DEDUCTION (EXEMPTION?) U/S. 54 AND 54F OF INCOME TAX ACT, 1961
DEDUCTION (EXEMPTION?) U/S. 54 AND 54F OF INCOME TAX ACT, 1961
Under the Income Tax Act section 45 the capital gains arising from the transfer of capital assets effected in the previous year shall be chargeable to income tax under the head capital gains. There are two types of capital gains which are taxed under the section and those are short term capital gain (STCG) and long term capital gain (LTCG).
Whereas, under the Income Tax Act certain deductions have been provided which can be directly claimed from such income of capital gain. The sections discussed here under as section 54 and section 54F are the one, the investment in which, if it is made and the conditions enumerated there have been followed, the long term capital gain to that extent are not taxed on the hands of the eligible assessee.
It has been strongly advised by seniors that one should rely on the basic provisions from the bare Act, before making any interpretation of the said provision. Now let us analysis the basic provisions of the said two provisions under comparative status.
1. Both these provisions are applicable to the assessees such as an individual and Hindu undivided family (from 01/04/1988) only.
2. The deductions under both these sections are available from the long term capital gain arising out of the transfer of certain capital assets only.
3. It is pertinent to note that the, section 54 applies only in respect of capital gain arising from the transfer of long term capital asset being buildings or lands appurtenant there to and being a residential house, the income of which is chargeable under the head income from house property.
Whereas, the provision of section 54F applies to the capital gain arising from the transfer of any long term capital asset other than being a residential house.
4. However, under section 54F the capital gain arising from the transfer of depreciable assets (STCG) the deduction may could be available.
5. According to section 54 and 54F the eligible assessee could get deduction only if-
a. The assessee purchases a residential house before 1 year of the transfer took place or
b. The assessee purchases a residential house within a period of 2 years after the date on which the transfer took place or
c. The assessee constructs a residential house within a period of 3 years after the transfer took place.
6. It is pertinent to note that u/s. 54 the assessee should invest the net capital gain as calculated whereas, u/s. 54F the assessee should invest the net consideration as calculated.
7. The amount of deduction is depending on the how much amount had been invested in the purchase/construction of new residential house. Such as if the net capital gain u/s. 54 and the net consideration u/s. 54F have been fully utilized to purchase/construction of new house, in this situation the entire amount will be eligible for deduction. However, if the amount of utilization had not been completely made, in this situation the deduction will be eligible on pro-rata basis.
8. The eligible assessee had an option to deposit the unutilized capital gain u/s. 54 or unutilized net consideration of section 54F in to the capital gains account 1988 as framed by special notification thereon. If it is done the eligible assessee could claim deduction u/s. 54 or section 54F as the case may be and in subsequent years the amount deposited in the capitals gains account could be utilized to purchase new residential house.
9. It is pertinent to note that u/s. 54F the assessee will not be eligible to claim deduction under this section, if-
a. The said assessee-
i. Owns more than one residential house other than the new asset, on the date of transfer of original asset or
ii. Purchases any residential house, other than the new asset, within a period of one tear after the date of transfer of the original asset or
iii. Constructs any residential house, other than the new asset within a period of 3years after the date of transfer of the original asset. AND
b. 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.
10. In the case of section 54F the eligible assessee had to retain the new residential house for the 3 years from the date of his purchase or construction. Otherwise, the deduction claimed earlier will be taxed in the year of the sale of such new asset.
11. Under both the section 54 & 54F if the net capital gain u/s. 54 and the net consideration u/s. 54F which is deposited in the capitals gains account 1988.
i. The amount not so utilized for the purchase of residential house shall be charged u/s. 45 as the income of the previous year in which the period of 3 years from the date of the transfer of the original asset expires. AND
ii. The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
12. Difference in sections 54 & 54F: Materia excepting in one respect. While in the case of section 54 of the Act, it is building or a land appurtenant thereto, which is in nature of a residential house in case of section 54F, the long term capital asset other than a residential house. However, both the sections speak of either purchase or construction of ‘a residential house’.
