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Presentation on Issues of Capital Gains u/s 54, 54F, 54EC, Sec. 50C and Some aspects of penalty u/s 271(1)(c)

Presented By:

CA Amar K Shah

Baroda

For

Baroda CPE Study Circle Baroda.

Date: 8-7-2014

Certain typical Issues in Exemptions from Capital Gains

Sections 54 and 54F

  1. Investment in multiple houses – Whether benefit is available u/s 54 of the Act.

POSER/OFFSHOTS

  1. ADJACENT AND USED AS A SINGLE HOUSE .
  2. NOT ADJACENT BUT IN THE SAME BUILDING OR SOCIETY.
  3. THOUGH ADJACENT BUT NOT USED AS A SINGLE UNIT.
  4. IN DIFFERENT BUILDING OR SOCIETY.
  5. IN TOTALLY DIFFERENT LOCALITY OR DIFFERENT PARTS OF CITIESOR DIFFERENT CITIES.
  1. Booking of under construction flat – whether considered as purchase or construction (Period of 2 years or 3 years to be considered )
  1. Expenses incurred on construction post purchase of a house- Whether benefit of sec. 54 and 54 F is available on these expenditure .
  1. When the New Residential House can be said to be purchased/constructed.
  1. Consequences where construction cannot be completed within the time specified

5A. Whether the Registration of the new house is essential for claiming exemption ?

  1. Purchase of house outside India – Benefit u/s 54 is available ?
  1. Purchase of Residential house in joint names with family members and purchase of house in the names of family members only
  1. Original asset shall be a residential house
  1. Land appurtenant to a residential house . Which land needs to be considered ?
  1. Flat acquired in a scheme of redevelopment. Whether benefit u/s 54 is available?
  1. Purchase of part of the house which is already partly owned by assessee?
  1. Whether the exemption is available under both the sections in respect of the investment made in the same asset.

SECTION : 54

1. Rajesh Keshav Pillai vs ITO(Mum) Tribunal

FACT:

Capital Gains - Profit on sale of property used for residence - Exemption is available to multiple sales and purchases of residential houses - (S 45).

Capital gains - Exemption - Sale of two or more houses and investment.

Source:

The decision of the special Bench in ITO vs. Sushila Jhaveri (2007) 292 ITR(AT)1 is distinguishable.

Though section 54 refers to capital gains arising from ''transfer of a residential houses'', it does not provide that the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemption under section 54 is available in respect of all houses if the other conditions are fulfiled. If more than one house is sold and more than one house is bought , a corresponding exemption under section 54 is available. However , the exemption is not available on an aggregate basis but has to be computed considering each sale and the corresponding purchase adopting a combination beneficial to the assessee.

The decision in the case of Rajesh Keshav Pillai has also been followed by the Mumbai Tribunal in a latter decision in the case of Dy. CIT vs. Ranjit Vithaldas (2012) 137 ITD 267 (Mumbai).

2. CIT v Jagriti Agarwal (MS) 203 Taxman 203 (P&H)(2011) High Court

FACT:

Capital - gains - Deposit of amount in capital gains account scheme by date mentioned under section 139(4) - Eligible for exemption.

If a person has not furnished the return of the previous year within time allowed under Sub section(1) i.e. before 31st July of the Assessment year, the assessee can file the return before expiry of one year from the end of the relevant previous year.

The assessee has deposited the amount before filing of return under section 139(4), therefore the assessee is entitled the benefit of exemption under section 54 (A.Y. 2006-07).

Exemption under section 54 of the Act was held to be allowable to the assessee if the assessee purchases a new property before the due date for filing return as providedunder section 139(4) of the Act.

Section: 54EC

  1. The Tata Power Co Ltd vs ACIT (Mumbai) Tribunal

FACT:

Capital gains Deduction allowable before set-off of brought forward loss or not???

  1. CIT v Vijay M Mahtaney 35 Taxman.com 228 (Mad) (2013). High Court

FACT:

Capital gains - Investment in bonds - Long term capital loss of earlier years - Set off of loss before Sec. 54EC or After Sec. 54EC.

  1. Kumar Amrutlal Doshi vs Dy CIT

ITA No 1523/ Mum/2010, dt 09-02-2011,A Y 2006-2007,'G' Bench Mumbai ITAT,BCAJ pg 31, Vol 43-A, Part 1,April 2011. Tribunal

FACT:

Capital Gains - Exemption - Date of payment.

Date of issue of cheque for bond investment and not the date Of clearance of cheque is important .

  1. Vivek Jairazbhoy v DCIT (Bang) Tribunal

FACT:

Capital gains - Investment in bonds - Limit of 50 lakhs limit of Rs 50L does not apply to the transaction but financial year. Cheque has to be issued within 6 months Encashment of Cheque & Allottment of Bonds beyoned 6 months is irrelevant.

