Capital Gain Tax- India for Residents and Non Residents an analysis

1. CAPITAL GAINS- A BRIEF ANALYSIS FOR RESIDENTS
AND NON-RESIDENTS
A.INTRODUCTION
As there has been lot queries with regard to sale of immovable properties
and resultant saving of tax by investing mostly in purchase of new residential
properties and partly by way of investment in capital gain bonds this write-up has
covered various issues arising out of such activities. The issues pertaining to
Non-resident Indians (NRIs) / Persons of Indian Origin (PIOs) and Indian
residents are covered in this write-up. The write-up also touches Joint
Development of Property (JDA).Wherever a reference is made to NRIs it covers
PIOs also.
This write-up is split into various parts. Certain issues are common for a
resident and non-resident person and wherever the procedure to be adopted in
respect of these two entities is common the discussion has centered around
keeping this in mind and wherever a different approach has to be adopted in
respect of these entities the same is mentioned clearly.
Section 55 of the Direct Taxes Code 2010 (DTC) dealing with “relief for
rollover of investment asset” has also been covered. DTC is proposed to be
introduced shortly (?).As per the proposed section 55 of DTC there is no
corresponding beneficial provision like relief for investment in capital gain bonds
as per section 54EC of the Income-tax Act. Moreover as per section 55 of DTC if
the assessee owns more than one residential house other than the new
investment asset on the date of the date of transfer of the original investment
asset then there would be no relief for rollover of investment asset. This
restriction is highlighted in the relevant place where section 55 of DTC has been
extracted. This new provision has to be kept in mind and it would be better if the
transfer transactions are concluded before introduction of DTC in cases where
more than one residential property is owned by the assessee on the date of
transfer of the original asset.
Common issues:-
1. Computation of Capital Gains
2. Does the transfer of property come under section 54 or section 54F?
3. Whether investment in more than one residential property is possible?
4. When does the capital gains tax arise?
5. What should be the year of acquisition in case of properties acquired
through Will, Settlement etc., and hence indexation value to be adopted for
working out capital gains?
6. What are the avenues that are available to save capital gains tax apart
from investing in residential property?
With regard to NRIs
1. Applicability of section 195 read with section 197 regarding tax
deducted at source
2. Applicability of Chapter XIIA of the Income-tax Act.
3. Facilities available to NRIs, PIO for investment in India

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4. Procedure for remittance / repatriation of funds by Non Residents.
B.RELEVANT PROVISIONS OF INCOME-TAX ACT
The following sections are relevant for this discussion.
(a). SECTION 2(47) (v) OF THE INCOME-TAX ACT
Definitions.--In this Act, unless the context otherwise requires,-
2(47)(v)-"transfer", in relation to a capital asset, includes,-
any transaction involving the allowing of the possession of any immovable
property to be taken or retained in part performance of a contract of the nature
referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ;
Explanation - For the purposes of sub-clauses (v) and (vi), "immovable property"
shall have the same meaning as in clause (d) of section 269UA.
(b). SECTION 45.(1) OF THE INCOME-TAX ACT
Capital gains.--(1) Any profits or gains arising from the transfer of a capital
asset effected in the previous year shall, save as otherwise provided in sections
54, 54B, 54D, 54E, 54EA. 54EB, 54F, 54G and 54H, be chargeable to income-
tax under the head "Capital gains", and shall be deemed to be the income of the
previous year in which the transfer took place.
(c) SECTIONS 2(29A), 2(29B), 2(42A) and 2(42B) OF THE ACT
(29A) “long-term capital asset” means a capital asset which is not a short-
term capital asset;
(29B) “long-term capital gain” means capital gain arising from the transfer of a
long-term capital asset;
(42A) “short-term capital asset” means a capital asset held by an assessee
for not more than thirty-six months immediately preceding the date of its transfer:
(42B) “short-term capital gain” means capital gain arising from the transfer of
a short-term capital asset.
However in the case of shares and securities the period of holding need
only be twelve months as against thirty-six months for other capital assets.
(d) SECTION 48 OF THE INCOME-TAX ACT
Mode of computation -The income chargeable under the head "Capital
gains" shall be computed, by deducting from the full value of the consideration
received or accruing as a result of the transfer of the capital asset the following
amounts, namely:--
(i) expenditure incurred wholly and exclusively in connection with
such transfer;
(ii) the cost of acquisition of the asset and the cost of any
improvement thereto:
Provided that in the case of an assessee, who is a non-resident, capital
gains arising from the transfer of a capital asset being shares in or debentures of,
an Indian company shall be computed by converting the cost of acquisition,
expenditure incurred wholly and exclusively in connection with such transfer and
the full value of the consideration received or accruing as a result of the transfer of
the capital asset into the same foreign currency as was initially utilised in the
purchase of the shares or debentures, and the capital gains so computed in such
foreign currency shall be reconverted into Indian currency, so however, that the
aforesaid manner of computation of capital gains shall be applicable in respect of

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capital gains accruing or arising from every reinvestment thereafter in, and sale of,
shares in, or debentures of, an Indian company:
Provided further that where long-term capital gain arises from the transfer of
a long-term capital asset, other than capital gain arising to a non-resident from the
transfer of shares in, or debentures of, an Indian company referred to in the first
proviso, the provisions of clause (ii) shall have effect as if for the words "cost of
acquisition" and "cost of any improvement", the words "indexed cost of acquisition"
and "indexed cost of any improvement" had respectively been substituted:
Provided also that nothing contained in the second proviso shall apply to the
long-term capital gains arising from the transfer of a long-term capital asset being
bond or debenture other than capital indexed bonds issued by the Government.
Provided also that where shares, debentures or warrants referred to in the
proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable
trust, the market value on the date of such transfer shall be deemed to be the full
value of consideration received or accruing as a result of transfer for the purposes
of this section.
Provided also that no deduction shall be allowed in computing the income
chargeable under the head “Capital gains” in respect of any sum paid on account
of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.
Explanation.--For the purposes of this section,--
(i) "foreign currency" and "Indian currency" shall have the meanings
respectively assigned to them in section 2 of the Foreign Exchange Regulation Act,
1973 (46 of 1973);
(ii) the conversion of Indian currency into foreign currency and the
reconversion of foreign currency into Indian currency shall be at the rate of
exchange prescribed in this behalf;
(iii) "indexed cost of acquisition" means an amount which bears to the cost
of acquisition the same proportion as Cost Inflation Index for the year in which the
asset is transferred bears to the Cost Inflation Index for the first year in which the
asset was held by the assessee or for the year beginning on the 1st day of April,
1981, whichever is later;
(iv) "indexed cost of any improvement" means an amount which bears to the
cost of improvement the same proportion as Cost Inflation Index for the year in
which the asset is transferred bears to the Cost Inflation Index for the year in which
the improvement to the asset took place;
(v)‘‘Cost Inflation Index’’, in relation to a previous year, means such Index as
the Central Government may, having regard to seventy-five per cent. of average
rise in the Consumer Price Index for urban non-manual employees for the
immediately preceding previous year to such previous year, by notification in the
Official Gazette, specify, in this behalf.
(e) SECTION 49 (only relevant portions) OF THE INCOME-TAX ACT
(1) Where the capital asset became the property of the assessee—
(i) on any distribution of assets on the total or partial partition of a Hindu
undivided family;
(ii) under a gift or will;
(iii) (a) by succession, inheritance or devolution the cost of acquisition of
the asset shall be deemed to be the cost for which the previous owner of the
property acquired it, as increased by the cost of any improvement of the assets
incurred or borne by the previous owner or the assessee, as the case may be.

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Explanation.—In this sub-section the expression “previous owner of the property”
in relation to any capital asset owned by an assessee means the last previous
owner of the capital asset who acquired it by a mode of acquisition other than
that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-
section.
(f) SECTION 54 OF THE INCOME-TAX ACT
Profit on sale of property used for residence.--(1) Subject to the provisions
of sub-section (2), where, in the case of an assessee being an individual or a
Hindu undivided family the capital gain arises from the transfer of a long-term
capital asset being buildings or lands appurtenant thereto, and being a
residential house, the income of which is chargeable under the head "Income
from house property" (hereafter in this section referred to as the original asset),
and the assessee has within a period of one year before or two years after the
date on which the transfer took place purchased, or has within a period of three
years after that date constructed, a residential house, then instead of the capital
gain being charged to income-tax as income of the previous year in which the
transfer took place, it shall be dealt with in accordance with the following
provisions of this section, that is to say,--
(i) if the amount of the capital gain is greater than the cost of the
residential house so purchased or constructed (hereafter in this section referred
to as the new asset), the difference between the amount of the capital gain and
the cost of the new asset shall be charged under section 45 as the income of the
previous year; and for the purpose of computing in respect of the new asset any
capital gain arising from its transfer within a period of three years of its purchase
or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the
new asset, the capital gain shall not be charged under section 45; and for the
purpose of computing in respect of the new asset any capital gain arising from its
transfer within a period of three years of its purchase or construction, as the case
may be, the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not appropriated by the
assessee towards the purchase of the new assets made within one year before
the date on which the transfer of the original asset took place, or which is not
utilised by him for the purchase or construction of the new asset before the date
of furnishing the return of income under section 139, shall be deposited by him
before furnishing such return such deposit being made in any case not later than
the due date applicable in the case of the assessee for furnishing the return of
income under sub-section (1) of section 139 in an account in any such bank or
institution as may be specified in, and utilised in accordance with, any scheme
which the Central Government may, by notification in the Official Gazette, frame
in this behalf and such return shall be accompanied by proof of such deposit ;
and, for the purposes of sub-section (1), the amount, if any, already utilised by
the assessee for the purchase or construction of the new asset together with the
amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised
wholly or partly for the purchase or construction of the new asset within the
period specified in sub-section (1), then,--

