The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the capital gain deduction under Section 54F of the Income Tax Act 1961 could not be denied if the assessee had entered into agreement to sale within one year of sale of original asset.
The Assessee Muthu Daniel Rajan during the FY relevant to the AY 2013-14, had sold a property dated 07.01.2013, and computed long term capital gains. The assessee had claimed deduction under Section 54F of the Act, towards purchase of new residential house property on 14.10.2011, and claimed deduction.
Justifying the computation of long term capital gains and also deduction claimed under Section 54F of the Income Tax Act 1961 the assessee submitted that he had entered into an agreement to sale in favour of S.Lalitha Lakshmi on 28.09.2012 and had executed Sale Deed in favour of purchaser on 07.01.2013.
Since, the period between agreement to sale and purchase of new asset at Besant Nagar on 14.10.2011, was less than one year before sale of original asset, he had claimed exemption under Section.54F of the Act. AO denied this deduction claim.
The sale or transfer of capital assets attracts tax. Under Section 54F of the Income Tax Act, 1961, in case of long-term capital gains earned from selling any capital asset other than a house, property tax exemption is allowed.
K.G.Raghunath, on behalf of the assessee submitted that, and the law had not mandated reference of any sale agreement in the Sale Deed. He further submitted analysing the date of agreement to sale and date of purchase of new asset, investment in purchase of new house property was within one year from the date of sale of original asset and the assessee was entitled for deduction under Section 54F of the Act.
R.Bhoopathi, on behalf of the revenue submitted that, submitted that so called agreement to sale was a make believe story and the same was not filed before the AO. The agreement was not bona fide, as there was no reference of agreement to sale in the Sale Deed. Further, the assessee had already claimed deduction u/s.54F of the Act, for the AY 2012-13, for purchase of property at Besant Nagar. claiming deduction again, for the very same property, would not be in accordance with law.
The Division Bench of V. Durga Rao (Judicial Member) and G. Manjunatha (Accountant Member) dismissed the appeal filed by the revenue holding that the authorities had erred in not considering the agreement to sale between the parties to allow the benefit of deduction under section 54F of the Income Tax Act.
The Bench further observed that, “if you go by date of purchase of new asset i.e. on 07.01.2013 and date of agreement to sale for sale of property at Kunnakkadu i.e. on 28.09.2012, then the period is less than one year before the date of sale of original asset as prescribed u/s.54F of the Act, and the assessee is entitled for deduction.”
“In case, the assessee has satisfied conditions prescribed therein and invested sale consideration for purchase of residential house property, then even if some technical lapses like non-registration of agreement to sale, etc., does not disentitle assessee to claim benefit u/s.54F of the Income Tax Act” the Bench observed.”
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