Investment of Capital Gain in a ‘Residential House’ is necessary for getting exemption:- The foregoing discussion shows that under both the sections investment in ‘a residential house’ either by purchase or by construction within the stipulated periods is necessary to get the benefit of exemption from tax consequent to transfer of ‘capital assets’ of the nature described earlier. In this context understanding the meaning of the phrase ‘a residential house’ is necessary.
Interpretation of ‘A Residential House’ in the context of sections 54 & 54F: Controversies have cropped up between the Income Tax Department and the taxpayers. The I.T. Dept.’s view has been that the word ‘a’ before the words ’residential house’ indicates that the capital gain arising from the transfer of capital assets mentioned in sections 54 & 54F can be invested only in single (one) ‘residential house’ and not in more than one house. However, courts have interpreted that the word ‘a’ does not relate to any numerical aspect but has to be understood to mean that the exemption has to be for a house of a residential nature- not a single house.
The above discussion and analysis of both the section had been interpreted, viewed and decided by Hon. CBDT and in the various courts of law which is essential to discuss here under. In the court of law the various decisions, contradictory to each other had been decided from time to time, depending on the facts of the case and views interpreted by the justice authorities. We discuss here with same controversial issues as per the cases decided.
1. Section 54:- Assessee word has liberal meaning and means to include legal heirs.
2. The expression assessee in section 54 should also be interpreted to include HUF.
CIT v/s. Kannaiyaram: (1998) 147 CTR 267 (Madras).
3. Circular No. 520 dated 11/08/1988:- The deposit in capital gains account made after the due date of filing the return but before filing the actual return, in such case no interest or penalty leviable.
4. Circular no. 743 dated 06/05/1996:- The unutilized deposit amount under the capital gains account scheme 1988 in case of an individual who died before the expiry of the stipulated period cannot be taxed in the hands of deceased or his legal heirs.
5. Circular no. 667 dated 18/10/1993:- Both in the case of section 54 and 54F the land and construction of house are aggregated for the benefit of deduction in both the section are invested in the stipulated time.
6. The land appurtenant to the building does imply that the ownership of the building and the land appurtenant should be of the same person section 54.
The land appurtenant to the building should have a wider and broader meaning.
7. Exemption is allowable in full even if house is partly purchased or partly constructed.
BB Sarkar v/s. CIT (1981) Calcutta 132 ITR 150.
8. Exemption is allowable even if a share in new property is purchased (conditional).
CIT v/s. Chandanban Maganlal: (2000) 245 ITR 182 (Gujarat).
9. A plot of land, having a boundary wall and a garage cum room constructed thereon cannot be treated as a residential house. Rajesh Surana v/s. CIT: (2008) 306 ITR 368 (Rajasthan).
10. Construction of new house cannot precede sale of old house. The exemption is not available where the new construction is made before the transfer or sale of existing house.
Smt. Shantaben P Gandhi v/s. CIT: (1981) 129 ITR 218 (Gujarat).
11. Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house was began before the sale of old house.
CIT v/s. HK Kapoor: (1998) 150 CTR 128 (Allahabad).
12. The date of commencement of construction of new house is immaterial. However, the assessee must have constructed the new house within stipulated time.
CIT v/s. Subramaniam Bhatt: (1987) 165 ITR 571 (Karnataka).
13. It is not necessary that the assessee himself should construct a new house within stipulated time u/s. 54(1).
Smt. Bharati C Kothari c/s. CIT: (2000) 244 ITR 352 (Calcutta).
14. Date of purchase of house should be taken as date of agreement and NOT the date of registration of agreement.
CIT v/s. R L Sood: 108 Taxman 227 (Delhi).
15. The meaning of the word purchase should be wider. It does not include only cash. The word purchase occurring in section 54 (1) has to be given its common meaning- buy for price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration.
