SREEDHARAN VIJAYAKUMAR ,CHENNAI vs. ITO INTERNATIIONAL TAXATION 2(2) , CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

The appeal by the assessee is directed against the order

passed by the learned Commissioner of Income Tax (Appeals)-16,

Chennai dated 05.06.2017 in ITA No.70/CIT(A)-16/2014-15 for the

assessment year 2014-15 passed U/s.250(6) r.w.s. 143(3) of the Act.

however the crux of the issue is that the Ld.CIT(A) has erred in

2 ITA No.1799/Mds/2017 confirming the order of the Ld.AO, who have assessed Long Term Capital Gain of Rs.1,57,31,604/- in the hands of the assessee, as the assessee had invested only Rs.2,37,51,990/- out of the net

consideration of Rs.3,96,72,000/- received towards sale of land, before the due date of filing the return of income U/s.139(1) of the Act.

selected for scrutiny under CASS and finally assessment order was passed U/s.143(3) of the Act on 26.12.2016, wherein the Ld.AO assessed the Long Term Capital Gains Rs.1,57,31,604/- in the hands

of the assessee.

the Ld.AO that the assessee along with co-owner had sold their vacant land at Thiruvanmiyur on 06.06.2013 for sale consideration of Rs.5 crores, wherein the assessee’s share was Rs.3,96,72,000/-. In

the return of income, the assessee had claimed indexed cost of acquisition, indexed cost of improvements and deduction U/s.54 of the Act and thereby computed his capital gain to be ‘nil’ as follows:

3 ITA No.1799/Mds/2017 Rs. Rs. Sale consideration 3,96,72,000 Less: Indexed cost of acquisition 4,69,500 Indexed cost of improvements 29,13,018 33,82,518 3,62,89,482 Less: Exemption u/s 54 investment in Plot No.6B Olive Sands Uthandi village Cost of property 1,63,50,000 Development Charges 75,00,000 2,38,50,000 To be invested in Property 1,30,00,000 3,68,50,000 Nil

4.1 On perusal of the details filed by the assessee it was

observed that the assessee had invested only Rs.2,37,51,990/-

towards purchase and development charges of land at Uthandi

Village dated 03.07.2013 as against the sale consideration of

Rs.3,96,72,000/- received by him towards sale of land. It was further

observed that the assessee had not deposited the balance sale

proceeds in the capital gain scheme account in nationalized bank as

per the provisions of the Act. It was further observed that the

assessee was entitled to claim deduction U/s.54F of the Act and not

U/s.54 of the Act, because the asset sold by the assessee was

vacant land and not residential property. On query it was explained

by the assessee that though the capital gain arising on sale of land

was Rs.3,62,89,482/-, the actual amount of investment on the new

4 ITA No.1799/Mds/2017 residential property was Rs.4,76,44,546/- with in the time limit prescribed U/s.54F of the Act, and merely a portion of the balance sale proceeds was not deposited in the capital gain scheme account

within the due date of filing of return U/s.139(1) of the Act which is only a small technical breach. However the Ld.AO rejected the contention of the assessee and computed the capital gain in the

hands of the assessee as Rs.1,57,31,604/- by observing as under:- “4.6 The assessee out of the net sale consideration of Rs.3,96,72,000/- has utilized only Rs.2,37,51,990/- before filing of return of income. The assessee has not invested the balance utilized amount in Capital Gains Account Scheme as stipulated u/s 54F (4) of the IT 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 un-utilized amounts are deposited in specified bank account as notified in terms of Section 54F( 4) of the Act. The exemption to the unutilized amount is available only if the mandate of sub section (4) of section 54F of the Act is complied with. In this regard reliance is also placed on the decision of High Court of Bombay in the case of Humayun Suleman Merchant vs Chief Commissioner of Income-tax, Mumbai wherein it was held that

Amounts subject to capital gain on sale of the capital asset for purpose of exemption, has to be utilized before the date of filing of return of income. Thus, where assessee had filed return of income and the entire amount which was subject to capital gain tax had not been utilized for the purpose of construction of new house nor were the unutilized amounts deposited in the notified Bank Accounts in terms of section 54F (4) before filing the return of income, Assessing Officer had rightly computed the

5 ITA No.1799/Mds/2017 deduction under section 54F, restricting the exemption under section 54F proportionately to the amount invested.

4.7 In view of the foregoing discussions the investment made by the assessee before filing of return u/s 139( 1) is considered for exemption u/s 54F. As the assessee has invested only Rs.2,37,51,990/- before the due date of filing of return the exemption u/s 54F is proportionately allowed on the same.

