Section 54F provides exemption on transfer of a long-term capital asset (other than a residential house) when the amount is invested in purchasing or constructing a new residential house property.
Text of Section 54F
Capital gain on transfer of certain
capital assets not to be charged in case of investment in residential house
[1][54F. (1) [2][Subject
to the provisions of sub-section (4), where, in the case of an assessee being
an individual or a Hindu undivided family], the capital gain arises from the
transfer of any long-term capital asset, not being a residential house
(hereafter in this section referred to as the original asset), and the assessee
has, within a period of one year before or [3][two
years] after the date on which the transfer took place purchased, or has within
a period of three years after that date [4][constructed
one residential house in India] (hereafter in this section referred to as the
new asset), the capital gain shall be dealt with in accordance with the following
provisions of this section, that is to say,—
(a) if the cost of the new asset is
not less than the net consideration in respect of the original asset, the whole
of such capital gain shall not be charged under section 45;
(b) 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 the 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:
[5][PROVIDED
that nothing contained in this sub-section shall apply where-
(a) the assessee,—
(ii) purchases any residential
house, other than the new asset, within a period of one year after the date of
transfer of the original asset; or
(iii) constructs any residential
house, other than the new asset, within a period of three years after the date
of transfer of the original asset; and
(b) the income from such
residential house, other than the one residential house owned on the date of
transfer of the original asset, is chargeable under the head “Income from house
property”.]
Explanation : For the purposes of
this section,—
“net consideration”, in relation to
the transfer of a capital asset, means the full value of the consideration
received or accruing as a result of the transfer of the capital asset as
reduced by any expenditure incurred wholly and exclusively in connection with
such transfer.
(2) Where the assessee purchases,
within the period of '[6][two years] after the date of the transfer of the original
asset, or constructs, within the period of three years after such date, any
residential house, the income from which is chargeable under the head “Income
from house property”, other than the new asset, the amount of capital gain
arising from the transfer of the original asset not charged under section 45 on
the basis of the cost of such new asset as provided in clause (a), or, as the
case may be, clause (b), of sub-section ( I ), shall be deemed to be income
chargeable under the head “Capital gains” relating to long-term capital assets
of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is
transferred within a period of three years from the date of its purchase or, as
the case may be, its construction, the amount of capital gain arising from the
transfer of the original asset not charged under section 45 on the basis of the
cost of such new asset as provided in clause (a) or, as the case may be, clause
(b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital
gains” relating to long-term capital assets of the previous year in which such
new asset is transferred.
[7][(4)The
amount of the net consideration which is not appropriated by the assessee
towards the purchase of the new asset made within one year before the date on
which the transfer of the original asset took place, or which is not utilised
by him for the purchase or construction of the new asset before the date of
furnishing the return of income under section 139, shall be deposited by him before
furnishing such return [such deposit being made in any case not later than the due
date applicable in the case of the assessee for furnishing the return of income
under sub-section (1) of section 1391 in an account in any such bank or
institution as may be specified in, and utilised in accordance with, any scheme
which the Central Government may, by notification in the Official Gazette, frame
in this behalf and such return shall be accompanied by proof of such deposit ; and,
for the purposes of sub-section (1) , the amount, if any, already utilised by the
assessee for the purchase or construction of the new asset together with the amount
so deposited shall be deemed to be the cost of the new asset :
PROVIDED that if the amount
deposited under this sub-section is not utilised wholly or partly for the
purchase or construction of the new asset within the period specified in
sub-section (1) , then,—
(i) the amount by which-
(a) the amount of capital gain
arising from the transfer of the original asset not charged under section 45 on
the basis of the cost of the new asset as provided in clause (a) or, as the
case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have
been so charged had the amount actually utilised by the assessee for the
purchase or construction of the new asset within the period specified in
sub-section (1) been the cost of the new asset,
shall be charged under section 45
as income of the previous year in which the period of three years from the date
of the transfer of the original asset expires; and
(ii) the assessee shall be entitled
to withdraw the unutilised amount in accordance with the scheme aforesaid.
Explanation :[Omitted by the Finance
Act, 1992, with effect from 01.04.1993.]
KEY NOTE
1. Inserted by the
Finance Act, 1982, with effect from 01.04.1 983.
2. Substituted for “Where,
in the case of an assessee being an individual” by the Finance Act, 1987, with
effect from 01.04.1 988.
3. Inserted by the
Finance Act, 1987, with effect from 01.04.1 988.
4. Substituted for “constructed,
a residential house” by the Finance Act, 2014, with effect from 01.04.2015.
5. Substituted by
the Finance Act, 2000, with effect from 01.04.2001.
6. Substituted for “one
year” by the Finance Act, 1987, with effect from 01.04.1988.
7. Inserted by the
Finance Act, 1987, with effect from 01.04.1 988.
Who can claim exemption?
Only Individual and Hindu Undivided
Family (HUF) can claim exemption. In other words, no other person is eligible
for claiming exemption under section 54F.
Which original asset is qualified
for exemption?
Under section 54F, exemption is
available only if the capital asset which is transferred is a long-term capital
asset but other than a residential house property.
FOR EXAMPLE:
It may be a plot of land, commercial
house property, gold, share or any asset but not a residential house property.
Which new asset should be acquired
for exemption
For qualifying for exemption under
section 54F, it is necessary that the assessee (taxpayer) will have to purchase
one residential house property (old or new) or construct one residential house
property in the name of the assessee only.
Burden is on the assessee to prove
Heavy burden is on the assessee to
prove that property has not been purchased for the benefit of wife. Assessee
may consider to place following further material:—
(i) In the municipal records, the
property may be got recorded in assessee's name
(ii) a notice may be published in
local newspaper declaring that assessee is owner and wife is not the owner
(iii) receipt book for rent may
declare that assessee was the owner.
This would be the evidence to rebut
the statutory presumption.
Onus to prove construction of a
residential house was on the assessee which was never discharged as he did not
furnish evidence to prove the construction of the house before 14.04.2009.
Hence, he was not entitled to the exemption under section 54F.—[Pawan Kumar
Garg v. CIT (2009) 311 ITR 397 (P&H)]
Deduction is eligible only in
respect of one residential house
As per Section 54 and Section 54F,
the deduction is eligible only in respect of one residential house.
Time limit for purchase or
construction of new house
The new house should be purchased
or constructed within the time-limit given below:—
|
For purchasing a new
house |
It should be purchased
within one year before, or within 2 years after, the date of transfer of the
original asset. |
|
For constructing a new
house |
The construction
should be completed within 3 years from the date of transfer of original
asset. |
Essential conditions
(i) Section
54F is applicable to long-term capital gains only.
(ii) An exemption under section 54F is available
only to an individual or a Hindu Undivided Family (HUF).
(iv) With effect from assessment year 2015-16,
the exemption is available, if the investment is made in purchase or
construction of one residential house located in India. Exemption under Section
54F would not be allowed if investment is made in 2 houses..
(v) Assessee should not owns more than one
residential house, other than the new asset, on the date of transfer of the
original asset
(vi) The assessee should have purchased one
residential house within one year before transfer of capital assets or should
purchase within two years from the date of transfer, or construct within 3
years from the date of the transfer of the capital assets.
(vii) In the case of compulsory acquisition the
time-limit of 1 year, 2 years or 3 years are to be calculated with reference to
the date of receipt of compensation. Whether initial compensation or additional
compensation.
(viii) Construction of the house should be completed
within three years from the date of transfer of the original asset. Date of
commencement of construction is irrelevant. Construction may be commenced even
before the transfer of the original asset. A residential house should be
purchased or acquired. It is not the requirement that the new house should also
be used for residential purposes.
(ix) The amount to be
utilized is net consideration and not capital gain.
v If all the above
conditions are satisfied then the assessee can claim the exemption under section
54F.
Understanding the term ‘Net
Consideration’
The assessee is required to
re-invest the ‘net consideration’, in order to avail exemption under section
54F of the Income Tax Act. The term ‘net consideration’ is defined under the
Explanation to section 54F.
Accordingly, net consideration
means the full value of the consideration received on account of the transfer
of long term capital assets reduced by any expenditure exclusively incurred in
connection with the transfer.
Net consideration = Full value of
consideration (-) Expenditure
Amount of exemption available
If the above conditions are
satisfied, then the exemption is available on the following basis:—
(a) If the cost of new residential
house purchased is equal to or more than net consideration of the capital
assets received,
v whole of capital gains
(b) If the cost of new residential
house purchased is less than net sale consideration received, then the
exemption is given proportionately on the basis of amount utilized to acquire
the new residential house.
Amount of Capital gains x Amount
utilized for purchase or construction of the new asset (cost of new house) ÷ Net sale consideration
received (i.e. full value of consideration - cost of transfer)
In
case the whole sale consideration is not invested and only a part of the sale
consideration is invested, exemption shall be allowed proportionately i.e.
Amount Exempt = Capital
Gain X
Amount Invested
Net Sale
Consideration
NOTE:
v The amount of exemption
under section 54F cannot exceed the amount of capital gain i.e. exemption is
subject to maximum amount of capital gain.
v Net Sale consideration
means the full value of the consideration received or accruing as a result of
the transfer of the capital asset after deduction of any expenditure incurred,
wholly and exclusively, in connection with the transfer.
Consequences of transferring the
residential house purchased before 3 years
If the residential house purchased
is transferred within 3 years from the date of the purchase or construction of
the house—
(a) the capital gains arising on
sale of new house will be treated as short-term capital gain; and
(b) the capital gain which was
exempt under this section will be treated as long-term capital gain of the year
in which the new house is transferred.
Capital Gains Account Scheme, 1988
of deposit in respect of exemption under section 54F
If the amount of capital gain is
not utilized for purchase/construction of the new house till the due date of
submission of return of income, then it should be deposited in “Capital Gains
Account Scheme, 1988”.
On the basis of amount utilized in
acquiring the new property and amount deposited in the Capital Gains Account
Scheme, 1988, the Assessing Officer will give exemption under section 54F.
Deposit in Savings Bank Account -
Not eligible for exemption
Where the assessee had deposited
sale proceeds in normal savings account as against scheme specified by Central
Government through notification in official Gazette as per section 54F(4), it
violated provisions of section 54F(4), hence, not eligible for exemption.—[Thakorlal
Harkishandas Intwala v. IT0 (2011) 140 TTJ 21 : 43 SOT 347 (ITAT Ahmedabad)]
Consequences if the deposit amount
is not fully utilized
If the amount deposited is not
utilized fully for purchase or construction of new house within the stipulated
period, then the following amount shall be treated as long-term capital gain of
the previous year in which the period of three years from the date of transfer
of original asset expires. Unutilized amount in the deposit account in respect
of which exemption was claimed under section 54F but which is not unutilized
within the specified time-limit for purchasing or
constructing a residential house x
Amount of original capital gain ÷ Net sale consideration
v In such a case, the
assessee can withdraw the unutilized amount at any time after the expiry of 3
years from the date of the transfer of the original asset in accordance with
the aforesaid scheme.