16. A person is entitled to claim exemptions u/s. 54 of the Act even in respect of a self-occupied residential house.
Circular 538 dated 13/07/1989.
17. For the purpose of attractive the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased.
Balraj v/s. CIT: (2002) 123 Taxman 290 (Delhi).
18. The word purchase should not be interpreted in its legal transfer therefore holding a legal title within stipulated period is not a pre-condition for attracting section 54.
(1995) Laxmichand Narpal Nagda 211 ITR 804 (Bombay).
19. Sate of taking possession is relevant for computing time limit. CIT v/s. Mrs. Shahzada Begum: (1988) 173 ITR 397 (AP).
20. The assessee can claim exemption u/s. 54 even if he is residing in the said house which is or a portion of which is purchased by him. (CIT v/s. Chandanban Maganlal: (2002) 120 Taxman 38 (Gujarat).
21. Where the investment in new house has not taken place in the year of transfer of old house, capital gain can be taxed only in the year in which time limits for making such investment expire.
Harshtrai J Raval v/s. CIT: (2002) 122 Taxman 165 (Gujarat).
22. Provision of section 54F is not ultra-virus.
Abdul Gaffar v/s. ITO: (2006) 154 Taxman 416 (Karnataka).
23. Relevant date means date of payment and possession and not the date of registration.
CIT v/s. Smt. Beena K Jain: (1994) 75 Taxman 145 (Bombay).
24. Claim not supported by documentary evidence cannot be allowed.
Usha Gupta v/s. CIT: (2006) 204 CTR (Raj.) 399.
25. The symbolic construction and not the real construction does not serve the purpose of section 54F. Even mere execution to existing house does not qualify for deduction u/s. 54F.
CIT v/s. V. Pradeep Kumar: (2006) 153 Taxman 138 (Madras).
26. The registration of document is not a pre-condition for deduction u/s. 54F.
CIT v/s. Ajit Singh Khajanchi: (2007) 163 Taxman 426 (MP).
27. The investment in residential house need not be termed a one or single. In other words investment in more than one residential house can qualify the deduction u/s. 54. The word single may please be read as plural as per section 13 (2) of General Clause Act.
CIT v/s. K.G. Rukmini Amma: (2011) 196 Taxman 87 Karnataka.
CIT v/s. Smt. D. Aranda Bosappa: (2009) 180 Taxman 4. (Karnataka).
CIT v/s. Smt. Jyoti K Mehta: (2011) 201 Taxman 79 (Mag.)
28. However, at certain times the investment in more than one residential house had been denied.
Pawan Arya v/s. CIT: (2011) 200 Taxman 66 (Mang.)
K C Kaushik v/s. PB Rane ITO: (1990) 84 CTR 62 (Bombay).
Investment in new asset need not be in the name of assessee. DIT v/s. Mrs. Jennifer Bhide: (2011) 203 Taxman 208 (Kar.).
29. Construction cannot precede sale of old house.
Smt. Shantaben P Gandhi v/s. CIT: (1981) 129 ITR 218 (Gujarat).
However, construction of new house prior to the sale of old house is tenable.
CIT v/s. H K Kapoor: (1998) 150 CTR 128 (All.). The property which is sold need not require fetching any income chargeable under the head income from house property.
Mrs. Sheela Bhagwandas Nichlani v/s. ITO: (2014) 146 ITD 244 (Mumbai).
30. Sale of long tenancy right and investment in section 54 not tenable.
Meher R Surti v/s. ITO: (2013) 40 taxmann.com 138 (Mumbai).
31. Realizing rights amounts to transfer hence eligible for deduction u/s. 54.
CIT v/s. T N Arvinda Reddy: (1979) 2 Taxman 541 (SC).
32. What factors are to be considered while deciding a justified are of land appurtenant to a residential house so as to allow exemption u/s. 54F has been elaborately discussed in the case of____
Tony J Pulikal v/s. DCIT: (2013) 37 taxmann.com 221 (SC).
