Section 54F Section 139 MEANS INCLUDE ALL CLAUSES OF Section 139

[CA DEV KUMAR KOTHARI]

Exemption from capital gains under Section 54 and 54F:

It is advisable to make deposit in capital gain deposit scheme accounts, within time u/s 139(1) in spite of some favorable judgments of High Court (discussed in this article).

Relevant provisions, references and links:

Section 54, 54F,139 and 239 of the Income-tax Act, 1961.

The Commissioner of Income Tax, Rohtak Versus Shri Jagtar Singh Chawla [2013 (4) TMI 499 - PUNJAB AND HARYANA HIGH COURT]

FATHIMA BAI Versus INCOME TAX OFFICER [2008 (10) TMI 563 - KARNATAKA HIGH COURT]

CIT vs. Rajesh Kumar Jalan [2006 (8) TMI 126 - GAUHATI High Court] Exemption under head capital gains:

We find several provisions whereby exemption from capital gains is allowed based on specified investments. Section 54 and 54F are designed to promote housing for residence. S, 54 provide exemption from capital gains from sale of residential house property and S. 54F provide for exemption from capital gains on sale of any capital assets other than residential property. In both cases reinvestment is required to be made in residential house by way of construction or purchase.

The exemptions are subject to certain conditions and compliances about reinvestment. It is also provided that if sale consideration of original asset is not reinvested before the due date to file return of income, and time for reinvestment in residential house is available, the amount of sale consideration (or part of it) can be deposited in specified capital gain deposits scheme accounts.

Provision for deposit in capital gains deposit account:

It is worth to note that exemption is allowed as an incentive for purchase or reconstruction of residential house. The condition for making deposit in capital gains deposit account seems to be a safeguard measure to induce assessee to keep funds separately for the purpose for purchase or construction of residential house and also to put a check on assessee from diverting funds for other purposes to ensure that sale value of original asset is earmarked for purchase or construction of residential house when assessee want to claim exemption from capital gains. Apparently there is no other reason to provide for such a condition so far tax policy is concerned.

Therefore, it can be said that when assessee has factually purchased or constructed residential house within permitted time, then making of deposit in capital gains deposit account may not be considered an essential condition.

Liberal view taken by courts to apply extended due date u/s 139(4).:

Courts have taken view that if assessee has actually purchased or constructed residential house within due date u/s 139(4) then it was not necessary to deposit capital gains in capital gains deposit account within due date u/s 139(1) because the assessee has made investment or substantial investment within extended date u/s 139(4) { or which is within limitation period for making re-investment in residential house- added by author}.

Advisable to make deposit:

Though there are several judgment of high Courts. However, we find that in one case a large amount is involved. Therefore, further litigation by revenue is likely to take place. In these judgments the relief is allowed for the reason that assessee had made investment in residential house before extended due date or permitted time. Other contentions like ;-- beneficial provisions should be construed liberally, that the purpose of incentive was achieved when reinvestment has actually been made in residential house within permitted time, that requirement of making a deposit in capital gain deposit scheme account is a technical requirement or one of mode to keep funds apart for making use for investment in residential house, and it is not strict requirement when assessee has in fact invested in residential house etc. have not been raised , discussed and considered. These can be raised before the Supreme Court,, in case matter is disputed further by revenue.

The judgment depend on many aspects as may prevail at the time of hearing before the court. It depends on force with which parties are able argue the case and convince the judges about their contentions. Outcome also depends on mood and behavior of judges as may prevail at that time of hearing or passing judgment etc. After all judges are also human being and have natural limitations of mood, behavior, and psychological aspects all of which vary from time to time. Thus, in such cases what will be final outcome is contingent.

In case of purchase as well as construction of residential house we find that there can be many type of contingencies, if for any reason the deal or work is not completed, within permissible time, the exemption will not be allowed and assessee can be liable to pay tax, interest and also penalty.

Therefore, it is advisable to make deposits in capital gain deposit accounts, within due date u/s 139 (1), when it is found that it will take time to make reinvestment in residential house by way of purchase or construction and there is also contingency of becoming entitled to claim by actual purchase or construction of residential house within prescribed time.

Limitation u/s 239 – in case of refund:

In this context, one more aspect which can be explored is that in situation in which assessee has no taxable income and is not required to file ROI and pay tax. But assessee has paid tax or tax is deemed to be paid on his account (by way of TDS and TCS), the assessee can file return and claim refund within time allowed u/s 239. In such situation a possible view which can be taken is that the time to file return of income and claim for refund is extended time.