In a relief of homebuyers and tax payers, the Income Tax Appellate Tribunal (ITAT), Ahmedabad has held that that exemption under Section 54F of the income-tax act cannot be denied merely because the assessee failed to deposit unutilised capital gains in the Capital Gains Account Scheme (CGAS), provided the money was ultimately used for the purchase or construction of a new residential property within the time frame.
Section 54F of the Income Tax Act, 1961 provides relief from long-term capital gains tax when an assessee sells any long-term asset other than a residential house and reinvests the gains in another residential house. The law allows two years for the purchase or three years for the construction of the house.
However, if the capital gains are not fully utilised before the date of filing the returns, the balance must be deposited into a notified Capital Gains Account Scheme (CGAS). This ensures the funds are preserved for the intended use.
Failure to deposit in CGAS often leads to denial of tax exemption, even if the taxpayer subsequently uses the money for a new house within the permissible period. This strict interpretation triggered multiple disputes.
What are its implications for the common taxpayer, "The ruling can be cited by people facing similar situations or litigations. However, it is not advisable for individuals to avoid depositing in CGAS. As per the Income Tax law, one has to deposit the unutilised amount in CGAS,” says Ashish Karundia, a Delhi-based tax professional.
The case before the tribunal
The case in question involved Alpesh Navinbhai Barot, who sold a non-agricultural land (in which he was a co-owner) and earned long-term capital gains. Barot claimed exemption under Section 54F, saying the gains were invested in the construction of a new residential house.
The assessing officer rejected the claim. The officer argued that since the assessee had not deposited the unutilised portion of the gains into a CGAS account before the date for filing returns, the exemption was not available. The case was filed for the AY 2015-16.
The matter reached the ITAT, Ahmedabad. "Even if no deposit was made by the assessee in the capital gain's account, the expenditure incurred towards construction of the house till due date for filing the return was required to be allowed as deduction," the tribunal said.
The tribunal drew on judicial precedents where co-ordinate bench of ITAT, Bengaluru ruled in a similar case that it was sufficient for the assessee to utilise capital gains for the purchase of a flat before the extended due date.
The latest ITAT decision provides relief to taxpayers who may have missed the procedural requirement of depositing in a CGAS but have complied with the substantive condition of reinvestment. Experts do caution that until there is a uniform position across all jurisdictions, the safer course for taxpayers remains to deposit unutilised gains into a CGAS account before filing their return to avoid litigation.
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