Pankaj Arora
(Learner)
(3134 Points)
Replied 19 February 2011
yes you have to deposit in capital gain account scheme of nationalized bank before due date of filing return.
Rachit
(Ca-Final Article.)
(565 Points)
Replied 19 February 2011
Mr ustogi
you are absolutely right ...............
i\you have to deposit amount Before the date of filing ITR U/s 139(1)...............
otherwise your all capital gain will become taxable.......................
the case you are talking about is that in which a person invested his CG somewhere in that case there will not any issuse arise ..............
As per the Income tax Act 1961 Sec.54 if any 1 want to claim exemption on CG arise from sale of residential house............then in the same case either the person has to invest the amount in a poperty Untill the date of Filing of return or depodit the same in a Specified Account in any Nationalised Bank................
By depositing the amount You will becomne eligible to retain your CG for Coming three years.........
CA. ANKUR JAIN
(CA.....)
(2800 Points)
Replied 19 February 2011
yeah u have to deposit in CGA scheme before due date of filling of your return....
Manoj BG
(Tax Professional and in Service)
(1795 Points)
Replied 19 February 2011
Shobhit,
Definitely u have to deposit before the due date of filing of return u/s 139(1) even though u filed return before the due date, time limit for deposit is allowed till the due date. Thus, even if u not deposited CG in CG account and files the return before due date, CG would not be taxable provided such CG deposited before the due date of furnishing of return u/s 139(1). Thus the matter is much more clear that due date means due date within meaning of sec 139(1) and not under sec 139(4)
Hope this solves ur query.
Regards,
Manoj
the story is that a client has got a gain of 23 crore rs and he has been strongly advised by his fca that do not file ur return ... file it late and till then u need not deposit the capital gain into cg account... .. i think now that the advice needs to be corrected a little ..... am i right ?
Ravindra Manek
(Chartered Accountant)
(74 Points)
Replied 19 February 2011
Have a look at this... It may be helpful
Pooja Verma
(Chartered Accountant)
(38 Points)
Replied 20 February 2011
As per the article posted by Ravinder, makes it clear that AS long AS investment is made before the date of filing of the I.T return whether U/s. 139(1) or U/s. 139(4), purpose of introduction of capital Gains Account Scheme is acheived, ensuring that the investment has actually been made before the return is filed..
Now As in your Case, Can you tell what are the intensions for making the return late.. whether these 23 crores will be invested before filing of the belated return...??
Regards
Pooja Verma
Pooja Verma
(Chartered Accountant)
(38 Points)
Replied 20 February 2011
Then it seems that the suggestion made by the FCA is absolutely correct.. Provided these all 23 crores are invested in new property.. before filing of belated return.
1. Issue for consideration :
1.1 An assessee is entitled to exemption for long-term capital gains arising on transfer of any asset u/s.54F, if he purchases or constructs a residential house within the stipulated period (one year before or two years after the date of transfer for purchase, and three years after the date of transfer for construction). The exemption available is of such amount of capital gain in the ratio of the cost of the new house to the net sale consideration on transfer of the assets.
1.2 Ss.(4) of S. 54F provides that the amount of net consideration, which is not appropriated by the assessee towards the purchase of the new asset within one year before the date of transfer of the original asset, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income u/s.139, shall be deposited by him before furnishing such return into an account with a bank under the Capital Gains Account Scheme, and utilised in accordance with such scheme. If this is done, the amount actually utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited is deemed to be the cost of the new asset for computing the exemption u/s.54F. In other words, pending actual utilisation for purchase or construction of the new house, the amount has to be deposited in the Capital Gains Account Scheme. The amount deposited under the scheme can be utilised only for the purpose of making payment for purchase or construction of the new house.
1.3 At times, it may so happen that the assessee fails to deposit the amount under the Capital Gains Account Scheme before the due date for filing the return of income u/s.139(1), but actually purchases or constructs a new residential house before the due date for filing belated return of income u/s.139(4), i.e., within the stipulated time period of two/three years. The question that arises in such a case is whether the benefit of the exemption u/s.54F can yet be availed of by the assessee in spite of such failure.
1.4 While the Delhi Bench of the Tribunal has held that the assessee is not entitled to the exemption in such a case, the Bangalore Bench of the Tribunal has held that the assessee can still avail of the benefit of the exemption if such utilisation is before the due date for filing belated return of income u/s.139(4).
