exemption under sec 54

Dear,

Sec.54 says,

Applicable to  individual and HUF.

Conditions :   Assessee has transferred a long term residential house, income of which is taxable

under the head income from house property.

Assessee must acquire a new residential house with in prescribed limit.

Stress :

Capital asset must be a long term capital asset.

Property must be a residential house whether let out or self occupied.

Income of such property must be taxable u/s.22   CIT V.vidya prakash talwar 1981 (del)

Land transferred appurtenant to a house property (assessable u/s.22) together with

such house property, also qualifies for deduction u/s.54.

CIT V. zaibunnisa begum (1985) (A.P)

The new residential house may not be taxable u/s.22.

eg. A new house acquired for the residence of employee shall be eligible for deduction.

Time limit for acquisition of new asset.

For purchase

With in a period of 1 year before or 2 years after, the date of transfer.

For construction

With in a period of 3 years after the date of transfer.

Construction may start at any time but must be complted within stipulated time.

CIT V. J.R.subramanya bhat.

Scheme of deposit

Applicable

Note : In case of compulsory acquisition of such capital asset by the govt.

the time limit shall start from receipt of compensation or part thereof.

Deduction

Minimum of the following

Investment in the new asset ( including amount deposited in deposit scheme)

Capital gain.

Revocation of benefit :

If the newly acquired residential house is transferred with in 3 years from

the date of acquisition or construction of new assets,

then the benefit availed earlier shall be revoked.

Such revoked income shall be reduced from the cost of acquisition of new asset.

If the amount held in capital gains deposit account scheme (1988) is

unutilised,

then such amount shall be taxable as LTCG in the previous year in which

the period of 3 years from the date of transfer expires.

Notes :

Legal title of the house

Holding of the legal title is not necessary. It is sufficient that the assessee has made the full

(or substantial) payment with in the time limit eventhough the transfer deed has not been registered

and the possession is given after stipulated time.

CIT.  V shahzada begum (1988) (AP)

Limitation on number of new house acquired.

Exemption is not limited to acquisition of one house.

Asseessee may acquire more than one residential house.

Assessee may sell 2 house properties and may purchase 1 house proprty

for the purpose of availing exemption.

D.anand passappa V.ITO.

Nature of new house.

If the capital gain is invested in extension of existing building ( eg. Construction of new floor)

it shall be treated as acquisition of new house.

CIT. V. Narasimhan (PV) 1990  mad.

If the capital gain is invested in acquisition of a right in a house property

which is already used for residential purpose,

it shall be treated as acquisition of new house.

CIT V. chandaben maganlal 2000  (guj)

Construction Vs. Purchase

Where the assessee has partly invested the capital gains on the purchase of

another house and partly on construction of new floor to the house so purchased

with in the prescribed time limit,

then the expenditure incurred on purchase as well as on construction

shall be eligible for dedution.

CIT. V. sarkar B.B   1981  del.

Treatment of co-owner

In case, co-owner transfers/releases his share in favour of another co-owners then such transfer/release

shall be qualified for deduction.

CIT V. T.N. aravinda reddy 1979  sc

transfer of part house

Exemption u/s.54 is available on sale of the part of the house if the same is an independent unit.

CIT V. jayalakshmi C    1981  Mad.

Treatment of land

The cost of land is integral part of the residential house.

Circular no.667.

Treatment in the hands of legal heir.

the benefit of see.54 is also available to the heir of deceased assessee

provided he fulfills conditions of sec.54.

Property in foreign country

The new house may be in india or outside india.  Prema P.shah V. ITO (mum). 2006

cost incurred for making house habitable.

For purpose of claiming exemption u/s.54 investment in residential house

 would not only include cost of purchase of house but also cost incurred for making house habitable.

Saleem fazelbhoy V. CIT (mum) 2006

Live link between capital gain and investment is not necessary.

There is nothing in provisions of sec.54

to warrant establishing a direct  nexus or live link between the amount of capital gain

and the cost of new asset.

Ex.

If an assessee utilises LTCG on sale of house for purchasing and selling shares

in between before depositing the capital gain in capital gains accounts scheme,1988

and subsequently purchases a house it is qualified to claim exemption u/s.54.

Ajit vaswanit V. CIT (Del) 2001

Construction by a third party

Construction of house need not be made by the assessee himself,

as it can be constructed by a third party for the assessee.

CIT  V. Uma budhia (kol) 2004

Construction by co-operative societies

Allotment of flat under self financing scheme of DDA or similar scheme of co-operative societies

or other institutions is treated as construction of house for u/s.54.

Circular No.471 & 672.

Purchase of property while residing

If there is a bona fide purchase, the revenue cannot be permitted to say that assessee is

not entitled to exeption under the provisions of sec.54.

merely because assessee was residing in house which was purchased by the assessee.

CIT V. Chandanben maganlar (guj) 2002

The word purchase for the purpose of sec.54 must be interpreted

 in its ordinary meaning as buying for a price or equivalent of price.

CIT V. Uma budhia (kol) 2004

Capital Gains accounts scheme,1988

Introduction

if the new asset is not acquired till the due date of submission of return of income

then the assessee will have to deposit the money in capital gains deposit account

with a nationalized bank.

the proof of deposit should be submitted along with return of income.

on the basis of actual investment and amount deposited in deposit account

exemption will be given to assessee.

utilisation of amount

Assessee is to acquire a new asset by withdrawing from deposit account.

new asset must be acquired within specified time provided in sec.54

If deposit amount remains unutilised

Unutilised amount will become chargeable to tax in the previous year in which

the specified timelimit expires.

Nature of gain

It will be taxable as LTCG.

Note :

Unutilised amount can be withdrawn by the assessee after the expiry of aforesaid time limit.

Unutilised amount capital gains account scheme 1988 in the hands of legal heir of deceased

individual cannot be taxed.

Regards

K.Ilayaraja.