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

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH-SMC “ A ”

BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER

I.T.A. No.74/Bang/2017 (Assessment Year : 2005-06) Shri Mallappa Sharanappa Vs. Income Tax Officer, Udnoor, Ward (2), Kalaburagi. Kusnoor Village, Tq.;& Dist. Kalaburagi. PAN AAKHM 7653 K Appellant Respondent.

Appellant By : Shri Shreehari Kutsa, C.A. Respondent By : Shri AR.V.Sreenivasan, JCIT (D.R)

Date of Hearing : 22.03.2017. Date of Pronouncement : 05.05.2017.

O R D E R Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order

dt.31.10.2016 of Commissioner of Income Tax (Appeals) for the Assessment

Year 2005-06.

2 ITA No.74/Bang/2017

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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.

The assessee sold agriculture land for a consideration of Rs.73,91,250 having

1/3 rd share amounting to Rs.25.53.750. The assessee did not file return of

income within the due date as per Section 139. The Assessing Officer passed

assessment order under Section 144 of the Act. The matter was carried to this

Tribunal and vide order dt.23.12.2008 in ITA No.1021/Bang/2008, the Tribunal

remanded the matter to the Assessing Officer with the direction to take all

4 ITA No.74/Bang/2017 factual and legal issue in the case. The Assessing Officer accordingly passed the

fresh assessment order dt.31.12.2009 and assessed the Long Term Capital Gain

at Rs.18,86,920. The assessee claimed exemption under Section 54B / 54F of

the Act which was denied by the Assessing Officer that the assessee did not

deposit the capital gain in the capital gain account before the due date of filing

of return i.e. 31.7.2005. The assessee challenged the action of the Assessing

Officer before the CIT (Appeals) but could not succeed.

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

5 ITA No.74/Bang/2017 the case of CIT Vs. C. Gopalaswamy in ITA No. 303/2016 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.

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.

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

6 ITA No.74/Bang/2017 condition as held by the Hon'ble jurisdictional High Court in the case of CIT Vs.

Samandam Udaykumar (supra) held in paras 10 & 11 as under :

“ 10. A reading of the aforesaid provision makes it very clear that if a capital gain arises from the transfer of any long term capital asset, not being a residential house and the assessee has within the period of one year before or two years after the date on which transfer took place purchased or has within a period of three years after that date constructed a residential house, if the cost of the new asset is not less than the net consideration in respect of the original asset the whole such capital gain shall not be charged under section 45 of the Act. However, 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 be 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 of the Act. 11. 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

7 ITA No.74/Bang/2017 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.

Gopalaswamy (supra). Accordingly, in view of the binding precedent of Hon'ble

jurisdictional High Court the claim of benefit under Section 54B & 54F is

allowed.

Assistant Registrar Income Tax Appellate Tribunal Bangalore.