PROVISIONS ILLUSTRATED :
Mr. 'X' gives the following
information (He does not own any residential house property)-
|
Asset transfer (Gold) |
27.06. 2019 |
|
Date of transfer |
27.06.2020 |
|
Date of purchase |
25.05.2006 |
|
Sale consideration |
40,00,000 |
|
Cost of acquisition |
4,00,000 |
|
Expenses on transfer |
75,000 |
To get the exemption under section
54F, the following residential house property is purchased by Mr. 'XI:—
|
Date of purchase |
15.06.2019 |
|
Cost of acquisition |
28,00,000 |
Mr. 'X' transferred his house
properties at Jaipur as follows:—
|
Sale consideration |
33,00,000 |
|
Date of transfer |
20.06.2020 |
Find out the capital gain
chargeable to tax in the hands of Mr. 'X' for different assessment years.
SOLUTION :
Assessment Year : 2020-21
|
(i)Sale consideration |
40,00,000 |
|
(ii)Less :Expenses on
transfer |
75,000 |
|
(iii) Net sale
consideration [(i) -(ii)] |
39,25,000 |
|
(iv)Less : Indexed
cost of acquisition 4,00,000 x 289 122 |
9,47,540 |
|
(v) Capital gains
before any exemption [(iii)-(iv)] |
29,77,460 |
|
(vi) Less : Exemption
under section 54 Amount of investment in new residential property i.e.,
28,00,000 + 39,25,000 (net sale consideration) x 29,77,460 (amount of capital
gains) |
21,24,048 |
|
(vii) Long-term
capital gains chargeable to tax for the assessment year 2020-21 [(v)-(vi)] |
8,53,412 |
Assessment year 2021-22
|
(i) |
Sale consideration of
house at Jaipur |
33,00,000 |
|
(ii) |
Less : Cost of
acquisition |
28,00,000 |
|
(iii) |
Short-term capital
gains [(i) -(ii)] |
5,00,000 |
|
(iv) |
Long-term capital
gains as the new house property at Jaipur is transferred within 3 years from
the date of its purchase, the exemption given under section 54F will be taken
back |
8,53,412 |
While Considering exemption under section 54F, residential house purchased in spouse’s name cannot be considered as property owned by assessee, thus, it cannot be construed as owned by assessee for determining eligibility for exemption under section 54F however investment in property registered in spouse's name is eligible for exemption under section 54
Karnataka High Court allows Assessee’s appeal, rules on
allowability of exemption under Sections 54 and 54F claimed by the
Assessee on two separate residential properties from the capital gains arising
from transfer of house property and land, respectively, to the same buyer at
different dates; Holds that investment
in property registered in spouse’s name is eligible
for exemption under section 54 and it
cannot be construed as owned by the Assessee for determining
eligibility for exemption under section 54F; Assessee-Individual
transferred a plot of land in April 2012 and earned capital gains
of Rs.49.08 Lacs
which was used in constructing a property in Tamil
Nadu for exemption was claimed under section 54F; Assessee also claimed Rs.2.23
Cr. as exemption under section 54 arising from house property sold in October
2012 by purchasing a house property in Bangalore which was registered in
his wife’s name in December 2011, apart from claiming exemption
under section 54EC for Rs.25 Lacs; Assessee had also gifted one
pre-existing house property to his wife and child in January 2012; During the
course of assessment proceedings for Assessment year 2013-14, Revenue
disallowed exemptions under section 54 and 54F whereas
CIT(A) allowed the exemption under section 54;
ITAT, by relying on the Karnataka High Court ruling in DIT
v. Mrs.Jennifer Bhide, (2012) 349 ITR 80 (Karn.), allowed exemption under Section 54 but rejected the
exemption under section 54F against which Assessee preferred the instant
appeal; On a comparative analysis of Sections 54 and 54F, High Court observes
that Section 54 deals with exemption from capital gain arising from
residential house property, whereas Section 54F deals with exemption
from capital gain on transfer of other capital
assets if investment is made in the property for
residential use provided that an assessee does not ‘own’ more than one
residential house as per proviso (a)(i) to Section 54F(1) on the date
of transfer whereas no such condition exists under section 54; High Court
further observes that the object of Section 54 is to provide impetus
to construction activity and the word ‘assessee’ has
been given a wide and liberal interpretation to include legal
heirs; Holds that in so far as the proviso (a)(i) to Section 54F(1)
is concerned, the phrase “owns” plays a significant role and that what is
relevant is that an assessee should not own more than one residential
house, other than the new asset, on the date of transfer of original asset,
whereas “owns” is conspicuously absent in Section 54; High
Court notes that the newly acquired property for which the
Assessee was allowed exemption under section 54 was registered in the
name of his spouse, therefore, while considering the
exemption under section 54F, the residential house purchased in the
spouse’s name cannot be construed as the property owned by the
Assessee; Refers to Section 14 of the Hindu Succession Act and
observes “that the property standing in the name of a female heir
becomes her absolute property. The income derived by that property could
be the income in the hands of the assessee’s wife under the Act”; High
Court notes that the ITAT relied on the Karnataka High
Court ruling in CIT v. M J Siwani (2014) 56 taxmann.com 170 (Karn.)
to deny exemption under Section 54F wherein it
was held that “co-owner is the owner of a house in which he has share and
that his right, title and interest is exclusive to that extent of his share and
that he is the owner of the entire undivided house till it is
partitioned.” and holds that this ruling is of no assistance to
the Revenue to deny the benefit of exemption to Assessee since there was no
element of co-ownership or share in the property acquired w.r.t. exemption
under section 54; High Court thus holds that it cannot subscribe to the
findings of the ITAT confirming the disallowance of exemption under Section
54F, thus, answers the substantial question of law in favour of the Assessee.
(Related Assessment year : 2013-14) –
[Antony Parakal Kurian v. ACIT (2022) 442 ITR 38 : 138 taxmann.com 440
(Karn.)]
Gain arising on sale of office-cum-residential structure eligible for exemption under section 54F relief and not under section 54
Assessee sold a property comprised of an industrial
plot of land with an office-cum-residential structure built upon it. It claimed
exemption under section 54 on LTCG arose on sale. Assessing Officer denied same
on ground that property in question sold by assessee was an industrial property.
He further held that assessee was rather eligible for exemption under section 54F
and, accordingly, he recomputed LTCG at certain amount. It was noted that on
perusal of valuation report as well as sale deed it was found that said plot of
land was an industrial plot in an industrial area. Further, built up area on
said land could possibly be used for residential purposes, however, it did not
have all necessary attributes of a residential house in terms of bedrooms and
kitchen facility - Whether an industrial plot of land with an office built up
area on ground floor and so-called residential built-up area on first floor
could not be said to be a residential house and, therefore, assessee was not
eligible for exemption under section 54 but rather under section 54F on sale
proceeds of such property. [In favour of revenue] (Related Assessment year : 2015-16)
– [Chain Singh Mundra v. ITO (2022) 194 ITD 718 : 138
taxmann.com 105 (ITAT Chandigarh)]
Assessee sold a land and invested LTCG on purchase of a new residential property, additional expenditures incurred by assessee on interiors, renovation and furnishing of said new residential property after date of registration so as to make said house habitable were to be allowed under section 54F
Assessee had sold a land owned by
her and invested long term capital gain (LTCG) on purchase of a new residential
house property. She incurred certain amount of additional expenditure on
interiors, renovation and furnishing, etc. of said new property and claimed same
as exemption under section 54F. Assessing Officer rejected said claim and held
that additional expenditure incurred by assessee being incurred after date of
registration could not be allowed as exemption under section 54F. The Ld CIT(A)
has taken the view that the amount spent after the date of registration of
land, i.e., 24.02.2007 for interiors, renovation, furnishing etc cannot be part
of acquisition. The Hon’ble Karnataka High Court has held in the case of Mrs.
Rahana Siraj v. CIT (2015) 232 Taxman 327 : 58 taxmann.com 333 (Karn.) that
the money spent in additions, alterations, modifications and improvements on
the new asset to make it habitable would be eligible for benefit of deduction under section 54F of the Act.
Accordingly, we set aside the view so taken by Ld CIT(A) as it is contradictory
to the binding decision of jurisdictional High Court. Accordingly, we hold that
the assessee is eligible for deduction under section 54F of the Act in the
amount spent on interiors, renovation, furnishing etc. [In favour of assessee] (Related Assessment year : 2008-09) – [Y. Manjula Reddy v. ITO
(2022) 140 taxmann.com 441 (ITAT Bangalore)]
No denial of section 54F relief if wife reimbursed to husband after he relinquished right in new jointly owned property
Deduction under section 54F can only be given to
person who invest money in property. Assessee had sold a land owned by her and
invested long term capital gain (LTCG) on purchase of a new residential house
property. Initial agreement for purchase of said new residential property was
entered into by both assessee and her husband as he also made half of payment
for purchase of same. Subsequently, sale deed was registered in name of
assessee as assessee had reimbursed all payments made by her husband to him.
Accordingly, she claimed exemption under section 54F. Assessing Officer noted
that assessee’s husband had relinquished his rights in favour of assessee after
three years from date of sale of original property, thus, he restricted
exemption under section 54F only to extent of 50 per cent of cost paid
initially by assessee.
The Hon’ble Karnataka High Court has held in the case of DIT, International Taxation v. Mrs. Jennifer Bhide (2011) 349 ITR 80 : 203 Taxman 208 : 15 taxmann.com 82 (Karn.) that the deduction under section 54 of the Act should not be denied merely because the name of assessee's husband is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee. In the instant case also, the plot was purchased in the name of the assessee and her husband. Hence, what is required to be examined is the question, viz., who has funded the acquisition?. Admittedly, in the instant case, the assessee's husband had advanced money initially. Subsequently, the admitted fact is that the assessee has reimbursed the money to her husband and finally, it is the assessee who has actually given funds for the acquisition of the property. We notice that the Ld CIT(A) has taken the view that the funds given by the assessee should not be taken in account and in our view, the said view of the Ld CIT(A) is not, in our view, correct in law.
The deduction under section 54F of the Act only induces an assessee to make investment in residential house property. If the assessee has herein has given money for acquisition of the property either directly to the builder or as reimbursement to her husband, then the assessee should be given benefit of deduction under section 54F of the Act for the cost of acquisition.
