SRI SUDHEER VALSALA SREEKUMARAN ,BANGALORE vs. THE INCOME TAX OFFICER WARD-5(3)(2), BANGALORE

The assessee is aggrieved by the decision of ld CIT(A) in rejecting the claim made by the assessee for deduction u/s 54F of the Act.

The facts relating to the above said issue are stated in brief:

The AO noticed that the assessee has invested a sum of Rs.50 lakhs in capital gains bond scheme eligible for deduction u/s 54EC of the Act. He further noticed that the assessee has not deposited the unutilised sale consideration into capital gain accounts scheme as required u/s 54F(4) of the Act before the due date prescribed u/s 139(1) of the Act for filing return of income. The AO noticed that the assessee has made deposit in capital gain scheme as per sec. 54F(4) of the Act only on 26/8/2013, i.e., subsequent to the due date prescribed u/s 139(1) of the Act for filing return of income. The AO noticed that the assessee has withdrawn money from capital gain account scheme and purchased a vacant plot at Devanahalli for a consideration of Rs.1.29 crores during the May 2014.

Since the assessee had transferred the property on 13/8/2012, the AO observed that, as per sec. 54F of the Act, the assessee should have constructed a residential house on or before 31/8/2015. The AO deputed his Inspector to physically inspect the status of construction. The Inspector, vide his report dated 10/3/2016, reported that only foundation work for construction of a small house has just started a fortnight back. Accordingly the AO took the view that the assessee was not eligible for deduction u/s 54F of the Act for the following reasons: a) The assessee has not deposited the unutilized sale consideration in capital gains account scheme before the due date for filing the return of income for asst. year 2013- 14 as per sec. 54F(4) of the Act. b) The construction has not been completed within 3 years from the date of transfer of original asset. Accordingly the AO rejected the claim of deduction u/s 54F of the Act.

The CIT(A) confirmed the order of the AO with the following observations :- “Ground 1,2,3 & 3.1 Claim: Deposit in the capital gain account should be on or before due date for filing of return u/s 139(4) and not u/s 139(1) - the exemption claimed u/s. 54F of the Act is allowable. Examination from Factual point of view:

The appellant has invested in a land of 8,305 sq. ft. for a consideration of Rs. 1.29 Crores. The AO has held that so called construction of the house there-on was claimed as an after-thought for winning exemption u/s. 54F of the Act. 10. In this respect the chronology of events is examined. I find that the appellant must have completed the house construction on or before 12/08/2015 since the original asset was sold on 13.8.2012. I find that the sanction plan was approved by BIAAPA on 24.06.2015. Normally the construction of even one floor takes at least 8 to 10 months. From the preponderance of probabilities, I do not find it possible that the appellant could have completed the construction within 45 days from the date of approval i.e. on or before l2/08/2015.

This is further confirmed by the Inspector's report dt. 10.3.2016. This report clearly states that the construction was started about 15 days before. The photographs taken at that time (on 10.3.2016) indicate that plinth of ground floor is being constructed and the construction has barely started. This proves beyond doubt that the construction was not complete.

In this respect the appellant has submitted certain judgments of High Courts / ITAT where it is held that due date for filing of return u/s 139(4) should be the cut-off date and not the due date for filing of return u/s 139(1).

The appellant has relied on the judgement of the Hon'ble Karnataka High Court in the case of FATIMA BAI. It is claimed that the mere delay in deposit of the amount in the capital gains account scheme will not disentitle the appellant to exemption claimed as the appellant has time till the due date u/s. 139(4) of the Act. I have examined the issue further.

The section 54(2) is as under: (2) The amount of the capital gain 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 .21 in an account in any such hank or institution as may be specified in, and utilised in accordance with,

1 find that section 54(2) is very clear that the due date applicable is the date for furnishing the return of income under sub-section (1) of section 139. There is no mention of section 139(4) in this section.

In this respect, Hon. Supreme Court in the case of Smt. Tarulata Shyarn v. CIT [1977) 108 ITR 345 (SC) has held that there is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation.

Similarly, Hon. Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons (P.) Ltd. 11975] 101 ITR 764 (SC) has held that if the language of the statute is clear and unambiguous, the Court cannot discard the plain meaning, even if it leads to an injustice.

The appellant has relied on the judgment of the Honourable Karnataka High Court in the case of FATIMA BAI (Karnataka). I have considered the same. The above judgments of Hon. Supreme Court have not been brought before the Honourable Karnataka High Court while deciding the FATIMA BAI case and therefore could not be considered by the Honourable Karnataka High Court.

1 have further examined the order of the AO and the submissions made by the appellant. I find that in the judgments cited by the appellant the following decision of the Hon. Supreme Court of India has not been considered.

Hon. Supreme Court of India in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company [Civil Appeal No. 3327 of 20071 had setup the Constitution Bench to examine the correctness of the ratio in Sun Export Corporation.

