By TIOL News Service

JAIPUR, JAN 25, 2019: THE ISSUE IS - Whether Section 54F(4) benefits are to be denied merely because the assessee did all transactions relating to purchase and construction of new house from an exclusive savings account which was technically not a capital gains account. NO IS THE VERDICT.

Facts of the case

The assessee-individual had received certain compensation on compulsory acquisition of his land by RIICO for the relevant AY. In his return, the assessee offered the given receipts to tax as long term capital gains and claimed exemption u/s 54F on account of sale consideration. In course of assessment, the AO hence verified assessee's bank account and found that such account was not a Capital Gain Scheme Account. Therefore, the AO denied the exemption u/s 54F and assessment order was passed u/s 143(3) bringing the long term capital gains to tax. On appeal, the CIT(A) confirmed the order of the AO and upheld the denial of exemption.

On appeal, the Tribunal held that,

++ at the time of filing of return of income, the residential house has not been constructed and therefore, the conditions of sec. 54F(1) are not fulfilled. At the same time, the amount of compensation stand fully deposited including the TDS thereon in the savings bank account maintained with HDFC bank and deposits and withdrawals have been strictly for the purposes of purchase of plot of land and construction thereof. Thus, the assessee's claim will qualify for exemption u/s 54F as he has, in substance, complied with the requirements of sub-section (4) of the Act for the assessment year as the whole of the compensation has been deposited in the said bank account and the withdrawals are limited to purchase of plot of land and construction thereof and are monitored closely by the assessee himself. The whole idea of opening a capital gains account scheme is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by an assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house. In the instant case, even though the saving bank account technically speaking is not a capital gain account, the essence and spirit of opening and maintaining a separate capital gain account has been achieved as well as demonstrated by the assessee. Therefore, merely because the saving bank account is technically not a capital gains account, it cannot be said that there is violation of the provisions of sub-section (4) of the Act in terms of not opening a capital gains account scheme. The Revenue has not disputed that the deposits in the said account are from the compensation received by the assessee from compulsory acquisition of his land by RIICO and the Revenue has equally not disputed that there are any withdrawals other than for the purposes of purchase of plot of land and construction thereon.

++ the subject bank account of the assessee was attached by the Department and remain attached, therefore, there is no way the assessee could have met the deadline of 16.7.2011 for constructing the new house, being three years from the date of transfer of the original land and the period during which the bank account remain attached has to be excluded as no fault lies with the assessee. In the interim, the assessment order was passed by the Assessing officer. In such a situation, firstly, when the bank account of the assessee was attached, how can he be expected to have utilized the amount so deposited in the said account within the prescribed period and secondly, there is no way, the Assessing officer could have verified such utilization by the time he passed the assessment order. Hence, the utilization or non-utilization and any related non-compliance or failure on part of the assessee is an event subsequent to the year under consideration and the same cannot be made the basis for denial of exemption for the assessment year once it has been demonstrated that the amount has been deposited in an account in substantial compliance with the provisions of sub-section (4) to section 54F of the Act. Hence, the assessee is held eligible for exemption under section 54F for the assessment year and the Assessing officer is directed to allow the same.

(See 2019-TIOL-238-ITAT-JAIPUR)