Tax Act for long-term capital gains, despite not depositing the amount in a Capital Gains Account Scheme and constructing the new residential asset on the spouse's land, with delays in construction.
Sections Cited
54F, 139, 45, 54F(1), 54F(4), 139(1), 54, 54B, 54D, 54G, 54GB
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Income Tax Appellate Tribunal, “SMC - A” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHUANDSHRI.KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assessee against Order passed by the CIT(A) vide Order dated 15.10.2024.
Briefly stated, the facts of the case are that assessee filed its return for Assessment Yer 2018-19 on 10.07.2018 declaring total income of Rs.4,11,620/- The case was selected for scrutiny to examine capital gains deduction claimed. During the scrutiny, the AO observed that the assessee has sold immovable property for a consideration of Rs.33,81,000/- declaring a long term capital gain of Rs.28,81,917/- after claiming index cost of acquisition of Rs.4,99,083/- and he claimed deduction under section 54F of the Act resulting in long term capital gain Page 2 of 16 of Rs.28,81,917/-. In this regard, assessee was asked to substantiate the claim of deduction under section 54F of the Act. Assessee furnished reply dated 10.10.2019 as under:
‘…….The entire sale proceedings is being invested in the construction of residential property of my spouse Smt. N. Mahalakshmi (PAN No. ASYPM9342F) who is not assessed the Income Tax since her income is below taxable limit. Constructionstarted in April 2019, at Plot No.283, 1st Block, Banashankari 6th stage, Bangalore. A copy of sanctioned plan, approval letter from BBMP and Aadhar card are enclosed which are in the name of my spouse Smt. N. Mahalakshmi. The construction work is in progress which is likely to be completed in the next 8 to 10 months.'
Further, the assessee furnished reply on 23.12.2019 as under:
The entire sale proceeds was kept in bank account and the same is being used into construction of a residential house on the vacant land held by my spouse Smt.N. Mahalakshmi (PAN No. ASYPM9342F), which was gifted by my brother S. Balaji No Capital Gain Account was opened since originally, we had intended to start the construction of the new residential property immediately'.
On perusal of the written submissions, it was noted that the assessee has filed return of income under section 139 of the Act and the entire amount which was subjected to capital gain tax has not been utilized for the purpose of construction of new house nor the unutilized amount was deposited in bank account in terms of section 54F(4) of the Act. The AO also referred to section 54F of the Act and finally he noted that as per submissions dated 10.10.2019, construction of the house was started in April, 2019 after the date of filing of return of income (10.-07.2018) under section 139(1) of the Act. Since the assessee has not purchased or constructed a new house during the year under consideration nor has deposited the untilised sale consideration in bank account Page 3 of 16 under the capital gain accounts scheme, accordingly deduction claimed by the assessee of Rs.28,81,917/- was disallowed and added back to the total income of the assessee.
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A) considered the submission of the assessee and relying on the judgment of jurisdictional Hon’ble High Court in the case of CIT Vs. Sambandam Udaykumar [(2012) 345 ITR 389 (Kar.) observed that the essence of the said provision is whether the assessee who received capital gains has invested in residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchase of a residential house or in construction of residential house even though the transactions are not complete in all respects and as required under the law that the assessee would be entitled for the said benefit as per his observation.
He further observed that the assessee having sold the property on 14.06.2017, the net consideration from the sale was not utilized towards acquisition or construction of a new residential house as provided in section 54F(1) of the Act by the by the date of filing of return of income. Accordingly, assessee was required under section 54F(4) of the Act to deposit the unutilised net consideration in the capital gains account scheme for the intended purpose. Assessee failed to adhere to this statutory requirement. From the expenditure details, it was observed that assessee started spending only from 2019 towards construction where after the due date for filing the return of income for the Assessment Year under consideration clearly indicating no Act / intend to purchase or construct of new asset is evident in the assessee’s case. It was also observed from the submission of the assessee that delay for construction were beyond the control of the assessee because he had to fulfil certain obligations from municipal counsel, and dismissed the appeal of the assessee.
