The Profits-Tax (I-T) Act presents exemption from long-term capital profits wherein the sale proceeds of the authentic asset are invested in new residential belongings. In a latest order, the Bombay high courtroom has held that such an exemption might be to be had simplest to the volume to which the quantity has been without a doubt utilized by the taxpayer, earlier than the due date of submitting his I-T return.
If a taxpayer has simplest partially utilized proceeds of the lengthy-time period capital gains (LTCG) through making bills to the builder and has no longer deposited the stability unutilized amount in a unique bank account, then simplest the actual bills will be taken into consideration for computing capital gains exempt beneath Phase 54F of the I-T Act, the HC held. The taxable element of LTCG is arrived at after taking into consideration the exemption available beneath Section 54F. This order will reduce the quantum that may be claimed as exempt from LTGC. Therefore there will be a better I-T payout (see field).
Tax government says at the same time as this order relates to Section 54F (overlaying LTGC bobbing upon sale of the non-residential property), its principle might also follow to Phase 54 (protecting LTGC on sale of residential assets). These sections offer an exemption if the quantity is invested in residential belongings or deposited in a unique bank account. For that reason, a bigger range of taxpayers will be impacted.
To assert I-T advantages, put up the sale of non-residential belongings (say land), the taxpayer under Section 54F is required to invest the proceeds from LTCG in residential belongings within two years from the date of sale. Or, he can assemble any other house belongings within three years.
That amount, which isn’t applied toward a new residential house till the I-T return due date, is needed to be deposited in a unique bank account. If the entire amount of LTGC is not invested or deposited, the ultimate portion of the gain is a problem to I-T. The HC followed a strict interpretation of Section 54F(four), keeping that “the amount which has now not been utilized in construction or buy of assets earlier than submitting I-T return, must ‘necessarily’ be deposited in an account duly notified by way of the Principal Authorities, as a way to be exempted.”
“The Ideal court docket, in diverse cases, has held that exemption provisions ought to be liberally interpreted so long as there huge compliance with the necessities. In this case, the taxpayer had met with the spirit of the I-T law, as buy of the brand new flat become finished properly before the I-T assessment turned into taken up,” says Saroj Maniar, a tax associate at CNK & Friends. Given this order, she cautions that taxpayers need to make deposits, wherever necessary, before submitting their I-T return.
In this example, Humayun Merchand had offered land on April 29, 1995, for Rs eighty-five. Three lakh. On July sixteen, 1996, he entered into a settlement with a builder to purchase a flat for Rs sixty-nine. 9 lakh (ownership taken in January 1997). He filed his I-T go back on November 4, 1996, with the aid of which date he had simplest paid the builder Rs 35 lakhs and no longer made any bank deposit. The I-T officer allowed a proportionate exemption of Rs 31.6 lakh and treated Rs forty-three. 8 lakh as taxable capital profits. The tax tribunal had dismissed the attraction filed utilizing a Merchant who moved to the Bombay high court docket. Right here, too, the decision was now not in his favor. Lubna Kable, The Instances of India, Mumbai