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Funds Utilised for Capital Gain Exemption u/s 54F

Amrut (Student) (95 Points)

05 December 2010

Condition for exemption u/s 54F is that the assessee should purchase the residential house property one year before or 2 years after or construct within 3 years a house porperty taxable under head "Income from House property

The assessee bought the new house for 50 lacs in jan 08 and sold a land for the same amount in Aug 08. Now while purchasing the house in Jan 08, the assessee utilised his own funds since the sale proceeds were not received. So can he avail the exemption u/s 54F, or is it mandatory to utilise the same funds that are received to him from sale of the old asset.

Also let me know if there are any case laws on the same.

Please reply urgently..

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9 Replies

Sunshine (Helping All) (10575 Points)
Replied 05 December 2010

its natural that if the assesse has purchased the house in jan he cannot have the same sale proceed as he is selling the land in aug....so he can definitely claim exemption u/s 54 F......we need not invest the same sale proceed but all the others conditions have to be fulfilled....

regards,

Sneha

2 Like

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Ankit Jain (Article (Final)) (110 Points)
Replied 05 December 2010

i agree

Amrut (Student) (95 Points)
Replied 05 December 2010

that's fine, but can u please state me some case law on the same.

Thanks and Regards

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 05 December 2010

Hi dear,

If u see the provision of section 54F clearly, u come to know that in order to claim exemption u/s 54F, u either purchase house property one year before or 2 years after the date of transfer or construct within 3 years from the date of transfer any other house property. Thus it is clearly mentioned that u can also purchase house property one year before the date of transfer as well.

Thus, u can claim the exemption u/s 54F even if the same funds has not been utilised for investment. There is one important case law in support of this.

[2010] 7 taxmann.com 30 (Hyd. - ITAT) ITAT, HYDERABAD BENCH ‘A’, HYDERABAD Muneer Khan v. ITO ITA No. 1061/Hyd/2008 August 27, 2010

Following is the brief extracts of the case ::

For claiming benefit of exemption under section 54F of Income-tax Act, it is not necessary that same funds from sale of old residential house must be used in purchasing of new residential house

Neither the law nor does any circular require the identity of the amount received on sale of old residential house and utilization of same for purpose of section 54F and other relevant provisions
Since law itself permits investment in a new property even before sale of property covered by sections 54 and 54F, the law does not contemplate the identity of the funds on sale for its investment; since money has no colour, all that is required is compliance with the conditions of investment within the specified time

U may refer to the same case and u may treat the transaction (as u provided) as exempted u/s 54F since the identity of the funds is not at all important factor while claiming exemption as far as conditions prescribed u/s 54F is satisfied.

Regards,

Manoj

3 Like

Amrut (Student) (95 Points)
Replied 05 December 2010

Just got a Case law on the same.

https://www.taxmann.com/TaxmannFlashes/flaashbn15-9-10_3-DR.htm

Let me know if u have any more

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Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 05 December 2010

I also have the same case law with me...But it is sufficient to hold ur contention.

Regards,

Manoj

(Guest)

agree with sneha and manoj

prashant goyal (CA-Final) (100 Points)
Replied 06 December 2010

Hey amrut

assessee will be eligible for aviailing exemption u/s 54F.... otherwise why act prescribed "1 YEAR BEFORE" as sales proceeds will accrue only after selling capital assets...