INCOME TAX ACT, 1961

Section 54 section 45 Section 264

Capital gains - Deduction under section 54 - Additional cost of construction incurred within 3 years of transfer - Money not repealed in capital gain account scheme

Petitioner was the Karta of the Hindu Undivided Family (HUF). The petitioner was the owner of a property, wherein1/4th share of the assessee was held on HUF account and the remaining 3/4th share was held on individual account. Petitioner had entered into a Development Agreement on 15-4-2013 with Sumanth & Co for the development of the above property. The overall consideration for the release of 3/4th share of the property was fixed at Rs. 1600 lakhs by cash and constructed area of 3850 Sq. ft. was valued at Rs. 125 lakhs. As the owner of only 1/4th share in the property, the share of the petitioner HUF comes to Rs. 431.25 lakhs. Accordingly, the petitioner HUF filed return for the assessment year 2014-15 after computing the capital gains for the 1/4th share, i.e., cash consideration of Rs. 400 lakhs and construction cost of Rs. 31.25 lakhs only. The petitioner HUF deposited the amount of Rs. 37.50 lakhs within the prescribed time in Capital Gains Deposit Scheme. Return was processed under section 143(1). The petitioner requested the Developer to allow him to decide on the construction quality and type of material to be used for superstructure and promised to bear the additional costs involved and to pay to the suppliers/professionals directly. By the time, the above proposals incurring additional expenditure on petitioner's portion of the superstructure was accepted by the developer, the time for depositing the money into Capital Gains Deposit Scheme had lapsed. The petitioner subsequently submitted a petition on 29-12-2016 under section 264, seeking revision of the assessment after taking into account the additional expenditure incurred by the petitioner towards acquiring the new Capital Asset within the prescribed time limit of 3 years. An overall expenditure of Rs. 4,08,54,108 was incurred towards additional cost of construction in which 1/4th share of HUF comes to Rs. 1,02,13,527. However, the AO rejected the request of the petitioner through the impugned order. Revenue contended that though the construction might have been completed within the stipulated time of three years, as per section 54(2), the unutilised portion of the capital gain shall have to be deposited in the notified Capital Gains Deposit Scheme within the time allowed under section 139(1) so as to get away with the rigors of taxation. The petitioner had not complied with the conditions of section 54(2) and accordingly cannot be granted the benefit of deduction under section 54 on the additional cost of construction so claimed.Held: Assessee, in this case, had claimed that it had utilised the disputed sum towards the cost of the additional construction within the period of three years from the date of the transfer and therefore, if such contention was factually correct, it was to be held that the assessee had satisfied the mandatory requirement under section 54(1) to get deduction. The claim of the assessee for deduction of the disputed sum towards the additional construction cost was rejected only on the ground that the said sum was not deposited in the capital gain account. The revenue was not justified in making such objection. On the other hand, it had to verify as to whether the said sum was utilised by the petitioner within the time stipulated under section 54(1) for the purpose of construction. Accordingly, the writ petition was allowed and the matter was remitted back to the AO to pass a fresh order accordingly.

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