The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently, in an appeal filed before it, held that capital gain exemption u/s 54 cannot be denied on acquiring new house property in the Name of Wife.
The aforesaid observation was made by the Chennai ITAT, when an appeal was filed before it by the Revenue for Assessment Year (AY) 2005-06, arising out of the order of the Commissioner of Income Tax (Appeals), Trichy [CIT(A)], dated 01-01-2019, in the matter of an assessment framed by the Assessing Officer [AO], u/s.143(3) r.w.s 263 of the Income Tax Act, on 13-11-2015.
The sole grievance of the revenue being the allowance of deduction u/s 54 by the CIT(A), the brief facts of the case were that the assessee had received 1/3rd share of the sale proceeds of a family property and earned Long Term Capital Gains (LTCG), wherein these proceeds were invested by the assessee in construction of another house property.
The assessee claimed deduction u/s 54 which was allowed by the AO in an assessment framed u/s 143(3) r.w.s. 147 on 28.12.2012. However, this order was subjected to revision u/s 263 on the ground that the deduction allowed by the AO, was not in order.
It was noted by revisional authority that the approval for construction of house was obtained by the assessee’s wife on 03.05.2006, consequent to which, another assessment was framed u/s 143(3) r.w.s.263 on 13.11.2015, which is the subject matter of appeal before the Chennai ITAT presently.
It transpired that the house was constructed and completed on 28.02.2007 by wife of the assessee i.e., Smt. J. Shanthi Julius and therefore that, the claim was not admissible. Another fact was that the assessee did not deposit the sale proceeds in capital gains account scheme before due date of filing of return of income u/s 139(1) as mandated under law. Therefore, the deduction was denied to the assessee and the capital gains of Rs.8.50 Lacs was brought to tax.
Aggrieved by the same, the assessee preferred an appeal before the CIT(A), wherein the assessee submitted that it would be incorrect to assume that the construction was started after obtaining the approval.
Further, it was submitted by the assessee, before the CIT (A) thatthe assesseehad paid amount of Rs.7 Lacs towards construction and other related activities during the year, which was supported by the fact that the electricity connection was obtained during February, 2006 and payment also made, which would show that the construction activities were started well before the approval taken from municipal authorities.
Thus, the assessee added that the application for approval was made during December, 2005, and further that the approval could be obtained at any time, even after the completion of the construction.
This claim of the asssessee was concurred by the CIT (A) also, that what is required is that the new house should have been constructed within the stipulated time limit, which was done by the assessee. And accordingly, he held that the claim of the assessee, is thus allowable. And, it is being aggrieved by the same, that the revenue has preferred the instant appeal before the Chennai ITAT.
With, Shri AR. V Sreenivasan (Addl.CIT), the Sr. DR, having assailed the impugned order on the ground that the assessee made investment in the name of his wife and secondly that, the mandatory condition to deposit the capital gains in the prescribed manner was not fulfilled by the assessee, Shri N. Arjunraj (C.A) for Shri S. Sridhar (Advocate), the ARs supported the impugned order and filed written submissions.
Hearing the opposing contentions of either sides and perusing the materials available on record, the ITAT Panel comprising of Mahavir Singh, the Vice -President, along with Manoj Kumar Aggarwal, the Accountant Member, observed:
“From the assessee’s submissions as made before Ld. CIT(A), it could be seen that the assessee has fairly demonstrated start of construction activities during the year. The substantial payment of Rs. 7 Lacs was made during the year towards construction activities and therefore, there would be no requirement to deposit the same in capital gains account scheme. Another undisputed fact is that the amount of capital gains earned by the assessee has been utilized towards construction of house property though the new house property has been acquired in the name of the assessee’s wife.”
Thus, dismissing the Revenue’s appeal, the Chennai ITAT, held:
“However, the same, in our considered opinion, would not jeopardise the claim of the assessee considering the fact that the utilisation of sale proceeds towards construction of house property has not been disputed by Ld. AO. Therefore, we do not find any reason to interfere in the impugned order. In the result, the appeal stand dismissed.”
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