It is inappropriate to deny deduction under Section 54 for a simple technical error
Fact and Issue of the case
The brief facts of the case are that, the assessee is an employee of State Government working as Section Officer in the High Court of Madras, had filed his return of income for the assessment year 2016-17 on 24.09.2016, declaring total income of Rs. 5,28,270/-. During the financial year relevant to assessment year 2016-17, the appellant along with his siblings sold a residential property on 23.03.2016 for a consideration of Rs. 2,84,00,000/- and received total consideration of Rs. 3,50,00,000/- in his bank account which includes his share of consideration and consideration of his siblings. The assessee has computed long term capital gains from sale of property and claimed exemption u/s. 54 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by paying a sum of Rs. 50 lakhs to the builder as advance money for purchase of property and also deposited a sum of Rs. 1,69,61,612/- in a capital gain deposit account scheme. The assessee had also claimed deduction u/s. 54EC of the Act for Rs. 50 lakhs towards investment in NHAI bonds.
The brief facts of the case are that, the assessee is an employee of State Government working as Section Officer in the High Court of Madras, had filed his return of income for the assessment year 2016-17 on 24.09.2016, declaring total income of Rs. 5,28,270/-. During the financial year relevant to assessment year 2016-17, the appellant along with his siblings sold a residential property on 23.03.2016 for a consideration of Rs. 2,84,00,000/- and received total consideration of Rs. 3,50,00,000/- in his bank account which includes his share of consideration and consideration of his siblings. The assessee has computed long term capital gains from sale of property and claimed exemption u/s. 54 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by paying a sum of Rs. 50 lakhs to the builder as advance money for purchase of property and also deposited a sum of Rs. 1,69,61,612/- in a capital gain deposit account scheme. The assessee had also claimed deduction u/s. 54EC of the Act for Rs. 50 lakhs towards investment in NHAI bonds.
Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has filed a detailed written submission on the issue and contended that the assessee has satisfied conditions prescribed u/s. 54 of the Act, including depositing unutilized amount of capital gain into capital gain deposit account scheme in a nationalized bank. However, there is small delay in depositing unutilized amount in capital gains account deposit scheme, and for said technical breach deduction u/s. 54 of the Act cannot be denied.
Observation of the Court
The Tribunal has given our thoughtful consideration to the reasons given by the AO to deny benefit of deduction u/s. 54 of the Act, and we ourselves do not subscribe to the reasons given by the AO for simple reason that first of all, deduction provided u/s. 54 of the Act is a beneficial provision to encourage purchase of house by any assessee’s, who sells his house and such provision should be construed literally to give benefit to the assessee. However, it does not mean that said benefit may be given to all assessee’s who are not satisfying conditions prescribed therein u/s. 54 of the Act. In other words, in a case where assessee satisfies all conditions, but there is a technical breach in satisfying any one of the condition, then such technical breach needs to be viewed literally to give benefit, in light of the intent of legislature by way of section 54 of the Act. In this case, the assessee has satisfied all conditions, except there is a technical breach in one of the conditions of depositing unutilized capital gain amount in capital gains deposit account scheme on or before due date for filing return of income u/s. 139(1) of the Act, however, such deposits has been made on or before extended due date for filing return of income u/s. 139(4) of the Act. Admittedly, in the present case, the due date for filing return of income was on 05.08.2016, whereas, the appellant had deposited unutilized amount of capital gains in capital gain deposit account scheme on 19.09.2016, with a delay of 45 days. The assessee has explained reasons for depositing unutilized amount of capital gains in capital gain deposit account scheme, and further claimed that ultimately he has invested entire amount of capital gain for acquiring new asset within three years from the date of transfer of original asset.
In a considered view, when the assessee has satisfied all conditions including depositing unutilized portion of capital gain in capital gain deposit account scheme, then for minor technical breach, benefit of deduction u/s. 54 of the Act cannot be denied. This view is fortified by the decision of various High Courts including the decision of Hon’ble Karnataka High Court in the case of CIT vs K Ramachandra Roa, (supra), where on identical set of facts, the Hon’ble High Court held that when assessee utilizes entire sale consideration within three years from the date of transfer of land, he could not be denied exemption u/s. 54 of the Act. The ITAT, Chennai bench in the case of ACIT vs Justice. T.S. Arunachalam (supra), has taken a similar view and held that for technical breach, benefit of deduction u/s. 54 of the Act cannot be denied, when assessee has satisfied all conditions prescribed therein. In this case, there is no dispute with regard to the claim of the assessee, and is entitled for deduction, because the assessee has satisfied conditions prescribed therein u/s. 54 of the Act, and also deposited unutilized amount of capital gain in capital gain deposit account scheme in a nationalized bank. Though, there is a delay of 45 days, but the assessee has utilized full amount of capital gains for acquiring new residential house within three years from the date of transfer of original asset. Therefore, we are of the considered view, that the assessee is entitled for deduction u/s. 54 of the Act. The AO without appreciating facts disallowed deduction claimed u/s. 54 of the Act. The CIT(A), after considering relevant facts has rightly allowed relief to the assessee and thus, we are inclined to uphold the findings of the CIT(A) and reject grounds taken by the Revenue.
Conclusion
The tribunal dismissed the appeal of the department and ruled in favour of the assessee
