TMI Blog2018 (12) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... see does not own more than one residential house other than the new residential house on the date of transfer of long term asset. The Section, thus, in essence, offers some incentives to a tax payer to change its unproductive assets into a residential house. The action of the assessee is thus in conformity with the object and purpose of Section 54F of the Act. To say that the assessee is entitled for deduction in respect of capital gains arising from sale of only one long term capital asset and conversion thereof in residential property would in effect seriously limit the object and purpose of Section 54F of the Act. If the interpretation of ‘any long term asset’ as suggested by Revenue is read to mean deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of broader expression ‘any’ long term asset in distinction to expression ‘a’ long term asset as used in Section 10(38) of the Act. Thus, the legislative intent when gathered from the distinct language used, it is clear that a narro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed by the AO that deduction under s.54F of the Act arises from a single asset as the words used are original asset and not asset(s) . It was further observed by the AO that since the purchase as contemplated in Section 54F of the Act could happen only once and that has already happened in the preceding assessment year 2011-12 on 21.01.2011, the benefit towards purchase of new asset cannot be extended to capital gains on sale of another original asset in another assessment year. The AO accordingly refused to entertain the claim of deduction of the assessee under s.54F of the Act. 4. Aggrieved, the assessee preferred the appeal before the CIT(A). 5. The CIT(A) referred to the decision of Co-ordinate bench on the identical issue in the case of Anagha Ajit Panekar (2006) 9 SOT 685 (Mumbai) Mrs. Krishnadevi Kejriwal ITA No. 93/Mum/2009 Ors. order dated 25th June, 2010 and adjudicated the issue in favour of the assessee. The relevant operative para of the order of the CIT(A) reads as under: 6. I have carefully considered the submissions and have also gone through the assessment order. The only ground of appeal is against the additions of ₹ 1,50,94,718/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 819 (proportionately) under section 54f in A.Y. 2011-12. (b) Subsequently in a succeeding assessment year i.e. in AY:2012-13, the appellant sold another piece of land on 31.03.2012 at survey no.726/4/1 for a consideration of ₹ 2,67,03,250 and earned capital gain of ₹ 2,39,92,739. The appellant ias claimed deduction of ₹ 1,50,94,718 by investing ₹ 1,68,00,000 (3,78,00,000 - 2,10,00,000) in the same residential property being bunglow No. 10, Panchshil society, Usmanpura, Ahmedabad vide a registered sale deed 16.04.2012. (c) The assessing officer has disallowed claim made u/s.54F accounting of ₹ 1,50,94,718/- It is discussed in para 5 of the order. It is observed by AO that deduction under section 54F cannot be made for the same residential property in two different assessment years. The AO further observed that the interpretation of section 54F means the gain should arise from a single asset as words used are the original asset and not assets. It is further mentioned by AO that since the purchase could happens only once and that had happened on 21.01.2011, the same benefit cannot be extended to the second property in another assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are deleted. ii) The appellant's case is covered by the order of the Hon'ble ITAT, Mumbai, Bench C in the case of Smt. Anagha Ajit Panekar v/s ITO (2006) 9 SOT 685 (Mum.) in ITA No.3810 (Mum.) of 2003 dated June 14, 2006. The said order is reproduced below: Section 54F of the Income-tax Act, 1961 - Capital Gains - Exemption of, in case of investment in residential house - Assessment year 1997-98 - Whether there is no bar in * section 54F for claiming deduction second time or third time for same property if cost of residential property is within capital gain arisen to assessee, provided deduction is claimed within time stipulated in section 54F - Held, yes - Assessee earned capital gain on account of sale of shares and claimed deduction under section 54F in respect of capital gain for purchase of residential flat on 18-8-1995 - Assessee had also earned capital gain in earlier assessment years 1995-96 and 1996-97 and had sought deduction under section 54F in respect of purchase of same residential flat - Whether since total capital gain arisen to assessee in all assessment years 1995-96 to 1997-98 was less than cost of flat, assessee was entitled to deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that the assessee had not appropriated the sale consideration towards purchase of flat, but the Commissioner (Appeals) had ignored the main provisions of section 54F. Subsection (4) has been inserted with a view to facilitate the assessee to claim the capital gain exemption when the assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of the Commissioner (Appeals) was accepted, it would frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, the order of Commissioner (Appeals) was set aside and the assessee was entitled to deduction under section 54F in the relevant assessment year. [Para 7] EDITOR'S NOTE It was also held by the Tribunal that the assessee was entitled to claim deduction of interest payment against rental income as from the confirmation of accounts filed by the assessee it was found that payment of interest had been reflected by the confirming party. C.N. Vaze for the Appellant. Ashw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the assessee before CIT(A) was that all the conditions for claiming deduction under section 54F has been fulfilled by the assessee in all these three assessment years; therefore, deduction under section 54F cannot be denied to the assessee in the relevant assessment year. The conditions to be fulfilled for claiming deduction under section 54F as stated by the assessee are as under : (i) Assessee should be an individual or HUF (ii) Capital gains should arise form Long Term Capital Gain other than residential house. (iii) Assessee has within a period of one year before or within two years after the sale of such long-term capital asset purchased or within three years have constructed a residential house. (iv) The new house purchased is not sold within 3 years from date of purchase/construction. (v) The cost of new residential house is more than the deduction under section 54F shall be proportionate to sale of asset of the cost of new assets vis-a-vis the capital gains. (vi) The assessee should not own any other residential house other than the new house. (vii) The assessee should not purchase any other new residential house within year or cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three years as per chart given above, which shows that in total the assessee has claimed deduction not more than ₹ 9 lakhs. In our consideration, there is no bar in section 54F for claiming deduction for the same property if cost of the flat is within the capital gain arisen to the assessee. In this case, total capital gain arisen to the assesee in all these three years is ₹ 7,48,061 against the cost of flat ₹ 9 lakhs. Now to examine the case of the assessee from the language of section 54, it will be useful to reproduce section 54F as under: 54F. Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereinafter 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, a residential house (thereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit the sale consideration in the bank account till such appropriation. The assessee cannot be expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of CIT(A) is accepted, it will frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, we set aside the order of the CIT(A) and allow the ground of the assessee. 8. As regards second ground, the Assessing Officer disallowed (sic) the interest of ₹ 25,300 claimed by the assessee against rental income for want of evidence. The ld. CIT(A) also confirmed the same. 9. It was stated before us by the Id. AR that assessee has submitted the confirmation of accounts from the borrower reflecting the payment of interest and ld. AR also referred to the same confirmation appended in the paper book. The ld. Departmental Representative relied on the orders of authorities below. We find from the confirmation of accounts filed by the ld. AR that payment of interest has been reflected by the confirming party. Therefore, we set aside the order of the CIT(A) in this regard also and allow this ground of the assessee. 10. In the result, this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had not appropriated the sale consideration towards purchase of flat, but the Commissioner (Appeals) had ignored the main provisions of section 54F. Subsection (4) has been inserted with a view facilitate the assessee to claim the capital gain exemption when the assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be Mrs. Krishnadevi Kejriwal expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of the Commissioner (Appeals) was accepted, it would frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, the order of Commissioner (Appeals) was set aside and the assessee was entitled to deduction under section 54F in the assessment year. 14. Accordingly the assessee is entitled to claim deduction under section 54F on the property purchased in A.Y. 2002-03 since the long term capital has arisen within one year from the purchase of the above property. The A.O. is directed to allow deduction under section 54F as claimed. As the facts of the appellant case are identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngularity and (ii) the action of purchase can happen only once. It will be apt to refer to Section 54F(1) of the Act with which we are presently concerned: 54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole o ..... 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