The next impediment in the minds of the tax authorities was that the plot was purchased jointly in the name of the assessee and her husband and hence it should be held that both held 50% right each and hence the assessee could have purchased only her husband's share only. We are unable to agree with this logic. There is no dispute that the assessee has actually given funds for the acquisition of the property. When the assessee's husband has not given money for purchase of property, how it can be held that her husband was owner of 50% of the property merely for the reason that his name appears in the conveyance agreement and also in the rental agreement. The deduction under section 54F of the Act shall be given only to the person who has invested the money. In the instant case, it is the assessee who has invested the money and hence the assessee should be given deduction under section 54F of the Act for the money invested by her. Since assessee had given money for acquisition of property either directly or as reimbursement to her husband, assessee was eligible for benefit of exemption under section 54F. [In favour of assessee] (Related Assessment year : 2008-09) – [Y. Manjula Reddy v. ITO (2022) 140 taxmann.com 441 (ITAT Bangalore)]
Section 54F benefit available to non-resident for residential property situated outside India, prior to Assessment year 2015-16
Delhi ITAT allows Asssessee’s
appeal on claim of deduction under Section 54F for purchase of residential
property situated outside India, holds that benefit is available prior to
amendment brought by Finance Act, 2014 which applies Assessment
year 2015-16 onwards; Assessee-Individual, a non-resident, sold a property
of Rs. 27.37 Cr in Assessment year 2012-13, Revenue treated it as short term
capital gain; Subsequently, Assessee filed a rectification application under
Section 154 and claimed deduction of Rs. 4.86 Cr under Section 54F for purchase
of residential house in Malaysia which was allowed by the Revenue and which
also resulted in Nil capital gain; CIT(A) set aside the order of Revenue and
disallowed Assesse’s claim on the ground that Assessee claimed deduction under
Section 54F for purchase of house property situated outside India and held that
although the term ‘in India’ may not occur in the relevant provision but
Section 54F(3) refers to imposition of capital gains tax, if the asset is
transferred within a period of three years and such contemplated transfer can
be of a house existing in India; ITAT relies on coordinate bench ruling in Vinay
Mishra v. ACIT in
ITA No. 895/Bang/2012 vide
order dated 12.10.2012 wherein
it was held that the acquisition of house property in USA was eligible for claiming
exemption under Section 54F provided all the conditions laid down for exemption
are met by the Assessee; Also relies on Gujarat High Court ruling in Leena J . Shah v. ACIT in ITA No . 483 of 2006 vide order dated
14.06.2016
wherein it was held that there is no condition in Section 54F that capital gain
arising out of transfer of capital asset should be invested in residential
house situated in India and therefore, the benefit of Section 54F before
amendment brought in by Finance Act, 2014 could be extended to residential
house purchased outside India too; ITAT also opines that owing to the judgement
wherein claim of deduction under Section 54F for the purchase of residential
property outside India was allowed, the legislature amended Section 54F vide
Finance Act, 2014, however, on perusal of the Memorandum Explaining the Finance
Bill, it is clear that the amendment is not retrospective in nature and made
applicable in relation to Assessment year 2015-16 onwards subject to fulfillment
of other conditions; Accordingly, allowed Assessee’s appeal; - [In favour of
assessee] (Related Assessment year : 2012-13) - [Andrey Andreev v. CIT(Intl.
Taxation) – Date of Judgement : 13.07.2022 (ITAT Delhi)]
Deduction under section 54F in respect of purchase of residential property on first floor of a complex having shops constructed on ground floor would be allowable, as, municipal records, purchase deed and copies of electricity bills relating to property placed on record supported contention of assessee that property was residential property
Assessee purchased a property on
first floor of a complex having shops constructed on ground floor and claimed
exemption under section 54F treating it as residential property. Assessing
Officer considered property to be of commercial nature and denied exemption under
section 54F and made additions to income of assessee. Commissioner (Appeals)
confirmed additions so made. However, it was found that assessee had purchased
property as a residential property and registering authority had also
registered said purchase considering it as a residential property. Electricity
Department had also considered use of said premises as a residential use and
had charged electricity rates accordingly. Further, Municipal authorities had
also charged property tax treating it as a residential property. Furthermore,
purchase deed and copies of electricity bills relating to property placed on
record also supported contention that property was used for residential
purpose. Therefore, assessee had rightly claimed exemption under section 54F for
purchase of residential house property located at first floor of a complex
having shops constructed on ground floor. [In favour of assessee] Assessment
year 2010-11 – [Ashok Kukreja v. ITO
(2021) 132 taxmann.com 102 (ITAT Indore)]
Assessee sold a property and deposited capital gain in capital gain account scheme, her claim for deduction under section 54F was to be allowed and such capital gain amount could only be charged to tax after expiry of three years from date of sale of a property if same was not utilised for construction of new residential house as assessee’s income for said third year
During year, assessee earned long-term capital gain from sale
of a property and deposited same in capital gain account scheme - It claimed
deduction under section 54F. Same was
rejected on ground that no cogent material was placed on record by assessee to
show that a residential house was constructed by it within a period of 3 years
from sale of original capital asset so as to be eligible for availing deduction
under section 54F. Mandate of section
54F is to allow exemption to assessee on
depositing amount in designated capital gain account scheme and it is for
Assessing Officer to then examine issue at end of third year from date of sale,
if assessee had constructed a new house. Therefore, in view of fact that
assessee had deposited amount in capital gain account scheme, her claim for
deduction was to be allowed during year and unutilised capital gain amount, if
any, would be charged to tax under section 45 as income only after expiry of three years from date of sale of
capital asset as assessee's income for said third year. [In favour of assessee]
(Related Assessment year : 2012-13) – [Smt. Pratima C. Joshi v. DCIT
(2021) 125 taxmann.com 272 (ITAT Pune)]
Investment in a residential house One
house - Property was acquired for Metro Rail Project compensation paid within a
period of one year-Purchase of two different houses - Not entitle to exemption
under section 54F
The
assessee has computed long term capital gain after deducting cost of
acquisition and claimed exemption under section 54F of the Act for purchase of
two residential properties amounting to Rs. 83 lakhs and Rs.69 lakhs. The
assessee further stated that claim of exemption under section 54F of the Act
was in accordance with law, because before amendment to section 54F by the
Finance Act, 2014 with effect from 01.04.2015, benefit of section 54F will be
applicable to more than one residential house and hence, even if the assessee
has purchased two different houses, exemption cannot be denied under section
54F of the Act. The Assessing Officer was not convinced with the explanation
furnished by the assessee and according to him, as per provisions of section
54F of the Act, the assessee is not eligible for exemption under section 54F,
because he has purchased another residential house other than the new asset,
within a period of one year after the date of transfer of the original asset
and accordingly, rejected the exemption claimed under section 54F of the Act
and recomputed the long term capital gains from transfer of property. CIT (A)
affirmed the order of the Assessing Officer. Tribunal held that the assessee is
not entitled for exemption under section 54F of the Act for purchase of two
residential houses at two different locations on two different dates. The
position remains same even after amendment to section 54F by the Finance Act,
2014 w.e.f. 01.04.2015. Accordingly the order of CIT (A) is affirmed.
Tribunal also observed that as per provisions of section 54,
assessee can buy multiple houses, when he sold a residential house and reinvest
sale consideration for purchase of another residential house, but there is
restriction for purchasing more than one residential house under section
54F. (Related Assessment year : 2013-14) – [M.S. Amaresan v. ACIT (2021)
210 TTJ 986 : 186 ITD 715 (ITAT Chennai)]
Assessee sold a property for certain
consideration. Assessee invested entire sale consideration in land and
residential house in widowed daughter’s name and claimed exemption under
section 54F on capital gain arising out of said sale of property. It was found
that assessee’s married widowed daughter was having no independent source of
income and was fully dependent on assessee. There is nothing in section 54F to
show that house should be purchased in name of assessee only. Since there was a
direct nexus between sale consideration received and utilized investing in residential
house in name of married widowed daughter of assessee, Assessing Officer was to
be directed to grant exemption under section 54F on amount invested in purchase
of residential house in his daughter’s name. [In favour of assessee] (Related
Assessment year : 2016-17 - [Krishnappa
Jayaramaiah v. ITO (2021) 189 ITD 15 : 125 taxmann.com 110 (ITAT
Bangalore)]
Assessee invested entire sale
consideration in construction of residential house within stipulated time
period, exemption under section 54F could not be denied if said consideration
was not deposited in capital gain scheme account during intermittent period of
construction
Exemption
of, in case of investment in residential house (Conditions precedent) -
Assessee invested net sale consideration from sale of capital asset in
construction of new residential house and claimed deduction under section 54F.
Assessing Officer disallowed deduction on ground that assessee had violated
section 54F(4) by not depositing net sale consideration in capital gain scheme
account during intermittent period of construction of residential house.
Whether since assessee had invested entire sale consideration in construction
of residential house within period stipulated under section 54F(1), exemption
could not be denied on ground that sale consideration had not been deposited in
capital gains scheme account before due date prescribed under Section 139(1).
Thus assessee would be entitled for exemption under section 54F and matter was
to be remitted to Assessing Officer for fresh consideration. [In favour of
assessee] (Related Assessment year : 2013-14) – [Ramaiah Dorairaj v. ITO (2021) 124 taxmann.com 243 (ITAT Bangalore)]
Requirement of investment in a residential house in India in order to claim exemption under section 54F(1) is applicable from assessment year 2015-16 only
Requirement of
investment in a residential house in India in order to claim exemption
under section 54F(1) has been incorporated with effect from 01.04.2015 and
is applicable from assessment year 2015-16 only and not prior to that period. Therefore,
assessee having made investment in a residential house in USA prior to 01.04.2015,
it would be entitled to claim exemption under section 54F in respect
of investment made in house property in USA. [In favour of assessee] (Related Assessment
year : 2009-10) – [CIT v. Vinay Mishra (2021) 276 Taxman 68 : (2020) 121
taxmann.com 243 (Karn.)]
Assessee-developer/builder had sold land after gap of a decade and same was shown as investment in fixed assets in balance sheet from time of acquisition till sale of land, profit arising out of sold land was assessable to tax under head ‘capital gains’ and thus, exemption claimed under section 54F was to be allowed
Assessee-developer/builder
filed his ITR declaring capital gains on sale of land. Assessee sought
exemption on capital gain on investment made in residential property as
prescribed under section 54F. Assessing Officer disallowed exemption
claimed treating profit arising out of sale of said land as business profit
noting that assessee was a dealer in land and sold said land to 21 different
parties. Since assessee had sold said land after gap of a decade and same was
shown as investment in fixed assets in balance sheet from time of acquisition
till sale of land, profit arising out of sold land was assessable to tax under
head ‘capital gains’ and thus, exemption claimed under section 54F was
to be allowed. [In favour of assessee] (Related Assessment year : 2015-16) – [ACIT v. Mujib
Salmanbhai Pathan v. ACIT (2021) 190 ITD 5 : 129 taxmann.com 402 (ITAT Nagpur)]
Assessee was having only 50 per cent share in second residential house which was sold to assessee’s son, Assessing Officer could not deny exemption under section 54F to assessee on ground that assessee had more than one residential house
Assessee sold land and
earned long term capital gains. Such capital gains was invested in residential
property and exemption under section 54F was claimed. Assessing Officer denied
exemption on ground that assessee on date of transfer of original asset had two
residential house, although both assets were jointly owned with his wife. Assessee,
however, claimed that second residential house was already sold to his son
before sale of land. It was found that agreement to sell residential house
between assessee and his son was duly registered and rental income from said
property was mentioned in ITR of assessee’s son. Since assessee transferred capital asset to
his son with all rights, title, interest and enjoyment in impugned immovable
property through agreement to sell and registered transfer deed, subject to
consideration, assessee would not be having more than one residential house at
time of claiming exemption from capital gains and as such, Assessing Officer
was not justified in rejecting claim of exemption under section 54F. Further,
assessee was having only 50 per cent share in impugned residential property
which was sold to son of assessee, Assessing Officer could not deny exemption
under section 54F to assessee. [In favour of assessee] (Related Assessment year
: 2014-15) –
[Smt. Savita Bhasin v. ITO (2021) 186 ITD 195 : (2020) 121 taxmann.com 207 : 84 ITR(T)
602 (ITAT Delhi)]
Allotment of flat as per an escrow document - Denial
by builder - Assessing Officer taxing the value of flat as deemed consideration
and denying the exemption - Since Assessee has performed his part of duty by
disclosing the sale prior to its receipt, then it is deemed on the part of the
Assessing Officer to allow deduction on the same, despite the Dispute or delay
in getting the flat - Entitle to exemption under section 54F
Assessee
sold land to a builder. In addition to sale consideration in money form, there
was a parallel understanding to receive additional consideration, in kind, of a
ready made flat in the builders project on the same land. Though there was no
agreement for flat but there was an escrow document Assessee in its return
declared sale consideration received as well as value of flat receivable and
claimed exemption under section 54F towards value of flat receivable. Assessing
Officer rejected claim under section 54F
on ground that builder denied to have agreed to give any flat in kind and hence
under 54F the criteria of having purchased flat failed.
