No need to deposit in Cap Gain Scheme if house is purchased within time limit of sec. 54F

Issue

Whether exemption under Section 54F could be denied to assessee who had purchased a new residential house within 2 years from the date of transfer of original asset on ground that he had not deposited the amount in capital gain account scheme before the due date of filing of return under section 139(1)

The tribunal held in favour of assessee as under-

1.  A combined reading of sections 54F(1) and 54F(4), makes it clear that the assessee would be entitled to exemption under section 54F in the event he purchases new asset within two years from the date of transfer of original asset or the amount is utilized before the date of furnishing the return under section 139. In a case it is not utilized for the purpose of aforesaid and within the period aforementioned, section 54F(4) mandates the assessee to deposit such amount in capital gain account scheme before due date of filing of return under section 139(1).

2.  Therefore, there is no ambiguity in the provision; so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return under section 139(1).

3.  In the instant case, the return was filed by assessee in response to a notice issued under Section 148 and not under section 139(1). Therefore, the contention of the assessee was that he should be allowed exemption under section 54F even if had not deposited the amount in capital account scheme.

4.  The Karnataka High Court in the case of CIT v. K. Ramachandra Rao [2015] 56 taxmann.com 163 held that when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer, he could not be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1).

5.  Under section 54F (1), the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. Hence, as per judgment of Karnataka High Court, the provisions of section 54F(4) would not be attracted if assessee has purchased or constructed the residential house within period prescribed under section 54F(1).

6.  In the instant case, there was no dispute with regard to the fact that the assessee had purchased a new asset within two years from the date of transfer of the original asset. Therefore, following the ratio laid down by the Karnataka High Court in the case of K. Ramachandra Rao (supra), the court directed Assessing Officer to re-compute the assessed income after granting the benefit of section 54F to the assessee- Ashok Kapasiawala v. ITO [2015] 63 taxmann.com 284 (Ahmedabad - Trib.)

Sec. 54(4) contemplates investment in house before due date of filing of belated return

When capital gains is utilized for purchase or construction of new asset before due date for furnishing return of belated return, assessee is entitled to claim deduction in respect of amount so utilized under section 54F.

The disputed issue is as under:

Whether Section 54 exemption would be available if capital gain is invested before due date of filing of belated return even if he no amount is deposited in capital gain account scheme before due date of filing of return under Section 139(1)

Held

The Tribunal relied upon the judgment of co-ordinate bench of the ITAT, Bangalore in the case of Nipun Mehrotra [2008] 110 ITD 520 (BANG.) and held that if the sale consideration/capital gains is utilized for the purchase or construction of the new asset before the date of filing the return under Section 139(4), the assessee is entitled to exemption under Section 54F.  - ITO v. R. Srinivas [2015] 63 taxmann.com 101 (Bangalore - Trib.)

ITAT allows benefit of second proviso to Sec. 40(a)(ia) in case of payment to NR; Non-discrimination clause invoked

Rigour of disallowance of payment under Section 40(a)(ia) is relaxed in case of payment to resident if recipient pays taxes on such sum and files return of income. It would be contrary to scheme of DTAA and discriminatory if similar relaxation is not allowed under Section 40(a)(i) in case of payment to non-resident without withholding of taxes if such non-resident pays taxes on such sum and files return of income. Relaxation under second proviso to Section 40(a)(ia) is to be read into Section 40(a)(i) as well and it was required to be treated as retrospective in effect in the same manner as second proviso to Section 40(a)(i).

Facts:

a)The AO noted that certain non-resident entities were taxable in India under the provisions of the Income Tax Act (‘IT Act’) as also under the provisions of relevant DTAA as these entities had a PE in India.

b)Thus, in the opinion of the AO, the assessee was required to deduct tax at source from these payments to non-residents, in terms of section 195.

c)Provisions of Section 40(a)(ia) and Section 201 provides thatthat no disallowance can be made in respect of payments made to a residents without deduction of tax, if related payments are taken into account by the recipients incomputation of their income, taxes thereon are duly paid and related income-tax returns are duly filed by the them under section 139(1).

d)Accordingly, the assessee contended that non-discrimination clause of treaty was applicable on impugned payment made to non-residents.

Held:

1)Provisions of Section 40(a)(ia) and Section 201 provides thatthat no disallowance can be made in respect of payments made to a residents without deduction of tax, if related payments are taken into account by recipients incomputation of their income, taxes thereon are duly paid and related income-tax returns are duly filed by the them undersection 139(1).

2)However, section 40(a)(i) does not have an exclusion clausesimilar to second proviso to Section 40(a)(ia), so far as payments made to non-residents,without deduction of tax are concerned. Thus, such payments would be disallowable even when the non-resident recipient hastaken into account such payments in computation of his income, has paid taxeson the same and duly filed income-tax return under section 139(1).

3)So far as discrimination to the non-resident taxpayers was concerned, the right comparator would be a resident Indian taxpayer. As we were examining the issue of deduction parity, we had to examine the position of deductibility in respect of a similar payment, i.e., without deduction of tax at source, made to a resident Indian taxpayer.

4)A different treatment to the foreign enterprise per sewas enough to invoke the non-discrimination clause.

5)Therefore, it would be contrary to the scheme of the tax treaties if rigour of disallowance of a payment, on account non-deduction of tax from the related payment, was to be relaxed in the situations in which the resident recipient had taken the said amount into account in computation of income, paid taxes on the income so computed and filed return of income under section 139(1), and yet the rigour of disallowance in respect of payments made, without deduction of tax at source, to the non-residents wasnot relaxed when such non-resident recipient had taken such receipts into account in computation of income, paid taxes on the income so computed and filed return under section 139(1).

Sec. 54F stipulates deposit of unutilized sum within due date specified under sec. 139(1) and not sec. 139(4)

'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:

a)The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.

b)On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.

c)Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?

The Tribunal held as under:

1)The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.

2)The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);

3)When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;

4)Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the AO. – ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Trib.)