Page 4 of 16 7. Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and further submitted that the assessee initiated construction work starting with applying for plan sanction from the relevant authorities. Construction should have been completed on or before 13.06.2020. Assessee applied for sanction of plan on 15.02.2019 which is placed at Paper Book Page No.27. Assessee received sanction plan on 08.03.2019. Subsequent to the sanction plan, the assessee started construction activity. In this regard, expense was incurred towards borewell and copy of invoice and payment details are placed at Paper Book Page Nos.91 and 92. The construction was carried out till March 2020 only the lock down was announced in India due to covid 19. He also submitted that CBDT released a notification No.35/2020 dated 24.06.2020 extending the date for making investment / construction / purchase for claiming rollover benefit / deduction in respect of capital gains under sections 54 to 54G of the Act, to 30.09.2020 which is placed at Page Nos.137 to 138. The construction was completed in the month of March 201 and the Hon’ble Apex Court had decided this issue and extended till Feb 2022. He submitted that the assessee is engaged in proprietary business in the name of Sri Sai Associates and the amount received towards sale proceeds of capital asset was kept in the bank account and deposited on 13.06.2017 which is evident from the Paper Book Page No.73. This amount was kept in the bank account. However, due to lack of knowledge, assessee could not deposit in terms of section 54F(4) of the Act in notifying bank account under the head capital gain account scheme. In addition to the above he further submitted that section 54F of the Act is beneficial provision and the jurisdictional Hon’ble High Court has decided this issue in the case of CIT Vs. Sambandam Udaykumar (supra). He has filed written synopsis.
On the other hand, the learned DR relied on the Order of the lower authorities and submitted that the assessee has not complied with the statutory provisions for claiming of deduction under sections 54F(1) and 54F(4) of the Act.
Page 5 of 16 The learned CIT(A) has rightly examined the issue and relied on the case law. The decision taken by the learned CIT(A) is correct and it should not be disturbed.
Considering the rival submission, I noted that assessee received capital asset and computed capital gain of Rs.28,81,917/- which has been claimed as deduction under section 54F(1) of the Act. Assessee has invested in the construction of residential property of his spouse Smt. N. Mahalakshmi at Plot No.283, I Block, Banashankari 6th Stage, Bangalore. Assessee filed return of income under section 139(1) of the Act but the sale proceeds were not utilized within the due date of filing of return of income and deposited it in the bank account on 15.06.2017. Assessee has not deposited untilized proceeds up to the filing of return of income in the capital gain account scheme. 7. The case laws relied upon by the learned Counsel in the case of CIT Vs. Sambandam Udaykumar (supra) is application for complying of section of section 54F(1) of the Act that the assessee has not completed construction within the stipulated time. I further note that there was covid-19 pandemic period. Regarding the limitation period the period of 3 years, the Hon’ble Apex Court has also extended limitation period upto February 2022. Therefore, on this point the assessee succeeded. Further, it is observed that the assessee had to comply with the provisions of section 54F(4) of the Act but assessee deposited in his bank account which is evident from the Paper Book page No.73 and it is not disputed that the payment for construction expenses been paid from the aforesaid bank account. On the similar point, the Co-ordinate Bench of the Jaipur Tribunal has decided similar issue in in for the Assessment Year 2009-10, Order dated 11.01.2019 reported in (2019) 102 taxmann.com 50 (Jaipur – Trib.) in the case of Goverdhan Singh Shekawat Vs. ITO. In which it has been held as under;- “36. We have heard the rival contentions and perused the material available on record. The issue under consideration relates to denial of deduction U/s 54F of the Act to the assessee. It would be appropriate to refer to the provisions of Section 54F of the Act, relevant for the impugned assessment year, which reads as under:
Page 6 of 16 "54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long- term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where— (a) the assessee,— (i) Owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". Explanation.—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to Page 7 of 16 be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (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 utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), Exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid."