On appeal the ITAT held
that due to disputes between Assessee and builder this issue of allotment went
to court and High Court recognised the validity of escrow and thus the
allotment has the Court acceptance though case not finally decided. If
Assessing Officer is taxing the deemed value of flat as sale consideration then
it is deemed that Assessee has paid the full value of consideration as required
under 54F of the Act. Since Assessee has performed his part of duty by
disclosing the sale prior to its receipt, then it is deemed on the part of the
Assessing Officer to allow deduction on the same, despite the Dispute or delay
in getting the flat. Accordingly the exemption under section 54F of the Act is
allowed. (Related Assessment Year : 2012–13) – [Vinay Ramchandra Somani v.
ACIT - Date of Judgement : 01.06.2021 (ITAT
Mumbai)]
Completion
certificate irrelevant for exemption under section 54F; Quashes revision based
on doubt
Pune ITAT quashes revisionary order under section 263, holds
that completion certificate irrelevant for exemption under section 54F;
Assessee sold a piece of land for a consideration of Rs.1.30 Cr., after
indexation, computed LTCG of Rs.1.20 Cr. and claimed exemption under section
54F towards the investment of Rs.1.42 Cr. on construction of a new residential
house; PCIT under revision proceedings disallowed exemption under section
54F as Assessee did not submit ‘completion certificate’ and
observed that exemption was claimed for construction on two plots, whereas
permission for construction was taken only for one plot; PCIT stated that
Assessing Officer failed to inquire and verify the cost of construction; ITAT
observes that Assessee has furnished all details as required by the Assessing
Officer, who allowed the claim for exemption in the assessment order and
therefore it cannot be said that the Assessing Officer did not examine the
issue which could have led to the revision of the assessment order; Remarks
that if the amount has been invested in new house, claim for exemption cannot
be denied simply because the construction was not completed within a period of
three years. Further observes that merely because permission for
construction was sought for one plot, the claim for actual investment in
the other plot qualifying for exemption under section 54F, cannot be denied;
States that PCIT was incorrect in holding that Assessing Officer failed to examine
the cost of construction, as evidence in support of Assessee’s claim for
construction cost was available before the Assessing Officer; Opines that mere
doubt cannot lead to revision of assessment order unless shown that Assessing
Officer failed to apply his mind, or that his view was wrong in facts or law. –
[Shivratan Shrigopal Mundada v. ACIT –
Date of Judgement : 19.05.2021 (ITAT Pune)]
Assessee had sold a land and invested sale consideration in purchase of new residential property, merely because assessee had later on let out said new property for commercial purpose to run restaurant in it, assessee could not be denied exemption under section 54F
Assessee
sold its land and invested sale consideration for purchase of a residential
house property. Accordingly, it claimed exemption under section 54F. Same was
granted. Subsequently, Assessing Officer issued reopening notice on ground that
new residential house property purchased by assessee was converted into a
non-residential property by letting out same for running restaurant in it
within one month of purchase and, thus, assessee was not entitled for exemption
under section54F - It was noted that certificate issued by City corporation
showed that building in which assessee claimed to have bought said new
residential house was situated in primary residential zone. Even in reopening
proceedings, Assessing Officer did not dispute fact that such new property was
a residential property but held against assessee on ground that within few
months, property was let out for commercial purposes. Since new property
purchased by assessee was residential property, merely because assessee had put
it to use for non-residential purpose to run restaurant in it, that too, much
after its purchase, assessee could not be denied exemption under section 54F.
[In favour of assessee] (Related Assessment year :
2011-12) – [CIT v. v.
Ramesh Shroff (2020) 428 ITR 499 :
275 Taxman 323 : 120 taxmann.com 403 (Mad.)]
The usage of the property has to be considered whether it is a residential property or a commercial property - Several independent residential units in the same building have to be treated as one residential unit and there is no impediment to allowance of exemption under section 54F(1)
A bench of this court while
interpreting Section 54F of the Act has held that provision of Section 54F is a
beneficial provision for promoting construction of residential houses and has
to be construed liberally. Kerala, Delhi, Allahabad, Calcutta and Hyderabad
High Courts have taken a view that usage of the property has to be considered
in determining whether it is a residential property or a commercial property
and expression 'residence' implies some sought of permanency and cannot be
equated to the expression 'temporary stay' as a lodger.
The assessee sold the shares and
invested the capital gains for purchase of residential house and claimed
exemption under section 54F of the Act. The Assessing Officer held that the
assessee owns nine residential flats in his name and that he is deriving the
income from the residential flats and declared the same under the head “income
from house property” during Assessment year 2006-07 and is therefore, not
eligible to claim exemption by invoking proviso (a)(i) and (b) to Section
54F(1). The assessing officer further recorded a finding that properties owned
by the appellant is a residential apartments. Accordingly, exemption under
Section 54F of the Act was denied. Order of the Assessing Officer is up held by
the CIT (A) and Tribunal. On appeal the High Court held that in determining
whether the assessee owns more than one residential property, the usage of the
property has to be considered. If an apartment is sanctioned for residential
purposes but is in fact being used for commercial purposes as a serviced
apartment, it has to be treated as commercial property. Alternatively, several
independent residential units in the same building have to be treated as one
residential unit and there is no impediment to allowance of exemption under
section 54F(1). (Related Assessment Year : 2006-07)—[Navin folly v. IT0
(2020) 424 ITR 462 : 272 Taxman 348 : 117 taxmann.com 323 (Karn.)]
Assessee claimed exemption under section 54F by making investment of long-term capital gain in two bungalows located adjacent to each other and used as one residential unit, assessee could not have been denied exemption on reasoning that there were two different registries of buildings/properties as both properties purchased by assessee were a single property located in same geographical area
During relevant year, assessee
claimed exemption under section54F on long-term capital gain invested in two
bungalows which were adjacent to each other and used as one residential unit -
Assessing Officer disallowed same on ground that assessee could have claimed
exemption under section54F with respect to investment in one bungalow only. However,
under provisions of section 54F, no definition/clarification about area of
residential property, has been provided, hence, one assessee can buy huge
bungalow/property say thousand square meters and can claim deduction subject to
conditions. Therefore, assessee could not have been deprived of benefit
conferred under statute merely on reasoning that there were two different
registries of buildings/properties as from point of view of assessee, it was
single property. Further, in view of fact that both properties purchased by
assessee were located in same geographical area, assessee would be entitled for
exemption provided under section 54F. [In favour of assessee] (Related
Assessment year 2015-16) - [Mohammadanif Sultanali Pradhan (2020) 181 ITD
238 : 114 taxmann.com 508 (ITAT Ahmedabad)]
No Section 54F relief if
construction was done on residential house exclusively owned by father &
not by HUF.—[Arpit Khairari v IT0 (2020) 116 taxmann.com 720 (ITAT Jaipur)]
Investment made on Renovation of New Residential House - Eligible for exemption under section 54F
In the present case, the
assessee have purchased new house against the partial amount of capital gains
and have invested the balance consideration in renovation of the said house and
have claimed expenditure for such renovation also as ‘exempt’ under section 54F
of the Act. The Assessing Officer, however, observed that the extension of the
existing residential unit may not amount to investment (purchase/construction)
of a new residential house. Therefore, the Assessing Officer disallowed the
claim of exemption under section 54F of the Income
Tax Act.
ITAT states that, the Section 54F of the Act only mandates that the capital gain should be invested in ‘a residential house’ within the stipulated time by way of purchase or construction. Thus, the amount spent on renovation of such residential house by an assessee according to his requirements is also allowable as exempt under section 54F of the Act as it would amount to construction of a residential house. The only other requirement is that the construction should be completed within three years from the date of transfer of the original asset. Therefore, ITAT deem it fit and proper to remit the issue back to the file of Assessing Officer with a direction to allow the exemption under section 54F of the Act in respect of the cost of the house, which is already purchased by the assessee and also the amount spent on renovation/re-modification of the house. Accordingly, the appeal filed by the assessee are treated as allowed. (Related Assessment Year : 2009-10) – [Juveria Begum v. ITO - Date of Judgement : 04.09.2020 (ITAT Hyderabad)]
Deduction under section 54F
allowable before intra head adjustment of losses
ITAT states that as per provisions
of section 54F(1) on fulfilment of certain conditions the capital gain arose on
sales of such assets will not be chargeable to capital gain under section 45 of
the Act. The scheme of Sections 45 to 55A provide for the computation of
capital gains, and the effect has to be given first to the provision of capital
gains as given under the above scheme and then apply the provisions of Section
70. Section 70 would come into play only when the capital gains have been
computed in accordance with the provisions contained in Sections 45 to 55A.
Thus, if, after work out of deduction under section 54F if the capital gain
arose on sale of certain assets is not chargeable to capital gain than the loss
arose to assessee on sales of another assets cannot set off from gain of such
assets. It is not necessary that one should first apply Section 70(3) and
thereafter only, the assessee could invest the capital gain arising from the
long-term capital asset. In view of the above discussions, ITAT set aside the
orders of lower authorities and direct the Assessing Officer to compute the
capital gain from sale of commercial property by not doing intra-head
adjustment for the loss suffered from sale of shares and allow to carry forward
the long-term capital loss for the current year on sale of shares. In the
result, the appeal of the assessee is allowed. (Related Assessment Year :
2015-16)—[Naresh Jain v. ACIT - Date of Judgement : 11.08.2020 (ITAT Jaipur)]
Investment made in two differently
placed properties out of the capital gains is not eligible for deduction under
section 54F
It was held that there has been an
amendment in the provisions of the Act wherein “a residential house” has been
amended as “one residential house” and argued that this amendment is
clarificatory in nature, hence the case laws mentioned are no more applicable
to the instant case. Relying on the judgment of the Hon'ble Jurisdictional High
Court in the case of CIT v. Rajendera Kumar in ITA No. 65/2013, the Id. DR
argued that any amendment which was introduced to rationalized and clear the
existing ambiguity and doubts are to be treated as retrospective in nature. In
the instant case, the issue is different from what has been examined in the
case laws cited by the Id. Counsel of the assessee.