  1. CIT v Voith Paper Fabrics India Ltd 64 DTR 58/ 245 CTR 516 (P&H)(2011).

FACT:

Capital gains - Profit on sale of property used for residential house - Investment of sale consideration - No requirement that such investment should be in the name of assessee only - Property purchased in the joint names of assessee and husband

  1. Chanchal Kumar Sircar v ITO Tribunal

FACT:

Capital gains - Investment in bonds - Time limit Investment time limit begins from date of receipt of consideration and not from date of transfer, hence entitled for exemption.

  1. Mahesh Nemichandra Ganeshwade v ITO (Pune) Tribunal

FACT:

Capital gains - Investment in bonds - Exemption - Within six months - If investment within 6 months of transfer is impossible, then relief available if investment made within 6 months of receipt of consideration

  1. ACIT v Deepak S Bheda 52 SOT 327 (Mum)(2012).( Tribunal)

FACT:

Capital Gains - Investment in bonds - Exemption -Investment out of total capital gains in REC bonds, deduction cannot be denied on the ground that the assessee has availed the exemption u/s 54F also against a part of the capital gain

  1. Dy CIT v Rajeev Goyal 52 SOT 335 (Kol)(2012). Tribunal

FACT:

Capital Gains - Investment in bonds – Property also owned by minor child along with father/mother .

Exemption u/s 54EC limit is available to father only since income of minor is getting clubbed in the income of father or benefit 54EC is available separately to father and minor.

  1. Dy CIT v Himalaya Machinery (P) Ltd 214 Taxman 291 (Guj)(2013). High Court

FACT:

Capital gains - Sale of depreciable assets - Investment in bonds –

CONCLUSION

Availability of benefit of Sec 54EC ?? .

Issues in Sec.50C

  1. Brief history of Provisions Of Section 50C .
  1. Whether Sec 50C is Constitutional Valid.?
  1. Section 50C and Development Agreement
  1. Whether Section 50C applicable to Leasehold/Tenency Right/Booking Rights?
  1. Applicability of Section 50C r.w.s. Sec 50.(Capital Gain on transfer of depreciable assets.)

(Applicability of sec.50C in case of capital gain chargeable under Sec.50)

Major issue is when to replace the value of Sec. 50C

Actual Actual

Opinion 1 Opinion 2

Opening WDV of Block 100 100

Addition 200 200

300 300

Sale Consideration of Building 150 400

150 -100

In Both case, Value of Building as per is Rs.500

How to calculate STCG Chargeble to Tax.

  1. Applicability of Sec.50C to stock-in-trade
  2. Applicability of Sec.50 to Sec.69, S. 69A,etc. unexplained investments in the hands of buyer
  1. Applicability of Sec.50C to sale of shares of a company where such company is the owner of land and building.
  1. Whether stamp duty value as on date of agreement to sell or date of registration of Sale Deed to be adopted for Sec.50C
  1. Penalty u/s. 271(1)(c) in case of addition u/s.50C.
  1. Points to be noted when matter refers to valuation officer – Sec.50C(2)

Issues on penalty u/s 271(1)(c)

  1. Can department levy penalty on addition on the basis of estimation of income?
  1. What is the relevance for the department to bring on record some evidence to show that the estimate made by the assessee was not bonafide in penalty proceedings?
  1. Disallowance of claim of deduction amount to concealment of income and thereby levy of penalty?
  1. Can penalty levy on agreed addition?
  1. Mere submission of a claim, whether correct or incorrect, will it lead to penalty?
  1. When there is a bonafie mistake, can penalty be leviable ?
  1. Penalty can be imposed only when the Revenue comes to the conclusion that the assessee had a mala fide intention of furnishing inaccurate particulars or concealment of income and not due to any bona fide mistake.
  1. “Where assessee consequent to survey conducted under section 133A had declared income from business at Rs. ------lakhs and further in return of income filed also declared said income, which was accepted and brought to tax, Can Assessing Officer impose penalty under section 271(1)(c)?
  1. Analysis of three important SC decisions in respect of penalty u/s 271 (1)(c)-

-CIT, Ahmedabad v. Reliance Petroproducts (p.) ltd.

-Price waterhouse coopers (p.) ltd. V. CIT, Kolkata.

-Mak data p. ltd. Vs. CIT.

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Questions,if any.

THANK YOU

CA AMAR K. SHAH

11-VIKAS NAGAR SOCIETY,

NANDALAYA COMPOUND,

OLD PADRA ROAD,

VADODARA 390020

(M) +91-9227101188

(O) 0265-2314823, 2356565

08.07.2014[Type text] CA Amar K Shah

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