Income Tax v. Khoobchand M.makhijareportedin.(2014) 223 Itr 189 (Karnataka). Paragraph 21 Ofthe Said Judgment Reads As Under

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATEKD THIS THE 17 DAY OF NOVEMBER 2014 PRESENT THR HON BLE MR.JUSTICE N. KUMAR AN D THE HON BLE MR.JUSTICE B.MANOHAR. ITA NO.223 /200 BBRHIWEE Shri.R.S.Sharma,44,4[*$]Floor, Lakshmi Complex,K.R.Road, Fort,Bangalore — 560 O02.... Appella (By Sri.A.Shankar and M.Lava, Advocates) ANT) The Income — Tax Officer, Ward 1(4), HMT Bhavan,Bellary Road, 6[*$]Floor,Bangalore — 560 032..... Responden (By Sri.K.V.Aravind, Advocate) This ITA is filed u/S.260-A of I.T.Act, 1961 arisingout of Order dated 29/12/2008 passed in ITANo.822/Bng/2008, tor the Assessment Year 2005-2006,praying that this Hon’ble Court may be pleased toformulate the substantial questions of law statedtherein and allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA.No.822/Bng/2008dated 29/12/2008 and M.P.No.7/Bang/2009 in theinterest of justice. This appeal coming on for hearing this day,N.KUMAR J., delivered the following: JUDGMENT The assessee has preferred this appeal challengingthe order dated 29-12-2008 passed by the Income TaxAppellate Tribunal, Bangalore Bench ‘A’ (hereinafterreferred to asS‘the Tribunal’~ for short) in ITANo.822/Bang/2008, wherein the Tribunal had upheldthe order passed by the lower authorities and levied taxon the capital gains for the assessment year 2005-06.| 2 |The assessee has filed the return of income for theassessment year 2005-06 on 30-01-2006 declaring thetotal income of Rs.5,96,960/- wherein he claimed longterm capital gain exemption under Section 54F of theIncome Tax Act, 1961 (hereinafter referred to as)‘theAct’|for short). The Assessing Authority passed anorder dated 6-12-2007, under Section 143(3) of the Act. recalculating the computation of income filed by theassessee and held that the long term capital gainexemption has to be disallowed. He also imposedinterest under Sections 234B and 234C ot the Act. >Agegrieved by the said order, the assessee preferred anappeal to the Commissioner of Income Tax (Appeals)-I,Bangalore|(hereinaiterreferredTO as|‘theFirstAppellate Authority’for short). The First AppellateAuthority vide order dated 30-04-2008 partly allowedtheappealslvingexemptionOT apaltry SUTTofRs.28,910/-,|howeverattirmedthe.order.oT assessment insofar as long term capital gain isconcerned. Aggrieved by the said order, the assesseepreferred an appeal to the Tribunal. The Tribunaldismissed the appeal. Being aggrieved by the saidorder, the present appeal is filed. 3.|The following substantial questions of law arise forour consideration in this appeal. 1.Whether the Tribunal failed to appreciate thatin accordance with the provisions of SectionO4F (4) the amount deposited in the capitaldeposited in the capital gains account 1sdeemed to be the cost of the new asset andconsequently the appellant was entitled toexemption under Section 54F/(1) of the Act forthe assessment year 2005 — 06 ?in accordance with the provisions of SectionO4F (4) the amount deposited in the capitaldeposited in the capital gains account 1sdeemed to be the cost of the new asset andconsequently the appellant was entitled toexemption under Section 54F/(1) of the Act forthe assessment year 2005 — 06 ? 2.Whether the Tribunal failed to appreciate thatin view of the proviso to Section S4F (4) theliability to tax will not arse for. theassessment year 2005 -06 ?in view of the proviso to Section S4F (4) theliability to tax will not arse for. theassessment year 2005 -06 ? 3Whether it is permissible in law to tax theincome for the assessment year 2005 - 06 asper the assessing Officer and for theassessment year 2007 - O8 as offered by theappellant P|income for the assessment year 2005 - 06 asper the assessing Officer and for theassessment year 2007 - O8 as offered by theappellant P| 2.Whether the Tribunal failed to appreciate thatin view of the proviso to Section S4F (4) theliability to tax will not arse for. theassessment year 2005 -06 ?in view of the proviso to Section S4F (4) theliability to tax will not arse for. theassessment year 2005 -06 ? 