In all the situations, the Courts
upheld the deduction in the situations where the multiple units were either
adjacent or on the same floor or on the different floors or multiple units in
the same residential complex owing to division of property. Whereas in the
instant case, there was no such division of property among the members and the
investments are at different locations one being the investment in residential
property at Jungpura of Rs. 24,20,000/- and the other being at Ansal properties
in NCR. No case law has been brought to our notice wherein two distinctly
placed properties have been allowed for claim of deduction under section 54F.
Keeping in view, the geographical distances, the investment in two differently
placed properties cannot be termed to be “a residential house” even after
resorting to liberal interpretation of “a residential unit”. All the case laws
relied by the counsel are found to be factually different from the instant
case. Hence, keeping in view, the provisions of Section 54F, the amendments,
the ratio of judgments, the Assessing Officer was justified in restricting the
assessee's claim exemption under section 54F to investment in one residential
property only. (Related Assessment Year : 2012-13)— [Omkar Chadha v. IT0 -
Date of Judgement : 13.07.2020 (ITAT Delhi)]
Capital gain deduction benefit is
restricted to only one residential property under section 54F
In this case, as per JDA registered
on 23.05.2005, assessee received 35% of total built-up area, i.e. 35% of
apartments constructed along with 35% of car parking and 35% of terrace and
garden rights earmarked for private use as against common use in consideration
for transferring 65% of undivided interest. Assessee claimed exemption under
section 54F on the value of the 35% of constructed area which was denied by Id.
Assessing Officer and confirmed by Id. CIT(A). Before us assessee urges that,
she is eligible for exemption under section 54F on the 35% of constructed area
received in view of the land she had parted with.
ITAT states that, in decisions of
Hon'ble Madras High Court in case of CIT v. Smt. R. Karpagam in Tax case
(Appeals) No. 301 of 2014 dated 18.08.2014, Hon'ble Karnataka High Court in
the case of CIT v. Anand Basappa reported in (2009) 309 ITR 329 : 223 CTR
186 : 180 TAXMAN 4 (Kar); has categorically held that amendment to section
54F with regard to 'a' by Finance (No. 2) Act, 2014 with effect from 01.04.2015
withdrawing deduction for more than one flat (residential house). Courts have
consistently held that post amendment benefit of section 54F will be applicable
only to one residential house in India whereas prior to the amendment
residential house would include multiple residential house/units. In view of
consistent view taken by jurisdictional High Court, as well as other High
Courts, we are of the opinion that assessee is entitled to deduction under
section 54F of the Act in respect of 35% of constructed property received by
her. Accordingly, this ground raised by assessee stands allowed. (Related
Assessment Year : 2006-07)—[Late Susan Cherian v. IT0 - Date of Judgement :
19.02.2020 (ITAT Bangalore)]
Capital Gains Scheme Account-Bank account
was opened only for the purpose of depositing compensation received in his hand
and the amount was utilised for purchase of plot of land and partial
construction thereon - Entitled to exemption
Assessee received certain
compensation on compulsory acquisition of his land by RIICO . In return of
income, assessee offered said receipts to tax as long-term capital gains and
claimed exemption under section 54F on account of sale consideration deposited
in Capital Gain Account Scheme, 1988. Assessing Officer held that the said
account was not a Capital Gain Scheme Account and, therefore, denied exemption
under section 54F of the Act.
On appeal, the Tribunal held that
the entire compensation stood deposited in savings bank account maintained with
HDFC bank which was opened specifically for purpose of depositing compensation
received by assessee and withdrawals had been limited to extent of purchase of
plot of land and partial construction. Therefore, assessee's claim for
deduction under section 54F could not have been denied on ground that amount of
compensation received had not been deposited in Capital Gains Account. Further,
fact that said bank account of assessee was attached by Department, there was
no way assessee could have met deadline for constructing new house, being three
years from date of transfer of original asset. Accordingly, claim of deduction
was allowed. (Related Assessment year : 2009-10)—[Goverdhan Singh Shekhawat.
v. IT0 (2019) 198 TTJ 1 : 175 ITD 272 (ITAT Jaipur)
Investment in a residential house -
Deduction cannot be denied only on the ground that bills and vouchers were not
produced, when the inspector had visited the site and reported the construction
of new house
Allowing the appeal of the assesee,
the Tribunal held that; deduction cannot be denied only on the ground that
bills and vouchers were not produced, when the inspector had visited the site
and reported the construction of new house. (Related Assessment year : 2009-10)—[Govind
Gangadhar Sabane v. IT0 (2019) 174 ITD 577 (ITAT Pune)]
Assessee
filed his return claiming deduction under Section 54F in respect of capital
gain arising from transfer of capital assets. Assessing Officer held that at
time of transfer of capital asset, assessee was owner of two residential houses
out of which one he had jointly purchased with his wife. Accordingly, denied
the exemption. On appeal the Tribunal held that word 'own' in Section 54F would
include only case where a residential house is fully and wholly owned by
assessee and, consequently, would not include a residential house owned by more
than one person. Since a residential property was co-jointly owned in name of
assessee and his wife, he could not be treated as absolute owner of said
property and, thus, deduction under section 54F could not be denied. Followed Seth
Banarsi Dass Gupta v. CIT (1987) 166 ITR 783 (SC). (Related Assessment year :
2010-11)-[Ashok G. Chauhan. v. ACIT (2019) 176 ITD 71 7 (ITAT Mumbai)]
In section 54F, date of agreement
to sell should be considered as date of transfer for computation of prescribed
time limit
Once an agreement to sell is
executed in favour of some person, the said person gets a right to get the property
transferred in his favour and, consequently, some right of the vendor is
extinguished. Therefore, the agreement to sell which had been executed on 13th
August, 2010 was considered as the date on which the property, i.e. the
agricultural land, had been transferred instead of 3rd July, 2012 on which the
sale-deed came to be executed and assessee was entitled to claim the benefit of
section 54F as it had invested in purchase of residential house on 22nd April,
2010 which was within the prescribed time limit. (Related Assessment Year :
2013-14)—[Kishovbhai Havjibhai Patel v. ITO - Date of Judgement : 08.07.2019
(Guj)]
Cost of Land is part of
construction cost of House to avail Section 54F exemption
There is no dispute that the
assessee has invested the full sale consideration received on the sale of
jewellery in the purchase of the plot of land. It is also not in dispute that
before the lower authorities the assessee could not adduce any evidence. The
certificate from municipal corporation, Moradabad has been furnished for the
first time. In the interest of justice I restore this issue to the files of the
Assessing Officer. The Assessing Officer is directed to verify the certificate
of construction issued by Municipal Corporation, Moradabad and decide the issue
afresh as per provisions of law, keeping in mind that the cost of investment in
land is also part of cost of construction of the residential house to avail the
exemption under section 54F Act. (Related Assessment Year : 2014- 15)—[Smt.
Yoga Sikka v. IT0 - Date of Judgement : 21.05.2019 (ITAT Delhi)]
Exemption under section 54F
allowable despite start of construction of new house before the date of sale of
the original asset
Exemption under section 54F was
allowable to assessee on purchase of a house property despite the fact that
construction activities of the new house has started before the date of sale of
the original asset as Section 54F was a beneficial provision and was applicable
to an assessee when the old capital asset was replaced by a new capital asset
in form of a residential house.
Assessee derived a long-term
capital gain on sale of shares and had claimed deduction under Section 54F
stating that it had purchased an residential apartment. Admittedly, at the time
of booking of the flat the construction did not commence. He was of the view
that claim of the assessee that above transaction was a “purchase” of a new
asset was incorrect and according to him the transaction of acquiring property
as per the apartment buyers agreement was a transaction of “construction” of
property and therefore he disallowed the claim. The issue arose for
consideration was whether assessee was entitled to deduction under section 54F
despite the fact construction of the house property commenced before the date
of the sale of the original asset. Following the decision in case of CIT v.
Bharti Mishra (2014) 265 CTR 374 : 222 Taxman 2 (Del) & CIT v. Kuldeep
Singh (2014) 270 CTR 561 (Del) wherein it was held that Section 54F is a
beneficial provision and is applicable to an assessee when the old capital
asset is replaced by a new capital asset in form of a residential house. Once
an assessee falls within the ambit of a beneficial provision, then the said
provision should be liberally interpreted. It was held assessee had purchased a
house property i.e. a new asset and was entitled to exemption under section 54F
despite the fact that construction activities of the purchase of the new house
has started before the date of sale of the original asset which resulted into
capital gain chargeable to tax in the hands of the assessee. (Related
Assessment Year : 2011-12) - [Kapil Kumar Agarwal v. DCIT - Date of
judgement : 30.04.2019 (ITAT Delhi)]
ITAT allows date of possession of
new house instead of date of sale Agreement/registration
The contention of the assessee is
that since final consideration was paid and the possession of flat was received
within a period of one year prior to the date of transfer of capital asset, the
same should be considered as the date of purchase. Whereas, the stand of
Department is that the date of execution of agreement for purchase of flat
should be considered as the date of purchase.
The 1d.A.R. has drawn our attention
to Clause (12) of the deed of agreement between the assessee and the builder
for purchase of flat. The said clause is reproduced herein below :
“12. Nothing contained in this
Agreement shall be cons trued so as to confer upon the Purchaser any right
whatsoever into or over the said property or the said new building or any part
thereof including the said premises on execution of this agreement. It is
agreed by and between the parties that conferment of title in respect of the
said premises shall take place in favour of the Purchasers only on the
Purchaser's making full payment of consideration to the Developers and complying
with the terms and conditions of this Agreement and on the Purchaser being
admitted as a member of the said society as herein provided.”