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(i) the amount not so utilised shall be charged under section 45 as the
income of the previous year in which the period of three years from the date of
the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw such amount in accordance
with the scheme aforesaid.
(g) SECTION 54F OF THE INCOME-TAX ACT
Capital gain on transfer of certain capital assets not to be charged in case of
investment in residential house.--(1) Subject to the provisions of sub-section (4),
where, in the case of an assessee being an individual or a Hindu undivided family,
the capital gain arises from the transfer of any long-term capital asset, not being a
residential house (hereafter in this section referred to as the original asset), and the
assessee has, within a period of one year before or two years after the date on
which the transfer took place purchased, or has within a period of three years after
that date constructed, a residential house (hereafter in this section referred to as
the new asset), the capital gain shall be dealt with in accordance with the following
provisions of this section, that is to say,--
(a) if the cost of the new asset is not less than the net consideration in
respect of the original asset, the whole of such capital gain shall not be charged
under section 45:
(b) if the cost of the new asset is less than the net consideration in respect
of the original asset, so much of the capital gain as bears to the whole of the capital
gain the same proportion as the cost of the new asset bears to the net
consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,—
(i) owns more than one residential house, other than the new asset, on
the date of transfer of the original asset ; or
(ii) purchases any residential house, other than the new asset, within a
period of one year after the date of transfer of the original asset ; or
(iii) constructs any residential house, other than the new asset, within a
period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential
house owned on the date of transfer of the original asset, is chargeable under the
head ‘‘Income from house property’’.
Explanation.--For the purposes of this section,--
"net consideration", in relation to the transfer of a capital asset, means the full
value of the consideration received or accruing as a result of the transfer of the
capital asset as reduced by any expenditure incurred wholly and exclusively in
connection with such transfer.
(2) Where the assessee purchases, within the period of two years after the
date of the transfer of the original asset, or constructs, within the period of three
years after such date, any residential house, the income from which is chargeable
under the head "Income from house property", other than the new asset, the
amount of capital gain arising from the transfer of the original asset not charged
under section 45 on the basis of the cost of such new asset as provided in clause
(a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be
income chargeable under the head "Capital gains" relating to long-term capital
assets of the previous year in which such residential house is purchased or
constructed.

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(3) Where the new asset is transferred within a period of three years from
the date of its purchase or, as the case may be, its construction, the amount of
capital gain arising from the transfer of the original asset not charged under section
45 on the basis of the cost of such new asset as provided in clause (a) or, as the
case may be, clause (b), of sub-section (1), shall be deemed to be income
chargeable under the head "Capital gains" relating to long-term capital assets of
the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the
assessee towards the purchase of the new asset made within one year before the
date on which the transfer of original asset took place, or which is not utilised by
him for the purchase or construction of the new asset before the date of furnishing
the return of income under section 139, shall be deposited by him before furnishing
such return such deposit being made in any case not later than the due date
applicable in the case of the assessee for furnishing the return of income under
sub-section (1) of section 139 in an account in any such bank or institution as may
be specified in, and utilised in accordance with, any scheme which the Central
Government may, by notification in the Official Gazette, frame in this behalf and
such return shall be accompanied by proof of such deposit ; and, for the purposes
of sub-section (1), the amount, if any, already utilised by the assessee for the
purchase or construction of the new asset together with the amount so deposited
shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised,
wholly or partly for the purchase or construction of the new asset within the period
specified in sub-section (1), then,--
(i) the amount by which--
(a) the amount of capital gain arising from the transfer of the original asset
not charged under section 45 on the basis of the cost of the new asset as provided
in clause (a) or, as the case may be, clause (b) of sub-section (1),
exceeds
(b) the amount that would not have been so charged had the amount
actually utilised by the assessee for the purchase or construction of the new asset
within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the previous year in which
the period of three years from the date of the transfer of the original asset expires;
and
(ii) the assessee shall be entitled to withdraw the unutilised amount in
accordance with the scheme aforesaid.
(h) SECTION 54EC OF THE INCOME-TAX ACT
Capital gain not to be charged on investment in certain bonds - (1) Where
the capital gain arises from the transfer of a long-term capital asset (the capital
asset so transferred being hereafter in this section referred to as the original
asset) and the assessee has, at any time within a period of six months after the
date of such transfer, invested the whole or any part of capital gains in the long-
term specified asset, the capital gain shall be dealt with in accordance with the
following provisions of this section, that is to say, -
(a) if the cost of the long-term specified asset is not less than the capital
gain arising from the transfer of the original asset, the whole of such capital gain
shall not be charged under section 45 ;

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(b) if the cost of the long-term specified asset is less than the capital gain
arising from the transfer of the original asset, so much of the capital gain as
bears to the whole of the capital gain the same proportion as the cost of
acquisition of the long-term specified asset bears to the whole of the capital gain,
shall not be charged under section 45.
Provided that the investment made on or after the 1st day of April, 2007 in
the long-term specified asset by an assessee during any financial year does not
exceed fifty lakh rupees.
(2) Where the long-term specified asset is transferred or converted
(otherwise than by transfer) into money at any time within a period of three years
from the date of its acquisition, the amount of capital gains arising from the
transfer of the original asset not charged under section 45 on the basis of the
cost of such long-term specified asset as provided in clause (a) or, as the case
may be, clause (b) of sub-section (1) shall be deemed to be the income
chargeable under the head ‘‘Capital gains’’ relating to long-term capital asset of
the previous year in which the long-term specified asset is transferred or
converted (otherwise than by transfer) into money.
Explanation.- In a case where the original asset is transferred and the assessee
invests the whole or any part of the capital gain received or accrued as a result
of transfer of the original asset in any long-term specified asset and such
assessee takes any loan or advance on the security of such specified asset, he
shall be deemed to have converted (otherwise than by transfer) such specified
asset into money on the date on which such loan or advance is taken.
(3) Where the cost of the long-term specified asset has been taken into
account for the purposes of clause (a) or clause (b) of sub-section (1),—
(a) a deduction from the amount of income-tax with reference to such cost
shall not be allowed under section 88 for any assessment year ending before the
1st day of April, 2006 ;
(b) “long-term specified asset” for making any investment under this
section during the period commencing from the 1st day of April, 2006 and ending
with the 31st day of March, 2007, means any bond, redeemable after three years
and issued on or after the 1st day of April, 2006, but on or before the 31st day of
March, 2007,—
(i) by the National Highways Authority of India constituted under section 3
of the National Highways Authority of India Act, 1988 (68 of 1988) ; or
(ii) by the Rural Electrification Corporation Limited, a company formed and
registered under the Companies Act, 1956 (1 of 1956),
and notified by the Central Government in the Official Gazette for the purposes
of this section with such conditions (including the condition for providing a limit
on the amount of investment by an assessee in such bond) as it thinks fit :
Provided that where any bond has been notified before the 1st day of
April, 2007, subject to the conditions specified in the notification, by the Central
Government in the Official Gazette under the provisions of clause (b) as they
stood immediately before their amendment by the Finance Act, 2007, such bond
shall be deemed to be a bond notified under this clause;
“long-term specified asset” for making any investment under this section
on or after the 1st day of April, 2007 means any bond, redeemable after three
years and issued on or after the 1st day of April, 2007 by the National Highways
Authority of India constituted under section 3 of the National Highways Authority

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of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited,
a company formed and registered under the Companies Act, 1956 (1 of 1956)
(i) Insertion of new section 54GB with effect from assessment year 2013-
14(Financial Year 2012-13)
'54GB. Capital gain on transfer of residential property not to be charged in
certain cases.—(1) Where,—
(i) the capital gain arises from the transfer of a long-term capital asset,
being a residential property (a house or a plot of land), owned by the
eligible assessee (herein referred to as the assessee); and
(ii) the assessee, before the due date of furnishing of return of income
under sub-section (1) of section 139, utilises the net consideration for
subscription in the equity shares of an eligible company (herein
referred to as the company); and
(iii) the company has, within one year from the date of subscription in
equity shares by the assessee, utilised this amount for purchase of
new asset,
then, instead of the capital gain being charged to income-tax as the income
of the previous year in which the transfer takes place, it shall be dealt with in
accordance with the following provisions of this section, that is to say,—
(a) if the amount of the net consideration is greater than the cost of the
new asset, then, so much of the capital gain as it bears to the whole
of the capital gain the same proportion as the cost of the new asset
bears to the net consideration, shall not be charged under section 45
as the income of the previous year; or
(b) if the amount of the net consideration is equal to or less than the cost
of the new asset, the capital gain shall not be charged under section
45 as the income of the previous year.
(2) The amount of the net consideration, which has been received by the
company for issue of shares to the assessee, to the extent it is not utilised
by the company for the purchase of the new asset before the due date of
furnishing of the return of income by the assessee under section 139, shall
be deposited by the company, before the said due date in an account in any
such bank or institution as may be specified and shall be utilised in
accordance with any scheme which the Central Government may, by
notification in the Official Gazette, frame in this behalf and the return
furnished by the assessee shall be accompanied by proof of such deposit
having been made.
(3) For the purposes of sub-section (1), the amount, if any, already utilised
by the company for the purchase of the new asset together with the amount

