No condition that the assessee should utilize sale consideration only for the purpose of acquisition of new property

The exemption of section 54F is only available to individual and HUF. In a recent case the Delhi Tribunal held that there is no condition under section 54F that the assessee should utilize sale consideration only for the purpose of acquisition of new property. This article is based on a recent judgement in which it was held that there is no condition that the assessee should utilize sale consideration only for the purpose of acquisition of new property keeping in mind the provisions of Sec 54FNo condition that the assessee should utilize sale consideration only for the purpose of acquisition of new property Facts of the Case The assessee had sold shares and had computed long term capital gain on account of sale of the shares. The assessee had claimed exemption under section 54F on the ground that he had purchased a residential house property out of sale consideration. The Assessing Officer found that assessee had taken a loan from his employer and said loan was invested for purchase of the aforesaid house property. The Assessing Officer was of the view that assessee could claim benefit under section 54F to the extent of amount arrived at after deducting loan. Since unutilized part of long-term capital gain had not been deposited in a long-term capital gain account as per section 54F, the Assessing Officer made addition to income of assessee. The Commissioner (Appeals) confirmed the said order. The Decision of the Case 1) In order to avail the benefit of section 54F, the assessee is required to either purchase a residential house out of the sale proceeds or long term capital assets within a period of one year before or two years after the date on which transfer took place or within a period of three years after that date, construct a residential house. In such cases, gain shall be computed as per clauses (a) and (b) of sub-section (1). In case, the assessee is not able to appropriate the sale proceeds of long-term capital gain then, before filing of a return under section 139, he is required to deposit the same in any capital gain account with a bank or institution specified by the Government in an Official Gazettee. The assessee has to file proof of such deposit along with the return for claiming exemption under section 54F. The idea behind incorporating these sections is that assessee should make more investment in residential house, on sale of its long term capital assets 2)In the present case, the first date of capital gain is 8-11-2008. The assessee can acquire a house within a period 8-11-2007 up to November 2010i.e., one year prior to transfer of original capital assets and two years after the transfer of capital assets. The assessee had made investment in between February 2008 up to August 2008 i.e. well within period. Assessing Officer has also not disputed about the investment made by the assessee. His grievance is that investment was made after taking loan from the employer and, therefore, assessee cannot claim benefit under section 54F(1) qua the loan amount utilized for purchasing the new house. 3) On perusal of section 54F(1) and sub-section (4), it reveals that these sections do not put any restriction that only capital gain would be utilized for purchase of the new house. The law permits utilization of capital gain within the specified time, the assessee may use such funds for other purposes and may find resources from other source for investment in time. The section provides investment in a house prior to one year of the transfer of long term capital assets. It will make it clear that if the transfer has not taken place then from where the funds would come for making the investment. The investment must be from some other sources and when assessee would receive sale consideration on transfer of a long term capital asset, he will claim set off of the capital gains against the investment already made for the purpose of exemption under section 54F. 4)Thus, the Tribunal have erred in holding that assessee is not entitled for exemption under section 54F(1) for a sum of Rs. 121,32,636. The investment of the assessee is more than the capital gain earned by him. Therefore, the appeal of the assessee was allowed and the addition of Rs. 121,32,636 in the total income of the assessee under the head ‘Long term capital gain’ deleted Analysis of Section 54F Conditions to be fulfiled 1)      The assessee has purchased residential house property within one year or two years after the date of transfer, or has constructed a residential house within 3years after the date of transfer. 2)      The assessee shall not own more than one residential house, other than the new asset, on the date of transfer of the original asset. 3)      The income from the new residential house is chargeable to tax under the heads house property. Amount of Exemption 1)      If the entire net consideration on sale of Long term capital asset is invested in new residential house property the entire Capital Gain shall be exempted. 2)      If part of net consideration is invested in new residential house property, the amount of exemption is as follows:- (Amount Invested/ Net Consideration)*Capital Gains Withdrawal Of Exemption 1)      If the assessee purchases another residential house property, within the period of 2 years or construct another residential house within 3 years after the date of transfer, then the capital gain earlier exempt u/s 54F shall be deemed to be the Capital Gain of the previous year in which such residential house is purchased or constructed. 2)      If the new asset being the house property is transferred within the period of 3 years either from the date of purchase or construction, the capital gain exempt earlier u/s 54F shall be deemed to be the capital gain of the previous year in which such new asset is transferred. 3)      The Capital Gain on transfer of new house within 3 years of purchase or construction is a short term capital gain. 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