Unreported Decisions – January 2021
By Ajay R. Singh, Advocate
1. Capital Gain deduction u/s. 54F is allowable for purchase of House Property at Abroad
The assessee has invested in construction of a new residential house within the due date u/s.139(1) of the Act. The assessee is having balanced capital gains. The assessee has not invested an amount which should have been invested in a capital gain account scheme. He filed the return of income for AY 2014-15 before the due date under section 139(1) of the Act. However, by that time, he has not utilized the amount in construction of new residential houses or deposited the same in the capital gain account scheme as notified by the Central Government. Therefore Assessing officer denied the claim of the Assessee. The Commissioner Appeals also rejected the claim of the Assessee stating that the unutilized amount of Capital Gains should be invested in the Capital Gain Scheme notified by the Central Government before the due date of filing the return of income. Hence, the same was denied.
Before the Tribunal, the assessee contended that even if the assessee deposited an unutilized portion of capital gain after the due date provided under section 139(1) of the Act, assessee is entitled for deduction u/s. 54 of the Act. This argument was not accepted by the Tribunal. Further alternate argument taken that, the assessee made investment in purchase of house at Chicago in USA which was within the stipulated time u/s. 139(4)of the Act. Even the investment in residential property in foreign country, the assessee can claim such deduction.
While deciding the issue the Tribunal has considered the arguments of the Assessee as well as following the decisions of the CIT vs. K Ramachandra Rao (2015) 230 Taxman 334 (Karn) (HC) held that assessee having invested in construction of a residential house at Chicago, he could not be denied exemption u/s. 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed u/s. 139(1). As such, it should be understood that extended date is available as per section 139(4) of the Act. Accordingly, the assessee is entitled for exemption u/s. 54F of the Act if the unutilized capital gain is invested before the due date as mentioned in section 139(4) of the Act. Hence, Capital deduction is allowable for purchase of house property at abroad.
Sri Joseph K. Zachariah vs. ACIT
[ITA 6790 / DEL / 2019 Bench SMC -1 ; dated: 27.11.2020 AY: 2012-13. Delhi Tribunal]
2. Share Application Money is ‘Capital Asset’ for the purpose of Section 2(14) of Income Tax Act
The assessee, M/s. Morarjee Realties Ltd. transferred its investments held in the shape of equity shares, preference shares and rights to apply for shares i.e. share application money held in M/s. MBL, to an entity MGM Shareholders Benefit Trust. The assessee similarly transferred equity shares in certain entities as well as share application money held in M/s. Morarjee Legler Limited to M/s. MBL. While doing so, the assessee suffered Long Term Capital Losses as well as Short Terms Capital Losses and the set-off of loss was denied by AO. However, upon further appeal, CIT (A) allows the same. The revenue was further in appeal before Tribunal.
The Tribunal observed that though losses arising out of transfer of equity shares and preference shares would be allowable to the assessee but share application money could not be considered as Capital Asset within the meaning of Sec.2(14) of the Act. The issue raised was whether share application money could be considered as capital asset or not. The Tribunal held that the share application money as transferred/assigned by the assessee would constitute a ‘Capital Asset’ within the meaning of S.2 (14) of the Act. It does not fall under any of the exclusions,hencethe losses incurred was allowable to the assessee.
DCIT vs. M/s. Morarjee Realities Ltd.
(ITA No. 2343/Mum/2009, Bench “F” dated: 15/12/2020, AY 2004 – 2005 Mumbai Tribunal)