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deposited under sub-section (2) shall be deemed to be the cost of the new
asset:
Provided that if the amount so deposited is not utilised, wholly or partly, for
the purchase of the new asset within the period specified in sub-section (1),
then,—
(i) the amount by which—
(a) the amount of capital gain arising from the transfer of the
residential property not charged under section 45 on the basis
of the cost of the new asset as provided in sub-section (1),
exceeds—
(b) the amount that would not have been so charged had the
amount actually utilised for the purchase of the new asset
within the period specified in sub-section (1) been the cost of
the new asset,
shall be charged under section 45 as income of the assessee for the
previous year in which the period of one year from the date of the
subscription in equity shares by the assessee expires; and
(ii) the company shall be entitled to withdraw such amount in accordance
with the scheme.
(4) If the equity shares of the company or the new asset acquired by the
company are sold or otherwise transferred within a period of five years from
the date of their acquisition, the amount of capital gain arising from the
transfer of the residential property not charged under section 45 as provided
in sub-section (1) shall be deemed to be the income of the assessee
chargeable under the head "Capital gains" of the previous year in which
such equity shares or such new asset are sold or otherwise transferred, in
addition to taxability of gains, arising on account of transfer of shares or of
the new asset, in the hands of the assessee or the company, as the case
may be.
(5) The provisions of this section shall not apply to any transfer of residential
property made after the 31st day of March, 2017.
(6) For the purposes of this section,—
(a) "eligible assessee" means an individual or a Hindu undivided family;
(b) "eligible company" means a company which fulfils the following
conditions, namely:—
(i) it is a company incorporated in India during the period from the
1st day of April of the previous year relevant to the assessment

10. 10
year in which the capital gain arises to the due date of
furnishing of return of income under sub-section (1) of section
139 by the assessee;
(ii) it is engaged in the business of manufacture of an article or a
thing;
(iii) it is a company in which the assessee has more than fifty per
cent share capital or more than fifty per cent voting rights after
the subscription in shares by the assessee; and
(iv) it is a company which qualifies to be a small or medium
enterprise under the Micro, Small and Medium Enterprises Act,
2006 (27 of 2006);
(c) "net consideration" shall have the meaning assigned to it in the
Explanation to section 54F;
(d) "new asset" means new plant and machinery but does not include—
(i) any machinery or plant which, before its installation by the
assessee, was used either within or outside India by any other
person;
(ii) any machinery or plant installed in any office premises or any
residential accommodation, including accommodation in the
nature of a guest-house;
(iii) any office appliances including computers or computer
software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is
allowed as a deduction (whether by way of depreciation or
otherwise) in computing the income chargeable under the head
"Profits and gains of business or profession" of any previous
year.'.
(j) SECTION 50C OF THE INCOME TAX ACT
Special provision for full value of consideration in certain cases.
(1) Where the consideration received or accruing as a result of the
transfer by an assessee of a capital asset, being land or building or both, is less
than the value adopted or assessed or assessable by any authority of a State
Government (hereafter in this section referred to as the “stamp valuation
authority”) for the purpose of payment of stamp duty in respect of such transfer,
the value so adopted or assessed or assessable shall, for the purposes of
section 48, be deemed to be the full value of the consideration received or
accruing as a result of such transfer.
(2) Without prejudice to the provisions of sub-section (1), where—

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(a) the assessee claims before any Assessing Officer that the value
adopted or assessed or assessable by the stamp valuation authority under sub-
section (1) exceeds the fair market value of the property as on the date of
transfer;
(b) the value so adopted or assessed or assessable by the stamp
valuation authority under sub-section (1) has not been disputed in any appeal or
revision or no reference has been made before any other authority, court or the
High Court,
the Assessing Officer may refer the valuation of the capital asset to a
Valuation Officer and where any such reference is made, the provisions of sub-
sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and
sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section
34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall,
with necessary modifications, apply in relation to such reference as they apply in
relation to a reference made by the Assessing Officer under sub-section (1) of
section 16A of that Act.
Explanation 1 - For the purposes of this section, “Valuation Officer” shall
have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957
(27 of 1957).
Explanation 2 - For the purposes of this section, the expression
“assessable” means the price which the stamp valuation authority would have,
notwithstanding anything to the contrary contained in any other law for the time
being in force, adopted or assessed, if it were referred to such authority for the
purposes of the payment of stamp duty.
(3) Subject to the provisions contained in sub-section (2), where the value
ascertained under sub-section (2) exceeds the value adopted or assessed or
assessable by the stamp valuation authority referred to in sub-section (1), the
value so adopted or assessed or assessable by such authority shall be taken as
the full value of the consideration received or accruing as a result of the transfer.
(k) SECTION 56 OF THE INCOME-TAX ACT
Income from other sources.--(1) Income of every kind which is not to be
excluded from the total income under this Act shall be chargeable to income-tax
under the head "Income from other sources" if it is not chargeable to income-tax
under any of the heads specified in section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of
sub-section (1), the following incomes shall be chargeable to income-tax under
the head "Income from other sources", namely:--
(vii) where an individual or a Hindu undivided family receives, in any previous
year, from any person or persons on or after the 1st day of October, 2009,—
(a) any sum of money, without consideration, the aggregate value of which
exceeds fifty thousand rupees, the whole of the aggregate value of such sum ;
(b) any immovable property,—
(i) without consideration, the stamp duty value of which exceeds fifty
thousand rupees, the stamp duty value of such property ;
(ii) for a consideration which is less than the stamp duty value of the
property by an amount exceeding fifty thousand rupees, the stamp duty value of
such property as exceeds such consideration ;
(c) any property, other than immovable property,—

12. 12
(i) without consideration, the aggregate fair market value of which exceeds
fifty thousand rupees, the whole of the aggregate fair market value of such
property ;
(ii) for a consideration which is less than the aggregate fair market value of
the property by an amount exceeding fifty thousand rupees, the aggregate fair
market value of such property as exceeds such consideration :
Provided that where the stamp duty value of immovable property as
referred to in sub-clause (b) is disputed by the assessee on grounds mentioned
in sub-section (2) of section 50C, the Assessing Officer may refer the valuation
of such property to a Valuation Officer, and the provisions of section 50C and
sub-section (15) of section 155 shall, as far as may be, apply in relation to the
stamp duty value of such property for the purpose of sub-clause (b) as they
apply for valuation of capital asset under those sections :
Provided further that this clause shall not apply to any sum of money or any
property received—
(a) from any relative ; or
(b) on the occasion of the marriage of the individual ; or
(c) under a will or by way of inheritance ; or
(d) in contemplation of death of the payer or donor, as the case may be ; or
(e) from any local authority as defined in the Explanation to clause (20) of
section 10 ; or
(f) from any fund or foundation or university or other educational institution or
hospital or other medical institution or any trust or institution referred to in clause
(23C) of section 10 ; or
(g) from any trust or institution registered under section 12AA.
Explanation. — For the purposes of this clause, “relative” means—
(i) spouse of the individual ;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual ;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).
(l) SECTION 63 OF THE INCOME-TAX ACT
For the purposes of sections 60, 61 and 62 and of this section,—
(a) a transfer shall be deemed to be revocable if—
(i) it contains any provision for the re-transfer directly or indirectly of the
whole or any part of the income or assets to the transferor, or
(ii) it, in any way, gives the transferor a right to re-assume power directly
or indirectly over the whole or any part of the income or assets ;
(b) “transfer” includes any settlement, trust, covenant, agreement or
arrangement.
(m) SECTION 112(1)(a) OF THE INCOME TAX ACT
Tax on long-term capital gains
(1) Where the total income of an assessee includes any income, arising
from the transfer of a long-term capital asset, which is chargeable under the
head “Capital gains”, the tax payable by the assessee on the total income shall
be the aggregate of,—

13. 13
(a) in the case of an individual or a Hindu undivided family, being a
resident,—
(i) the amount of income-tax payable on the total income as reduced by
the amount of such long-term capital gains, had the total income as so reduced
been his total income ; and
(ii) the amount of income-tax calculated on such long-term capital gains at
the rate of twenty per cent :
Provided that where the total income as reduced by such long-term
capital gains is below the maximum amount which is not chargeable to income-
tax, then, such long-term capital gains shall be reduced by the amount by which
the total income as so reduced falls short of the maximum amount which is not
chargeable to income-tax and the tax on the balance of such long-term capital
gains shall be computed at the rate of twenty per cent ;
(n) SECTION 195 OF THE INCOME-TAX ACT
Other sums.--(1) Any person responsible for paying to a non-resident, not
being a company, or to a foreign company, any interest or any other sum
chargeable under the provisions of this Act (not being income chargeable under
the head "Salaries") shall, at the time of credit of such income to the account of
the payee or at the time of payment thereof in cash or by the issue of a cheque
or draft or by any other mode, whichever is earlier, deduct income-tax thereon at
the rates in force.
Provided that in the case of interest payable by the Government or a
public sector bank within the meaning of clause (23D) of section 10 or a public
financial institution within the meaning of that clause, deduction of tax shall be
made only at the time of payment thereof in cash or by the issue of a cheque or
draft or by any other mode.
Provided further that no such deduction shall be made in respect of any
dividends referred to in section 115-O.
Explanation.--For the purposes of this section, where any interest or other
sum as aforesaid is credited to any account, whether called "Interest payable
account" or "Suspense account" or by any other name, in the books of account
of the person liable to pay such income, such crediting shall be deemed to be
credit of such income to the account of the payee and the provisions of this
section shall apply accordingly.
(2) Where the person responsible for paying any such sum
chargeable under this Act (other than salary) to a non-resident considers
that the whole of such sum would not be income chargeable in the case of
the recipient, he may make an application to the Assessing Officer to
determine, by general or special order, the appropriate proportion of such
sum so chargeable, and upon such determination, tax shall be deducted
under sub-section (1) only on that proportion of the sum which is so
chargeable.
(3) Subject to rules made under sub-section (5) any person entitled
to receive any interest or other sum on which income-tax has to be
deducted under sub-section (1) may make an application in the prescribed
form to the Assessing Officer for the grant of a certificate authorising him
to receive such interest or other sum without deduction of tax under that
sub-section, and where any such certificate is granted, every person
responsible for paying such interest or other sum to the person to whom