33. Whereas the extent of the land appurtenant to the residential house had to be determined considering the social status of assessee.
Suryakumar Govindji v/s. Krishnammal: (1990) 4 SCC 343 (SC).
34. The factor of land appurtenant to the residential house had also been elaborately discussed in the case of
CIT v/s. V. Zaibunnissa Begum: (1985) 20 Taxman 120 (SC).
35. The issue of depositing the funds into capital gains account had been viewed differently in various cases- Even the due date of return had been relaxed as per section 139 (4) of the I.T. Act.
CIT v/s. MS Jagriti Agarwal: (2011) 203 Taxman 203 (P & H) Fatima Bai v/s. ITO: IT Appeal No. 435/2004 dated 17/10/2009.
CIT v/s. Rajesh Kumar Jalan: (2006) 157 Taxman 398 (Goa). Prakash Nath Khanna v/s. CIT: (2004) 135 Taxman 327 (SC). CIT v/s. V Kullu Valley Transport Co.: (1970) 77 ITR 518 (SC).
36. Discharging parental responsibilities may not be tax beneficial buying a new house in name of daughter may not allow relief u/s. 54F.
Geeta Vijay Lakshmi v/s. ITO: (2013) 37 taxmann.com 263 (Vishakhapatnam).
CIT v/s. Kamal Wahal: (2013) 214 Taxman 287 (Del).
N Ramkumar v/s. ACIT: (2012) 138 ITD 317 (Hyd.)
CIT v/s. Ravindra kumar Arora: (2011) 203 Taxman 289 (Delhi).
In all the three sections referred to above the requirement for claiming exemption is that assessee should acquire/purchase/construct a new asset, being either a residential house, or an agricultural land within the specified period. There is no further condition that assessee should acquire/purchase/construct the new asset in his own name. Such words are conspicuously absent from these provisions indicating that legislature intended to provide some latitude to the assessee as to the name in which new asset has to be acquired. It seems that intention of the legislature was to encourage investment out of old asset into new asset, subject to the condition that the assessee remains the legal owner of the asset. In other words, if the old asset is converted into a new asset and so long as assessee remains the owner of new asset no capital gains would be charged from him on the disposal of the old asset. From this it also follows that holding the new asset in the name of a close relative like wife, minor son or daughter will not take away the exemption, so long as the legal ownership over the new asset is not vested in the ostensible owner (i.e., wife, minor son or daughter). If acquisition/purchase/construction of the new asset is done in the name of a person, other than the assessee in such a way that assessee no longer remains the legal owner of the new asset then he will not get exemption under these sections. A clear rationable for this proposition is provided in the scheme of the Act under Chapter IV.
37. Relief u/s. 54 is available to the individual transferring house property and fulfilling the condition mentioned in the section and not to the HUF.
Instruction no. 1081 [F.No. 207/20/79-IT (A-II)] dated 03/08/1977.
38. If an assessee has retained more than one house for the purpose of his own or the parents own residence, and has used them for such residence and not for any other purpose, the capital gain arising on transfer of each of such house would qualify for exemption u/s. 54 provided the other conditions spelt out there in are fulfilled.
Letter no. 207/24/76-IT (A-II) dated 25/03/1977.
39. Capital gains from long term capital assets a d investment in a flat under self-financing scheme of the Delhi Develop Authority will be treated as construction for section 54 & 54F. Circular no. 471 (F. No. 207/27/85-IT(A-II) dated 15/10/1986.
40. Circular No. 672 dated 16/12/1993: The Hon. CBDT had decided that if the terms of the schemes of allotment and constructions of flats/houses by the co-op societies or other institutions are similar to those mentioned in para.2 of boards circular no. 471 dated 15/10/1986 (SL No. 428) such cases may also be treated as cases of construction for the purposes of section 54 and 54F of I.T. Act.
41. Circular no. 538 dated 13/07/1989: The capital gain arising from transfer of self-occupied residential house would be entitled to deduction.
