The tax tribunal held that mere non-deposit of the long-term capital gains into the ‘capital gains account’ in a designated bank, for the interim period, cannot be the basis to decline the deduction claimed under section 54. This order is likely to support many taxpayers who are facing a similar situation.
Under section 54 of the Income-tax (I-T) Act, long-term capital gains (LTCGs) arising to an individual from sale of a residential property are exempt to the extent that such gains are invested towards purchase or construction of a new residential house, within the prescribed time.
The new residential house is to be purchased either one year before or two years after the transfer of the original property that was sold. Or it should be constructed within three years from the date of sale of the original property.
The time limit that is available for investment under section 54, is longer than the due date of filing the I-T return. The taxpayer who is unable to invest in a new house, before the due date of the tax return for the financial year in which the original house property was sold, can deposit the LTCGs in a ‘capital gains account’ opened by him in a designated bank. This deposit is to be utilized for the purchase/construction of a new residential house within the period prescribed under section 54.
In the case, that was heard by the ITAT, during the financial year 2011-12, S Gupta, had earned capital gains of Rs. 14.59 lakh on sale of a residential property that she co-owned. The entire amount was invested by her in a new residential property, within the given time. However, during a review of her assessment order, the Principal Commissioner noted that she had not deposited the funds in the capital gains account during the interim period till its utilization. The Principal Commissioner issued a revisionary order to disallow the deduction claimed under section 54. This led to the taxpayer filing an appeal being filed before the ITAT.Sankalp Malik, advocate, who represented the taxpayer in this case, told TOI, “The finding of the ITAT that when the basic conditions of section 54(1) are satisfied, the taxpayer remain entitled to claim the deduction, unequivocally shows that the courts are inclined to take a beneficial view, even if the amount is not deposited in the ‘capital gains account’ during the interim period. However, it is essential that the investment is made in the new residential house within the prescribed two-three year time frame.”
It should be noted that the ITAT bench while quashing the revisionary order observed that the Principal Commissioner had adopted a hyper-technical approach.
Published On Dec 13, 2023 at 09:02 AM IST
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