14. 14
such certificate is granted shall, so long as the certificate is in force, make
payment of such interest or other sum without deducting tax thereon
under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the
expiry of the period specified therein or, if it is cancelled by the Assessing Officer
before the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and
the interests of revenue, by notification in the Official Gazette, make rules
specifying the cases in which, and the circumstances under which, an
application may be made for the grant of a certificate under sub-section (3) and
the conditions subject to which such certificate may be granted and providing for
all other matters connected therewith.
(6) The person referred to in sub-section (1) shall furnish the information
relating to payment of any sum in such form and manner as may be prescribed
by the Board.
(o) SECTION 197 OF THE INCOME-TAX ACT
Certificate for deduction at lower rate.--(1) Subject to rules made under
sub-section (2A), where, in the case of any income of any person or sum
payable to any person, income-tax is required to be deducted at the time of
credit or, as the case may be, at the time of payment at the rates in force under
the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I,
194J, 194K 1194L, 194LA and 195, the Assessing Officer is satisfied that the
total income of the recipient justifies the deduction of income-tax at any lower
rates or no deduction of income-tax, as the case may be, the Assessing Officer
shall, on an application made by the assessee in this behalf, give to him such
certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible for paying
the income shall, until such certificate is cancelled by the Assessing Officer,
deduct income-tax at the rates specified in such certificate or deduct no tax, as
the case may be.
(2A) The Board may, having regard to the convenience of assessees and
the interests of revenue, by notification in the Official Gazette, make rules
specifying the cases in which, and the circumstances under which, an
application may be made for the grant of a certificate under sub-section (1) and
the conditions subject to which such certificate may be granted and providing for
all other matters connected therewith.
(p) Chapter XII A of the Income-tax Act contains special provisions relating to
certain incomes of non-residents and the important sections so far this
discussion is concerned are the following-
1. Section 115C. In this Chapter, unless the context otherwise requires,—
(a) “convertible foreign exchange” means foreign exchange which is for the
time being treated by the Reserve Bank of India as convertible foreign exchange
for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973),
and any rules made there under;
(b) “foreign exchange asset” means any specified asset which the
assessee has acquired or purchased with, or subscribed to in, convertible
foreign exchange;
(c) “investment income” means any income derived from a foreign
exchange asset;

15. 15
(d) “long-term capital gains” means income chargeable under the head
“Capital gains” relating to a capital asset, being a foreign exchange asset which
is not a short-term capital asset;
(e) “non-resident Indian” means an individual, being a citizen of India or a
person of Indian origin who is not a “resident”.
Explanation.—A person shall be deemed to be of Indian origin if he, or either of
his parents or any of his grand-parents, was born in undivided India;
(f) “specified asset” means any of the following assets, namely :—
(i) shares in an Indian company;
(ii) debentures issued by an Indian company which is not a private
company as defined in the Companies Act, 1956 (1 of 1956);
(iii) deposits with an Indian company which is not a private company as
defined in the Companies Act, 1956 (1 of 1956);
(iv) any security of the Central Government as defined in clause (2) of
section 2 of the Public Debt Act, 1944 (18 of 1944);
(v) such other assets as the Central Government may specify in this
behalf by notification in the Official Gazette.
2. SECTION 115E. Where the total income of an assessee, being a non-resident
Indian, includes—
(a) any income from investment or income from long-term capital gains of
an asset other than a specified asset;
(b) income by way of long-term capital gains,
the tax payable by him shall be the aggregate of—
(i) the amount of income-tax calculated on the income in respect of
investment income referred to in clause (a), if any, included in the total income,
at the rate of twenty per cent;
(ii) the amount of income-tax calculated on the income by way of long-
term capital gains referred to in clause (b), if any, included in the total income, at
the rate of ten per cent; and
(iii) the amount of income-tax with which he would have been
chargeable had his total income been reduced by the amount of income referred
to in clauses (a) and (b).]
3. Section 115-I.- A non-resident Indian may elect not to be governed by the
provisions of this Chapter for any assessment year by furnishing [his return of
income for that assessment year under section 139 declaring therein] that the
provisions of this Chapter shall not apply to him for that assessment year and if
he does so, the provisions of this Chapter shall not apply to him for that
assessment year and his total income for that assessment year shall be
computed and tax on such total income shall be charged in accordance with the
other provisions of this Act
(q) Code / Section55 of the Direct Taxes Code (proposed to be introduced
shortly ?) reads as under-
55. Relief for rollover of investment asset.—(1) An individual or a Hindu
undivided family shall be allowed a deduction, in respect of rollover of any
original investment asset referred to in sub-section (3) of section 51, from the
capital gain arising from the transfer of the asset in accordance with the
provisions of this section.

16. 16
(2) The deduction referred to in sub-section (1) shall be computed in accordance
with the formula –
Where,
A = the amount of capital gains arising from the transfer of the original
investment asset
B = the amount invested for purchase or construction of the new asset
referred to in sub-section (6) within a period of one year before the date of
transfer of original investment asset
C = the amount invested for purchase or construction of the new asset
referred to in sub-section (6) by the end of the financial year in which the transfer
of the original investment asset is effected or six months from the date of
transfer, whichever is later
D = the amount deposited in an account in any bank by the end of the
financial year in which the transfer of original investment asset is effected or six
months from the date of transfer, whichever is later in accordance with the
Capital Gains Deposit Scheme framed by the Central Government in this behalf ;
E = the net consideration received as a result of the transfer of the original
investment asset.
(3) The deduction computed under sub-section (2) shall not exceed the
amount of capital gains arising from the transfer of the investment assets.
(4) Any amount withdrawn from an account under the Capital Gains
Deposit Scheme shall be utilised within a period of one month from the end of
the month in which the amount is withdrawn, for the purposes of purchase or
construction of the new asset.
(5) The amount deposited in the account under the Capital Gains Deposit
Scheme shall be utilised for the purposes of purchase or construction of the new
asset within a period of three years from the end of the financial year in which
the transfer of the original asset is effected.
(6) The deduction under this section in respect of capital gain arising from
the transfer of an investment asset, specified in column (2) of the Table given
below, shall be allowed with reference to the corresponding new investment
asset referred to in column (3) of the said Table, subject to the fulfilment of
conditions specified in column (4) thereof :
Table
Rollover Relief
Serial
number
Description of
the original
investment
asset
Description of the
new investment
asset
Conditions
(1) (2) (3) (4)

17. 17
1. Agricultural land One or more
pieces of
agricultural land
(1) The original investment asset
was—
(i) an agricultural land during two
years immediately preceding the
financial year in which the asset is
transferred ; and
(ii) acquired at least one year before
the beginning of the financial year in
which the transfer of the asset took
place.
2. Any investment
asset
Residential
house
(2) The new asset shall not be
transferred within one year from the
end of the financial year in which
the new asset is acquired—
(i) the assessee does not own
more than one residential house,
other than the new investment
asset, on the date of transfer of
the original investment asset ;
and
(ii) the original investment asset was
acquired at least one year before
the beginning of the financial year in
which the transfer of the asset took
place ;
(iii) the new asset shall not be
transferred within one year from the
end of the financial year in which
the new asset is acquired or
constructed.
(7) In this section, "net consideration" means the full value of
consideration received or accruing as a result of the transfer of an investment
asset as reduced by any expenditure incurred wholly or exclusively in connection
with such transfer.
C-1. COMPUTATION OF CAPITAL GAINS
(i) Capital gain is the difference between the selling price (total
consideration) and total sum up of indexed cost of acquisition and indexed cost
of improvement. Any expenditure incurred wholly and exclusively in connection
with transfer of asset can be added to the total figure of indexed cost of
acquisition and indexed cost of improvement to arrive at the total cost. The
nature of expenditure that can be claimed includes travelling, if any, advocate
fees (paid for obtaining legal opinion, drafting of deeds etc) and consultancy
charges paid for obtaining legal advice in respect of capital gains. The indexed

