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Facts
The assessee sold a long-term asset (house property) for Rs. 2.70 Crores, resulting in a Long Term Capital Gain (LTCG) of Rs. 2.63 Crores. To claim exemption under Section 54(2) of the Income Tax Act, the assessee deposited Rs. 2.70 Crores in the Capital Gain Deposit Scheme Account within the stipulated time. The Assessing Officer (AO) and CIT(A) disallowed Rs. 2.15 Crores, contending that the deposited funds were sourced from borrowed money, not directly from the sale proceeds.
Held
The Tribunal held that Section 54(2) mandates the deposit of an amount equivalent to the capital gain, not necessarily the identical money received from the sale. It emphasized that the source of funds (whether own or borrowed) is irrelevant, as money does not have a 'form,' and the crucial factor is the act of depositing the required amount within the prescribed time. The Tribunal also noted that previous rulings relied upon by the CIT(A) were no longer valid, citing High Court judgments supporting the assessee's view.
Key Issues
Whether exemption under Section 54(2) of the Income Tax Act for capital gains can be claimed if the funds deposited in the Capital Gain Deposit Scheme are borrowed, or if they must be exclusively from the direct sale consideration of the capital asset.
Sections Cited
Section 54, Section 54(2), Section 143(3), Section 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI M. BALAGANESH
ORDER PER AMIT SHUKLA, JM,
The aforesaid appeal filed by the assessee is against order dated 13.12.2022, passed by National Faceless Appeal Centre (NFAC), Delhi, for quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) for Assessment Year 2017-18.
The assessee has raised following grounds of appeal.
The learned CIT(A) erred in law and on facts in confirming the rejection of the exemption of Rs 2,15,00,000/- claimed u/s 54(2) of the Act by alleging that borrowed funds were used by the assessee to deposit the same in the Capital Gain Deposit Scheme bank account ignoring that:
Act only prescribes the deadline and the amount to be deposited in the Capital Gain Deposit Scheme bank account for claim of exemption u/s 54 of the Act; b) that the assessee had deposited the requisite amount in the capital gain scheme within the prescribed time; c) that the Act nowhere prescribes that the identical money received as consideration or capital gain should be invested in the Capital Gain scheme. d) that no reliance could be placed by the CIT(A) on the decisions of the Hon'ble ITAT which have been overruled subsequently by the Hon'ble High Courts and ITAT besides whose facts were not at all applicable to the appellant as are clearly mentioned in the appellate order. Thus, the assessee has complied with all the conditions laid down for claiming the exemption, and therefore, the addition so made by rejecting the exemption claimed u/s 54(2) of the Act must be deleted.
2. The learned CIT(A) erred in law and on facts as the impugned addition was made by applying a cut and paste method there as the male assessee has been referred to as a female assessee in para 7.6, proving non-application of mind and the same must be quashed.”
Brief facts qua the issue raised are that the assessee has claimed deduction u/s 54F of the Act amounting to Rs.2,62,53,074/- on account of deposit of net sale consideration in the capital gain account on 28.07.2017, whereas, the assessee was eligible for deduction u/s 54 as the asset sold was an asset the income from which was assessable under the head “Income from House Property”. The assessee had sold the long term asset for a consideration of Rs.2.70 Crores. The AO on perusal of the bank statement of account no.054010100005494 of the assessee held in Axis Bank for the period 01.04.2017 to 28.07.2017, noted that it revealed that the funds transferred to the Capital Gain Scheme Account No.60817 held in IDBI Bank were not entirely out of sale
Sanjay Aggarwal & Rajendra Aggarwal HUF amounting to Rs.1,65,00,000/- and from his own company M/s Active Print Pack Pvt. Ltd. amounting to Rs.50,00,000. The following were the relevant bank entries.
Date of Particulars Dr Cr transaction 28.07.2017 Trf Sanjay Aggarwal 50,00,000 Do Do 50,00,000 28.07.2017 Do 50,00,000 28.07.2017 Trf/Sanjay Aggarwal (HUF) 15,00,000 28.07.2017 M/s Active Print Pack 50,00,000 28.07.2017 IDBI Bank Capital Gain 2,60,00,000 Scheme 28.07.2017 IDBI Bank Capital Gain 10,00,000 Scheme
In response to show-cause notice, the assessee submitted that nowhere in the section 54(2), it has been mentioned that assessee should deposit the same money which was received as sale consideration. The only condition is that the amount should be deposited in the prescribe scheme prior to the due date of filing the return of income. Thus, the assessee can freely use the sale consideration as per his wish till the due date of filing the return of income. The assessee has also stated that he may deposit his own money or borrowed money from other in the capital gain scheme.
