The Madras High Court held that there is no prohibition on claiming capital gain deduction in respect of investments made prior to the sale of old assets. The Single bench held that the amount of advance given for the purchase of flat by the assessee prior to the sale of a capital asset is eligible for deduction under section 54 of the Income Tax Act, 1961.
The assessee, Ms.Moturi Lakshmi is an individual, filed her return of income for the assessment year under consideration for a total income of Rs.2,52,480. The return of income was processed under Section 143(1) of the Act.
Subsequently, the case was selected for scrutiny and the assessment was completed under Section 143(3) of the Act by order whereby the Assessing Officer disallowed the investments made by the assessee prior to the sale of assets.
As against the order of assessment, the assessee filed an appeal before the CIT(A). However, the appeal was dismissed. Aggrieved by that, the assessee filed a further appeal before the Tribunal, which also dismissed the appeal by the impugned order.
The court in the light of various precedents noted that that there was no prohibition for the assessee for putting up construction out of the sale consideration received by such transfer of site, which was owned by him as it was clear from the language of the provision.
The division bench of Justice T.S.Sivagnanam and Justice V.Bhavani Subbaroyan while answering in favor of the assessee held that the intention of the Legislature was to either purchase before or after the date of sale and the word ‘purchased’ or ‘constructed’ used in the Notes on Clauses amply makes the intention clear.
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