18. 18
cost of acquisition is ascertained by multiplying by purchase/construction cost or
market value of the property as on 01-04-1981 whichever is later by cost inflation
index pertaining to the year of sale and divide it by cost inflation index pertaining
to the year of purchase/construction or if the purchase/construction is made prior
to 01-04-1981 by 100. If there had been any improvement to the property then
indexed cost of improvement can be calculated likewise and added to original
indexed cost of acquisition / purchase to arrive at the total indexed cost of
acquisition.
The Supreme Court in the case of Arunachalam (Rm.) vs.CIT[1997] 227 ITR 222
has held that where property placed under mortgage by previous owner was
acquired by the assessee(as the present owner) and the mortgage is discharged
by the assessee then such sum paid by the assessee becomes part of cost of
acquisition. The Madras High Court in the case of CIT vs. Bradford Trading Co.
(P.) Ltd. [2003] 261 ITR 0222 had explained the decision of the Supreme Court
in the case of Arunachalam (Rm) in the following words-
“The distinction pointed by the Supreme Court in R.M. Arunachalam’s case
(supra) is that where the assessee acquired property subject to mortgage and
later on it was discharged at the time of transfer by vendee, then, it would
become an expenditure incurred in connection with the transfer, and where the
assessee himself created the mortgage after acquisition of capital asset, the
amount would not go to reduce the full value of consideration received by the
assessee”
The avenues by which capital gains / sale proceeds can be invested and
exemption can be claimed are
1. Investing in residential house property
2. Investing in capital gain bonds.
The relevant provisions of section 54,54F, 54EC and 54GB have been extracted
earlier.
(ii) Investment in purchase of a residential house can be made even one
year prior to date of transfer which is defined in section 2(47)(v) of the Act. If
investment in purchase of a residential house is made after the date of transfer
then the time limit provided is 2 years within the date of transfer. In the case of
construction of a residential house a time limit of 3 years has been fixed from the
date of transfer for claiming exemption under section 54 of the Act.
The following decisions may be referred to in this regard.
(a) COMMISSIONER OF INCOME TAX vs. R. SRINIVASAN (2010) 45
DTR (Mad) 208-Decision dated 12-04-2010
The catchwords run as under-
Capital gains—Exemption under s. 54F—Investment out of sale proceeds
of original asset—AO rejected the claim of exemption on the ground that the
investment in the new asset i.e., house property was not made from the sale
consideration of the original asset—Not justified—Sec. 54F provides option to
the assessee to invest even within a period of one year before the date on which
the transfer takes place—There is no such pre-condition imposed by the
provision to the effect that the property is to be purchased by the assessee out
of consideration received on account of transfer of the capital asset—Sec. 54F is
clear, unambiguous and plain—Sec. 54F encourages investment in residential
house and the same is required to be interpreted in such a manner as not to
nullify the object—Assessee having purchased the house within a period of one

19. 19
year before the sale of capital asset, was entitled to the relief under s. 54F—No
substantial question of law arises
(b) The decision of the Hyderabad Bench of ITAT in the case of Muneer
Khan vs. ITO (2010)-7 taxmann.com 30 (Hyd-ITAT) wherein it has been held as
under-
“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 “
(c) The Delhi High Court in the case of Commissioner of Income-tax Vs.
Smt. Brinda Kumari [2002] 253 ITR 0343 has held that when amount was
advanced to builder for specific purpose of construction of flats in new building
and the Appellate Tribunal has also held that construction can be treated as
construction by assessee that finding of fact is binding on the Court and the
Tribunal was right in holding that the assessee was entitled to exemption under
section 54(1) of the Act.
The following observations were made by the High Court in the judgment –
We find substance in the assessee’s stand. The Tribunal has, inter alia,
recorded a positive finding in the following terms:
“In the present case, on the facts, there is no dispute that the late
Maharani advanced a sum of Rs. 5,25,000 for the specific purpose of
constructing flats for her on third floor of the Akash Deep Building. The Akash
Deep Building was constructed after demolishing 9, Hailey Road, which was sold
by the late Maharani to Ansal and Sehgal Properties P. Ltd. If therefore the latter
constructed the flats on behalf of the late Maharani with the funds advanced by
her, there appears to be no difficulty in treating the construction as the
construction made by her.”
As provisions of 54F are similar so far as investing in a house within one
year prior to date of transfer is concerned, these decisions can be taken
advantage of even in respect of issues arising under section 54.
It should also be noted that any additional facilities (to be) provided in the
new residential property can be claimed as part of investment made under section
54 of the Income-tax Act.(at pages 25 to 27 infra)
(iii) Sometimes it may so happen that the proceeds arising out of sale of
residential/other property may have to be invested in lands not belonging to the
assessee-seller and the question which would then arise is “whether it is
possible to do so?” The following write-up provides an answer in the affirmative.
LAND MAY BELONG TO ONE PERSON AND SUPER-STRUCTURE TO
ANOTHER PERSON
1. The Madras High Court as early as 01-05-1934 vide its decision in CIT v. The
Madras Cricket Club [1934] 2 ITR 209(Mad) held that that in order that a person
may be assessed as the owner of a building under section 9 of the Indian
Income-tax Act, 1922, it is not necessary that he should also be the owner of the
land on which the building stands. In this case the assessee took on long lease a
parcel of land from the Government and erected buildings thereon with a
provision for permitting the removal of the buildings erected upon the land by the
assessees at the expiration or upon the determination of the lease. The question

20. 20
which arose was whether the income arising out of letting out of letting out of
such property was assessable under section 9 of the Indian Income Tax Act,
1922.which deals with income from house property and is akin to section 22 of
the Income-tax Act 1961.This decision of the Madras High Court was followed in
Sakarchand Chhaganlal v. CED [1969] 73 ITR 555 (Guj.) and Wealth-tax Officer
vs. Hemlata Shukla/Sarla Shukla(1983)-6-ITD-750(All)
2. The Gujarat High Court in the case of Sakarchand Chhaganlal v. CED [1969]
73 ITR 555 (Guj.) made the following observations at page 560 of its judgment-
“Now having regard to the observations of the Privy Council in Narayan Das v.
Jatindra Nath [1927] LR 54 IA 218 ; AIR 1927 PC 135 and Vallabhdas Naranji v.
Development Officer, Bandra [1929] LR 56 IA 259 ; AIR 1929 PC 163, and the
decision of the Supreme Court in Dr. K.A. Dhairyawan v. J.R. Thakur AIR 1958
SC 789, it must be taken as well settled that the doctrine of English law
embodied in the maxim quic quid plantatur solo, solo cedit, that is, what is
annexed to the soil goes with the soil, has no application in this country. Unlike
the English law, the law in India recognizes dual ownership, the land belonging
to one person and the structure upon it belonging to another.”
3..The Calcutta High Court in the case of Ballygunge Bank Ltd. v. Commissioner
of Income-tax (1946)-14-ITR-409(Cal) following its earlier decision in
Commercial Properties Ltd., In re [1928] ILR 55 Cal. 1057 held as follows-Head
note of ITR
“Income derived from the ownership of buildings is chargeable to tax under
Section 9 of the Indian Income-tax Act irrespective of whether an individual or a
company is the owner and also irrespective of whether one of a company's
objects, or its sole object, is to acquire and let out buildings at rents; ownership
itself is the criterion of assessment under that section.
The assessees, a limited company, which had as one of their objects to acquire
land, build houses and let them to tenants, obtained a lease of a plot of land for a
period of 40 years. The lease deed provided, inter alia, that the assessees
should build houses on the land within a specified time by using the best
materials that the lessors or their representatives would be entitled to supervise
the building construction, and that after the expiration of 40 years the houses
would belong to the lessors. Under the lease the assessees should pay the
entire municipal tax in respect of the houses and a proportionate municipal tax in
respect of the land. Upon acquisition of the land by the Government or by a
public authority the lessors were entitled to all compensation in respect of the
land but compensation in respect of the buildings was to be divided between the
lessors and the assessees:
Held, that the assessees were the owners of the buildings until the period of the
lease expired and they were therefore assessable under Section 9 of the Indian
Income-tax Act in respect of the rents derived from the buildings.”
4. The Rajasthan High Court in the case of Saiffuddin v CIT (1985)-156-ITR-
127(Raj) observed as follows (head note of ITR)
“Section 22 of the I.T. Act, 1961, brings to tax income from house property and
not the interest of a person in the property. As a matter of fact what is taxed
under s. 22 is the income from the annual value of the property of which the
assessee is the owner. The owner is that person who can exercise the rights of
an owner, not on behalf of the owner but in his own right.
The assessee purchased a plot of land. A hotel was constructed on the land and
the expenses of construction were borne by the assessee and two of his