Rs. Rs. Sale consideration 3,96,72,000 Less: Indexed cost of acquisition =50,000*939/100 4,69,500 3,92,02,500 Less: Exemption u/s 54 F Assessment order3,92,02,500 X 2,37,51,990 2,34,70,896 3,96,72,000 Long term capital gains 1,57,31,604 ”

by agreeing with his view.

not deposited the balance amount of sale consideration which was

not utilized for the acquisition of the new asset in the capital gain

scheme account within the due date of filing the return U/s.139(1) of

6 ITA No.1799/Mds/2017 the Act, the same remain deposited with the nationalized bank and subsequently the amount was spent towards the new asset. He thereafter relied in the decision of the Chennai Bench of the Tribunal

in the case Mr.P. Sankaran vs. ITO in ITA No.1167/Mds/2016, order dated 05.09.2016 wherein on the identical situation the Tribunal had allowed the appeal of the assessee by holding that the assessee will

be entitled for the benefit of Section 54 of the Act, if the amount remained deposited with the nationalized bank though not transferred to the capital gain scheme account. It was therefore pleaded that the assessee may be granted the benefit of Section 54F of the Act,

because the assessee had invested more than the capital gain accrued on the sale of land and also placed the sale proceeds with the Nationalized Bank until it was invested in the new residential

property within the time limit prescribed under the Act.. The Ld.DR on the other hand argued in support of the orders of the Ld.Revenue Authorities.

that the assessee had not invested much more than the capital gain accrued to him within in the time limit prescribed U/s.54F of the Act. The only grouse of the Revenue is that the assessee had invested

7 ITA No.1799/Mds/2017 only Rs.2,37,51,990/- in the capital gain scheme account within the due date of filing the return U/s.139(1) as provided U/s.54F(4) of the Act, against the capital gain on sale of land of Rs.3,62,89,482/-,

though the balance sale proceeds was subsequently invested in the new asset. At the outset, we find this identical issue already decided by the Chennai Bench of the Tribunal in the case cited by the Ld.AR

supra. The gist of the decision is reproduced herein below for reference: “8. We have heard the rival submissions and carefully perused the materials available on record. In the decision of Shri Madhuvan Prasad Vs. ITO, supra the Chennai Bench of the Tribunal has allowed the benefit of section 54 of the Act because the assessee had fulfilled all the conditions prescribed under section 54 of the Act barring the deposit of the sale proceeds in the “capital gain scheme account” as prescribed under section 54(2) of the Act. In that decision reliance was also placed in the decision of Hon’ble Apex Court in the case of Motilal Padampat Sugarmill Co.Ltd. Vs. State of Uttar Pradesh & Ors wherein it was held that ‘thus 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. In the given case before us also, it is not disputed that the assessee had not fulfilled the conditions prescribed under section 54 of the Act barring the deposit of the sale proceeds in the “capital gain scheme account”. Moreover, the facts reveal that the assessee had deposited the entire sale proceeds in his savings bank account maintained with nationalized bank out of which he has constructed his house. The only small lacuna assessee had made is that the assessee though had placed the entire sale proceeds in the nationalized bank he has not transferred the same in the “Capital gain scheme account”. Considering these facts of the case and the

8 ITA No.1799/Mds/2017 decisions of the Tribunal and the Hon’ble Apex Court cited above, we are of the considered view that for this small technical lapse of the assessee, the benefit of section 54 should not be denied. Section 54 of the Act is a beneficial provision and a beneficial interpretation has to be made as far as possible for giving benefit to the assessee. The assessee had proceeded to comply with the provisions of section 54 of the Act but has only made a small technical breach which we are of the considered view should not disentitle the assessee for the benefit of section 54 of the Act. Therefore, we hereby direct the learned Assessing Officer to grant the benefit of section 54 of the Act to the assessee and accordingly delete the addition made by him which was further sustained by the learned Commissioner of Income Tax (Appeals).”

7.1 Further this issue is also decided by the Hon’ble Karnataka High Court in the case of CIT vs. K. Ramachandra Rao reported in (2015) 277 CTR 522. The gist of the decision is extracted herein

below for reference:- "as is clear from sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F (1), if the assessee wants the benefit of section 54 F, then he should deposit the said capital gain in an account which is duly notified by the Central Government. In other words, if he wants the claim of exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. 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 54 F (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 entitled to the benefit even

9 ITA No.1799/Mds/2017 though he has invested the money in construction, is also not correct.”

7.2 Since, the case of the assessee also appears to be similar that of the case discussed herein above, we remit back the matter to the file of Ld.AO in order to verify whether the balance sale proceeds of the property sold by the assessee remained with the nationalized bank until the same was utilized for the purchase of the new asset within the time limit stipulated U/s.54F of the Act and if found so, we hereby direct the Ld.AO to grant relief to the assessee in accordance with the ratio laid down by the Hon’ble Karnataka High Court mentioned supra as well as the decision of the Tribunal supra and if found otherwise pass appropriate order in accordance with law and merit.

Order pronounced on the 7th February, 2018 at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (ए. मोहन अलंकामणी) ( Duvvuru RL Reddy ) (A. Mohan Alankamony) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member चे�नई/Chennai, �दनांक/Dated 7th February, 2018

10 ITA No.1799/Mds/2017 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF