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TMI Blog2008 (10) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said residential flat was received by the assessee on 1st July, 2004. For purchase of the said residential flat, the assessee had applied for a loan from Union Bank of India, Mandavi Branch, Mumbai and the bank sanctioned housing loan of Rs. 15 lakhs through its letter dt. 29th June, 2004. For the purpose of disbursing the above housing loan, the said hank issued pay order dt. 29th June, 2004 for Rs. 15 lakhs directly in favour of the said builder and accordingly the said amount of housing loan was utilized for purchase of residential flat. Out of total cost of Rs. 17,29,323 of the said residential flat, an amount of Rs. 15 lakhs was financed by the said bank. The assessee claimed exemption under s. 54F in respect of the above referred long-term gain of Rs. 14,18,890 treating the cost of residential flat of Rs. 17,29,339 which was more than the sale proceeds of the said share and hence capital gain was shown at nil. The AO disallowed the claim of the assessee and has observed that since the said residential flat is financed by the bank to the extent of Rs. 15 lakhs out of the total cost of Rs. 17,28,000, the assessee is not entitled to the exemption of s. 54F, to that extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court and the apex Court that the investment in LICs or in other schemes for the purpose of claiming deduction under s. 88 can be made out of the borrowed funds and the assessee is entitled for deduction of the same. In support of these contentions, the learned counsel for the assessee has placed a reliance upon the judgment of the Kerala High Court in the case of ITO vs. K.C. Gopalan (2000) 162 CTR (Ker) 566 : (1999) 107 Taxman591 (Ker) and following orders of the Tribunal: (i) Mrs. Prema P. Shah vs. ITO (2006) 101 TTJ (Mumbai) 849 : (2006) 100 ITD 60 (Mumbai); (ii) Asstt. CIT vs. Dr. P.S. Pasricha (2008) 20 SOT 468 (Mumbai); (iii) Bombay Housing Corporation vs. Asstt. CIT (2002) 76 TTJ (Mumbai) 25 : (2002) 81 ITD 545 (Mumbai). He has also placed a reliance upon the order of the CIT(A). 6. The learned Departmental Representative on the other hand has submitted that s. 54F(1) should be read along with its sub-s. (4) and not in isolation. If both the sections are read together only one inference can be drawn that the sale proceeds of the capital asset must be utilized/appropriated by the assessee towards the new assets within a specified period and if not appropriated be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F of the Act. In order to understand the same, we feel it proper to reproduce s. 54F as under: "54F. Profit on sale of property used for residence.-(1) Subject to the provisions of sub-s. (4), where, in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of a 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 (hereinafter 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 s. 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 of the capital gain the same proportion as the cost of the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in sub-s. (1), then,- (i) the amount by which- (a) the amount of capital gain arising from the transfer of the original asset not charged under s. 45 on the basis of the cost of the new asset as provided in cl. (a) or, as the case may be, cl. (b) of, sub-s. (1), exceeds, (b) the amount that, would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-s. (1) been the cost of the new asset, shall be charged under s. 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid." 11. From a bare reading of s. 54F we find that sub-s. (1) should be read along with sub-s. (4). It cannot be read in isolation because the benefit of s. 54F is to be allowed only subject to the provisions of sub-s. (4) of the said section. This section allows the benefit of exemption to the individual or an HUF in which case the capital gain arises from transfer of any long-term capital asset not being a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds for other purpose and may find resource from other source for investment in time. The law does not expect that the sale amount should be kept in the locker and the same should be utilized in purchase of residential house. Neither the law nor does any circular require the identity of the amount received on sale and utilization for purpose of s. 54F and other relevant provisions. It is quite likely that the assessee may use the money for his business and draw the amount for investment from his past savings. Conversely, he may place sale proceeds in long-term investment other than what is permitted under s. 54, but, all the same find money from the business or other source for approved investment within the time. Since law itself permits investment in a new property even before sale of property covered by ss. 54 and 54F, the law does not contemplate the identity of the funds on sale for its investment. Since money has no colour, all that is required is compliance with the condition of investment within the specified time. 14. This view is fortified by judgment of the Kerala High Court in the case of K.C. Gopalan in which their Lordships have held that in order to get benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit in certain schemes, as these sections do not talk about the investment out of a particular nature of receipt. 16. In the case of Dr. P.S. Pasricha, the Tribunal have examined the issue whether assessee is required to invest the same receipt which were received out of the sale proceeds. The Tribunal has held that the requirement of s. 54 is that the assessee should acquire a residential house within a specified period and it is not necessary that same funds must be utilized for purchase of another residential house. The requirement of law is that the assessee should purchase residential house within a specified period and source of funds is quite irrelevant. These observations of the Tribunal are in the light of the specific facts of the case in which the assessee had sold the flat for a consideration of Rs. 1,40,00,000 and after claiming deduction for expenses and the cost of acquisition, the long-term capital gain was worked out at Rs. 1,24,02,738. After the sale of the above property, the assessee has acquired the commercial property for a total consideration of Rs. 125.28 lakhs and gave it on rent and out of the other funds, the assessee has purchased two residential flat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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