42. The residential house means it should be residential in nature CIT v/s. Syed Ali Adil: (2013) 215 Taxman 283 (AP).
43. The expression Residential House should cannot in a constructed building several units can be conveniently and independently used as an independent residence.
Vitthal Krishna Conjeevaram v/s. ITO 144 ITD 325. (Hyd).
CIT v/s. Gita Duggal: (2013) 30taxmann.com 230 (Delhi).
44. Construction of house on the land owned by wife also allowed as deduction.
CIT v/s. Anr. V PR Sheshadari: (2010) 228 CTR 334(Kar.).
45. Renovation modification and extention of old house is not permitted for deduction.
CIT v/s. Pradeep Kumar: (2006) 203 CTR 579 (Mad.).
Mrs. Meera Jacob v/s. ITO: (2009) 313 ITR 411 (Kerala).
46. Assessee is entitled for deduction u/s. 54F on investment in long term capital gain arising from the sale of a house property in another house property even though assessee had been claiming depreciation on the said property before sale. CIT v/s. Rajeev Shukla: (2011) 334 ITR 138 Delhi.
CIT v/s. ACE Builders P Ltd.: (2005) 195 CTR 1 (Bombay).
47. It is not a pre- condition that the sale proceeds of original asset should be invested only to qualify for deduction.
CIT v/s. R Shrinivassan: (2010) 235 CTR 588 (Madras).
48. Section 54F deduction not allowed if assessee owns more than one residential house on the date of transfer.
ITO v/s. Ms. Apsara Bhavana: ITA No. 557/Hyd/2012 A.Y. 2008-09 decided on 13/09/2013 ITAT Hyderabad.
49. Section 54 exemption available even if investment is made under joint name with spouse.
ACIT v/s. V. Suresh Verma: ITA no. 3732/Del/2010 order dated 27/01/2012 ITAT Delhi.
50. Flats on different floors eligible for deduction.
DCIT v/s. Jai Trikhanand Rao: (2014) 41 taxmann.com 453 (Mumbai).
51. The bonafide expenditure on improvement for making it habitable, then it would be eligible as investment in new house.
Meher R Surti v/s. ITO: (2013) 40 taxmann.com 138 (Mumbai).
52. For the transfer of deposit under capital gains account scheme 1988 of one account to other the clearance of assessing officer is not required.
Sadula Janardhan (HUF) v/s. State Bank of Hyderabad: (2006) 286 ITR 291 (AP)
53. Capital Gains Account Scheme 1988 notified as per notification no. GSR 724 € dated 22-06-1988: (1988) 71 CTR (ST) 36.
54. Demolition of the house is transfer and exemption u/s. 54F may be withdrawn on such transfer.
ACIT v/s. Dilip Maher Parekh: ITA No. 6596/Mum/2011 and co. no. 3T/Mum/2012 decided on 30/01/2013 ITAT Mumbai.
55. Exemption u/s. 54F when the capital amount invested in two adjacent residential flats- ALLOWED.
DCIT v/s. Vikas Oberoi ITAI Mumbai: ITA No. 4632/M/2011 decided on 20/03/2013.
56. Section 54F benefit available even on value exceeding actual consideration due to deemed fiction u/s. 50C.
Raj Babar v/s. ITO ITAT Mumbai: ITA No. 6497/Mum/2011 decided on 02/01/13.
57. Section 54 Amount not utilized in construction of residential house within 3years is taxable in the year in which period of 3 years expires.
Sri. Prasad Nimmagadda v/s. DCIT ITAT Hyderabad: ITA No. 255/Hyd/2012 decided on 15/02/2013.
58. Section 54 exemption available on capital gain from sale of multiple houses invested in a new house.
DCIT v/s. Ranjit Vithaldas ITAT Mumbai: ITA no. 7443/Mum/2002 decided on 22/07/2012.
59. Section 54 two flats on different floors cannot constitute one house.
Smt. Mystle D’Souza v/s. ITO: ITA No. 3168/Mum/2011 decided on 20/06/2012 ITAT Mumbai.
