Case Note & Summary
The appellant, Humayun Suleman Merchant, sold a plot of land in Mumbai on 29th April 1995 for Rs.85,33,250/-, resulting in a long-term capital gain. To claim exemption under Section 54F of the Income Tax Act, 1961, he entered into an agreement to purchase a flat on 16th July 1996 for Rs.69,60,000/-. He paid two installments of Rs.10,00,000/- each on 17th July 1996 and 23rd October 1996, both before the due date for filing the return of income (31st October 1996). On 1st November 1996, he paid a further installment of Rs.15,00,000/-, and on 4th November 1996, he filed his return of income belatedly. The Assessing Officer, in a reassessment under Section 143(3) read with Section 147, computed the deduction under Section 54F proportionately, restricting the investment in the new asset to Rs.35,00,000/- (the amount paid before the due date) and allowing exemption only on that amount. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld this view. The High Court framed two substantial questions of law: whether the Tribunal was justified in applying Section 54F(4) and whether the computation of deduction was correct. The Court analyzed Section 54F, which allows exemption of capital gains if the net consideration is invested in a residential house within one year before or two years after the transfer. Section 54F(4) provides that if the investment is made after the due date for filing the return, the assessee must deposit the amount in a Capital Gains Account Scheme to claim exemption. The Court held that Section 54F(4) applies only when the investment is made after the due date. In this case, the appellant had invested Rs.35,00,000/- before the due date, which exceeded the net consideration of Rs.33,33,250/- (after deducting cost of acquisition). Therefore, the condition of Section 54F(4) was not attracted, and the appellant was entitled to full exemption. The belated filing of the return did not affect the entitlement. The Court allowed the appeal, set aside the Tribunal's order, and directed the Assessing Officer to allow the full deduction under Section 54F.
Headnote
A) Income Tax - Capital Gains - Section 54F Deduction - Investment Before Due Date - The appellant sold land and invested Rs.35,00,000/- in a new flat before the due date for filing return under Section 139(1). The Assessing Officer restricted deduction proportionately to Rs.35,00,000/- instead of the full net consideration. The Tribunal upheld this. The High Court held that since the investment before the due date exceeded the net consideration, the full exemption under Section 54F is allowable, and the belated filing of return does not attract Section 54F(4) which applies only when investment is made after the due date. (Paras 1-10) B) Income Tax - Section 54F(4) - Scope - Section 54F(4) applies only when the assessee invests the net consideration in a new asset after the due date for filing return under Section 139(1). If the entire net consideration is invested before the due date, the condition of Section 54F(4) is not attracted, and the assessee is entitled to full exemption even if the return is filed belatedly. (Paras 8-10)
Issue of Consideration
Whether the Tribunal was justified in applying Section 54F(4) of the Income Tax Act, 1961 to restrict the deduction under Section 54F proportionately to the amount invested before the due date of filing the return, when the appellant had invested more than the net consideration before the due date but filed the return belatedly.
Final Decision
The appeal is allowed. The impugned order of the Income Tax Appellate Tribunal dated 17th May 2002 is set aside. The Assessing Officer is directed to allow the full deduction under Section 54F of the Income Tax Act, 1961 to the appellant.
Law Points
- Section 54F(4) of Income Tax Act
- 1961
- capital gains exemption
- investment in new asset before due date of filing return
- belated return
- proportionate deduction
