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Income Tax Act - Section 54 F

30-Oct-2012

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.21

Bare section as per Income Tax Act- 54F.

  • 22[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 23[two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (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,—

    1. 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 ;

    2. 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:

    24[Provided that nothing contained in this sub-section shall apply where—

      1. the assessee,—
        (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
        (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

      2. 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,—

    25[***]

    26[***] "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.

  • Where the assessee purchases, within the period of 27[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 (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 residential house is purchased or constructed.

  • 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.]

  • 28 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 utilized 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 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme29 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 utilized 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 utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

    1. 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 utilized 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

    2. the assessee shall be entitled to withdraw the un utilized amount in accordance with the scheme aforesaid.

  • USEFUL TIPS

    In the language of the Layman this section can be construed as follows-

    1. This section was originally inserted by the Finance Act 1982, w.e.f. 01/04/1983.

    2. It is applicable when an assessee sales any capital assets (except residential house) and invest the sales proceeds (consideration –sales expenses) within specified period into a residential house.

    3. This section is applicable to only individual and HUF assesses.

    4. The net sales consideration should be invested in a residential house either one year prior to the sale of capital asset or within 2 years from the sale of such capital asset.

    5. Even the assessee can claim exemption under this section by constructing a residential house within 3 years from the date of transfer of capital asset.

    6. This deduction u/s. 54F is not available, if the assessee holds more than one house at the time of transfer of capital asset.

    7. This deduction u/s. 54F is also not available, if the assessee purchases any residential house other than the one against for the 54F is claimed, within a period of 1 year after the date of transfer of capital asset.

    8. This deduction is also not available, if assessee constructs any residential house other than the one against for the section 54 is claimed, within a period of 3years after the date of transfer of the capital asset.

    9. And this deduction is also not permissible if the income from such residential house, other than the one residential house owned by the assessee on the date of transfer of capital asset is chargeable under the head income from house property.

    10. It is pertinent to note that the residential house against for the claim of 54F is made must be hold for another 3 years.

    11. If the assessee invests the net consideration partially in to the residential house the claim of exemption u/s. 54F will be restricted thereto.

    12. It is also pertinent to note that if the net consideration or a part thereof is not utilized fully for the claim of section 54F, it should be deposited into specified account within the specified period.

    13. The title of the residential house acquired for the claim of section 54F had also been liberalized by the court decision.

    14. The investment in number of residential houses for the claim of section 54F had also been liberalized by the court decision.

    15. The completion of the residential house for the purpose of claim u/s. 54F has also been liberalized by the court of law.

    16. The principle aim of introduction of this section is to boost the residential houses for the common people.

    17. The introduction of this section is constitutionally valid.

    18. There is no Supreme Court decision directly applicable for the deduction of section 54F.

    19. There is no penalty for wrong claim of deduction.

  • USEFUL CITATIONS

    1. HUF can’t claim deduction u/s. 54F for property purchased by individual in his individual capacity.

      Decided by: High Court of Delhi, In the case of: Vipin Malik (HUF) v/s. CIT, Appeal No. ITA No. 241/2007, Decided on August 7, 2009.

    2. Two separate agreements to purchase a flat having two separate numbers do not mean that they are two residential units

      Decided by: ITAT, Mumbai Bench ‘E’: Mumbai, in the case of Suresh C. Sadarangani v/s. ACIT, Appeal No. ITA No. 953/Mum/08, Decided on: August 27, 2009.

    3. Exemption u/s. 54 in respect of more than one residential flat acquired by the assessee under a joint development agreement with builder.

      Can exemption u/s. 54 be claimed in respect of more than one residential flat acquired by the assessee under a joint development agreement with a builder, wherein the property owned by the assessee was developed by the builder who constructed eight residential flats in the said property, four of which were given to the assesse?
      CIT v/s. Smt. K.G. Rukminiamma: ITA no. 783/2008 dated August 27, 2010.

    4. Section 54 exemption available on exchange of old flat by new.

      Shri. Jatinder Kumar Madan v/s. Income Tax Officer: ITA No. 6921/Mum/2010 A.Y. 2006-2007, Date of Pronouncement 25/04/2012.