The above provisions provides that where in the case of the assessee, the capital gain arises from the transfer of any long term capital asset, not being a residential house, and the assessee Page 8 of 16 has within a period of one year before or two years after the date on which the transfer took place has purchased, or has within a period of three years after that date has constructed a residential house, the capital gain so arising shall not be charged U/s 45 of the Act subject to the satisfaction of prescribed conditions and the quantum of investment made in the new residential house. The above is the primary condition for availing exemption under section 54F of the Act. However, sub-section (1) which contains the said primary condition is subject to sub- section (4) to Section 54F of the Act. It provides that the amount of net consideration which is not appropriated by the assessee towards the purchase/construction of the new residential house before the date of furnishing the return of income U/s 139, it shall be deposited by him in an account in such bank or institution as may be specified as may be specified and the same shall be utilized in accordance with the scheme notified by the Central Government in this regard. Where the amount is so deposited before furnishing the return of income and such deposit is made not later than the due date for furnishing the return of income u/s 139(1), the amount so deposited shall be deemed to be the cost of the new asset for the purposes of sub- section (1) of section 54F of the Act and will thus be eligible for deduction.
The legislature has thus framed the scheme in such a manner that the assessee would be eligible for exemption U/s 54F of the Act where he either purchases or construct a new residential house within the prescribed period. At the same time, the legislature has also emphasized a scenario that the assessee may not be able to purchase or construct the new residential house before furnishing his return of income for the specified previous year in which the original asset has been transferred and in such a situation, it has been provided that the assessee will still be eligible for exemption U/s 54F of the Act where the amount of net consideration is deposited by him in an account as per the scheme notified by the Central Government and where such an amount is deposited and necessary proof is furnished to the satisfaction of the Assessing Officer, the assessee would continue to be eligible for exemption U/s 54F of the Act in the year of transfer of the original asset in respect of which he is exigible for capital gains tax under section 45 of the Act. At the same time, adequate safeguards have been provided to ensure that the assessee comply with the basic conditions of purchase/construction of the new residential house within the specified period and the consequences of non-compliance thereof. In this regard, the provisions of sub-section (4) to section 54F further provide that whether the amount so deposited is not utilized wholly or partly for the purchase or construction of the new residential house within a period so specified then the amount of capital gain arising from the transfer of the original asset which was earlier not charged U/s 45 of the Act in the year of transfer, the same shall be brought to tax and charged U/s 45 of the Act as income of the previous year in which the period of 3 years from the date of transfer of the original asset expires. Therefore, in such a situation where the amount is either not utilized fully or has been partly utilized for the purchase or construction of the new residential house, the taxability of the capital gain get shifted to the year in which the period of 3 years from the date of transfer of the original asset expires. In this regard, reference can be drawn to the decision of Hon'ble Bombay High Court in case of Humayun Suleman Merchant v. Chief CIT [2016] 73 taxmann.com 2/242 Taxman 189/387 ITR 21 (Bom) wherein it was held as under: '(e) We shall first examine the scheme of Section 54F of the Act. Section 54F is part of Chapter IV of the Act which inter alia provides for computation of total Income and for that purpose, sets out the various heads of income. Part E of Chapter VI deals with the head of income viz.
Page 9 of 16 Capital Gains. It provides for Computation of Capital gains and also for exemption available thereunder. Section 54F of the Act introduced into the Act with effect from 1st April, 1983 by the Finance Act, 1982 provides exemption from Capital gain on transfer of any long term capital asset in case the same is invested in a residential house. However, the Section when introduced provided that any capital gain arising from transfer of long-term capital asset would not be chargeable to capital gains tax, if the same were utilized for purchase of an housing accommodation within a year before or after the date on which the transfer of an capital asset took place or was used for construction of a residential house within a period of three years from the date of transfer of the Capital Asset. (f) Thus, Section 54F of the Act as incorporated made available the benefit of exemption to purchase a house within one year (amended to two years) or construct a residential house within a period of 3 years from the date on which capital asset has been sold. However, while implementing Section 54F of the Act, it was noticed that at times assessments were completed prior to the expiry of above period of two/three years from the date of sale of the Capital Asset and the assessee had not utilized the amount within the prescribed period provided in Section 54F of the Act. This would lead to Assessment orders being rectified by appropriate orders, to determine the availability of benefit of exemption under Section 54F of the Act. (g) This led to the introduction of sub-section (4) to Section 54F of the Act by the Finance Act, 1987 with effect from 1st April, 1988. Besides introducing sub-section (4) to Section 54F the Finance Act, 1978, also amended Sub-section (1) of Section 54F of the Act to make it subject to provision of sub-section (4) thereof. (h) As we are concerned with Assessment Year 1996-97, it is the amended provision which applies. Therefore, now Section 54F(1) of the Act which grants exemption from Capital gain tax where a flat is purchased either within one year prior to the sale of capital asset or within 2 years after the date of sale of the capital asset or where a residential house is constructed within 3 years from the date of sale of the capital asset, is now subject to the provisions of Section 54F(4) of the Act. Thus, where the consideration received on sale of capital asset is not appropriated (where purchase was earlier than sale) or utilized (where purchase is after the sale) then the same would be subject to the charge of capital gain tax, unless the unutilized amounts are deposited in specified bank account as notified in terms of Section 54F(4) of the Act. The exemption would be available to the unutilized amounts only if the mandate of sub- section (4) of Section 54F of the Act is complied with. Further the proviso to sub-section (4) of Section 54F of the Act, safeguards the Revenue where the assessee had not invested the amounts chargeable to Capital Gains within the time prescribed under sub-section (1) of Section 54F of the Act. This by providing that in such cases, Capital Gain under Section 45 of the Act would be charged on the unutilized amount as Income of the previous year in which the period of three years from the date of transfer of the capital asset expires."