The aforesaid clause makes it
unambiguously evident that the assessee has no right whatsoever in the property
on mere execution of agreement. The assessee shall be conferred title of
property only on making full payment of consideration to the builder. In the instant
case, full consideration has been paid by the assessee for purchase of
residential flat within a period of one year before the date of transfer of
capital asset. Thereafter, actual possession of the flat was delivered to
assessee on 17.09.2010 i.e., within a period of one year prior to the date of
transfer of capital asset. It is an un-rebutted fact that at the time of
execution of agreement, the residential property was not in existence. Therefore,
taking into consideration facts of the case, the date of possession of flat is
the date of actual purchase for the purpose of claiming exemption under section
54F of the Act. (Related Assessment Year : 2012-13)— [Ayushi Patni v. DCIT -
Date of Judgement : 17.01.2019 (ITAT Pune)]
Section 54F deduction
fully allowable despite property purchase in joint names
The
issue was whether deduction under section 54F had to be restricted to only
1/3rd of the cost of acquisition of the new asset for the reason that assessee
purchased the property along with the name of his wife and son shown as
purchaser in the document under which the property was purchased. Revenue
claimed that the purchase of new asset should be only in the name of the
transferor i.e., the Assessee, and to the extent the capital gain was invested
in the joint name of the assessee's wife and son, the deduction could not be
allowed. It was held in the case of DIT (Intl.) v. Mrs. Jennifer Bhide (2011)
15 com 82 (Karn), the entire consideration had flown from assessee and no
consideration had flown from her husband. Merely because the husband's name was
also mentioned in the purchase document, assessee could not be denied the
benefit of deduction. The law is well settled that where two views are possible
on an issue, the view favourable to assessee should be followed. Following the
above decision, it was concluded that assessee should be entitled to the
benefit of deduction under section 54F to the whole extent of investment in
purchase of new asset, even though the property had been purchased in the joint
names of assessee, his wife and son. (Related Assessment Year : 2015- 16) —[Shri
Bhatkal Ramarao Prakash v. IT0 -Date of Judgement 04.01.2019(ITAT Bangalore)]
Investment in a residential
house-Purchase of three different properties - Exemption was allowed only in
respect of one constructed house
Tribunal held that, absence of any
material to show that three different properties were purchased to meet
residential requirement of family of assessee the deduction was allowed only in
respect of one constructed house. Position prior to 01.04.2015 (Related
Assessment Year 2011-12)—[Rakesh Garg. v. IT0 (2019) 197 TTJ 632 (2018) 173
ITD 302 (ITAT Jaipur)]
Investment in a residential house -
Part ownership in property – Not considered absolute ownership - Assesse
eligible on the date of transfer of original asset - Exemption is allowed
Dismissing the appeal of the
revenue, the Tribunal held that the term owns more than one residential house
used in Section 54F(1) has to be strictly construed and accorded to its literal
meaning. Hence, it would not include partial or fractional ownership. Thus the
assessee was eligible for deduction under section 54F on the date of transfer
of original asset. Followed ITO v. Shri Rasiklal N. Satra (2006) 98 ITD 335 (ITAT
Mumbai).—[DCIT v. Shri Dawood Abdulhussain Gandhi - Date of Judgement :31
.01.2018 (ITAT Mumbai)]
Assessee, a private
non-discretionary trust, created for sole beneficiary, was entitled to
deduction under section 54F in respect of sale of flat and said deduction could
not be denied merely on ground that assessee was not an individual or HUF
The assessee was a private non discretionary Trust. Mr. Vinay Somani and Mrs.
Shrilekha Somani were the trustees of the said trust and their daughter, Ms.
Vidushi Somani was the sole beneficiary of the said trust. During relevant year, it earned capital gain
on sale of flat. Assessee’s claim for deduction under section 54F was rejected
on ground that said deduction was allowable only to individual or HUF and not to any other person and the assessee, being a
specific trust, is not eligible for deduction under section 54F of the Act. The
bench relied on the decision of the Bombay High Court in the case of Mrs. Amy
F. Cama v. CIT 237 ITR 82., and held that “by virtue of Section 161 of the
Income Tax Act the representative assessee is subject to the same duties,
responsibilities and liabilities as if the income was received by by his
beneficiary, and whatever benefits the
beneficiary will get in the said assessment must be made available to the
trustee while assessing him under section 161. It is clear that it is only by
virtue of under section 161 that the trust had been assessed for the income
that was for benefit of sole beneficiary. According respectfully following the
precedent we hold that the assessee was principally entitled to deduction under
section 54F and it cannot be said that since it is a AOP and not a individual
or HUF the said exemption/deduction should be denied.” [In favour of
assessee] (Related Assessment Year : 2012-13) – [Balgopal trust v. ACIT –
Date of Judgement : 03.05.2017 (ITAT Mumbai)]
The ITO v. Shri Rasiklal N.
Satra, wherein the Tribunal while deliberating on the entitlement of the
assessee towards claim of deduction under Section 54F had distinguished a joint
ownership as against an absolute ownership of a residential property, by
observing as under :
“7. The only question remains as to
whether assessee can be said to be the owner of that residential house. The
legislature has used the word “a” before the words “residential house”. In our
opinion, it must mean a complete residential house and would not include shared
interest in a residential house. Where the property is owned by more than one
person, it cannot be said that any one of them is the owner of the property. In
such case, no individual person on his own can sell the entire property. No
doubt, he can sell his share of interest in the property but as far as the
property is considered, it would continue to be owned by co-owners. Joint
ownership is different from absolute ownership. In the case of residential
unit, none of the co-owners can claim that he is the owner of residential
house. Ownership of a residential house, in our opinion, means ownership to the
exclusion of all others. Therefore, where a house is jointly owned by two or
more persons, none of them can be said to be the owner of that house. This view
of ours is fortified by the judgment of the Hon'ble Supreme Court in the case
of Seth Banarsi Dass Gupta v. CIT (1987) 166 ITR 783 : 64 CTR 142 (SC),
wherein, it was held that a fractional ownership was not sufficient for
claiming even fractional depreciation under section 32 of the Act. Because of
this judgment, the legislature had to amend the provisions of section with effect
from 01.04.1997 by using the expression “owned wholly or partly”. So, the word “own”
would not include a case where a residential house is partly owned by one
person or partly owned by ofher person(s). After the judgment of Supreme Court
in the case of Seth Banarsi Dass Gupta (supra), the legislature could also
amend the provisions of section 54F so as to include part ownership. Since the
legislature has not amended the provisions of section 54F, it has to be held
that the word “own” in section 54F would include only the case where a residential
house is fully and wholly owned by assessee and consequently would not include
a residential house owned by more than one person. In the present case,
admittedly the house at Sion, Mumbai, was purchased jointly by assessee and his
wife. It is nobody's case that wife is benami of assessee. Therefore, the said house
was jointly owned by assessee and his spouse. In view of the discussions made
above, it has to be held that assessee was not the owner of a residential house
on the date of transfer of original asset. [Page 8 ITA No. 3788/Mum/2016 DCIT v.
Shri Dawood Abdulhussain Gandhil. Consequently, the exemption under section 54F
could not be denied to assessee. The order of the learned CIT(A) is, therefore,
upheld.”- [IT0 v. Shri Rasiklal N. Satra (2006) 98 ITD 335 (ITAT Mumbai)]
Investment in a residential house -
Assessee owning a house on date of transfer is not entitled to benefit under
Section 54F
It was held that the assessee was
owning house on date of transfer is not entitled to benefit under Section 54F.
(Related Assessment years : 1998-99 & 1999-2000)—[Arjun Malhotva v. CIT
(2018) 403 ITR 354 (Del)]
Investment in a residential house -
Sale is not concluded or agreement of sale is not certain to be honoured,
assessee cannot claim deduction in respect of purchase or construction of
property [Section 54F(4)]
Dismissing the appeal of the
assessee, the Tribunal held that, when the sale is not concluded or agreement
of sale is not certain to be honoured, assessee cannot claim deduction in
respect of purchase or construction of property within one year before or
within two years after sale of original asset or to have constructed property
within three years after sale of property for purposes of claiming deduction.
(Related Assessment year : 2014-15)—[Mahesh Malneedi, v. IT0 (2018) 169 ITD
154 (ITAT Hyderabad)]
It was held that where
consideration that arose in hands of HUF (assessee) on sale of capital asset
had been invested for purchase of new residential house in name of some of its
members instead of the HUF assessee, deduction under section 54F would still be
available to the HUF. It noted that mere technicality that the sale deed was
executed in the name of member of the HUF rather not HUF, would not be sufficient
to defeat the claim of deduction.—[PCIT v. Vaidya Panalalmanilal (HUF)
(2018) 98 taxmann.com 189 (Guj)]
The Assessing Officer disallowed
the assessee's claim for deduction under section 54F on the ground that though
the assessee had purchased a certain land after the sale of old asset, the
residential house had not been constructed and completed on the said land
within three years from date of sale of old asset. The CIT(A) allowed the
assessee's appeal holding that there were genuine and bona fide reasons which
resulted in the delay in completion of construction of the residential house,
which were beyond the control of the assessee. The Tribunal concurred with the
CIT(A)'s findings and held that the assessee was eligible for deduction under
section 54F. The Court dismissed Revenue's appeal holding that since the
Tribunal and the CIT(A) had concurred in their factual finding, the appeal
filed against order of the Tribunal could not be entertained.—[PCIT v. Smt.
Charumathi Seshadri (2018) 97 taxmann.com 178 (Mad)]
Assessee failed to claim deduction
in return of Income, but Assessing Officer was directed to allow
The assessee neither disclosed the
capital gains in the return of income nor claimed any deduction under section
54F of the Act, the assessee is not entitled to get any deduction under section
54F. Merely on account of fact that the assessee has not claimed exemption, the
same could not have been denied. CIT(A) ought to have considered the issue on
merits since the decision of the Supreme Court in the case of Goetze (India)
Ltd. would not debar the first appellate authority to consider the fresh claim,
if any, so as to arrive at the correct taxable income. Therefore ITAT set-aside
the orders passed by the Assessing Officer and directed the Assessing Officer
to allow the claim of deduction under section 54F of the Act.-[Manohar Reddy
Basani v. IT0 (2018) 94 taxmann.com 321 (ITAT Hyderabad)]
Investment in a residential
house-two residential units purchased at two different localities-Exemption was
restricted to only investment in one residential house property
It was held that, exemption was
restricted to only investment in one house property. Assessee was not entitled
to exemption with regard to two residential units purchased at two different
localities. (Related Assessment Year : 2013- 14)—[ACIT v. N. S. Viswanathan
(2018) 67 ITR 307 (ITAT Cochin)]
Capital gains - lnvestment in a
residential house - Property purchased in the name of wife - Loan was
sanctioned in the name of wife - Not entitled to exemption
Property purchased in the name of
wife. Loan was sanctioned in the name of wife. Not entitled to exemption.
(Related Assessment year : 2009-10)—[Kaushal Kishore Maheshwari v. ACIT
(2017) 190 TTJ 811 : (2018) 162 DTR 41 (ITAT Delhi)]
Exemption under section 54F has to be claimed only by purchasing or constructing a new residential property in assessee’s own name and not in his unmarried daughter
The Assessing Officer
disallowed exemption under section 54F to the assessee on the ground that
purchase of property was not in name of assessee but his daughter.
Held that the exemption
under section 54F has to be claimed only by purchasing/constructing a new
residential property in the assessee's own name and not on his unmarried
daughter. The assessee’s argument of “that due to dependency of unmarried
daughter and to secure her future, he had made investment in her name” was not
accepted. This exemption is exclusive to be claimed by the assessee which
cannot be clubbed or applied to the blood relation or family members. [In favour
of revenue] (Related Assessment
year : 2011-12) -– [D. Devadass v. ITO (2017) 83 taxmann.com 16 : (2016) 48 ITR(T) 613 (ITAT Chennai)]
A trust created for benefit of an
individual can claim Section 54F relief
In the case of Balgopal Trust v.
