Jaipur ITAT in a recent judgement in case of Goverdhan Singh Shekhawat v. Income Tax Officer, Ward- 6(1), Jaipur [102 Taxmann.com 50] Dt. 11.01.2019 held that where assessee had opened bank account specifically for purpose of depositing compensation received on sale of his land, and amount deposited in said account had been utilized only for purchase of plot of land and partial construction thereon, assessee’s claim for deduction under section 54F could not have been denied on ground that compensation was not deposited in Capital Gains Scheme Account.
Facts of the case:
During the year under consideration, the assessee had received certain compensation on compulsory acquisition of his land by RIICO. In the return of income, the assessee has offered the said receipts to tax as long term capital gains and has claimed exemption u/s 54F on account of sale consideration deposited in Capital Gain Account Scheme 1988.
During the course of assessment proceedings, the Assessing Officer on verification of the assessee’s aforesaid bank account found that the said account was not a Capital Gain Scheme Account and therefore, denied the exemption u/s 54F of the Act and assessment order was passed u/s 143(3) bringing the long term capital gains to tax.
CIT(A) also upheld the judgement of Assessing officer.
During the course of hearing, the ld AR submitted that it was represented by the bank to the assessee that they would open the capital gain account and therefore, the assessee proceeded to make deposit in that account. It was further submitted that the assessee was not assisted by any tax consultant at the time of opening up of the account and when the bank itself has represented that it is going to open the capital gain account, no fault could be found with the assessee in its belief of compliance with the relevant provisions of the Act. Though the assessee may be aware of the broad provision and compliance of the law, one cannot expect the assessee to be aware of very minute provision which needed deep understanding of the provisions of the Act.
It was further submitted by the ld AR that there has absolutely been no use of the amount deposited in the said bank account except for the purposes of utilization as per provisions of section 54F. Out of the amount so deposited, the amount has been withdrawn for purchasing of plot and later on for construction thereupon.
It was further submitted that the assessee during the assessment proceedings has submitted before the Assessing officer that where so directed, the assessee is ready to open a capital gain account and transfer the amount to any such capital gain as the assessee otherwise has not utilized the amount elsewhere except as per requirement of the provisions of section 54F of the Act. It was submitted that in spite of above submissions, the AO has not acceded to assessee’s contentions and has denied the exemption u/s 54F of the Act.
It is further pertinent to note that the appellant even requested the ld. AO to guide him if he still required the assessee to transfer the funds to some other capital gain a/c vide letter 17.06.2011 but the ld. AO kept a silence. The appellant, thereafter, when attachment was lifted from the said account, transferred the funds to a Nationalized Bank, Union Bank of India meaning thereby the appellant did make all the possible efforts to comply the law with the best of his understanding and capabilities. No bad motive was shown by the AO. The assessee always intended to construct a new house.
The legislature, with a view to encourage the housing sector intended that sale consideration should not remain with the appellant but should be used within a stipulated period of 2/3 yrs. The amended law further ensured that such amount should be kept deposited in the bank and the appellant be not allowed to use the funds freely for other purposes. This legislative intent was duly met with when the entire sale consideration was out of the pocket of the appellant. Moreover, technically speaking there is no much difference between an ordinary SB account and CGAS account.
Reliance was placed on following judicial pronouncements:
1. Kishore H. Galaiya v. ITO [2012] 24 taxmann.com 11/137 ITD 229 (Mumbai)
2. ACIT v. Jagtar Singh Chawla [2013] 33 taxmann.com 38/215 Taxman 154 (Punj. & Har.)
3. Jagan Nath Singh Lodha v. ITO [2005] 148 Taxman 1 (Mag.) (Jd)
4. DIT v. Agrim Charan Foundation [2001] 119 Taxman 569/[2002] 253 ITR 593 (Delhi)
Tribunal observation:
It is also emerging from perusal of records that the assessee was already having a bank account with Oriental Bank of Commerce since 11.08.2005, yet the new bank account with HDFC Bank was opened on 20.07.2008 specifically for the purpose of depositing the compensation received by the assessee.
At the same time, the amount of compensation stand fully deposited including the TDS thereon in the savings bank account maintained with HDFC bank and deposits and withdrawals have been strictly for the purposes of purchase of plot of land and construction thereof. In our view, the assessee’s claim will qualify for exemption u/s 54F as he has, in substance, complied with the requirements of sub-section (4) of the Act for the impugned assessment year as the whole of the compensation has been deposited in the said bank account and the withdrawals are limited to purchase of plot of land and construction thereof and are monitored closely by the assessee himself.
As we have stated above, the whole idea of opening a capital gains account scheme is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by an assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house. In the instant case, even though the saving bank account technically speaking is not a capital gain account, the essence and spirit of opening and maintaining a separate capital gain account has been achieved as well as demonstrated by the assessee. Therefore, merely because the saving bank account is technically not a capital gains account, it cannot be said that there is violation of the provisions of sub-section (4) of the Act in terms of not opening a capital gains account scheme.
In light of above discussions and in the entirety of facts and circumstances of the case, the assessee is held eligible for exemption under section 54F for the impugned assessment year and the Assessing officer is directed to allow the same.
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