The Income Tax Appellate Tribunal (ITAT), Hyderabad held that exemption under section 54(2) of the Income Tax Act, 1961 cannot be denied to the assesse for the mere reason that the assesse has invested the capital gain in a normal term deposit account instead of Capital Gain Scheme account.
The bench took a liberal view and held that except some conditions, there are no much significant differences between both the accounts.
In the instant case, the assesse, an individual, earned capital gain for the year and had invested the same in a term deposit account in the Bank instead of Capital gain scheme account. Later, the assesse purchased a residential property using the capital gain and claimed exemption under section 54 of the Income Tax Act.
However, the assessing Officer rejected the claim by finding that the amount was not deposited in the Capital gain Scheme account as mandated in the Income Tax Act.
The division bench, while allowing the second appeal of the assesse, noted the fact that that the assessee has not utilized the term deposit for any other purpose till investment in the residential flats.
Examining the features of the capital gains account scheme, the bench observed that such an account can be opened only by depositing the entire capital gain funds and not with partial sale withdrawals and the money can be withdrawn only by giving a written application giving details of the purpose of fund requirements such as for purchase of a property or construction of a house and cannot avail any loan facility on such funds.
“Thus, the intention of introducing the capital gain a/c scheme is to see that where the assessee intends to claim the benefit u/s 54 of the Act, the capital gains are parked with the bank till the assessee identifies the property and invests the same within the specified period. Except for the above conditions, there is not much of a difference between the term deposit and the CGAS and the interest earned thereon is also chargeable to tax as “income from other sources”. Taking the above features into consideration and also that the assessee has not utilized the term deposit for any other purpose till investment in the residential flats, we agree with the contention of the assessee that the defect is only a technical defect which can be condoned provided he fulfils all the conditions of the capital gains a/c except for the nomenclature of the a/c. It is not the case of the Revenue that the assessee has violated any of the above conditions.”
Read the full text of the Order below.