We now refer to the scheme framed by the Central Government referred to as Capital Gains Accounts Scheme, 1988 which has been notified for the purposes of availing exemption u/s 54F(4) and other similar provisions of the Act and the salient features of the said scheme reads as under: "Deposits how to be made.
Page 10 of 16 3. A deposit or deposits may be made under the provisions of section 54 or section 54B or section 54D or section 54F or section 54G or section 54GB of the Act by any depositor intending to avail of the benefit under the said section or sections of the Act, as the case may be, in accordance with the provisions of this Scheme. Types of deposits. 4. (1) There shall be two types of deposit accounts, namely :— (i) "Deposit account-A"; and (ii) "Deposit account-B". (2) The deposit made under account-A shall be in the form of 'savings deposit' and subject to the other provisions of this Scheme, withdrawals under this account can be made from time to time by the depositor. (3) The deposit made under account-B shall be in the form of 'term deposit' with an option to the depositor to keep the deposit as cumulative or non-cumulative deposit. Except as provided under paragraph 7 and paragraph 9, withdrawals under this account can be made only after the expiry of the period for which the deposit under this account has been made and accepted. (4) Such deposits may be made in one lump sum or in instalments at any time on or before the due date of furnishing the return of income under sub-section (1) of section 139 of the Act as is applicable in the case of the depositor or the eligible assessee as referred to in section 54GB. Application for opening account 5. (1) Every depositor who is desirous of opening an account or accounts, as the case may be, under this Scheme for the first time, shall apply to the deposit office in Form A or as near thereto as possible, in duplicate and tender the amount of deposit payable in the manner specified in sub-paragraph (4) and a depositor intending to avail of the benefit under more than one section of the Act, as referred to in paragraph 3, shall make separate applications in the same manner, for opening account or accounts under each of such sections. (2) While applying under sub-paragraph (1) the depositor shall exercise his option as to whether the amount is to be deposited in account-A or in account-B or in both the accounts, and in case of the depositor exercising his option to open account-B, the depositor shall also exercise his option as to whether the deposit is to be made as cumulative or non-cumulative deposit as referred in sub-paragraph (3) of paragraph 4. (3) On receipt of an application under sub-paragraph (1), the deposit office shall open an account or accounts in the name of the depositor as opted by him under sub-paragraph (2). (4) The payment of amount of deposit shall be made by the depositor either in cash or by crossed cheque or by draft along with the application. (5) Every subsequent deposit shall be made into the deposit office at which the account stands, in the same manner as stipulated in sub-paragraph (4).
