S.54F: Capital gains-Investment in residential house–Failure to Construct newhouse property within specified
period is not entitled to not entitled to deduction claimed under section 54F,taxable in the year of 2008-09 and
not in the year 2011-12.
The assessee had sold a property during the year and capital gain was worked out. The assessee invested that sum in purchasing a plot on which residential house was to be constructed. The assessee claimed proportionate deduction under section 54F. However, the house could not be constructed. The Assessing Officer disallowed the deduction claimed under section 54F by the assessee as no construction had taken place within specified time. On appeal, the Commissioner (Appeals) upheld order of the Assessing Officer observing that the assessee had not started the work of construction on the said plot, therefore, the claim of deduction under section 54F was not acceptable. Assessee only after a period of three years and, therefore, if the construction could not be completed, the said capital gain could be taxed only after a lapse of period of three years. Since the assessee had filed return declaring capital gain in assessment year 2011-12, the same could not be taxed again in assessment year 2008-09.Tribunal held that Plain reading of section 54F clearly shows that deduction under this section is allowable only in case where the assessee within a period of one year before or two years after the date on which the transfer took place purchases, or has within a period of three years after that date constructed the residential house. Therefore, if the assessee has not purchased or constructed the house within the specified period the deduction is not available. No doubt the proviso to sub-section provides that in case the amount of capital gain has been deposited in the specified account as provided in sub-section (4) and the same could not be used for construction then such capital gain would be charged in the previous year in which the period of three years expires from the date of transfer of original asset. It is a settled position of law that proviso provide exception to the rule. In the instant case, the proviso carves out an exception only in those cases where the amount had been deposited in
the specified account and could not be used for the purpose of construction. This exception cannot be made part of the rule where the assessee fails to purchase or construct within specified period. In the instant case, admittedly no plans were made, therefore, there is no question of getting the same approved. Apart from this, assessee admitted that assesse has no evidence to prove that assessee wanted to start construction. If the tax is allowed to be postponed merely on the basis of purchase of plot then no assessee would pay correct taxes during the year and postpone the payment of taxes by merely purchasing the plot and that cannot be intention of the provisions of section 54F. Therefore, the Commissioner (Appeals) is right in denying the deduction under section 54F to the assessee and accordingly his order is to be upheld.The assessee has voluntarily filed return declaring capital gain in assessment year 2011-12, therefore, the tax paid in that year would amount to double taxation if the capital gain is also taxed in assessment year 2008-09. The taxes paid in 2011-12 needs to be adjusted against the capital gain liability during assessment year 2008-09. Accordingly, the Assessing Officer is directed to adjust the taxes already paid by the assessee in assessment year 2011-12 regarding the same capital gain after verification during the current year against the capital gain liability. In the result, appeal of the assessee is to be partly allowed. (A.Y. 2008-09)
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