Income Tax Appellate Tribunal

Goulikar Jawaharlal, Nalgonda District. vs. Income-Tax Officer

MANU/IH/0063/2020

24.07.2020

Direct Taxation

Benefit of deduction under Section 54F of the IT Act is available, if entire investment had come out of proceeds of old property

The brief facts of the case are that, the Assessee is an individual engaged in the business of selling mutton and sheep, filed his return of income for the relevant Assessment Year (AY) declaring his total taxable income. Initially the return was processed under Section 143(1) of the Income Tax Act, 1961 (IT Act) subsequently, the case was taken up for scrutiny and thereafter the assessment was completed under Section 143(3) of the IT Act wherein the Assessing Officer (AO) disallowed the claim of deduction under Section 54 of the IT Act.

During the course of scrutiny assessment proceedings, it was observed that the Assessee had admitted sale of his 1/3rd share in the immovable property at Rs. 12,42,895 and after claiming indexed cost of acquisition, the Assessee had computed the LTCG at Rs.7,90,534. Further, the Assessee claimed deduction for the amount of Rs. 7,90,534 under Section 54F of the Act.

However, the AO observed that, the Assessee had claimed deduction under Section 54F of the Act with respect to the new semi-finished residential house purchased vide sale deed executed on 19th December, 2012 in the name of the Assessee’s son for Rs. 26 lakhs. It was further observed that, the Assessee’s son had purchased the new residential house from the loan obtained by him from HDFC Bank. The AO opined that since the sale proceeds were not deposited in the capital gain scheme account and also the new asset purchased was not sourced from the sale consideration received by the Assessee, the Assessee is not eligible for deduction under Section 54F of the Act. Learned CIT (A) confirmed the order of the AO.

It is submitted that, the entire sale proceeds were utilised for the purchase of the residential house property in the name of his son. Further, reliance was placed on the decision of the Hon’ble Delhi High Court in the case of CIT-Tax-XII vs. Kamal Wahal wherein it is held that, the benefit of deduction under Section 54F of the IT Act shall be available to the assessee even if the new residential house is purchased in the name of his spouse. The Ld. AR further submitted that, the loan was obtained from the HDFC bank subsequent to the payment made for purchase of the property and therefore the source for the purchase of the new residential property was from the sale proceeds of the asset sold by the Assessee. It was further submitted that, the new asset was purchased by the Assessee within the due date of filing of the return and therefore there was no statutory obligation to deposit the sale proceeds in the capital gain scheme account.

From the facts of the case, it is apparent that, the sale proceeds received by the Assessee was utilised for purchase of the new residential property in the name of his son. The new asset is also purchased within the due date of filing of the return by the Assessee. Therefore, the Assessee was not bound to deposit the sale proceeds in the capital gain scheme account. Further, the bank loan obtained by the Assessee’s son from the HDFC Bank does not appear to be the source for the purchase of the new residential house by the Assessee’s son. Violations made by the Assessee’s son with respect to the terms of loan agreement entered with HDFC Bank towards the purchase of the residential house is of no relevance

Moreover, the case Delhi High Court in the case of CIT-Tax-XII vs. Kamal Wahal has held that, “wherein the Assessee purchases new house in the name of his wife and not in the name of any stranger who was unconnected with him, exemption cannot be denied, if entire investment had come out of proceeds of old property”. It is clear that the Assessee has not violated any of the provisions mentioned in Section 54F of the Act in order to be denied for the benefit of deduction. Therefore, the order of the CIT (A) on the issue is set aside and the AO is directed to grant the benefit of deduction under Section 54F of the IT Act to the Assessee. As regards the charging of interest under Section 234A, B & C of the IT Act, the order of CIT (A) is confirmed because the levy of interest is consequential in nature and mandatory. Appeal of the Assessee is partly allowed.

Tags : Benefit Deduction Grant

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