2. Taranbir Singh Sawhney’s case :
2.1 The issue first came up before the Delhi Bench of the Tribunal in the case of Taranbir Singh Sawhney v. Dy. CIT, 5 SOT 417.
2.2 In this case, the assessee sold certain shares on 25th June 1996, and deposited the sale proceeds in his bank account on 3rd August 1996. He purchased a residential house on 1st December 1997, without depositing any amount under the Capital Gains Account Scheme. Thereafter, the assessee filed his return of income on 13th November 1998, claiming exemption u/s.54F of the capital gains on sale of shares on account of property purchased on 1st December 1997.
2.3 The Assessing Officer denied the claim for exemption u/s.54F, on the ground that the conditions specified in that Section were not fulfilled by the assessee, since the assessee did not deposit such consideration in an account under the Capital Gains Account Scheme pending purchase of a residential house. According to the Assessing Officer, the date of acquisition of the new residential property was 1st December 1997, which was after the due date applicable to the assessee of furnishing his return of income u/s.139(1), i.e., 30th June 1997. According to the Assessing Officer, the net consideration was neither appropriated towards the purchase of residential property before the due date, nor was it deposited in the account under the Capital Gains Account Scheme before that date, resulting in non-fulfilment of the conditions prescribed u/s.54F. The AO therefore denied the exemption u/s.54F.
2.4 Before the Commissioner (Appeals), the assessee submitted that he had opened an independent bank account for depositing the sale proceeds for onward investment in a residential property, that the entire sale proceeds so deposited in his bank ac-count were ultimately used for acquiring residential property, that this account was only used for the purchase of property, and therefore, in sum and in substance, he had complied with the provisions of S. 54F. the assessee claimed that not maintaining a bank account under the Capital Gains Account Scheme was a technical breach, the conditions specified in S. 54 F having been substantially complied with. The Commissioner (Appeals) rejected the assessee’s contentions and dismissed the appeal.
2.5 Before the Tribunal, it was argued that the denial of exemption was done on a mere technical lapse. It was claimed that the sale proceeds of shares were utilised only for the purpose of investment in the new house property and not for any other purpose. Though the sale proceeds were not deposited in a bank account under the Capital Gains Account Scheme 1988, they were kept in a separate bank account and utilised only for the purpose of investment in the house property. Accordingly, the assessee had substantially complied with the conditions specified in S. 54F. It was submitted that the exemption provisions should be construed liberally, as held by the Supreme Court in the case of Bajaj Tempo Ltd. v. CIT, 196 ITR 188, and that the provisions of S. 54F should be construed in the manner to further its objectives and not to restrain it.
2.6 The Tribunal noted the fact that the appropriation of net consideration in the house property was not made before the due date of filing of the return as specified u/s.139(1), and that therefore the net consideration ought to have been deposited in a bank account under the Capital Gains Account Scheme, 1988. Since this had not been done, according to the Tribunal, it disentitled the assessee from exemption. According to the Tribunal, the plea of the assessee that it was a mere technical breach was not a relevant criterion to decide the eligibility of the assessee for exemption. The Tribunal also held that the plea of the assessee that the provisions be construed liberally so as to further its objectives was not tenable having regard to the clear provisions of law. The Tribunal therefore rejected the assessee’s claim for exemption u/s.54F.
3. Nipun Mehrotra’s case :
3.1 The issue again recently came up before the Bangalore Bench of the Tribunal in the case of Nipun Mehrotra v. ACIT, 110 ITD 520.
3.2 In this case, the assessee sold shares for a total net sale consideration of Rs.11,10,833, out of which Rs.9,00,000 was paid as part consideration for acquisition of a new flat between February 2000 and June 2000. The assessee had earlier paid an amount of Rs.22 lakhs to the builder for purchase of the flat between February 1999 and October 1999. A further sum of Rs.4 lakhs was paid on 4th September 2000 and Rs.3,98,000 was paid after September 2000 till March 2001. The assessee accordingly claimed exemption u/s.54F of the entire capital gains.