This Constitution Bench is setup to examine the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 /hereinafter referred as 'Sun Export Case for brevity, namely the question is What is the interpretative rule to he applied while interpreting a tax exemption Reportable provision/ notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied? 2. in Sun Export Case (supra), a three Judge Bench ruled that an ambiguity in a tax exemption provision or notification must be interpreted so as to favour the assessee claiming the benefit of such exemption. Such a rule was doubted when this appeal was placed before a Bench of two Judges. The matter then went before a three Judge Bench consisting one of us (Rarijan Gogoi, J.). The three Judge Bench having noticed the unsatisfactory state of law as it stands today, opined that the dicta in Sun Export Case (supra), requires reconsideration and that is how the matter has been placed before this Constitution Bench.

The Constitution Bench of Hon. Supreme Court of India in this case has held as under: To sum up, we answer the reference holding as under

1 have examined the submissions made by the appellant. I find that in the judgements cited by the appellant various decisions of the Hon. Supreme Court of India have not been considered.

Therefore, by relying on the decision of the Constitution Bench of Hon. Supreme Court of India in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company [Civil Appeal No. 3327 of 2007] the deduction u/s 54P is not allowed.

Therefore, the arguments of the appellant are not acceptable. The appellant has failed to deposit the

We heard the parties on this issue and perused the record. The first reason given by the tax authorities for rejecting the claim for deduction u/s 54F of the Act is that the assessee has not invested the unutilized sale consideration amount into Capital gains account scheme before the due date prescribed u/s 139(1) of the Act for filing return of income. The Ld A.R relied upon the decision rendered by Hon’ble Madras High Court in the case of Venkata Dilip Kumar vs. CIT (2019)(111 taxmann.com 180)(Mad), wherein the Hon’ble Madras High Court followed the decision rendered by Hon’ble Karnataka High Court in the case of CIT vs. K.Ramachandra Rao (ITA No.47 of 2014) to hold that if the assessee has utilised the sale consideration within 3 years, then the requirement of non-compliance of provisions of sec.54(2) cannot come in the way of the assessee in claiming deduction. The Hon’ble Karnataka High Court held as under in the case of K Ramachandra Rao (supra):- “If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore, the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not

The next reason cited by the AO is that the assessee has not completed the construction within 3 years of date of transfer of original asset. In this regard, the Ld A.R placed his reliance on the decision rendered by Hon’ble jurisdictional Karnataka High Court in the case of CIT vs. Sambandam Udaykumar (20120(345 ITR 389)(Kar), wherein the High Court has observed as under:-

The Ld CIT(A) has expressed the view that the exemption provision should be strictly construed as per the decision rendered by Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s Dilip Kumar and Company (Civil Appeal No.3327 of 2007). The Ld A.R submitted that the Ahmedabad bench of Tribunal has examined an identical question in the case of DCIT vs. Shri Pankaj Chimanlal Patel (HUF) (ITA No.3179/Ahd/2016 dated 12.12.2018) and has held that the decision rendered by Hon’ble Supreme Court in the case of Dilip Kumar and Company (supra) cannot be invoked while examining the issue of deduction u/s 54F of the Act. We notice that the Ahmedabad Bench has observed as under in the above cited case:-

To delineate further, an incidental situation may also crop up whether capital gains deduction with reference to Section 54F of the Act would apply with respect to a solitary transaction and not on whole of several different transactions of capital assets in the form of equity, mutual fund and so on. If the interpretation of ‘any long term asset’ as suggested by Revenue is read to mean deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of broader expression ‘any’ long term asset in distinction to

As a corollary, the decision of the co-ordinate bench in favour of the assessee is, in effect, harmonious interpretation of Section 54F of the Act and not necessarily a liberal interpretation of the deduction provision. We are thus of the view that the decision of the Hon’ble Supreme Court in Dilipkumar & Co. (supra) does not hinder the claim of assessee.” Hence the observation made by Ld CIT(A) in this regard would also fail.

Hence, what is required to be seen is whether the assessee has invested the sale consideration proportionate to the deduction claimed u/s 54F of the Act in construction or purchase of new residential house within the period prescribed in the section. Accordingly, we set aside the order passed by Ld CIT(A) and restore the issue to the file of the AO for verifying the quantum of amount spent by the assessee before three years from the date of transfer of

In the result, the appeal of the assessee is treated as allowed.

Appellant (s) / Cross Objector(s) 2. Respondent(s) 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

Date of Dictation ……………………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr.P.S .……………………………. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ………………….. Dictation note enclosed 9. Date on which order goes for Xerox & endorsement…………………………………… 10. Date on which the file goes to the Head Clerk ……………………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. …………………………………………….. 14. Dictation note enclosed …………………………………………