By TIOL News Service

AHEMDABAD, OCT 27, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether capital gain employed towards purchase of new asset before the actual date of furnishing return of income either u/s 139(1) or u/s 139(4), will be deemed to be sufficient compliance of section 54(2). YES is the answer.

Facts of the case:

The assessee, an individual, had filed his return, wherein indexed Long Term Capital Gain of Rs.35,23,326/- was declared on sale of Joint ownership immovable property for a total consideration of Rs.1,15,00,000/-. The assessee claimed that sale consideration attributable to her was Rs.57,50,000/- being 50% of beneficial ownership in co-ownership property held together with husband. The assessee claimed exemption on aforesaid LTCG of Rs.35,23,326/- u/s 54 arose in her hands on the ground that she has jointly purchased another new residential house on 30/03/2013 for a consideration of Rs.35 lakhs (being ½ shares). It was thus claimed that entire LTCG was deployed towards purchases of new residential house and consequently the assessee was entitled to exemption u/s 54. The LTCG was thus computed at 'NIL' by the assessee. The AO denied exemption claimed u/s 54 on the ground that conditions postulated u/s 54 was not fulfilled. The AO observed that out of Rs.35 lakhs towards purchase, the assessee invested Rs.30 lakhs between September-2011 to December-2011 and thus had not invested the money before filing of return of income. Besides, the AO further observed that the assessee had not acquired the new property before filing of return of income. The claim of exemption u/s 54 was thus refused.

Tribunal held that,

++ section 54(2) enjoins that the capital gain is required to be appropriated by the assessee towards purchase of new asset before furnishing of return of income u/s 139. Alternatively, in the event of non-utilization of capital gains towards purchase of new asset, the assessee is required to deposit the capital gains in specified bank account before the due date of filing of return of income u/s 139(1). Any payment towards purchase subsequent to the furnishing of return of income, but before the last date available to file the return of income u/s 139(4) is irrelevant. Such subsequent payments after filing of return are required to be routed out of deposits made in capital gain account scheme. Thus, the plea of the assessee that utilization of capital gain can be made before the extended date for filing of return of income u/s 139(4) even after filing of return, do not coincide with the plain language employed u/s 54(2). Nonetheless, the capital gain employed towards purchase of new asset before the actual date of furnishing return of income either u/s 139(1) or u/s 139(4) will be deemed to be sufficient compliance of section 54(2). The assessee does not claim to have deposited the money in these specified bank account under capital gain scheme at all. Therefore, the claim of the assessee is required to be weighed on the second limb of section 54(2), i.e. whether the capital gain has been utilized for purchase of new asset before the date of furnishing of return of income u/s 139;

++ at this juncture, we notice that the legislature in its own wisdom has used the expression section 139 for purchase etc. of new asset while on the other hand, time limit under section 139(1) has been specified for deposit in the capital gain account scheme. When viewed liberally, the distinction between the two different form of expression of time limit can yield different results. S.139 encompasses both s.139(1) and s.139(4). There is presumption that words are used in an act of parliament correctly and exactly and not loosely and inexactly. In the present case, we are concerned with the utilization of capital gain towards purchase of new asset for which the legislature has stopped short by making reference of section 139 of the Act in variation to 139(1) for deposit in capital gain scheme. This distinction assumes significance for interpretation of beneficial provision. Thus, a beneficial view may be taken to say that section 139 being omnibus would also cover extended time limit provided u/s 139(4). Thus, when an assessee furnishes return subsequent to due date of filing return u/s 139(1) but within the extended time limit u/s 139(4), the benefit of investment made upto the date of furnishing return of income under 139(4) cannot be denied on such beneficial construction. However, any investment made after the furnishing of return of income but before extended date available u/s 139(4) would not receive beneficial construction in view of unambiguous and express provision of s.54(2). The suggestion on behalf of the assessee on eligibility of payments subsequent to furnishing of return of income is not aligned with and militates against the plain provision of law certified in s.54(2);

++ it is the case of the assessee that Rs.40 lakhs in aggregate has been utilized towards purchase of new asset before furnishing the return of income u/s 139(4). The assessee claims to have invested Rs.20 lakhs (being ½ of her share) for purchase of new asset. However, we notice that assessee appears to have shown a total investment Rs.50 lakhs in aggregate i.e. 30 lakhs from personal account and Rs.20 lakhs (½ share) from joint account as against her obligation to the extent of Rs.35 lakhs only. Also ambiguity exists on record as to whether the other joint owner (husband of the assessee) has availed claim of exemption, if any, upto Rs.20 lakhs (being ½ of his share only) or entire Rs.40 lakhs made through joint account towards purchase in his own right. In such circumstances, the assessee, in our view, would be entitled to exemption to the extent of Rs.20 lakhs being 50% of her share in the utilization of capital gain subject to the satisfaction of the AO that the aforesaid claim of payments from joint account has not been simultaneously availed by other joint owner also. The other portion on the investment claimed from the personal account of the assessee is stated to have been made after furnishing the return of income but before extended the due date of filing of return of income. However, once the return has been furnished, the subsequent payments made towards purchase would not be eligible for exemption unless the same was first deposited in capital gain account scheme and utilized therefrom. Therefore, the assessee is entitled to relief to the extent of Rs.20 lakhs only out of indexed capital gain subject, however, to the necessary verification of the claim of the other joint-owner. Hence the issue is remanded back to the AO for verification of extent of claim made by other joint-owner on payment of Rs. 40 lakhs towards purchase made out of joint bank account.

(See 2017-TIOL-1489-ITAT-AHM)