By TIOL News Service

CHANDIGARH, OCT 20, 2016: THE issue is - Whether assessee can claim exemption u/s 54F where he failed to utilize the amounts for construction of a residential house within three years of its sale. NO is the verdict.

Facts of the case

The assessee sold land for Rs. 2.25 crores and since this amount constituted capital gains, such amount was deposited under the Capital Gains Tax Scheme, 1988 by way of a Fixed Deposit in the State Bank of Patiala. It is the case of the assessee that even after the aforesaid 04 kanals of land had been sold, 27 kanals 16 marlas continued to be in its ownership and possession, on which a residential house was intended to be constructed, but the same could not be done in view of the interim orders granted by this Court, as also the Apex Court, prohibiting construction in the area in which the afore-referred 27 kanals 16 marlas of land was situated. According to the assessee, the interim order still continues. Since the assessee was precluded from constructing the residential house, within the period of three years, as stipulated under Section 54-F of the Act, fearing that the afore-referred amount of Rs. 2.25 crores, being capital gain from sale of a long term capital asset, would be taxed, an application was moved on its behalf for seeking condonation of delay and simultaneous grant of extension of time beyond the stipulated three years to raise the construction. No heed, having been paid to the application, the assessee moved another representation and when that too went un-responded to, a petition was filed before this Court which was disposed of with a direction to the Board to decide the assessee's application within three months from the date of receipt of a certified copy of that order. In compliance, a decision by way of rejection of the assessee's application was taken by the Board. According to the Board, the assessee had failed to demonstrate compliance with the condition stipulated in Section 119 (2)(c)(ii) of the Act. Hence, this petition.

Having heard the parties, the court held that,

++ the assessee could avail the benefit under Section 54-F on account of the capital gains arisen from the sale of the said 04 kanals of land on 28.06.2011, if it utilized the amounts for construction of a residential house within three years of its sale i.e. up to 27.06.2014. If the assessee failed to do so, the capital gain was required to be taxed under Section 45 as income of the previous year, in which the period of three years from the date of transfer of the land in question expired. Thus, the deduction under Section 54-F could, at the most, have been claimed by the assessee in the assessment year 2015-16 i.e. the previous year 2014-15;

++ even otherwise, to claim a deduction under Section 54-F of the Act, the assessee was well within its rights to raise construction of a residential house on any land other than the 27 kanals 16 marlas of land referred to above. Having failed to do so, no relief to the assessee, as claimed, can be granted;

++ sub-clauses (i) and (ii) of Section 119(2)(c) are cumulative. Both the conditions must be fulfilled in order to extend the benefit of Section 119 to an assessee. The assessee's case does not fall within either sub-clause (i) or (ii) of clause (c) of Section 119(2). Firstly, it cannot be said that the default in complying with the requirements of Section 54-F, necessary to claim the benefit thereunder, was due to circumstances beyond the assessee's control. Section 54-F requires the home to be constructed within a stipulated period. It does not require the home to be constructed on the assessee's other properties, even if he has any. In a given case, an assessee may be granted an extension for a reasonable period to construct his house on his property. That however cannot be for an indefinite period of time. The Board would be justified in rejecting the application if the assessee's inability to construct a house on his own property is likely to continue for an unduly long period. There is no inherent right to an extension of time in such circumstances. Thus, the assessee's application was liable to be rejected for this reason alone;

++ the assessee has not even complied with sub-clause (ii) of clause (c) of Section 119 (2). The extension can be granted only if an assessee has complied with the requirements necessary to avail the benefit under Section 54-F before completion of assessment in relation to the previous year in which such deduction is claimed. The assessee had admittedly not fulfilled the condition even as on date;

++ the relaxation in terms of Section 119 (2) (c) can be sought by the assessee at the time of claiming deduction and such claim can be made only within the time period, as prescribed under the Act for making such claim. There is nothing in Section 119 (2) of the Act which gives any power to the Board to extend the time to claim the deduction;

++ the assessee could have applied for relaxation for claiming the benefit under Section 54-F only within the time prescribed under that Section and that too, if before making such claim, he had complied with the required conditions to claim such deduction. That not being there in the present case, the Board rightly rejected the assessee's application.

(See 2016-TIOL-2531-HC-P&H-IT)