Section 50C not apply where entire net sale consideration applied for acquiring new house

Section 50C has no application in case the entire net sale consideration has been applied for acquiring the new house – ITAT

ABCAUS Case Law Citation:
ABCAUS 2686 (2018) (12) ITAT

Important Case Laws Cited/relied upon:
DCIT Vs. Dr.Chalasani Mallikarjuna Rao
Gyan Chand Batra Vs. ITO (2010) 6 ITR 147
CIT vs. Smt. Niofer I. Singh
CIT vs. Ace Builders (P) Ltd.
CIT vs. Assam Petroleum Industries (P) Ltd.

The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) on the issue of deduction u/s 54F of the Income Tax Act, 1961 (‘Act’) and taxability of capital gains on sale of capital asset

The assessee did not file the return of income for the relevant Assessment Year and the Assessing Officer (AO) came to know that the assessee had sold a plot for a consideration lesser than the market value of the property as per stamp valuation authorities (SRO).

The AO had issued the notice u/s 148 and in response to the notice, the assessee filed return of income declaring ‘Nil’ income after claiming deduction u/s 54F of the Act.

The assessee submitted that the entire net consideration was invested for acquiring the new residential house, which entitled for deduction u/s 54F thus there was no case for application of section 50C of the Act. Further the assessee relied on clause (a) of sub section 1 of section 54F and the Explanation for the purpose of net consideration.

However, the AO not being convinced with the explanation of the assessee adopted the market value as assessed by the Stamps and Registration Authorities as per section 50C of the Act and determined the capital gains and allowed the deduction u/s 54F as claimed. The resultant difference of an amount was taxed under long term capital gains.

The CIT(A) confirmed the order of the AO and dismissed the appeal of the assessee.

Aggrieved by the order of the CIT(A), the assessee filed appeal before the Tribunal.

During the appeal hearing, it was argued that the assessee had sold the property and the entire actual consideration was invested for acquiring the new house.

It was argued that if the entire net consideration was applied for acquiring a new house, there was no case for invoking the provisions of section 50C and the assessee would be entitled for deduction of actual consideration.

The assessee also relied on the decision of a Coordinate Bench wherein, the ITAT had taken a similar view on identical facts.

The Tribunal observed that the assessee had invested more than the amount of net consideration received for the purpose of acquiring new residential house.

According to the Tribunal, the moot question for consideration was whether the capital gains required to be computed by applying section 50C or not? when the assessee had invested the entire net consideration in acquiring the new house.

The Tribunal noted that as per section 54F of the Act, the conditions required to be satisfied for allowing the deduction u/s 54F is firstly, the asset transferred must be long term capital asset not being a residential house. Secondly, the assessee should acquire the new house within one year before the transfer or within 2 years from the date of transfer or the assessee required to construct one residential house before one year or within 3 years from the date of transfer.

It was also noted that the quantum of allowable deduction u/s 54F is, if the cost of the new asset is not less than the net consideration in respect of the original house, the whole of such capital gains. Also the Tribunal observed that the net consideration defined in Explanation to section 54F is as under :

“net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.”

Thus as per the explanation, the net consideration has been defined to be the full value of consideration received or accrued as a result of transfer, in other words, it is not the deemed consideration as defined in section 50C of the Act.

The Tribunal opined that the section 54F(1)(a) clearly makes the assessee entitled for the net consideration, if the whole of such amount is paid for acquiring the new house. In the instant case, there was no dispute that the assessee has paid the whole of net consideration for acquiring the new house.

The Tribunal noted that a Coordinate Bench had held that section 50C has no application in case the entire net sale consideration has been applied for acquiring the new house.

Following the view taken by the Tribunal / Coordinate Bench the Tribunal set aside the order of the CIT(A) and deleted the addition made by the Assessing Officer (AO).

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