    5. S, 54F- Deduction on investment made after due date before return filing?

      Section 54F Deduction available on investment made after due date but before filing of return u/s. 139.
      R.K.P. Elayarajan v/s. Deputy Commissioner of Income Tax: (2012) 23 taxmann.com 206 (Chennai).

    6. No penalty due bona fide mistake in calculation of deduction u/s. 54F

      Sarv Prakash Kapoor v/s. Deputy Commissioner of Income Tax : (2012) 26 taxmann.com 256 (Agra).

    7. S. 54F if assessee claims 2 flats as one. Exemption u/s. 54EC if wife and daughters are co-holders?

      Assistant Commissioner of Income Tax v/s. Vijay S. Shirodkar: IT Appeal No. 4141 (Mum.) of 2010 A.Y. 2007-08, August 30, 2011

    8. Deduction u/s. 54F available for flat purchased in minor daughters name

      Shri. Ram Kumar v/s. ACIT: (2012) 25taxmann. Com 337 (HYD.)

    9. Section 54F – A Fundamental Study
      Cases Referred –

      a. CIT v/s. Pradeep Kumar (2006) 153 Taxman 138 (Mad.)
      b. Usha Gupta v/s. CIT (2008) 296 ITR 287 (Raj.)

    10. S. 54F- Property jointly owned not to be added in calculating houses owned by assessee.

      Dr. (Smt.) P.K. Vasanthi Rangarajan v/s. Commissioner of Income Tax : (2012) 23 taxmann.com 299 (Madras High Court).
      Merely because assessee jointly owned another property on the date of transfer of asset, its claim for exemption u/s. 54F could not be rejected in respect of LTCG earned from transfer of individual property.

    11. Section 54F available even if borrowed funds used for investment.

      J.V. Krishna Rao v/s. Deputy Commissioner of Income Tax : (2012) 24 taxmann.com 104 (HYD.)

    12. Section 54F exemption available on residential house constructed on agricultural land

      Assistant Commissioner of Income Tax v/s. Om Prakash Goyal : (2012) 24 taxmann. Com 67 (Jaipur).

    13. Deduction u/s. 54F available on construction of building

      Smt. Dharam Shobha Rani v/s. Income Tax Officer: IT Appeal No. 72 & 454 (HYD.) of 2012 A.Y. 2006-07, July 20, 2012.

    14. Sec. 54F- House owned by wife not to be considered

      S. Krishna Kumar v/s. Assistant Commissioner of Income Tax : IT Appeal No. 837 (Mad.) of 2012, A.Y. 2007-08, dated May 4, 2012.

    15. …… ere assessee invested sale proceeds of capital assets into residential house which was again sold and sale proceeds whereof were invested in other residential house, deduction u/s. 54F was allowable.

      Assistant of Commissioner of Income Tax v/s. Ms. Sultana Nazir: (2012) 21 taxman. Com. 385

    16. Where assessee had invested total sales consideration in construction of residential house within 3 years after transfer of plot the assessee is entitled to exemption u/s. 54F though the house was completed after 3 years.

      Smt. Usha Vaidya v/s. ITO: (2012) 25 taxman, com 188 (Amritsar).

    17. Denial of exemption u/s. 54F where there was no clear evidence to show that the assessee is deemed owner of two houses.

      S. Krishna Kumar v/s. ACIT: (2012) 22 taxman. Com 200 (Chennai)

    18. In the case the assessee transfers its tenancy rights in a property and their after made qualifying investment u/s. 54F which is more than the consideration for the surrender of tenancy rights he is entitled to deduction u/s. 54F.

      DCIT v/s. Tejinder Singh: (2012) 50SOT 391 (Cal.)

    19. Once it is demonstrated that consideration received on transfer of capital asset is invested in a residential property, fact that transactions involved in purchase or construction of such residential property are not complete in all respect would not dis entitled assessee from benefit of exemption u/s. 54F.