Page 11 of 16 (6) If the deposit is made by a cheque or a draft then, subject to such cheque or draft being realised, the effective date of deposit for the purpose of claiming exemption under the Act will be the date on which the cheque or draft is received by the deposit office along with the application under sub-paragraph (1) or sub-paragraph (5), as the case may be. (7) The interest on the amount of deposit shall accrue and will be calculated subject to the provisions of paragraph 8, with effect from the date of deposit in cash or the date of realisation of the proceeds of the cheque or the draft tendered by the depositor. (2) (8) In the case of deposit under account-A, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with interest due, shall be entered over the signature of the authorised officer of the deposit office. (9) In the case of deposit under account-B, deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit, shall be entered over the signature of the authorised officer of the deposit office. Utilisation of the amount of withdrawal 10. (1) A depositor, withdrawing any amount out of the deposit made in pursuance of sub- section (2) of section 54 or sub-section (2) of section 54B or sub-section (2) of section 54D or sub-section (4) of section 54F or sub-section (2) of section 54G or sub-section (2) of section 54GB , shall utilise the whole or any part of the amount so withdrawn for the purposes specified in sub-section (1) of the section in relation to which the deposit has been made. (2) The amount withdrawn shall be utilised by the depositor within sixty days from the date of such withdrawal for the purposes specified in sub-paragraph (1) and the amount or any part thereof which has not been so utilised shall be re-deposited in account-A immediately thereafter. Closure of the account 13. (1) If a depositor, other than an eligible company as referred to in section 54GB desires to close his account, an application shall be made with the approval of the Assessing Officer who has jurisdiction over the depositor to the deposit office in Form G or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (1A) If a depositor, being an eligible company, referred to in section 54GB, desires to close its account, then, — (i) it shall make a joint application signed by the eligible assessee referred to in section 54GB; (ii) the application shall be made with the approval of the Assessing Officer having jurisdiction over the eligible assessee referred to in section 54GB; and Page 12 of 16 (iii) such application shall be made in Form G to the deposit office or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (2) If a depositor in respect of whose deposit account a nomination is in force, dies, the nominee, if he desires to close the account or accounts and obtain the payment of the balance standing to the credit in the account of the deceased depositor, shall make an application to the deposit office in Form H or as near thereto as possible with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the amount of balance standing to the credit in the account of the deceased depositor including amount of interest accrued, by means of crediting such amount to any bank account of the nominee. (3) If a depositor, in respect of whose deposit no nomination is in force, the legal heir of the deceased depositor shall make an application to the deposit office in Form H or as near thereto as possible, with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the balance standing to the credit in the account of the deceased depositor including the amount of interest accrued, by means of crediting such amount to any bank account of the legal heir : Provided that where there are more than one legal heir of the deceased depositor, the legal heir making the claim individually may do so by producing the letter of disclaimer or letter of authorisation from other legal heirs in his favour : Provided further that before granting the approval for closure of the account under this sub- paragraph, the Assessing Officer shall obtain from the legal heir a succession certificate issued under Part V of the Indian Succession Act, 1925, or a probate of the will of the deceased depositor, if any, or letter of administration to the estate of the deceased in case there is no will in order to verify the claim of such legal heir to the account of the deceased depositor. (4) The depositor or the nominee or the legal heir, in order to obtain payment of the amount standing to the credit in the account shall while applying in Form G or Form H, also submit the pass book of account-A or deposit receipt of account-B, as the case may be, to the deposit office. (5) The payment made by the deposit office to the depositor or the nominee or the legal heir in accordance with the provisions of this paragraph shall constitute a full discharge to the deposit office of its liability in respect of the deposit. (6) Nothing contained in this paragraph or in paragraph 11 shall affect the right or claim which any person may have against the person to whom any payment is made under this paragraph.' 40. The above Capital Gain Account scheme thus provides for opening of a bank account by the assessee intending to avail of the benefit under section 54F(4) of the Act. The account can be opened in form of a savings account or a fixed deposit account. The amount of deposits in such account shall be utilised for the purposes specified in sub-section (1) of the section 54F in Page 13 of 16 relation to which the deposit has been made. Any withdrawal made and not utilised shall be deposited back in the said account and thereafter, there are provisions for grant of interest and final closure and withdrawal of the balance amount in the said account. The whole purpose and scheme of deposit so envisaged is thus to closely monitor the utilisation of the amount for the purposes of purchase or construction of the residential house. The whole idea is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by the assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house.
