SHRI. MALLAPPA SHARANAPPA UDNOOR,GULBARGA vs. INCOME TAX OFFICER, GULBARGA

The assessee has raised the following grounds :

The only issue arises in this appeal of the assessee is regarding denial of benefit of Sections 54B & 54F of the Income Tax Act, 1961 (in short 'the Act') in respect of the investment made by the assessee without making the deposits in the capital gain account within the period as prescribed under the section.

Before the Tribunal, the learned Authorised Representative of the assessee has submitted that the assessee filed the details of investment made in agriculture land and investment made in the construction of residential house. He has further contended that since the assessee has invested in the agriculture land on 12.7.2006 and also construction of residential house before 31.3.2007 therefore when the investment was within the time period as allowed under Section 54B & 54F of the Act then the claim of deduction cannot be disallowed only on the ground that the assessee did not deposit the capital gain in the capital gain account. The learned Authorised Representative has relied upon the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Samandam Udaykumar 345 ITR 389 as well as the decision dt. 15.2.2016 in CIT Vs. C. Gopalaswamy in and submitted that the Hon'ble High Court has held that if the investment is made within the due date then the benefit of Section 54 / 54F cannot be denied.

On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below as well as the decision of Hon'ble Bombay High Court in the case of Humayun Suleman Merchant Vs. CCIT 387 ITR 421.

Having considered the rival submissions as well as the material on record, it is noted that the assessee has not deposited the capital gain arising from transfer of land in the capital gain account however, it is undisputed that the assessee made investment of Rs.59,555 in agriculture land and of Rs.12,20,000 in construction of house within the time period as prescribed under Section 54B and 54F of the Act. Both these investments were made prior to the time period prescribed under Section 139(4) i.e. 31.3.2007. Therefore when the primary and substantial condition as prescribed under Section 54B and 54F are satisfied by investing the capital gain within the time period then deposit of the amount in the capital gain account is not a pre-requisite

Section 45 of the Act makes it very clear that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save or otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H is chargeable to income tax under the head 'capital gains' and shall be deemed to be income of the previous year in which the transfer took place. The aforesaid sections which form part of section 54 of the Act are cases where capital gain on transfer of capital asset not to be charged in those cases. Section 54F of the Act is a beneficial provision of promoting the construction of residential house. Therefore, the said provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said prevision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit.” The said view of Hon'ble jurisdictional High Court has been further reiterated in the subsequent decision dt.15.2.2016 in the case of CIT Vs. Sri C.