60. Deduction u/s. 54F available on construction of building.
Smt. Dharam Shobha Rani v/s. ITO ITAT Hyderabad: ITA No. 72 and 454/Hyd/2012 decided on 20/07/2012.
61. Section 54F deduction available on investment made after due date but before filing return u/s. 139.
RKP Elyaranjan v/s. DCIT: ITAT Chennai: ITA No. 106/Mad/2012 decided on 15/02/2012.
62. Section 54 exemptions cannot be denied for payment by third party if subsequently reimbursed by assessee.
Sunil Sachdeva v/s. ACIT: ITAT Delhi: ITA No. 4179/Del/2011 decided on 15/01/2013.
63. Section 54F deposit in capital gains account scheme by section 139(4) due date is sufficient.
CIT Rothak v/s. Sr. Jagtar Singh Chawala: ITA No. 71 of 2012/O&M decided on 20/03/2013 High Court of Punjab & Haryana.
64. Section 54F exemption can be claimed for residential house purchased outside India.
Vinay Mishra v/s. ACIT: ITA No. 895/Bang/2012 S.P. No. 124/Bang/2012 decided on 12/10/2012 ITAT Bangalore.
Mrs. Prem P Shah & Sanjeev Shah v/s. ITO: (2006) 282 ITR 211 (Mumbai).
65. Section 54F exemption available on Residential house constructed on Agriculture Land.
ACIT v/s. Omprakash Goyal: ITAT Jaipur: ITA No. 647/JP/2011 decided on 02/02/2012.
66. Claim of section 54F justified even if the construction was not complete in all respect.
IT v/s. Sanbandam Uday Kumar Karnataka High Court: ITA no. 175/2012 decided on 15/02/2012.
67. Relief u/s. 54 allowed even if proceeds invested elsewhere but later on invested as per provision and conditions stipulated. CIT v/s. P S Pasricha: ITA No. 1825/2009 decided on 07/10/2009.
68. The borrowed funds are eligible for claiming deduction u/s. 54 & 54F if invested in residential house.
Milon Sharda Ruparel v/s. ACIT: 27 SOT 61 (Mumbai). K C Gopalan case: 107 Taxman 591 Kerala.
69. Where 4 flats purchases on different floors, however, one kitchen allowed.
CIT v/s. Sunita Agarwal: (2006) 284 ITR 20 Delhi.
70. 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.
71. 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.
72. 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.
73. 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.
74. 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).
75. 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
76. Deduction u/s. 54F available for flat purchased in minor daughters name
Shri. Ram Kumar v/s. ACIT: (2012) 25taxmann. Com 337 (HYD.)
77. 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.
78. 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.
79 Mere 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
80. 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).
81. 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)
82. 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.)
83. 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)
84. 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).
85. 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).
86. 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)
87. 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.
88. Claim of 54F at the time of proceedings is justified.
Gyanchand Batra v/s. ITO : (2010) 36 II ITCL 631 (Mumbai Tribunal).
89. 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.)
90. 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
91. 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)
92. 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.
93. Notifications to be considered
1. Notification no. GSR 725 dated 22/06/1988
2. Notification no. GSR 724 € dated 22/06/1988.
Friends, as we have seen that the various decisions have been spell with different decisions. Therefore, one has to look in to the following useful tips before applying the provisions of section 54 & 54F.
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. Generally there is no penalty for wrong claim of deduction.
From all above discussion we could definitely experience that the claim of deduction either u/s. 54 & 54F is not so easy. One should be very careful before applying the provisions of both the sections. It is been very much advisable to interpret the legal provisions of the particular section from the bare Act instead of relying upon the various controversial decisions resulted in various Court of law. It is most advisable to consult our counsel before taking any decision about availing the benefit of deduction of the any of the provisions mentioned here in above.
This article has been written for the general interest of our clients and professional colleagues and is subject to change. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this article.