21. 21
brothers. There was no written agreement regarding the construction and no
mutation was made nor was a sale deed executed by the assessee in favour of
his brothers. The ITO assessed the entire income from the property in the hands
of the assessee and this was upheld by the Tribunal. On a reference:
Held, that so far as the construction on the plot which was purchased by the
assessee was concerned, as the expenses of the same were borne by the
assessee and his two brothers in equal proportion, the assessee and his two
brothers were joint owners, each having a 1/3rd share. The entire income from
the property was not assessable in the hands of the assessee.
CIT v. Madras Cricket Club [1934] 2 ITR 209 (Mad), CIT v. Fazalbhoy
Investment Co. (P.) Ltd. [1977] 109 ITR 802 (Bom) and Kala Rani v. CIT [1981]
130 ITR 321 (P & H) followed.”
The Rajasthan High Court referred to the decision of the Madras High Court in
the case of CIT v. Madras Cricket Club [1934] 2 ITR 209.in the following words-
“Before a Division Bench of the Madras High Court, the meaning of the word
'owner' as used in section 9(1) came up for consideration in CIT v. Madras
Cricket Club [1934] 2 ITR 209. In that case, the construction on the plot was
made by the lessee. The lessee was entitled to remove the building on the
termination of the lease. It was held that in order that a person may be assessed
as the owner of a building under section 9(1), it is not necessary that he should
also be the owner of the land on which the building stands. While considering the
question regarding the ownership, it was observed as under:
". . . The rule in India which is different from that in England, is that a person who
builds a superstructure upon the land of another man remains the owner of the
superstructure and can at the end of his term remove that superstructure from
the land, whereas in England a person who erects a building on the land of
another cannot do so as the building at the end of the lease becomes the
property of the lessor. . . ." (p. 215)
5..The Calcutta High Court applying the principles laid down in Nawab Bahadur
or Murshidabad v. Commissioner of Income-tax [1955] 28 I.T.R. 510 (Cal.) and
Ballygunge Bank Ltd. v. Commissioner of Income-tax [1946] 14 I.T.R. 409 (Cal.)
held in the case of Sri Ganesh Properties Ltd. Vs. Commissioner of Income-tax
[1962] 044 ITR 0606(Cal) as under (head note of ITR)
“In the case of a building lease the presumption is that the lessor remains the
owner of the subject-matter of the lease including the building. But, if the terms
of the lease-deed show that the ownership of the super-structures is vested in
the lessee while the ownership of the site remains in the lessor, the lessee can
be assessed in respect of the income from the super-structures under section 9
of the Income-tax Act as income from property. The lessee cannot claim that
such income should be assessed under section 12 of the Act.(section 12 of the
1922 Act deals with income from other sources)
A person may be assessed as the owner of a property under section 9 of the Act
even though he has no right to alienate the property or his full right of ownership
is in some other way subject to contractual or other limitations.”
In other words when the assessee claimed that the income should be assessed
under section 12 under the head other sources it was held by the Tribunal and
confirmed by the High Court that the correct head of income is income from
house property.

22. 22
6. The Lucknow Bench of ITAT in the case of Ashok Kumar Agarwal v. Income-
tax Officer, IV (4) Lucknow [2007] 13 SOT 321 (LUCK.) held as under
(Catchwords)
Section 22, read with section 26, of the Income-tax Act, 1961 - Income from
house property - Chargeable as - Assessment year 2002-03 - Whether
superstructure built on land owned by other person can be separately owned
and assessed under section 22 - Held, yes - Whether ownership of
superstructure is to be considered de hors ownership of land and there is no
presumption, in law, that superstructure will be owned by same person who
owns land - Held, yes - Assessee declared his income from house property let
out to a bank at an amount which was one fourth of rental income from that
property on ground that rest amount had been distributed among other three co-
owners, viz., his wife, his son and his daughter-in-law - Assessee submitted that
assessee had entered into agreement dated 3-5-1985 with other co-owners that
total investment in construction of property was made by those four persons and
assessments had been made since long in hands of those persons individually -
Assessing Officer rejected assessee’s submission and held that it was a
colourable device and claim of co-ownership of property and distribution of rental
income was not, in any way, legitimate - Assessing Officer, therefore, assessed
entire income from house property in hands of assessee holding that other co-
owners could not be treated as owners of property within meaning of section 22 -
Whether since agreement dated 3-5-1985 clearly provided that all co-owners
were equally responsible for overall management of property and repayment of
loan and this agreement had not been found to be sham as it had actually been
acted upon by all parties in letter and spirit, assessee’s claim that income from
house property was to be assessed individually in hands of all four persons as
co-owners was to be accepted - Held, yes
7.. The Delhi Bench of ITAT in the case of Mrs.Kamlesh Bansal v.ITO (2008)-26-
SOT-3(Delhi)(URO) has held that even though the assessee had only 50% in a
land jointly owned with her husband she would be entitled to claim exemption
under section 54F on amount of investment made in construction of residential
house when she had built super-structure on such land.
This goes to prove that the assessee need not be the full owner of the land
on which super structure is built.
The head note of this case runs as under-
The assessee had built the structure for the residential house on the land owned
by her husband as per agreement in terms of which she held 50 per cent share
in the house. The claim of deduction under section 54F had been denied on the
ground that the assessee did not hold the legal title of the property. That view
was legally not tenable. In the context of the Act, it is not necessary for someone
to hold the registered title in respect of a house property in order to become an
owner. Merely because, in the instant case, the contract was between husband
and wife, it could not be said that the assessee was not owner of the 50 per cent
of the house. No case had been made by the revenue that the agreement
between husband and wife was not genuine or that the investment in the super
structure had not been made by the wife. It was an undisputed fact that the
super structure had been built by the assessee. The only requirement of section
54F is that the assessee should have constructed a residential house. In the
facts of the instant case, it could not be said that the assessee had not
constructed a residential house. There is no requirement in section 54F that the

23. 23
assessee should be the exclusive owner of the house constructed by her.
Further, as both the contracting parties were living together, division was
immaterial. What was material was the ownership. The assessee was no doubt
the owner of the 50 per cent of the house which had been built by her.
Therefore, finding of the Commissioner (Appeals) could not be sustained; the
same was to be set aside and the claim of the assessee was to be allowed
8..SImilar case - The Pune Bench of ITAT in the case of Mukesh Malhotra v.
Deputy Commissioner of Income-tax [2000] 75 ITD 355 (Pune) has held as
under(Catchwords)-
Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case
of investment in residential house - Assessment year 1994-95 - On a land owned
by assessee, company ‘W’ constructed a residential accommodation (super-
structure) and later sold it to assessee - Assessee had made investment in said
purchase, after selling another land, within specified period as per section 54F
and he claimed proportionate deduction from capital gains under section 54F -
Whether since concept of dual ownership, i.e., land belonging to one and super-
structure belonging to another, is recognised in Indian law, it would be wrong to
hold assessee as co-owner of super-structure which belonged to ‘W’ and on that
ground to deny assessee’s claim for exemption of capital gains invested in
purchase of super-structure - Held, yes
9. The Calcutta Bench of ITAT in the case of Assistant Commissioner of Wealth-
tax v. Anupam Pictures (P.) Ltd. [1997] 60 ITD 640 (CAL.) held as under
(Catchwords)
Section 3 of the Wealth-tax Act, 1957, read with section 40 of the Finance Act,
1983 - Charge of tax - Assessment years 1988-89, 1989-90 and 1990-91 -
Assessee-company entered into memorandum of agreement for lease for 30
years regarding roof portion of a premises, raised structure thereon, gave it on
rent and after some years sold it - It contended that in absence of lease having
not been registered, it was not owner of said structure and hence not assessable
to wealth-tax - Whether, even though unregistered lease deed was void as a
permanent lease, it could be deemed to be a monthly lease terminable by 15
days’ notice under section 106 of Transfer of Property Act - Held, yes - Whether,
in view of clear provisions of section 108(h) of Transfer of Property Act, lessee
who put up construction on leased land was owner thereof and hence, assessee
being legal owner of aforesaid structure, was assessable to wealth-tax in respect
of said asset - Held, yes - Whether assessee, not being engaged in
buying/selling of flats and buildings, said structure put up by it could not
constitute stock-in-trade in its hands - Held, yes
This goes to show that not only separate ownership-land belonging to one
person and super structure belonging to another person- is recognized in
Income-tax Act but also liability to wealth-tax cannot be avoided merely
because the assessee, without being owner of land, is only owner of super
structure
10. In the case which arose before ITAT Hyderabad Bench in the case of
PRAVINCHANDRA MODI (HUF) v. INCOME-TAX OFFICER [1986] 17 ITD 747
(HYD.) assessee purchased superstructure on land owned by trust GM, and GM
effected additions to structure at its cost as requested by assessee and entire
structure was leased out to company DR, and lease agreements provided that
assessee would receive Rs, 6,500 per month as rent from DR, and would in turn
pay rent of Rs. 3,250 to GM.It was held that net rental income of Rs.3,250

