Section 54 & 54F :Filing Late Return For Extending Period of Investment !

 

The Income Tax Act provides exemption from tax on long term capital gains , under section 54 or 54F  ,in case the capital gains ( in case of sec. 54) or net sale consideration ( in case of 54F) is utilized for buying a residential house either one year before the date of transfer of the asset or within two years after that date in construction of residential house.

Further sub-section 2 of section 54  provides that if the amount is not utilized  within a specified time , it should be deposited in Capital Gains Account Scheme  within six months from the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139.

A clever plea of the  assessee that for utilising the capital gains, the time limit is allowed upto the date by which a person is allowed to file late retun u/s 139(4) of the I T Act. has been allowed by Punjab & Haryana Court in case of CIT-II , Chandigarh vs Jagriti Agarwal [2011] 15 taxmann.com 146 (Punj. & Har.) 64 DTR 333.

The facts of the case of exemption claim u/s 54

The assessee sold her residential house on 13.1.2006 for a sum of Rs. 45 lacs and purchased another property jointly with Mr. D. P. Azad, her father-in-law on 2.1.2007 for a consideration of Rs. 95 lacs. The due date of filing of return as per Section 139(1) of the Act was 31.7.2006, but the assessee filed her return on 28.3.2007 .

The assessee was served with a notice under Section 142(1) of the Act, as to why the amount deducted be not added to her income as long term capital gain, as the assessee failed to deposit the amount in Capital Gain Account Scheme and also failed to purchase house property before the due date of filing the return of income. The assessee contested the claim of the Revenue and asserted that she is not liable to deposit the amount in Capital Gain Deposit Scheme and that the due date of filing the return of income tax is not as specified in Section 139(1) but as specified in Section 139(4) of the Act. The Assessing Officer declined the claim of the assessee

Both CIT (A ) and Tribunal favoured assessee.

The Department appealed to High Court which held as under :

11. A reading of the aforesaid Sub-Section would show that if a person has not furnished the return of the previous year within the time allowed under Sub-Section (1) i.e. before 31st day of July of the Assessment Year, the assessee can file return before the expiry of one year from the end of the relevant Assessment Year.

12. The sale of the asset having been taken place on 13.1.2006, falling in the previous year 2006-2007, the return could be filed before the end of relevant assessment year 2007-2008 i.e. 31.3.2007. Thus, Sub-Section (4) of Section 139 provides extended period of limitation as an exception to Sub-Section (1) of Section 139 of the Act. Sub-Section (4) is in relation to the time allowed to an assessee under Sub-Section (1) to file return. Therefore, such provision is not an independent provision, but relates to time contemplated under Sub-Section (1) of Section 139. Therefore, such Sub-Section (4) has to be read along with Sub-Section (1). Similar is the view taken by the Division Bench of Karnataka and Gauhati High Courts in Fathima Bai’s case (supra) and Rajesh Kumar Jalan’s case (supra) respectively.

13. In view of the above, we find that due date for furnishing the return of income as per Section 139(1) of the Act is subject to the extended period provided under Sub-Section (4) of Section 139 of the Act.

The P & H Court relied on decision of Karnataka High Court in Fathima Bai v. ITO [2009] 32 DTR 243   for deciding the case in favour of assessee.

The extended due date under s. 139(4) would be 31st March, 1990. The assessee did not file the return within the extended due date, but filed the return on 27th Feb., 2000. However, the assessee had utilised the entire  capital gains by purchase of a house property within the stipulated period of s. 54(2) i.e., before the extended due date for return under s. 139. The assessee technically may have defaulted in not filing the return under s.139(4). But, however, utilised the capital gains for purchase of property before the extended due date under s.139(4). The contention of the Revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date is an untenable contention.

Both  the aforesaid case has relied on Guwahati High Court order in CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274 in which the Hon’ble High Court held as under

From a plain reading of sub-section (2) of section 54 of the Income-tax Act, 1961, it is clear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act. Section 139 of the Income-tax Act, 1961, cannot be meant only section 139(1) but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under sub-section (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier. Such being the situation, it is the case of the respondent/assessee that the respondent/assessee could fulfil the requirement under section 54 of the Income-tax Act for exemption of the capital gain from being charged to income-tax on the sale of property used for residence up to March 30, 1998, inasmuch as the return of income-tax for the assessment year 1997-98 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-section (4) of section 139 of the Income-tax Act, 1961.