Capital Gain Deduction allowable for Purchase of House Property Abroad: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the capital deduction is  allowable for purchase of house property abroad.

The assessee, Joseph K. Zachariah earned long term capital gain at Rs.10.18 Crores. The assessee has invested in construction of a new residential house within the due date under section 139(1) of the Act. The assessee is having balanced capital gains, which ought to have been used for construction of residential houses or should have been deposited in the capital gain account notified by the Central Government in terms of section 54(2) of the Act. The assessee has not invested an amount which should have been invested in a capital gain account scheme.

In other words, as per section 54(2) of the Act, if the capital gain is not appropriated towards purchase of the new asset before one year from the date of transfer of the original asset or is not utilized for the purchase or construction of a new asset before the date of furnishing the date of return of income under section 139 of the Act, such unutilized capital gain has to be deposited in a capital account scheme, before the due date of furnishing the return of income provided  under section 139(1) of the Act.

Thus, section 54(2) of the Act has two conditions for availing deduction  under section 54(1) of the Act.

Firstly, the assessee has to utilize the capital gain in purchase of new property before the due date of furnishing the return of income  under section 139 of the Act, which encompasses sub-section (1), sub- section (4) & sub-section (5) of section 139 of the Act.

Secondly, if it is not done so, it has to be deposited in a capital gain account scheme before the due date of furnishing return of income as provided  under section 139(1) of the Act. In the present case, the assessee filed the return of income for the assessment year 2014-15 before the due date of filing return  under section 139(1) of the Act.

However, by that time, he has not utilized the amount in construction of new residential houses or deposited the same in the capital gain account scheme as notified by the Central Government.

The assessee contended that even if the assessee deposited an unutilized portion of capital gain after the due date provided under section 139(1) of the Act, assessee is entitled for deduction under section 54 of the Act.

This argument cannot be upheld on the grounds that to avail benefit  under Section 54 of the Act, unutilized portion of capital gains shall be deposited by assessee in capital gain account scheme before due date of filing of return of income under section 139(1) of the Act as prescribed under section 54(2) of the Act.

The Coram headed by the Vice President, N.V. Vasudevan directed that the assessee shall furnish necessary evidence of construction or purchase of new residential property in Chicago, USA and also directed the AO has to examine the same and decide the issue in the parameters of section 54F of the Act.