PERSONAL TAX: Get Section 54F benefit on same flat twice

A taxpayer filed his return of income for assessment year 2012-13 declaring a total income of Rs 1.17 crore from capital gains and other sources. The return was selected for scrutiny assessment. During the course of assessment proceedings, the tax officer observed that the taxpayer had claimed deduction u/s 54F of the Income Tax Act ('the Act') on sale of plot of land against a new residential house property. The officer also observed that the taxpayer had already made a claim for deduction u/s 54F towards the same property against sale of another land in the preceding year AY 2011-12 also. The officer concluded that the taxpayer cannot make claim of double deduction towards investment of sale proceeds arising out of two different assets in two different assessment years, against the purchase of same residential property.

The tax officer observed that under the section 54F gains should arise from a single asset, as the words used in the section are 'original asset' and not 'assets'. Notwithstanding this, the tax officer also remarked in the assessment order that since the purchase could happen only once, which happened in January 2011, the same benefit cannot be extended to the second property in another assessment year. Accordingly, the tax officer refused the claim for deduction by the taxpayer.

Before the first appellate authority, the taxpayer argued that he had complied with all the conditions prescribed under section 54F of the Act and contended that the disallowance made by the tax officer are not as per the provisions of the Act. Further, the taxpayer also relied upon a previous decision by the Mumbai Tax Tribunal. The tribunal had observed that there is no bar in section 54F for claiming deduction a second time or third time for the same property, as long as the cost of the property is within the capital gains earned by the taxpayer. Further, law makers have provided leverage to taxpayers for claiming deduction u/s 54F where in the taxpayer can buy a property first and claim deduction later on, that is, within one year or can have capital gains first and claim deduction within two years by purchasing a residential flat. Therefore, the tribunal had held that in respect of residential property, till the cost of purchase of property is exhausted by the claim of capital gains but remaining in the time frame stipulated under section 54F, deduction should not be denied. As the facts of the taxpayer were similar to the case decided by Mumbai Tribunal, the appellate authority deleted the addition made by the tax officer.

The tax officer appealed before the Delhi Tribunal. Based on the facts of the case, the Delhi Tribunal observed that the deduction u/s 54F essentially depends upon the extent of utilisation of sale proceeds in the new asset. The object of section 54F is to encourage a taxpayer to convert any of his long-term assets into a residential house, subject to the condition that he does not own more than one residential house other than the new residential house on the date of transfer of long-term asset. The Delhi Tribunal, hence, allowed the taxpayer's claim for deduction u/s 54F for investment in the same residential property for two different years.

The writer is a Sebi-registered investment advisor