In the instant case, the assessee has received compensation of Rs 3,59,39,080 on 16.07.2008 on compulsory acquisition of his land by RIICO. The assessee thereafter opened a savings bank account with HDFC on 20.07.2008 with cash deposit of Rs. 5000/- and on 21.07.2008, Rs 3,20,04,256 was deposited which was actually received by the assessee from RIICO net of TDS of Rs 39,34,824. Subsequently, the TDS amount of Rs 39,34,824 which was refunded by the Revenue was also deposited in the same bank account. Thus, the entire compensation amounting to Rs 3,59,39,080 received by the assessee has been deposited in the said account. It is also emerging from perusal of records that the assessee was already having a bank account with Oriental Bank of Commerce since 11.08.2005, yet the new bank account with HDFC Bank was opened on 20.07.2008 specifically for the purpose of depositing the compensation received by the assessee. Subsequently, the assessee has purchased a plot of land measuring 381.11 sq yards situated at Plot No. 10, Mitra Grirh Nirman Sahkari Samiti Ltd, Jayshree Nagar, Malviya Nagar, Jaipur from Jaishree Kanwar vide sale deed executed on 19.08.2008. The said plot of land was purchased for Rs 41 lacs and the amount of Rs 40 lacs was paid through cheque cleared on 12.09.2018 from the aforesaid savings bank account maintained with HDFC and balance Rs 1 lacs withdrawn from the said account. The assessee has thereafter carried out certain construction on the said plot of land and has spent Rs 38,08,495 on such construction which is withdrawn from the said bank account. The return of income for the impugned assessment year was filed on 30.07.2009 wherein the assessee has claimed exemption U/s 54F of Rs 3,47,29,250 which was subsequently revised at Rs 3,42,31,397 in the revised return of income filed on 28.12.2010. Therefore, at the time of filing of the return of income, the entire compensation amounting to Rs 3,59,39,080 stand deposited in the savings bank account maintained with HDFC bank and the withdrawals have been limited to the extent of purchase of plot of land and partial construction thereon. These are undisputed facts which are emerging from the records and have not been disputed by the Revenue either during the assessment or appellate proceedings before the ld CIT(A) or even before us., thus remain uncontroverted. Therefore, at the time of filing of return of income, the residential house has not been constructed and therefore, the conditions of sub-section (1) to section 54F are not fulfilled. At the same time, the amount of compensation stand fully deposited including the TDS thereon in the savings bank account maintained with HDFC bank and deposits and withdrawals have been strictly for the purposes of purchase of plot of land and construction thereof. In our view, the assessee's claim will qualify for exemption u/s 54F as he has, in substance, complied with the requirements of sub-section (4) of the Act for the impugned assessment year as the whole of the compensation has been deposited in the said bank account and the withdrawals are limited to purchase of plot of land and construction thereof and are monitored closely by the assessee himself. As we have stated above, the whole idea of opening a capital gains Page 14 of 16 account scheme is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by an assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house. In the instant case, even though the saving bank account technically speaking is not a capital gain account, the essence and spirit of opening and maintaining a separate capital gain account has been achieved as well as demonstrated by the assessee. Therefore, merely because the saving bank account is technically not a capital gains account, it cannot be said that there is violation of the provisions of sub-section (4) of the Act in terms of not opening a capital gains account scheme. The Revenue has not disputed that the deposits in the said account are from the compensation received by the assessee from compulsory acquisition of his land by RIICO and the Revenue has equally not disputed that there are any withdrawals other than for the purposes of purchase of plot of land and construction thereon.
Further, it is noted that during the course of assessment proceedings, the assessee has submitted that he was given to understand at the time of account opening by the Branch Manager of HDFC Bank that they would open a capital gain accounts and thus, the assessee was under a bonafide belief that it is the capital gain account which has been opened and in support, certificate dated 11.11.2009 of Branch Manager has been furnished. The said understanding has however been found to be incorrect on subsequent verification by the AO where he found that the account was a normal saving account. Interestingly, during the appellate proceedings (in context of penalty proceedings arising from the impugned transaction), the Branch Manager of the HDFC Bank has subsequently filed an affidavit dated 10.03.2015 and during the remand proceedings, his statement has also been recorded by the Assessing officer where he has again confirmed that he had accepted the deposit in the bank as capital gains account. The said understanding given by the Branch Manager would not make a normal saving account as a capital gain account, however it atleast shows the bonafide of the assessee in relying on the representation of the Branch Manager at the time of opening the bank account. Further, it is noted that during the course of assessment proceedings, the assessee has also sought permission of the Assessing officer to transfer the funds from his savings accounts to capital gain account, however, the Assessing officer has not taken cognizance of the said account. Had the Assessing officer accepted the said request, the matter would have been resolved by now.