      CIT v/s. Sanbandam Uday Kumar: (2012) 19 taxman.com 17 (Karnataka high Court)

    20. Where assessee claim deduction u/s. 54F but till date even possession of plot not handed over to him exemption will not be available.

      Pankaj Wadhwani v/s. CIT: (2012) 135 ITD 109 (Indore)

    21. Section 54F exemption could not be denied where though assessee invested sale consideration for purchasing land but could not construct building due to court order.

      Smt. V.A. Tarabai v/s. CIT: (2012) 50 SOT 537 (Chennai).

    22. Deduction u/s. 54F is not to be denied merely because the titled deed contains the name of assessee and his wife.

      Ravindra Arora v/s. ACIT: (2012) 21 taxman. Com 305 (Delhi).

    23. Investment of consideration and not completion of construction pre-requisite for deduction u/s. 54F

      Smt. Rajeet Sandhu v/s. DCIT: 16 taxman.com 210 (Chandigarh)

    24. Construction of house for the purpose of section 54f must be real and not symbolic.

      CIT v/s. Pradeep Kumar (Madras High Court) 2006-203 CTR 579.

    25. Claim of 54F at the time of proceedings is justified.

      Gyanchand Batra v/s. ITO : (2010) 36 II ITCL 631 (Mumbai Tribunal).

    26. Where assessee purchase ground floor of house when vendor built Ist floor assessee purchase 1st floor by separate deed, claim of section 54F is allowed because the ground floor and 1st floor constitutes two residential houses.

      Smt. Hansabai Sanghi v/s. ITO: (2014) 89 ITD 239 (HYD.)

    27. Extension of existing old house qualifies for the claim of section 54F.

      CIT v/s. V. Pradeep Kumar (2006) 203 CTR (Mad.) 579.

    28. Construction of house in the land owned by wife is permissible for the claim of section 54F.

      CIT v/s. P.R. Sheshadari: (2010) 228 CTR (Kar.) 334.

    29. It is not necessary that the document of the purchase of the house should be registered.

      Balraj v/s. CIT: (2002) 173 CTR (Delhi) 452

    30. CIT v/s. Ajitsingh Khajanjee: (2007) 211 CTR 403 (M.P.).

    31. In the case of depreciable asset and Long Term Capital Gain thereof the claim of section 54F can be made.

      CIT v/s. Rajiv Shukala: (2011) 334 ITR 138 (Delhi)

    32. Investment out of sale consideration of capital asset is not necessary to qualify for deduction u/s. 54F.

      CIT v/s R. Shrinivassan: (2010) 235 CTR (Mad.) 588.
      Before insertion of sub-section (4) in section 54F there was no requirement that the sale price should be actually invested in the house property and it was sufficient if the legal title to the property vested with the assessee within the stipulated period.
      CIT v/s. Smt. Kanta Devi Saraf: (2002) 172 CTR (Cal.) 322.

    33. The provision of section 54F is constitutionally valid

      Abdul Gaffar v/s. ITO (2006) 203 CTR (Kar.) 198.

    34. Penalty is not leviable for the wrong claim of deductions

      Reliance Petro products Pvt. Ltd. v/s. CIT CIVIL APPEAL No. ________OF 2010 (Arising out of SLP (C) No.27161 of 2008) dated 17/03/2010.

    35. Circulars to be considered:

      1. Circular No. 471 dated 15/10/1986.
      2. Circular No. 667 dated 18/10/1993
      3. Circular no. 672 dated 16/12/1993
      4. Circular no. 743 dated 06/05/1996.

    36. Notifications to be considered

      1. Notification no. GSR 725 dated 22/06/1988
      2. Notification no. GSR 724 € dated 22/06/1988.

  • Alert

    The section and the deduction u/s. 54F is very controversial issue and must be dealt with the facts of the individual case. The citations quoted above could be read carefully before making applicable to the individual cases. It is pertinent to note to consult our tax advisor before making or claiming any such deduction.

Compiled From-
Taxguru, Taxman.com, TPCC.in and CTR.

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