24. 24
received by assessee was assessable as ‘income from house property’ and not
under ‘income from other sources
11. Similar cases on this issue are-
(a) CIT v. Fazalbhoy Investment Co. (P.) Ltd. [1977] 109 ITR 802(Bom)
(b). CIT v.Vimal Chand Golecha [1993] 201 ITR 442(Raj)
(c).CITvs.Parthas Trust (2001)-249-ITR-520(Ker)
12. Land and building are 2 separate assets. This splitting of land and building
into long-term capital asset and short-term capital asset based on the period of
holding of the respective assets was recognized by the Madras High Court in the
case of CIT v. Dr. D. L. Ramachandra Rao [1999] 236 ITR 51 (Mad) following
the decision of the Rajasthan High Court in the case of CIT v. Vimal Chand
Golecha [1993] 201 ITR 442 (Raj).The same view has been taken in a
subsequent decision by the Madras High Court in the case of CIT v. T. C. Itty Ipe
[2001] 249 ITR 591 (Mad).The Supreme Court as early as 1967 in the case of
CIT v. Alps Theatres [1967] 65 ITR 377 has held that superstructure has to be
treated distinctly from the land, even where such superstructure is married to the
land. The decision of the Karnataka High Court in the case of CIT v. C. R.
Subramanian [2000] 242 ITR 342 (Kar) has also fallen in tune with the decision
of other High Courts.
The need for treatment of land and superstructure as distinct assets was also
recognized in CIT v. Citibank N. A. [2003] 261 ITR 570 (Bom) following the
decision of the Madras High Court in CIT v. Dr. D. L. Ramachandra Rao [1999]
236 ITR 51 (Mad)
13.The Bombay High Court in the case of CIT Vs Hindustan Hotels Ltd. and
ITAT(2010)-TMI-78206(Bombay High Court) has held at para.11 of its order as
under-
“It is well settled by now that, unlike in England, in India, the concept of dual
ownership is recognised in the sense that the land may belong to one person
and the building standing thereon may belong to another. Reference may be
made in that connection to the decision of the Supreme Court in Dr. K. A.
Dhairyawan V/s J. R. Thakur, AIR 1958 SC 789 and a decision of the Division
Bench of this Court in CIT V/s Fazalbhoy Investment Co. Pvt. Ltd. (1977) 109
ITR 802.”
From the detailed discussion arising out of various case laws the following
points emerge-
1. There is no prohibition with regard to dual ownership
2. The super structure will be treated as a separate entity for taxation purposes.
3. It is better to have a Memorandum of Understanding between the assessee
and the other person comprehensively covering all points such as payment of
taxes on the property sharing of rental if the property is let out in future etc.
(iv) Investment in cost of plot shall also form part of investment in new residential
property-
The ITAT Bangalore Bench in the case of M. Vijaya Kumar vs. Income-tax
Officer, Ward 1(1), Bangalore [2010] 122 ITD 15 (BANG.) has held that when the
assessee had demolished the old house and put up a new construction out of
the sale proceeds of other assets the assessee was entitled to claim the
demolition cost plus the cost of construction as the total cost of investment in
purchase of a new residential property since assessee would not have
constructed a house unless old building was demolished and moreover, it had
constructed a residential house on same site where old building was

25. 25
demolished within stipulated period specified in section 54F.It therefore held
that the lower authorities erred in restricting exemption to cost of land and
building and not to cost of construction incurred on very site where old house
stood demolished.
The cost of plot can also be included in total cost of investment eligible under
section 54 and section 54F of the Income-tax Act and the board circular issued
in this regard and extracted below explains the position-
Circular Number: 667 dated 18-10-1993[1993] 204 ITR (Stat) 0103
File Number:
207/3/93-ITA.II
Topic:
Interpretation of section 54 and 54F of the Income-tax Act, 1961--Regarding.
Text:
To
All Chief Commissioners of Income-tax,
All Directors-General of Income-tax.
Sir,
Sections 54 and 54F provide for a deduction in cases where an assessee has,
within a period of one year before or two years after the date on which the
transfer of a capital asset takes place, purchased, or has within a period of three
years after that date constructed a residential house. The quantum of deduction
is itself dependent upon the cost of such new asset. It has been represented to
the Board that the cost of construction of the residential house should be taken
to include the cost of the plot, as, in a situation of purchase of any house
property, the consideration paid generally includes the consideration for the plot
also.
2. The Board has examined the issue whether, in cases where the residential
house is constructed within the specified period, the cost of such residential
house can be taken to include the cost of the plot also. The Board are of the
view that the cost of the land is an integral part of the cost of the residential
house, whether purchased or built. Accordingly, if the amount of capital gain for
the purposes of section 54, and the net consideration for the purposes of section
54F, is appropriated towards purchase of a plot and also towards construction of
a residential house thereon, the aggregate cost should be considered for
determining the quantum of deduction under section 54/54F, provided that the
acquisition of plot and also the construction thereon are completed within the
period specified in these sections.
3. This may be brought to the notice of all the Assessing Officers in your region.
Yours faithfully,
(Sd.) Ajay Kumar,
Under Secretary,
(v) The additional facilities provided in the new property will also add to the cost
of the new asset.-See the note below-
ADDITIONAL FACILITIES-REFURNISHING EXPENSES
The Kerala High Court in the case of Dr. P.A. Varghese vs. Commissioner
of Income-tax [1971] 80 ITR 180 (KER.) has held that no building would be fit for
habitation without some of the necessary amenities and that it is not possible to
treat a building separate from the fittings therein which go along with it as part
thereof. The High Court also observed that the extent of the amenities may vary,
depending upon several considerations The facilities agreed to be provided in

26. 26
that case were partitions, lavatories, air-conditioners, closets, fluorescent tubes,
water and electric metres etc.and the issue arose whether these fittings formed
part of building and the court answered in the affirmative.
The Mumbai Bench of ITAT in the case of Saleem Fazelbhoy Vs. Deputy
Commissioner of Income-tax [2007] 291 ITR (A.T.) 0169/ (2007)-106-ITD-
167(Mum) has held that investment in residential house would not only include
the cost of purchase of the house but also the cost incurred in making the house
inhabitable subject to the condition that the payment was made during the period
specified in section 54F. The beneficial provisions of section 54F and section 54
are similar except that under section 54F the assessee should not hold more
than one residential property other than the one transferred and the entire sale
consideration (and not the capital gains alone unlike under section 54) will have
to be invested. Hence as exemption under section 54 is broader in perspective
when compared to section 54F the benefit of this decision can also be extended
to issues arising under section 54 of the Income-tax Act.
The Mumbai Bench of ITAT in this case in Saleem Fazelbhoy Vs. Deputy
Commissioner of Income-tax (supra) while deciding the issue in favour of the
assessee referred to the following observations made by the Supreme Court in
the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 so far applicability of
beneficial provisions is concerned.
“The provision in a taxing statute granting incentives for promoting
growth and development should be construed liberally; and since the
provision for promoting economic growth has to be interpreted liberally,
restriction on it too has to be construed so as to advance the objective of the
provisions and not to frustrate it.”
To the similar effect is the decision of Mumbai Bench of ITAT in the case
of Mrs. Sonia Gulati v. ITO [2001] 115 Taxmann 232 (Mum.)(Mag.).wherein it
was held that the investment in house would be complete only when such house
becomes habitable. In fact this decision in Mrs. Sonia Gulati v. ITO [2001] 115
Taxmann 232 (Mum.)(Mag.) has been followed in Saleem Fazelbhoy vs. Deputy
Commissioner of Income-tax [2007] 291 ITR (A.T.) 0169/ (2007)-106-ITD- 167-
(Mum)(supra)
The Mumbai Bench of ITAT Mrs. Gulshanbanoo R. Mukhi vs. Joint
Commissioner of Income-tax [2002] 83 ITD 649 (MUM.) has held that “the
words used about the amount spent on purchase of new asset are “cost thereto”
and not “price thereto”. The cost includes purchase as well. Consequently, we
are of the view that the word used signifies that the amount of purchase will
include other necessary expenditure in this behalf to make a residential house
habitable and taken together will be the cost of the new asset.” The benefit,in
this case, was claimed under section 54 of the Income-tax Act.
It is also submitted that the definition of a word or phrase as found in the
dictionary can be adopted, has been reiterated by the Constitution Bench of the
Supreme Court in the case of Sunrise Associates vs. Government of NCT of
Delhi & others (and other appeals, special leave petitions and writ petitions)
[2006] 145 STC 0576 wherein at para 42-page 594 of STC referred to the
definition of a ticket as found in Webster’s Words & Phrases, permanent edition
Vol. 25A supplement and para.42 is reproduced below-
Webster's Words and Phrases, permanent edition, volume25A
supplement defines a "ticket" as "a printed card or a piece of paper that gives a

27. 27
person a specific right, as to attend a theatre, ride on a train, claim or purchase,
etc."
The definition-para.42-can be found at page 1907-2ndEdition-Webster’s
New Twentieth Century Dictionary Unabridged Edition and basing its
observations on this definition and on its earlier decision in the case of H. Anraj
(3) (1986) 1 SCC 414 the Supreme Court in the case of Sunrise Associates vs.
Government of NCT of Delhi & others [2006] 145 STC 0576 (supra) held that “a
lottery ticket has no value in itself. It is a mere piece of paper. Its value lies in the
fact that it represents a chance or a right to a conditional benefit of winning a
prize of a greater value than the consideration paid for the transfer of that
chance. It is nothing more than a token or evidence of this right.”
This decision of the Supreme Court goes to show that reliance can be
placed on the dictionary meaning whenever necessity arises to decide an issue.
So when reference to the word “Habitable” is made to Webster’s New Twentieth
Century Dictionary (unabridged –Second Edition –Deluxe Colour) it is defined as
“capable of sustaining human beings” and the word “habitation” means place of
abode; a settled dwelling house; a house or other place in which to live in.(page
815)
So the additional facilities such as interior decor including wood work,
fitting of air conditioners in bed rooms, modular kitchen and split air conditioner
in drawing room can be considered as part of cost of the new residential
property.
(vi) It is to be noted that as per provisions of section 54(2) of the Act if the
amount of the capital gain which is not appropriated by the assessee towards the
purchase of the new asset made within one year before the date on which the
transfer of the original asset took place, or which is not utilized by him for the
purchase or construction of the new asset before the date of furnishing the return
of income under section 139, shall be deposited by him before furnishing such
return- such deposit being made in any case not later than the due date applicable
in the case of the assessee for furnishing the return of income under sub-section
(1) of section 139 in an account in any such bank or institution as may be specified
in, and utilized in accordance with, any scheme which the Central Government
may, by notification in the Official Gazette, frame in this behalf and such return
shall be accompanied by proof of such deposit ; and, for the purposes of sub-
section (1), the amount, if any, already utilized by the assessee for the purchase or
construction of the new asset together with the amount so deposited shall be
deemed to be the cost of the new asset. Though only section 139 is mentioned in
section 54(2) enabling certain High Courts and Tribunal Benches to hold that the
deposit in such designated account can be made at any time before the expiry of
one year from the end of the relevant assessment year or before the completion
of the assessment, whichever is earlier as per provisions of section 139(4) of the
Income-tax Act it is advisable to deposit in such designated account on or before
31st
July (the due date for filing of the return).
The Punjab & Haryana High Court in the case of CIT v. Ms. Jagriti
Aggarwal [2011] 203 Taxman 203 /15 taxmann.com 146 following the decision of
the Karnataka High Court in the case of Fathima Bai v. ITO [2009] 32 DTR 243
and CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274/ 157 Taxman 398 (Gau.) has
held that for purposes of section 54 due date for furnishing of return of income as
provided under section 139(1) is subject to extended period as provided under