Having said that in the subsequent years, the assessee still has to demonstrate that he has constructed the residential house before the expiry of period so specified and where the amount so deposited is not utilized either fully or partially, the cause of action for the Revenue will lie in the year in which three years period expires from the date of transfer by way of compulsory acquisition of land wherein it can bring the same to tax u/s 45 of the Act. In this regard, reference can be drawn to the decision of Hon'ble Allahabad High Court in case of Ranjit Narang v. CIT [2009] 317 ITR 332 wherein it was held as under:— "9. We have given thoughtful consideration and we find force in the submission made by Sri Shambhu Chopra. The proviso to section 54F specifically deals with the situation where the assessee who in order to save himself from payment of tax of capital gains decided to either purchase a house or construct the house within the specified period and fails to do so in that event the statute provides as to when capital gains is to be treated and in which year it is to be Page 15 of 16 taxed. It is because of postponement of capital gains the Income-tax Act takes care of such a situation. Not only in the case of capital gain but in other matters also. We may mention here that the petitioner has not challenged the validity of the proviso to section 54F(4) by means of writ proceeding.
From a plain reading of section 54F of the Act we are of the considered opinion that the amount of capital gains which has not been utilised under section 54F has to be charged under section 45 as income of the previous year, after the expiry of three years from the date of sale of the asset which in the present case is for the assessment year 1993-94."
At this stage, we may also note that the subject bank account of the assessee was attached by the Department from 1.12.2010 and remain attached atleast till 30.06.2012, therefore, there is no way the assessee could have met the deadline of 16.7.2011 for constructing the new house, being three years from the date of transfer of the original land and the period during which the bank account remain attached has to be excluded as no fault lies with the assessee. In the interim, the assessment order was passed by the Assessing officer on 5.12.2011. In such a situation, firstly, when the bank account of the assessee was attached, how can he be expected to have utilized the amount so deposited in the said account within the prescribed period and secondly, there is no way, the Assessing officer could have verified such utilization by the time he passed the assessment order. Hence, the utilization or non-utilization and any related non-compliance or failure on part of the assessee is an event subsequent to the year under consideration and the same cannot be made the basis for denial of exemption for the impugned assessment year once it has been demonstrated that the amount has been deposited in an account in substantial compliance with the provisions of sub-section (4) to section 54F of the Act. In this regard, we refer to the decision of the Co-ordinate Bench in case of Asstt. CIT v. Dr. S. Sankaralingam [2018] 99 taxmann.com 85/173 ITD 413 (Chennai - Trib.) wherein it was held as under: "5. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the property was sold for Rs. 9 Crores. The sale consideration disclosed in the sale deed was only Rs. 6 Crores. The assessee apparently received sale consideration to the extent of Rs. 3 Crores in cash. However, he deposited the same in S.B. Account in the names of self, his wife and children. It is not in dispute that Rs. 1.40 Crores was used for repayment of loan and Rs. 4.60 Crores was deposited in Capital Gains Account. The balance amount to the extent of Rs. 2,99,50,000/- was deposited in State Bank of India in the name of assessee, his wife and children and the same was taken over by the Department before the due date for filing of return of income. Therefore, as rightly submitted by the Ld.counsel for the assessee, the assessee was prevented from depositing the money in the Capital Gains Account. The total capital gain is Rs. 6,71,08,935/-. Hence, considering the deposit of Rs. 4.60 Crores in Capital Gains Account and the money taken by the Department to the extent of Rs. 2,99,50,000/-, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee under Section 54F of the Act."
In light of above discussions and in the entirety of facts and circumstances of the case, the assessee is held eligible for exemption under section 54F for the impugned assessment year and the Assessing officer is directed to allow the same.”
Page 16 of 16 10. Respectfully following the above judgments, I hold that assessee is eligible for deduction under section 54F of the Act on the amount invested towards cost of construction of the new asset.
In the result, appeal filed by the assessee is allowed .