Section 54 of the Income-tax Act, 1961 ("Act") provides for exemption of capital gains arising to a specified assessee from transfer of a long- term capital
asset to the extent capital gains are invested in a
residential house
within a
prescribed period.
The said
exemption is
available if the residential
house is purchased or constructed within the
prescribed period
of one
year before
or two
years after
(in case
of purchase); or three
years after
(in case
of construction)
the date
of transfer
of the long-term capital asset.
Invariably, a person is not able to utilize the entire amount of capital gains on or before the due date of filing of return for the year in respect of which such capital gains arose. Such a situation is addressed by sub- section (2) by
providing for
deposit of
unutilized funds
in a
Capital Gains Account Scheme before the prescribed date so that an assessee
may not
lose upon
the exemption
of unutilized
funds. Section
54(2) reads as under:
"(2) The amount of the capital
gain which is not appropriated by the assessee towards the purchase of the new
asset made within one year before the date on which the transfer of the
original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the
date of furnishing the return of income under section 139, shall be deposited
by him before furnishing such return [such deposit being made in any case not later than the due date
applicable in the case of the assessee for furnishing the return of income
under sub-section (1) of section 139] in an account in any such bank or
institution as may be specified in, and utilised in accordance with, any scheme
which the Central Government may, by notification in the Official Gazette,
frame in this behalf and such return shall
be accompanied by proof of such
deposit; and, for the purposes of sub-section
(1), the amount, if any, already utilised
by the assessee for the purchase
or construction of the new asset together with the amount so deposited
shall be deemed to be the cost of the new asset :
……"
Section 54(2) provides for an interesting proposition that the amount of capital gains which is not appropriated by the assessee for
prescribed purposes
within one
year before;
or on
or before
the due date of filing of return of income under section 1 39, shall be deposited
in the capital gains account scheme. It needs to be emphasized
that the literal reading of section 54(2) provides for the two dates i.e. the due dte under section 139 and the due date under
section 139(1).
Pertinently, section 139 cannot be said to mean only section 139(1), but it means all sub-sections of section 139.
It may kindly be noted that the aforesaid provision mandates that the period of utilization or appropriation of the capital gains in purchase or
construction of
the new
residential house is
to be
considered till
the due date under section 139 [which also covers sub-section (4) and (5) of
section 139]. However,
for the
purpose of
taking the
benefit of
Capital Gains Account Scheme, the time limit for making such deposit has
been prescribed to be till the due date under section 139(1) [see the text of section 54(2) as contained in the parenthesis].
In other words, the sub-section (2) clearly provides a pigeonhole in the
sense that the investment by way of purchase or construction, without resorting
to the
Capital Gains
Account Scheme,
can be
made till
the date of
belated return
under section
139(4) or revised
return under section
139(5) as
the wordings
used in
section 54(2) is
"section 139", and not
section 139(1), which
covers all
sub-sections of section
139. The Supreme
Court, in
the context
of interpretation
of provisions
of 276CC,
in Prakash
Nath Khanna
v. CIT [2004] 135 Taxman 327/264 ITR 1 (SC) had observed that "…Had the Legislature intended
to cover sub-section
(4) also, use expression "section 139" alone would
have sufficed." Therefore, in
terms of
the decision
of the
Supreme Court, since
the legislature
in section
54(2) used the
words "section
139" only, the interpretation as discussed above seems plausible.
Section 54(2) is
a subject
matter of
extensive litigation.
Further, the view
of various
High Courts
and Tribunals
of the
country in
the following cases clearly
outlines that
the judicial
consensus is
that the
exemption to be allowed in regard to the amount invested in purchase or
construction of the residential house under section 54 or 54F is to be considered
till the date of filing return of income under section 139(4) of the
Act.
The aforesaid
interpretation has been
approved by
the Hon'ble
Supreme Court in the
case of
Xavier J.
Pulikkal v.
Dy.
CIT where court decided that while allowing
the civil
appeal, modified
(or so
to say
- reversed)
the reasoning of the Kerala High Court in the underlying order reported in [2016] 242 Taxman
206 (Kerala). The
Kerala High
Court held
as under:
"7. So far as the facts of the
present case, we have already stated above, it is possible that facts of the
other appeal considered by the Appellate Tribunal along with
appeal of the revenue may be different.
The scheme for depositing capital gain is contemplated under Section 54F(4) and
it depends upon when the property of the
assessee is sold and when exactly the amounts were invested, whether it was
invested in a residential house or otherwise. All these facts have to be
considered with reference to provisions of Section 54F(4) along with Section
139 (1) of the Act, as the due time
would be under Section 139(1) only not under Section 139(4) of the Act.
8. Tribunal, as a matter of fact,
has accorded one more opportunity to the appellant assessee to place on record
relevant facts for consideration and if his case were to be different from the facts of the other case and makes a vast
difference altogether. So far as provisions of law is concerned, it is always
open to him to place such facts before
the Assessing Officer for consideration. However, Assessing Officer while
applying the provisions of law to facts of a case without
interdependent on facts of the other case has
to consider the same.
With these modifications, we
dispose of the appeal directing the Assessing Officer to dispose of the matter
in the light of the above observations."
It is
to be
noted that
the Hon'ble
Supreme Court,
in (2016) 242 T axmann
59 (SC), while remanding
the matter for denovo
consideration to the assessing officer has clearly modified the aforesaid observations of the Hon'ble Kerala High Court. The purported effect of the decision of the Hon'ble Supreme Court is that it has modified the
"modifications" made by the Kerala High Court in the civil appeal after granting the SLP under Article 136 of the Constitution
of India.
Pertinently, the Supreme Court has allowed the appeal of the assessee and the effect
of allowing
an appeal
by the
Hon'ble Apex
Court is
to vacate a
preceeding order
of the
Kerala High
Court containing
a specific
position taken by the Revenue. Also, the Supreme Court has to be understood to have differed in law with the Kerala High Court.
The following verdict
of the
Hon'ble Supreme
Court in
the case
of Kunhayammed v. State of
Kerala Isupports the aforesaid proposition:
"41. Once a special leave
petition has been granted, the doors for the exercise of appellate jurisdiction
of this Court have been let open. The order impugned before the Supreme Court
becomes an order appealed against.
Any order passed thereafter would be an appellate order and would attract the
applicability of doctrine of merger. It would not make a difference whether the
order is one of reversal or of
modification or of dismissal affirming the order appealed against. It would
also not make any difference if the order is a speaking or non-speaking one. Whenever
this Court has felt inclined to
apply its mind to the merits of the order put in issue before it though it may
be inclined to affirm the same, it is customary with this Court to grant leave
to appeal and thereafter dismiss the appeal itself (and not merely the petition
for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in
the same order and at times the orders are quite brief.
Nevertheless, the order shows the exercise of appellate jurisdiction and
therein the merits of the order impugned
having been subjected to judicial scrutiny of this Court."
It is also submitted that the order passed by the Hon'ble Supreme
Court, albeit in brief, is the declaration
of law in terms of Article 1 41 of the Constitution
of India.
In the
opinion of
the author,
while the reasoning
of, or
the judicial
consensus across
various High
Courts is
that the exemption needs to be allowed if the amount is invested on or before
the due date of filing of return under section 139(4), an authoritative pronouncement from any of High Court placing reliance
upon the aforesaid decision of the Supreme Court will put the issue to rest permanently.
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