ACIT, the assesse was a private nondiscretionary trust. Ms. V, daughter of the
trustees, was the sole beneficiary of the said trust. Trust earned capital gain
from sale of a capital asset and claimed deduction under section 54F. Assessing
Officer rejected said claim on the ground that said deduction was allowable
only to an individual or HUF. The Mumbai ITAT held that in terms of section
161, representative assessee is subjected to same tax treatment in respect of
an income as if it was received by the beneficiary. By virtue of Section 161, a
Trust is assessed in respect of income that is meant for the benefit of the
beneficiaries. Therefore, deduction under section 54F could not be denied on
ground that trust was not an individual or HUF.—[Balgopal Trust v. ACIT
(2017) 81 taxmann.com 367 (ITAT Mumbai)]
Investment in a residential house - Benefit under section 54F cannot be denied on ground that construction of house had commenced before sale of shares 'original asset'
The assessee, an individual, had
sold shares and the sale proceeds were invested in construction of house
property and an exemption was claimed under section 54F of the Act. The
Assessing Officer rejected the claim for benefit under section 54F on the
ground that the construction of the house had commenced before the date of sale
of shares. The CIT(A) and the Tribunal both allowed the assessee benefit under
section 54F. The High Court dismissing the departmental appeal held that it is
not stipulated or indicated in the section that the construction must begin
after the date of sale of the original/old asset. There is no condition or
reason for ambiguity and confusion which requires moderation or reading the
words of the said sub-section in a different manner. Section 54F is a
beneficial provision and is applicable to an assessee when the old capital
asset is replaced by a new capital asset in the form of a residential house.
Once an assessee falls within the ambit of a beneficial provision, then the
said provision should be liberally interpreted. (Related Assessment Year : 2009-10)—[CIT
v. Bharti Mishra (2014) 265 CTR 374 : 222 Taxman 2 (Del)]
Several independent units can
constitute “a residential house” – Would be entitled to exemption under Section
54F(1) of the Act
The assessee entered into a
development agreement pursuant to which the developer demolished the property
and constructed a new building comprising of three floors. In consideration of
granting the development rights, the assessee received Rs. 4 crores and two
floors of the new building. The Assessing Officer held that in computing
capital gains, the cost of construction of Rs. 3.43 crores incurred by the
developer on the development of the property had to be added to the sum of Rs.
4 crores received by the assessee. The assessee claimed that as the said
capital gains was invested in the said two floors, she was eligible for
exemption under section 54. The Assessing Officer rejected the claim on the basis
that the units on the said floors were independent & self-contained and not
“a residential house” and granted exemption for only one unit. The CIT(A) and
Tribunal upheld the assessee's claim by relying on CIT v. D. Ananda Basappa
(2009) 309 ITR 329 : 223 CTR 186 : 180 TAXMAN 4 (Karn) and CIT v. K.G.
Rukminiamma (2011) 331 ITR 211 (Kar). On appeal by the department to the High
Court HELD dismissing the appeal. - [CIT v. Gita Duggal (2013) 357 ITR 153 :
257 CTR 208 : 214 TAXMAN 51 : 84 DTR 346 (Del)]
The appeal against the aforesaid
decision was dismissed by the Supreme Court by an order reported in Gita
Duggal v. CIT (2015) 228 TAXMAN 62 (2014) 52 taxmann.com 246 (SC).
Assessee purchasing
residential house in name of his wife is entitled to exemption under section
54F
The assessee, an
individual, inherited 50 per cent share in a residential house from his father.
In computing the capital gains, the assessee claimed exemption under section
54F of the Acton the ground that the sale proceeds were invested in the
acquisition of a vacant plot and purchased a residential house in the name of
his wife. The Assessing Officer took the view that under section 54F, the
investment in the residential house should be made in the assessee’s name and
inasmuch as the residential house was purchased by the assessee in the name of
his wife, the claim was not allowable. He restricted the exemption and computed
the capital gains. The Commissioner (Appeals) allowed the claim. This was
confirmed by the Tribunal. On appeal by revenue dismissing the appeal, the
court held that for the purposes of section 54F, the new residential house need
not be purchased by the assessee in his own name nor is it necessary that it
should be purchased exclusively in his name. Moreover, the assessee had not
purchased the new house in the name of a stranger or somebody who was
unconnected with him. He had purchased it only in the name of his wife. There
was also no dispute that the entire investment had come out of the sale
proceeds and that there was no contribution from the assessee’s wife.
Therefore, the Tribunal was right in law in allowing the claim of the assessee
under section 54F. (Related Assessment year : 2008-09) – [CIT v. Kamal Wahal
(2013) 351 ITR 4 : 214 Taxman 287 (Del.)]
Failure to construct residential house within stipulated period – not entitled to Section 54F deduction
It was held that assessee was not
entitled to Section 54F deduction where the assessee sold a property but failed
to construct new residential house within specified period on plot purchased by
her out of sale proceeds of that property.—[Anu Agarwal v. IT0 (2013) 55 SOT
294 - Date of Judgement : 27.1 1.2012 (ITAT Chandigarh)]
Section 54F is extendable to the assessee for the total consideration paid by him, for the purchase of the new asset (the residential property) in the joint name
Assessee having invested the entire amount of long-term capital
gains in purchase of new residential house though in the joint names of himself
and his wife, assessee was entitled to full exemption under section 54F.
Objective of section 54F and the like provision such as section 54 is to
provide impetus to the house construction and so long as the purpose of house
construction is achieved, such hyper technicality should not impede the way of
deduction which the legislature has allowed. Moreover, section 54F mandates
that the house should be purchased by the assessee and it does not stipulate
that the house should be purchased in the name of the assessee only. The Hon’ble Delhi High Court, following the principles laid
down by the Hon’ble Andhra Pradesh High Court in the case of Late Mir Gulam
Ali Khan v. CIT (1987) 165 ITR 228 : (1986) 28 Taxman 572 (AP) held that
the language of section 54F does not mandate that the house property should be
purchased in the name of the assessee alone. The Honourable Delhi High Court
held that the word “assessee” must be given wide and liberal interpretation as
held by the Hon’ble AP High Court in the case of Late Mir Gulam Ali Khan
(supra). The Hon’ble Delhi High Court further held that language contained
under section 54F(1) is pari materia with section 54 of the Act. – [CIT v.
Ravinder Kumar Arora (2012) 342 ITR 38 : 252 CTR 392 : (2011) 203 Taxman 289 :
15 taxmann.com 307 (Del.)]
A bare reading of section
54F(1) makes it clear that there is no requirement that the house has to be
purchased in the name of the assessee only. Section 54F(1) only requires that
the assessee must purchase a house. In the instant case, the fact remained that
the minor daughter has no ostensible source to make such investment in purchase
of flat. It is the case that the assessee who actually made the investment from
the sale consideration received towards sale of shares. The assessee has also
explained the reason behind registration of the house in the name of his minor
daughter that her daughter was very auspicious for the assessee.
The intention of the
Legislature in introducing section 54F as explained in Board's Circular No. 346
dated 30.06.1982 is for encouraging house construction. An encouragement is
given to the assessee to exchange one of the residential houses for another or
where he has none to convert any of his long term assets into a residential
house. The object is to encourage large scale house building activity or
investment in house property to meet acute housing shortage in the country.
Therefore, in view of the legislative intent, a liberal interpretation has to
be given to section 54F which is a beneficial provision. It is also
well-settled principle of law that when there are divergent views, to give
effect to a beneficial provision the view favourable to the assessee has to be
adopted. In the aforesaid view of the matter, following the ratio laid down by
the jurisdictional High Court in case of late Mir Gulam Ali Khan (supra) and by
the Delhi High Court in case of Ravinder Kumar Arora (supra) and also by the
ITAT, Madras Bench in Third ITO v. S. Vardarajan (1989) 33 TTJ 466, the
assessee will be entitled for deduction under section 54F for the flat purchased
in the name of his daughter subject to the restrictions under the proviso to
section 54F(1). [In favour of assessee] (Related Assessment year : 2008-09) - [N.
Ram Kumar v. ACIT (2012) 138 ITD 317 : 25 taxmann.com 337 (ITAT Hyderabad)]
Failure to construct residential house within stipulated period
It was held that assessee was not
entitled to section 54F deduction where the assessee sold a property but failed
to construct new residential house within specified period on plot purchased by
her out of sale proceeds of that property.—[Anu Agarwal v. ITO, 28
taxmann.com 286, DoJ - 27.11.2012, ITAT Chandigarh]
Property sold by HUF but
purchased in the name of co-parcener – No benefit under section 54F
A
property owned by the HUF was sold for Rs. 80,00,000/-. The new house property
was purchased in the name of co-parcener (daughter). It was held that the
agricultural land which was sold of by the assessee - HUF and the flat
purchased in the co-operative society was not in the name of the HUF. The flat
was in the individual name of V along with his mother. To claim the benefit of
section 54F, the residential house which was purchased or constructed had to be
of the same assessee whose agricultural land was sold. Therefore, there was no
question of section 54F of the Act.—[Vipin Malik (HUF) v. CIT (2011) 330 ITR
309 (Del)]
Section 54F places thrust on
investment and not on completion
In this case the construction of
the house was not completed within the prescribed period. It was held that
section 54F does not prescribe completion of construction of residential house
and thrust of said section is on investment of net consideration received on
sale of original asset and start of construction of a new residential house.
The benefit under section 54F was allowed.— [Smt. Rajneet Sandhu v. DCIT
(2011) 133 TTJ 64 : 16 taxmann.com 210 (ITAT Chandigarh)]
Assessee is entitled to deduction
under section 54F for purchase of flat under construction before the expiry of
statutory period of two years from the date of the capital gain
Where assessee invested amount of
capital gain on sale of shares in purchase of flat before expiry of statutory
period, benefit of deduction under section 54F could not be denied to assessee
on ground that building was under construction stage and assessee had chosen to
pay entire advance.— [ACIT v. Sudhakar Ram (2011) 16 taxmann.com 175 (ITAT
Mumbai)]
Assessee, in the computation of
long-term capital gains, is not entitled to deduction under Section 54F of the
Income-tax Act in respect of investment in modification/expansion of an
existing residential house
The Tribunal took the stand that
exemption is available only when the investment is in the construction of a
house and not for investment in modification or renovation. Admitted facts are
that assessee had a fairly big house to which assessee made addition of 140 sq.
metres of plinth area. However, it is the conceded position that assessee has
not constructed any separate apartment or house. Section 54F does not provide
for exemption on investment in renovation or modification of an existing house.
On the other hand, construction of a house only qualifies for exemption on the
investment. Even addition of a floor of a self-contained type to the existing
house would have qualified for exemption. However, since the assessee has only
made addition to the plinth area, which is in the form of modification of an
existing house, she is not entitled to deduction claimed under Section 54F of
the Act.— [Mrs Meera Jacob v. IT0 (2009) 313 ITR 411 (Ker)]
Mere extention of existing building would not give
benefit to assessee under section 54F
The assessee got a share in
the house property as per the will of his father. He became the joint owner of
the property along with his brother. After becoming the joint owner of the
property, the assessee sold shares for the purpose of construction of an additional
floor in the house for him. The assessee claimed long-term capital gain derived
on sale of shares as exempt under section 54F. The Assessing Officer disallowed
the assessee's claim for the reason that he was already owning a house on
co-ownership basis and had only extended the co-owned, bequeathed property and
no new asset had come out of the investment as per the assessee's claim. On
appeal, the Commissioner (Appeals), however, accepted the assessee's claim.
