Advance payment for flat would be eligible for relief u/s section 54 of Income Tax

ORDER

N.R.S. Ganesan, Judicial Member – This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 4, Chennai, dated 28.12.2015 and pertains to assessment year 2011-12.

2. The only issue arises for consideration is with regard to disallowance of deduction claimed by the assessee under Section 54 of the Income-tax Act, 1961 (in short ‘the Act’) while computing capital gain.

3. Shri Shiva Srinivas, the Ld. Departmental Representative, submitted that the assessee has sold a residential flat at Sant home High Road, Chennai on 09.03.2011 for a total consideration of Rs. 1,09,00,000/-. The assessee admitted the long term capital gain at Rs. 64,84,686/-. The assessee explained before the Assessing Officer that a sum of Rs. 99,00,000/- was invested before the date of filing of return under Section 139(1) of the Act and claimed the exemption of the entire long term capital gain of Rs. 64,84,686/- under Section 54 of the Act. The Ld. D.R. further submitted that the Assessing Officer found that the assessee entered into an agreement for purchase of flat at Talagattapura, Uttarahallihobli from M/s. Total Environment Building Systems Pvt. Ltd. for a total cost of Rs. 1,88,61,550/-. The assessee has paid Rs. 83,00,000/- on 31.07.2011. According to the Ld. D.R., the possession of the flat was handed over to the assessee only on 28.02.2014.

4. Referring to the order of the Assessing Officer, the Ld. Departmental Representative submitted that for the purpose of claiming deduction under Section 54 of the Act, it is obligatory on the part of the assessee to deposit the capital gain, which was not utilised for the purpose of purchase or construction of residential house in Capital Gains Account Scheme. In the case before us, the assessee has not purchased or constructed a residential house and the capital gain was also not deposited in the Capital Gains Account before filing the return of income under Section 139(1) of the Act. According to the Ld. D.R., for the purpose of claiming exemption under Section 54 of the Act, the assessee has to purchase or construct a habitable residential house before the due date for filing of return of income. Mere handing over the money to the builder is not sufficient enough for claiming exemption under Section 54 of the Act. According to the Ld. D.R., even though the assessee has paid advance for purchase of residential flat to M/s. Total Environment Building Systems Pvt. Ltd., the construction of flat was not completed as on 31.07.2011, therefore, the assessee has to necessarily deposit the money in the Capital Gains Account. On a query from the Bench, when the assessee has advanced the money to the builder, namely, M/s. Total Environment Building Systems Pvt. Ltd., for purchase of flat, where will the assessee get money for making deposit in the Capital Gains Account? The Ld. D.R. clarified that it is the mandate of the Legislature to deposit the money in the Capital Gains Account in case the same was not used to purchase or construct a residential house. The Ld. D.R. further submitted that purchase or construction of house does not include the house which was in the process of construction. Therefore, according to the Ld. D.R., the Assessing Officer has rightly disallowed the claim of the assessee.

5. On the contrary, Shri P.B. Srinivasan, the Ld. representative for the assessee, submitted that the assessee admittedly sold a residential flat at Sant home High Road, Chennai, on 09.03.2011 for a total consideration of Rs. 1,09,00,000/-. The capital gain computed by the assessee to the extent of Rs. 64,84,686/- was admitted by the Assessing Officer. The only dispute is with regard to claim of exemption under Section 54 of the Act. According to the Ld. representative, the assessee has utilised the amount of capital gain by way of making deposit to the builder, namely, M/s. Total Environment Building Systems Pvt. Ltd. for purchase of residential flat. According to the Ld. representative, when the assessee gave deposit to the builder for purchase or construction of flat, it amounts to utilization of money as provided under Section 254(2) of the Act. When the assessee deposited money, according to the Ld. representative, the capital gain would not remain with the assessee for making deposit in Capital Gains Account.

