The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the capital gain of multiple years can be claimed against purchase/construction of same new residential house i.e. new asset for the exemption under section 54 of the Income Tax Act subject to fulfillment of other conditions.
The revenue had denied the exemption benefit to the assessee on two grounds, namely, i) the expression used in Section 54F(1) is ‘transfer of any long-term asset’, which connotes singularity and (ii) the action of ‘purchase’ can happen only once.
The issue before the Tribunal was that whether deduction under s.54F of the Act is available in respect of capital gains arising from the sale of more than one long-term capital assets, not being a residential house (original asset) against the construction or purchase of one residential house (new asset).
The Tribunal noted that the deduction under s.54F of the Act essentially depends upon the extent of utilization of the sale proceeds in the new asset. The benefits of Section 54F of the Act also stands denied where the assessee owns more than one residential house other than a new asset on the date of transfer of the original asset.
“The object of Section 54F is to encourage an assessee to convert any of his long-term assets into a residential house subject to the condition that assessee does not own more than one residential house other than the new residential house on the date of transfer of a long-term asset. The Section, thus, in essence, offers some incentives to a taxpayer to change its unproductive assets into a residential house. The action of the assessee is thus in conformity with the object and purpose of Section 54F of the Act. To say that the assessee is entitled to the deduction in respect of capital gains arising from the sale of only one long-term capital asset and conversion thereof in residential property would in effect seriously limit the object and purpose of Section 54F of the Act,” the Tribunal said.
“To delineate further, an incidental situation may also crop up whether capital gains deduction with reference to Section 54F of the Act would apply with respect to a solitary transaction and not on the whole of several different transactions of capital assets in the form of equity, mutual fund and so on. If the interpretation of ‘any long-term asset’ as suggested by Revenue is read to mean a deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such an interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of the broader expression ‘any’ long-term asset in distinction to the expression ‘a’ long-term asset as used in Section 10(38) of the Act. Thus, the legislative intent when gathered from the distinct language used, it is clear that a narrower interpretation would fail to achieve manifest purpose of the deduction provision. We thus, prefer to avoid a construction which would reduce the legislation to futility and grant broader construction to bring effective result on the availability of such deduction,” the Tribunal added.
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