3Whether it is permissible in law to tax theincome for the assessment year 2005 - 06 asper the assessing Officer and for theassessment year 2007 - O8 as offered by theappellant P|income for the assessment year 2005 - 06 asper the assessing Officer and for theassessment year 2007 - O8 as offered by theappellant P| 4Learned counsel for the assessee assailing theimpugned order contended that when once the amountis deposited in the capital gain account in terms ofsection 94(F)(4) within the time stipulated, the saidamount is deemed to be construed as new Asset. Bven ifthat amount is not utilized either for purchase of aproperty or construction of a residential house, the saidamount shall be charged under Section 45 of the Act as_ income of the previous year in which period of threeyears from the date of transfer of the original assetexpires. Therefore the authorities erred in assessing thesaid income for the assessment year 2005-06. 5 |Per contra, learned counsel for the Revenueargued in support of the order passed by the Tribunal. 6.|This Court had an occasion to consider theidentical issue in respect of a case falling under Section04(2) of the Act in the case of the.COMMISSIONER OF INCOME TAX V/S KHOOBCHAND M.MAKHIJAreportedin.(2014) 223 ITR 189 (Karnataka). Paragraph 21 ofthe said judgment reads as under: 21. A reading of the aforesaid provision makesit very clear that the capital gain acquired bysale of a property should be deposited on orbefore the due date prescribed under Section139(1) of the Act in the relevant year in whichthe property was sold. Therefore, the assesseehas to utilize the said amount for purchasingthe residential house within two years and tifhe is constructing a residential house withinthree years. In the event of the purchase orconstruction 1s completed within a year or two, the question is, is he ltable to offer theunutilized capital gain immediately thereafterin the said current financial year? The answeris “no” because the proviso to Section 54(2)expressly providesthat,uythe|Amountdeposited under sub-section (2) of Section 54 ofthe Act is not utilized wholly or partly for thepurchase or construction of the new assetwithin the period specified in sub-section (1),then the amount not so utilized shall becharged under Section 45 as the income of theprevious year in which the period of threeyears from the date of the transfer of theoriginal asset expires. Therefore, the statuteprescribes expressly when the capital gain is tobe offered to tax. If the said amount 1sdeposited in a nationalized bank as requiredunder law, the entire capital gain or theunutilized|capitalgain|chargeableundersection 45 1s to be offered for tax only in theprevious year in which the period of threeyears from the date of the transfer of theoriginal asset expires. Therefore, the contentionthat immediately after the purchase of the newasset in the relevant year, the unutilizedcapital gains should have been offered to tax,is untenable. That is precisely what theauthorities have held. TS|section o4F(4) of the Act ispart materiawithsection 54(2) of the Act. Therefore, what follows is thatwhen the statute prescribes expressly when the capitalgain is to be offered to tax. It shall be treated TS|section o4F(4) of the Act ispart materiawithsection 54(2) of the Act. Therefore, what follows is thatwhen the statute prescribes expressly when the capitalgain is to be offered to tax. It shall be treated accordingly. If the said amount is deposited in aNationalized Bank as required under law, in capital gainaccount the deposit is construed as investment in newasset. Subsequently if the amount deposited is notutilized the entire capital gain or the unutilized capitalgain chargeable under Section 40 is to be offered for taxonly in the previous year in which the period of threeyears from the date of the transfer of the original assetexpires. Therefore, assessing the said amount for theassessment year 2005-06 when the property is sold on28-04-2005.ieCrroneous.In|the.factsandcircumstances of the case, though the assesseepurchased a site on 26-09-2005, he could not put upconstruction because of business exigencies and thussold the property on 6-10-2006. Immediately thereafterhe offered the said amount for tax in the assessment|year 2007-08. Therefore, the authorities erred isassessing the income of the assessee for the assessmentyear 2005-06 in respect of the capital gain is contrary to law and therefore, it requires to be set aside. The substantial questions of law are answered in favour of the assessee and against the Revenue. Accordingly, wepass the following: ORDER The appeal is allowed. The impugned orderpassed by the authorities below are hereby set aside. | The appeal is allowed. The impugned order Sd/- JUDGE Sd/- JUDGE _* | mp