On revenue’s appeal, the
Judicial Member held that the assessee was not entitled to exemption under
section 54F, whereas the Accountant Member held otherwise. In view of
difference of opinion between the Members, the matter was referred to the Third
Member
Held
(Per Third Member) - Section 54F exempts tax on long-term capital gains arising
from transfer of any long-term capital asset (not being a residential house)
invested in a residential house. This exemption cannot be availed if there is a
house in existence on the date of transfer. In the instant case, it was found
that the assessee was the joint owner of the house property along with his
brother on the date of transfer and he had utilized the long-term capital gain
for construction of additional floor in the same house. The Jurisdictional High
Court in the case of CIT v. V. Pradeep Kumar (2007) 290 ITR 90 (2006) 153
Taxman 138 (Mad.) held that a mere extension of the existing building would
not give benefit to the assessee under section 54F. The case of the assessee
clearly came within the ken of the ratio of the aforesaid decision. In view of
the decision of the Jurisdictional High Court which was of binding nature, the
view taken by the Judicial Member was to be accepted. - [ACIT v. T.N. Gopal
(2009) 125 TTJ 1 : 121 ITD 352 : (2010) 1 ITR(T) 309 (ITAT Chennai)(TM)]
Section 54F emphasizes construction of residential house and
such construction must be real one and should not be a symbolic construction - Mere
construction by way of extension of old existing house would not mean
constructing a residential house as contemplated under section 54F and such
construction of existing building would not be exempted under section 54F
The assessees who were individuals sold a house property on
22-6-1985 which was jointly owned by them. They claimed exemption under section
54F in respect of 50 per cent share of capital gain in the original returns
declaring their intention to construct a residential house within the specified
period of three years as per section 54F, i.e., before 21.06.-1988. The
assessments were completed under section 143(1)(a). Later on, an enquiry it was
found that there was only an old building and there were no new construction by
the assessees. Consequently, the Assessing Officer holding that the assessees
were not entitled to exemption under section 54, reopened the assessment under
section 148 and taxed the entire capital gains of Rs. 8,25,957. On appeal, the
Commissioner (Appeals) confirmed the order of the Assessing Officer. On further
appeal, the Tribunal granted exemption to the assessees under section 54F.
In reference, assessee’s case was that there were new construction by both the assessees but as they were unauthorized construction, same were demolished later.
The burden was on the assessees to prove that they had
actually constructed new residential houses for purpose of the exemption under
section 54F. It was stated by the assessees that the assessees had constructed
new residential houses, but they were unauthorised constructions and the same
unauthorised constructions were later demolished for purpose of modernisation.
In the instant case, there was no tangible material to even infer that a residential
house was constructed. One of the assessees said that there was an extension to
an existing structure and the other said that the out-house was demolished; a
new construction was put up in its place and both being unauthorised, had been
pulled down on their own voluntarily. Section 54F emphasizes on construction of
residential house. The said construction must be real one. It should not be a
symbolic construction. Further, it was seen from the finding of the Tribunal
that one of the assessees had undertaken an extension work in the old building
in the ground floor and first floor. From the above finding it was clear that
there was no residential house and it was only an extension of the old
building. A mere extension of the existing building would not give benefit to
the assessee as contemplated under section 54F. In the case of another
assessee, it was stated by the Tribunal that he had constructed a small
building measuring 382 sq. ft. by demolishing the existing A.C.C. roofed
outhouse of 324 sq. ft. There was no acceptable proof for such construction.
Mere construction by way of extension of the old existing house would not mean
constructing a residential house as contemplated under section 54F. The
argument of the assessees about the construction of residential houses was not
based on any valid material and the assessee was not entitled to the benefit of
section 54F. Also, there was no evidence or contemporaneous documents available
to show that there were constructions. The assessees failed to satisfy the
conditions contemplated under section 54F.
In the instant case, the finding of the Tribunal was not
based on any evidence. The order of the Tribunal was perverse and it was
patently erroneous and unreasonable because it had overlooked the materials
produced by the Assessing Officer and in the absence of any material, the
Tribunal had come to an erroneous conclusion, and, hence, the Court could
interfere under reference. The documents relied on by the assessees before the
Tribunal were mere letters addressed by the architect. The said architect had
given a quotation and bill and his acknowledgement of the receipt of a sum of
Rs. 75,000 from each of those two assessees, which were not sufficient to prove
that there was construction of residential houses. The said documents and other
evidences were produced first time before the Tribunal. But the revenue had
relied on the inspection report and also verified with the Corporation and
further they had taken photographs of the place and all those documents
revealed that there was only an extension of old building. In the instant case,
there was no proof for the construction of the residential houses and, hence,
the assessees were not entitled to relief under section 54F. [In favour of
revenue] (Related Assessment year : 1986-87) –[CIT v. V. Pradeep Kumar (2007) 290
ITR 90 : (2006) 203 CTR 579 : 153 Taxman 138 (Mad.)
Cost of vacant land appurtenant to
and forming part of a residential unit is to be considered for claim of
exemption under section 54F even if no construction has been done on
appurtenant land.— [Addl. CIT v. Narendra Mohan Uniyal(2009) 34 SOT 152
(Delhi)]
In the instant case, the deceased assessee,
admittedly, though sold the property owned by him, yet purchased the new
property in the name of his adopted son and paid consideration out of the sale
proceeds in question, with clear intention to transfer the property to the
adopted son. He, therefore, had utilised the sale proceeds to construct a house
by transferring the property and submitting plan in the name of his only son.
The intention was very clear from the day one to transfer the property even
before the construction of residential house to the adopted son. He had
transferred the property before the prescribed period, as per the scheme of
section, and the son had become the owner of the property for all the purposes.
The deceased/assessee, admittedly, had no domain and/or right whatsoever on the
said property. That fact itself, therefore, had disentitled him to claim any
exemption. - [Prakash v. IT0 &
Ors. (2009) 312 ITR 40 : (2008) 220 CTR 249 : 173 Taxman 311 (Born.)]
Expenditure to make a residential
house habitable will be included in the cost of new asset
The words used about the amount
spent on purchase of new asset are 'cost thereto' and not 'price theretof. The
cost includes purchase as well. Consequently, the words used signify that the
amount of purchase will include other necessary expenditure in this behalf to
make a residential house habitable and taken together that will be the cost of
the new asset. The Tribunal had perused the items of the report of the
architect. The residential house was in a state of general disrepair and was
inhabitable. Consequently, the necessary repairs carried out to make the same
habitable, would constitute part of the cost of new house.—[Gulshanbanoo R.
Mukhiv. JCIT (2002) 83 ITD 649 (1TATMumbai)]
Exemption under section 54F would
be allowable where assessee is already a co-owner of another flat
The word 'own' appearing in section
54F includes only such residential house which is fully and wholly owned by one
person and not a residential house owned by more than one person. The assessee
was already a co-owner of another flat. Being a co-owner, assessee was not the
absolute owner of another residential flat, and exemption under section 54F
could be denied on this ground.—[ITO v. Rasiklal N. Satra (2006) 98 ITD
335(ITAT Mumbai)]
Booking of flat with a builder
amounts to construction
Booking of flat with a builder is a
case of construction and not purchase of residential flat and therefore, time
period of 3 years is applicable.—[Kishore H. Galaiya v. IT0 (2012) 24
taxmann.com 11 (Mum)]
The benefit of section 54F is
available for construction of a house where a person purchases an old building,
demolishes it and constructs a new building, the entire exercise could be
understood as one of construction, so that relief need not be limited to the
cost of the old building but the entire cost of construction.—[M. Vijaya
Kumar v. IT0 (2008) 307 ITR 4 (AT(Banga1ore)]
Amount not utilized in
purchase/construction of house should be deposited in the specified bank
notified by the Government [Section 54F(4)]
Section 54F(4) of the Act specifically
provides that the amounts which have not been invested either in
purchase/construction of house have to be deposited in the specified accounts
before the due date of filing of return of income under section 139(1) of the
Act. Out of sale consideration of 85 lakhs, assessee having invested 35 lakhs
only towards construction/purchase of house before filing the return and did
not deposit the balance amount in specified bank account, Tribunal was
justified in restricting the benefit of section 54F to 35 lakhs only.—[Humayun
Suleman Merchant v. Chief Commissioner of Income Tax & Anr.(2016) 290 CTR
496 (Born.)]
Where the assessee had deposited
sale proceeds in normal savings account as against scheme specified by Central
Government through notification in Official Gazette as per section 54F(4), it
violated provisions of section 54F(4), hence the assessee is not eligible for
exemption. - [Thakorlal Harkishandas Intwala v. IT0 (2011) 43 SOT 347 (Ahd)]
Investment made before sale of
existing residential property is not entitled to exemption [Section 54F]
Investment in construction of new
residential property made by assessee is not entitled to deduction under
section 54F to the extent the same is made before the sale of existing
residential property. (Related Assessment year: 2008- 09)—[Smt. Nimrnagadda
Sridevi v. DCIT (2013) 58 SOT 54 (ITAT Hyderabad)]
Exemption under section 54F would
be allowable where assessee is already a co-owner of another flat
The word 'own' appearing in section
54F includes only such residential house which is fully and wholly owned by one
person and not a residential house owned by more than one person. The assessee
was already a co-owner of another flat. Being a co-owner, assessee was not the
absolute owner of another residential flat, and exemption under section 54F
could be denied on this ground.—[IT0 v. Rasiklal N. Satra (2006) 98 ITD 335
(ITAT Mumbai)]
Date of purchase of residential
house/flat has to be reckoned from the date when entire consideration is paid and
title of the property is transferred and possession of flat is handed over
The Hon'ble Bombay High Court in
the case of CIT v. Smt. Beena K. Jain in the appeal by Department, upholding
the order of Tribunal and allowed the benefit of exemption under section 54F to
the assessee. The substantial question for consideration before the Hon'ble
High Court was :
“Whether, on the facts and in the
circumstances of the case, the Tribunal was right in allowing exemption of Rs.11,04,423/-
under section 54F of the Income Tax Act, 1961, considering the date of
possession of the new residential premises instead of the date of sale
agreement and the date of registration ?”
The Hon'ble High Court decided the
issue in favour of the assessee by answering the question as under :
“Under section 54F of the
Income-tax Act, in the case of an assessee if any capital gain arises from the
transfer of any long-term capital asset, not being a residential house, and the
assessee has, within a period of one year before or two years after the date on
which the transfer took place, purchased a residential house, the capital gain
shall be dealt with as provided in that section. As per the section certain
exemption has to be allowed in respect of the capital gains to be calculated as
set out therein. The Department contends that the assessee did not purchase the
residential house either one year prior to or two years after the sale of the
capital asset which resulted in the long-term capital gains. According to the
Department, the agreement for purchase of the new flat was entered into more
than one year prior to the sale. Hence, the petitioner is not entitled to the benefit
under section 54F. In our view, the Tribunal has rightly negatived this contention
and has held that the new residential house had been purchased by the assessee
within two years after the sale of the capital asset which resulted in
long-term capital gains. The Tribunal has held that the relevant date in this
connection is July 29, 1988, when the petitioner paid the full consideration
amount on the flat becoming ready for occupation and obtained possession of the
flat. This has been taken by the Tribunal as the date of purchase. The Tribunal
has looked at the substance of the transaction and come to the conclusion that
the purchase was substantially effected when the agreement of purchase was
carried out or completed by payment of full consideration on July 29, 1988, and
handing over of possession of the flat on the next day.”—[CIT v. Smt. Beena K.
Jain (1996) 217 ITR 363 (Bom)]
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