3.3 The Assessing Officer considered only the payments made after the sale of shares, and since the assessee had made payments of only Rs.9 lakhs before the due date of filing of the return of income, denied exemption u/s.54F in respect of net sale consideration of Rs.2,10,833, on the ground that the assessee should have invested this amount in the Capital Gains Account Scheme before the due date of filing the return of income for assessment year 2000-01, i.e., before 31st July 2000.
3.4 The Commissioner (Appeals) confirmed the order of the Assessing Officer, holding that the language of the statute was clear and unambiguous and that, in the name of liberal interpretation, the provisions could not be circumvented.
3.5 Before the Tribunal, the Department argued that the assessee had not placed any evidence on record to suggest that the sale consideration received from the sale of shares were utilised for the purchase of the new asset, as a sum of Rs.22 lakhs was paid before the shares were sold. According to the Department, the investment of Rs.22 lakhs could not be considered for the purpose of allowing exemption u/s.54F.
3.6 The tribunal considered the provisions of S. 54F(4). It noted that the assessee had to utilise the amount for the purchase or construction of the new asset before the date of furnishing the return of income u/s.139. Since there was no mention of any sub-section of S. 139, according to the Tribunal, one could not interpret that S. 139 mentioned therein should be read as S. 139(1). Following the decision of the Gauhati High Court in the case of CIT v. Rajesh Kumar Jalan, 286 ITR 274 in the context of S. 54(2), the Tribunal was of the view that S. 139 mentioned in S. 54F included not only S. 139(1), but all sub-sections of S. 139.
3.7 According to the Tribunal, the intention behind the insertion of Ss.(4) in S. 54F was to dispense with the rectification of assessments in case the taxpayer failed to acquire the corresponding new asset. Therefore, if the new asset was acquired before the date of filing of the return u/s.139, then the assessee could file such return and there would be no need of rectification. The Tribunal noted that the decision of the Gauhati High Court was not available to the Delhi Bench of the Tribunal in the case of Taranbir Singh Sawhney (supra).
3.8 The Tribunal therefore held that the assessee was entitled to the exemption of the entire amount of Rs.11,10,833 u/s.54F.
4. Observations :
4.1 It is true that the Bangalore Bench has not noted the fact that the subsequent part of S. 54F(4) expressly refers to S. 139(4) — "Such deposit being made in any case not later than the due date applicable in the case of the assesee for furnishing the return of income under Ss.(1) of S. 139 in an account. . . . ."
4.2 However, it is essential to understand the background behind the introduction of the requirement of depositing the amount in the Capital Gains Account Scheme. Prior to introduction of this requirement, it was noticed that assessees would claim the exemption u/s.54F, by stating their intention to invest in a residential house within the prescribed time period. There was no mechanism for the Assessing Officer to verify whether such investment was made within the prescribed time, and it was felt that many assessees obtained the exemption without any actual investment in a residential house. Hence, this requirement was introduced to ensure that the exemption was not obtained under a false statement that the investment would be made within the prescribed period.
4.3 From that perspective, so long as the investment is made before the date of filing of the income tax return, whether u/s.139(1) or u/s.139(4), the purpose of introduction of the Capital Gains Account Scheme is achieved, namely, ensuring that the investment has actually been made before the return is filed.
4.4 As held by the Gauhati High Court in the case of Rajesh Kumar Jalan (supra), in construing a beneficial enactment, the view that advances the object of the enactment and serves the purpose must be preferred to the one which obstructs the object and paralyses the purpose of the beneficial enactment. Therefore, even if the investment in the house property has been made before the date of filing of the belated return, the purpose of the legislature is achieved, and it is not appropriate to deny the exemption on the ground that there has been a delay in investment, and accordingly a failure to invest in a bank account under the Capital Gains Account Scheme.
4.5 The requirement to invest in a bank account under the Capital Gains Account Scheme is therefore really a procedural requirement to ensure that investment is made in a residential house as claimed in the return of income, where such investment has already not been made. To deny the exemption when there has been substantial compliance by actual investment in a house, on the ground that investment has not been made in the Capital Gains Account Scheme within the prescribed time limit, appears to be unjustified. The time limit therefore needs to be read down as including the time limit for filing of a belated return of income, as held by the Gauhati High Court.
4.6 Therefore, the view taken by the Bangalore Bench of the Tribunal appears to be a better view of the matter, as compared to the view taken by the Delhi Bench.
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