However, learned AO rejected the assessee’s contention and held that the said section nowhere talks about the borrowed money and does not states it should equivalent amount of capital gain should be deposited. He observed that sale proceeds of the capital asset received by the assessee were utilized for different purpose, viz., converting into FDR and the assessee has used borrowed funds to claim deduction u/s 54 by way of depositing the same in the Capital Gain Account Scheme. Accordingly, he made disallowance of Rs.2.15 Crores u/s 54 of the Act.
Ld. CIT(A) confirmed the said disallowance after relying on certain decisions of the Tribunal, especially in the case of Milan Sharad Ruparel vs ACIT reported in (2009) 27 SOT 61 (Mum.).
After hearing both the parties and on perusal of the material available on record as well as finding given in the impugned order, we find that the only grievance of the assessee is that the authorities below have rejected the claim of the assessee of Rs.2.15 Crores deposited in the LTCG Scheme in a bank account u/s 54(2) of the Act, though admittedly was deposited within the prescribed time.
However the allegation is that the same was not sourced from the actual sale consideration received but was sourced from some amounts borrowed from his HUF, younger brother and a group company. The assessee had earned a LTCG of Rs 2.63 crores and had deposited Rs 2.70 crores in total with the IDBI Bank on 28/07/2017, that is, before the due date by 31/07/2017. The above facts are undisputed. We find that the claim has been rejected by the Ld. CIT(A) by relying on the following decisions: i. Milan Sharad Ruparel vs ACIT (2009) 27 SOT 61 (Mum) ii. T Ramesh vs ITO (TS-789-ITAT-2017) Chennai iii. Kaushal Kishore Maheshwari (2017) 85 taxmann.com 2005 (Delhi-Trib)
Before us, the learned counsel for the assessee, Mr. Vinod Bindal submitted that the contention of the authorities below is not tenable, because the section only mandates that an amount equivalent to the capital gain is to be deposited within time prescribed u/s 54(2) of the Act and there is no mandate that the same very amount should be deposited, because there cannot be such legal mandate as there can never be any direct link as such.
Secondly, the section itself permits that a property can be acquired well within 12 months before the date of sale and which investment will also be available for exemption us 54 of the Act. Thus, if the presumption of the Revenue is believed then this earlier investment becomes farce, nullifying the intention of the Legislature. There cannot be any one to one nexus of the amounts invested as it is not cash in physical form but banking transactions where total funds available needs to be appreciated. He relied upon the following pronouncements in support of his submissions: i. Yatin Prakash Teleng vs ITO (2018) 96 taxmann.com 201 (Mum-Trib) ii. Hansa Shah vs ITO (2018) 173 ITD 260 (Mum-Trib) iii. Pushpa Tebriwal vs ITO (2013) 33 taxmann.com 305 (Hyd-Trib) iv. Kavyanbhai Surendrabhai Huttheesing vs ITO ITA 289/Ahd/2016 v. Amit Parekh vs ITO ITA 41/Kol/2016 vi. Kapil Singh Aggarwal vs ACIT (2014) 63 SOT 22 (Delhi).
On the other hand, the learned DR strongly relied upon the order of the learned CIT (A) and submitted that when the law provides that long term capital gain is to be deposited then source should be the same, that is, out of the same proceeds. He submitted that the assessee cannot circumvent provisions of section and the condition provided therein.
First of all, from the plain reading of section, it is seen that it mandates that an amount of the capital gain shall be deposited before furnishing of return of income u/s 139(1) i.e., as per time prescribed u/s 54(2) of the Act. Nothing can be inferred that exactly the said very amount of capital gain is to be deposited, albeit, what is mandated that the “amount” of capital gain has to be deposited, which can be equivalent of the same amount. We agree with the contention of the learned counsel of the assessee that when the section itself mentions that a property can be acquired well within twelve months before the date of sale and which investment will also be available for exemption under section 54F of the Act and that can be from own funds or any source. If such presumption is believed then how the assessee can invest from the same amount? What is required to be seen that the amount of capital gain should be invested in Long Term Capital Gain Scheme in the bank and not see the form of money which is to be deposited. Money doesn’t have a form and what is important is the act of deposit of amount of long term capital gain. Here in this it is not the case that amount of LTCG has not been deposited Long Term Capital Gain Scheme in the bank in time, but it should have been the same money.
The learned CIT (A) has relied upon certain decisions of the Tribunal cited (supra), however, both the authorities below have failed to even note that these rulings have been overruled or different view has been taken by the Tribunal in the cases cited by the learned counsel for the assessee and this proposition have been confirmed by the Hon’ble High Courts in the following cases:-
I. CIT vs Kapil Kumar Agarwal (2016) 382 ITR 56 (P&H) II. CIT vs Rajesh Kumar Jalan (2006) 286 ITR 274 (Gauhati) III. ITO vs K C Gopalan (2000) 107 Taxman 591 (Kerela).