Capital Gain Tax attracts despite Assessee signed a Release Deed waiving his Beneficiary Interests/Title: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Hyderabad bench has recently held that liability to pay capital gain tax would attract despite the fact that the assessee signed a release deed waiving all his rights, title and interests in the property. The Tribunal further clarified that the deduction under section 54F of the Income Tax Act, 1961 would still applicable in such cases and the non-utilized portion of the capital gain is brought to tax only on the expiry of three years as per the relevant provisions.

The assessee, an individual, filed his income tax return where he declared ‘nil’ income from long term capital gains on the sale of shares by claiming that the capital gain has been spent for acquisition of a residential house and the balance which has not been so utilized was deposited in the bank account. He further claimed deduction of the entire capital gain amount under section 54F of the Income Tax Act.

While concluding the assessment proceedings, the Assessing Officer found that the assessee had entered into a release deed and also a supplementary release deed by which assessee has released his rights in the property and has also received the entire sale consideration. It was noted that the assessee has received entire sale consideration and in his return of income, the assessee has declared the capital gain and has claimed exemption under section 54F of the Act.

According to him, the assessee himself has declared the long term capital gain in his return of income and had claimed exemption under section 54F of the Act. Therefore, AO held that there is a transfer during the relevant PY and capital gain arising therefrom is liable to tax during the relevant AY. With regard to claim of exemption under section 54F of the Act, the AO held that the assessee is eligible for an exemption to the extent of Rs.34,00,750/- and the balance of capital gain of Rs.44,55,770/- was brought to tax.

Before the Tribunal, the assessee contended that the amount invested in the purchase/construction of a house till the date of filing of the return of income has to be allowed as a deduction and as per Sec.54F the amount can be invested in the construction of a house within a period of 3 years from the date of transfer of original asset and the uninvested capital gain if any can be brought to tax only after the expiry of three years.

Allowing the contentions of the department, the Tribunal observed that the assessee and others have entered into release deed dated December 2002, wherein it is stated that the private company M/s Asrani Inns & Resorts P Ltd. had purchased a property at Boggulkunta and the entire sale consideration was paid by the company and that the names of other purchasers were included and shown as purchasers in the sale deed merely for the sake of convenience and that none of the purchasers have any beneficiary rights, title/interest therein.

“ The assessee and the other persons shown as owners of the property in the sale deed have signed this release deed and therefore, there is no dispute on the ownership of the property lying solely with the company. Further, in the affidavits filed before Hon’ble High Court of AP the Director of the company has mentioned the release deed therein and the dispute was with the Government of A.P. and the Director of Stamps and Registration and not amongst the assessee and others. Further, assessee himself has declared the capital gain in his return of income and has claimed exemption u/s 54F of the Act. Therefore, irrespective of the date when the release deed has been registered, there is a transfer of shares during the PY 2002-03 as far as assessee is concerned,” the Tribunal said.

With regard to the deduction, the Tribunal observed that“the assessee has filed details of such expenditure before the Tribunal by way of additional evidence. I, therefore, deem it fit and proper to admit such additional evidence and remand it to the file of AO for verification of the same. After verification, the AO shall recompute the eligible exemption under section 54F of the Act and the un-utilized capital gain shall be brought to tax as provided under the proviso to Section 54F of the Act.”