6. Referring to the judgment of Apex Court in Fibre Boards (P.) Ltd. v. CIT [2015] 376 ITR 596  the Ld. representative for the assessee submitted that what is required to be deposited in the Capital Gains Account is unutilised for portion of capital gain. In this case, the assessee has utilised the capital gain by way of making advance to the builder for purchase of flat. Advance paid by the assessee for purchase/construction of a residential flat would amount to utilization of capital gain by the assessee for the purpose of purchasing or constructing a new asset. In view of this judgment of Apex Court, according to the Ld. representative, the assessee is eligible for exemption under Section 54 of the Act.

7. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee sold a residential flat on 09.03.2011 for a total consideration of Rs. 1,09,00,000/-. The assessee admittedly earned Rs. 64,84,686/- as capital gain, which is not in dispute. The dispute is with regard to claim of the assessee under Section 54 of the Act. We have carefully gone through the provisions of Section 54 of the Act which reads as follows:—

“54 (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset) and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

8. Section 54(2) in categorical term says that the amount of capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place or which is not utilised for purchase or construction of a new asset before the date of filing of return of income under Section 139(1) of the Act, shall be deposited in the specified Capital Gains Account. Therefore, what is required to be seen is whether the assessee has appropriated or utilised the capital gain for purchase or construction of a residential house.

9. In the case before us, the capital gain is Rs. 64,84,686/-. It is not in dispute that the assessee has paid a sum of Rs. 83,00,000/- as on 31.07.2011, being the due date for filing return of income, to M/s. Total Environment Building Systems Pvt. Ltd. for purchase of a flat. The question arises for consideration is whether the payment made by the assessee towards advance for purchase of flat from M/s. Total Environment Building Systems Pvt. Ltd. would amount to utilization of capital gain as required under Section 54(2) of the Act. The Apex Court in Fibre Boards (P.) Ltd. (supra) examined this issue in the context of Section 54G of the Act and found that the advance paid for purchase of asset would certainly amount to utilization of capital gain by the assessee for the purpose of purchasing/acquiring the capital asset. In fact, the Apex Court has observed as follows at page 621 of the ITR.:—

‘We are of the view that the aforesaid construction of section 54G would render nugatory a vital part of the said section so far as the assessee is concerned. Under sub-section (1), the assessee is given a period of three years after the date on which the transfer takes place to purchase new machinery or plant and acquire building or land or construct building for the purpose of his business in the said area. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words “not utilised” in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be “utilised” by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilization by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets. We find therefore that on this ground also, the assessee is liable to succeed.’

10. We have also carefully gone through the provisions of Section 54G of the Act. Section 54G(2) of the Act makes the assessee for claiming exemption under Section 54G to appropriate the capital gain or to utilize the same within the due date for filing of return of income under Section 139(1) of the Act, the unutilized portion should be deposited in the Capital Gains Account. Section 54G(2) of the Act is pari materia same as Section 54(2) of the Act. Therefore, this Tribunal is of the considered opinion that the observation/finding of the Apex Court is equally applicable in respect of the provisions of Section 54(2) of the Act. In other words, when the assessee advanced a sum of Rs. 83,00,000/- as on 31.07.2011, before the due date for filing of return of income, for a purchase of residential flat to M/s. Total Environment Building Systems Pvt. Ltd., this would amount to utilization of capital gain. In the case before us, the admitted capital gain is Rs. 64,84,686/- and what was advanced by the assessee for purchasing the flat is Rs. 83,00,000/-. In view of the above, this Tribunal is of the considered opinion that the assessee, in fact, utilised the capital gain for purchasing the flat before 31.07.2011. Hence, the assessee is entitled for exemption under Section 54 of the Act. This Tribunal is of the considered opinion that the CIT (Appeals) has rightly allowed the claim of the assessee by placing reliance on the judgment of Apex Court in Fibre Boards (P.) Ltd. (supra). In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

11. In the result, the appeal filed by the Revenue is dismissed.