28. 28
sub-section (4) of section 139. The Bangalore Bench of ITAT In the case of
Nipun Mehrotra vs. Assistant Commissioner of Income-tax Circle 14(2),
Bangalore [2008] 110 ITD 520 (BANG.) following the decision of the Gauhati
High Court in the case of CIT v. Rajesh Kumar Jalan(supra) has held that
section 139 of the Act mentioned in section 54F will not only include section
139(1) but will also include all sub-sections of section 139 of the Act. The Delhi
Bench of ITAT in the case of Income-tax Officer, Ward No. 24(4), New Delhi vs.
Smt. Sapana Dimri [2012] 19 taxmann.com 15 (Delhi)/50 SOT96, following CIT
v. Ms. Jagriti Aggarwal(supra) and CIT v. Rajesh Kumar Jalan has also held
that if the assessee had invested in new property within time allowed under
section 139(4) of the Act, then he would be entitled for exemption under section
54 to extent amount invested in new property. The facts as obtaining in P.
Thirumoorthy v. Income-tax Officer [2011] 007 ITR (Trib) 0010 also indicate if
action is taken by the assessee within the time allowed under section 139(4) of
the Act then he would be entitled to the benefits of section 54F of the Act. The
facts obtaining in P.R. Kulkarni & Sons (HUF) vs. Additional Commissioner of
Income-tax [2012] 19 taxmann.com 358 (Bang.) also point out to the same
effect. The Chennai Bench of ITAT in a recent case decided on 15th
June 2012 -
R.K.P. Elayarajan vs. Deputy Commissioner of Income-tax, Circle - I,
Vellore[2012] 23 taxmann.com 206 (Chennai - Trib.) has held that merely
because investment is made after due date of filing of return, section 54F
exemption cannot be denied where investment is made prior to filing of return
under section 139(4)
As per proviso to section 54(2) of the Income-tax Act if the amount so
deposited is not utilized wholly or partly for the purchase or construction of the new
asset within the specified period then the amount not so utilized shall be charged
under section 45 as the income of the previous year in which the period of three
years from the date of the transfer of the original asset expires. However the
assessee shall be entitled to withdraw such amount in accordance with the scheme
aforesaid. The scheme which has been referred to in this section is the Capital
Gains Accounts Scheme 1988. It is to be noted that the assessee has no option
but to open a capital scheme account (the specified account) if he does not
purchase the property before the due date of filing of the return.
The assessee cannot pick up particular provisions in his own way and to
defeat the benefit of introduction of section 54F.
Please see the ITAT decision (gist) below in this regard.
DECISION OF INCOME-TAX APPELLATE TRIBUNAL ON SECTION 54 F
“The Ahmedabad Bench of ITAT in the case of Thakorlal Harkishandas
Intwala vs. Income-tax Officer, Ward-1, Bharuch [2010] 7 TAXMANN.COM 82
(AHD.) /[2011] 43 SOT 347 (Ahd.) has held that where the assessee had
deposited the sale proceeds in normal saving bank account as against the
scheme specified by the Central Government, proviso to section 54F would
apply against the assessee and he cannot be given any benefit under section
54F
Facts of the case
During the year the assessee sold a plot of land and deposited the sale
proceeds in normal savings bank account. Out of said money, the assessee
utilized only Rs. 45,000 towards construction of new house and the balance

29. 29
amount of Rs. 9,50,484 could not be utilized for construction of house before
the due date of filing of the return. The Assessing Officer was of the view that
since the assessee did not deposit the sale proceeds as under section 54F(4)
in the Capital Account Scheme, 1988, the assessee would not be entitled for
deduction under section 54F(4) of Rs. 9,50,484. Accordingly, deduction under
section 54F(4) was restricted to Rs. 45,000 only due to non-compliance of
certain conditions. On appeal, the Commissioner (Appeals) confirmed the
order of the Assessing Officer.
On second appeal:
Held in Para 14 of its order as follows-
Sub-section (4) of section 54F provides the amount of net consideration
which is not appropriated by the assessee towards the purchase of the new
asset made within one year before the date on which the transfer of the original
asset took place or which is not utilized by him for the purchase or construction
of a new asset before the date of furnishing the return of income under section
139, shall be deposited by him before furnishing such return in an account in
bank or institution as may be specified and utilize in accordance with any
scheme notified by the Central Government in the Official Gazette and such
return shall accompany the proof of such deposit and for the purpose of sub-
section (1), the amount if any already utilized by the assessee for the purchase
or construction of new asset together with the amount so deposited shall be
deemed to be cost of the new asset. The proviso to the above provision provides
that if the amount so deposited under the sub-section is not utilized wholly or
partly for purchase or construction of a new asset within the time so specified
then the amount shall be charged under section 45. Any amount not utilized for
purchase or construction of the new house should be deposited by the assessee
within the time and in the manner required by sub-section (4) and should be
utilized by the assessee in accordance with the notified scheme, in order to avail
himself of the benefit of sub-section (1). However, in the instant case, the
assessee had kept the amount in his ordinary saving bank account meaning
thereby the amount remained in the custody and control of the assessee and the
assessee could utilize the same in any manner as he wished. It would, therefore,
frustrate the very purpose of the notified scheme by the Government. The above
provisions would thus prove that in case the assessee seeks exemption from
the payment of tax on account of long-term capital gains, the assessee shall
have to satisfy the mandatory provisions of law as noted above. The
interpretation of the above provision would show that the assessee shall have
to strictly comply with the provisions of law in order to get exemption under
section 54F. No other interpretation could be given to such provisions of law.
The assessee, therefore, in order to secure the benefit of the above provisions
of law shall have to comply with the conditions noted above. The assessee
cannot pick up particular provisions in his own way and to defeat the
benefit of introduction of section 54F. The provisions contained under
section 54F are substantive provisions under the law and cannot be given go
by, by the assessee in order to get the benefit from exemption of taxes. It was
admitted fact that the assessee had deposited the sale proceeds in normal

30. 30
saving bank account as against the scheme specified by the Central
Government through notification in the Official Gazette as per section 54F (4).
The Assessing Officer specifically noted that the assessee utilized only
Rs. 45,000 towards construction of new house and balance amount of
Rs. 9,50,484 could not be utilized for construction of the house as per notified
scheme before the due date of filing of the return. Since the assessee did not
deposit the sale proceeds as per section 54F(4) in the notified bank account
scheme, therefore, the assessee would not be entitled for any benefit under
the provisions of law. It would, therefore, show that the assessee had violated
the provisions of section 54F(4) by not opening a designated account and
depositing the proceeds in that account. It was, therefore, not a case of technical
default but a case of substantial non-compliance of the provisions of law. The
whole scheme of the Act had thus been violated and ignored. The assessee
deposited the sale proceeds in a normal saving bank account and did not
utilize the amount as per scheme thus defeated the very concessional
scheme provided under the Act. The Assessing Officer directed the assessee
to furnish the evidences in support of his claim and details of construction of
residential house. The Assessing Officer considering the explanation of the
assessee specifically noted that the assessee had up to the date of filing of
the return utilized only an amount of Rs.45,000 towards construction of house
as on 3-7-1996. Thus, the assessee had not utilized the amount in question
for construction of house before the due date of filing of the return of income,
i.e., 31-8-1996 as per notified scheme. The assessee had also not filed any
evidences with the return of income regarding deposit of sale consideration in
the Capital Gain Account Scheme, 1988 and utilized the amount after the
date of filing of the return. Therefore, it was a clear case of violation of the
provisions of section 54F (4). The assessee had not explained any reasons
about non-utilization of the remaining amount as per the scheme. Therefore,
proviso to section 54F would apply against the assessee and the assessee
could not be given any benefit under the law. Considering the above
discussions, there was no justification to interfere with the orders of the
authorities below. Therefore, appeal of the assessee was to be dismissed.”
(vii) It is further to be noted that the Kerala High Court in the case of CIT
vs.Thomy P.Chakola (Decd.)-(2011)-49-DTR (Ker) 24 has held that if the
assessee does not purchase the property within the stipulated period then he is
entitled to adopt indexation only with regard to the year of sale of property and
not indexation with regard to the year in which the capital gain was not utilized
resulting in withdrawal of deposit.
C-2. DOES THE TRANSFER OF PROPERTY COME UNDER SECTION 54 OR
SECTION 54F?
This issue assumes importance because of three basic differences
between the provisions of section 54 and 54F.These three differences are
(a) In order to claim exemption under section 54 it is sufficient if only the
capital gains are invested in purchase of new residential property and/or
investment in capital gain bonds whereas under section 54F the entire net sale
consideration (which, in effect, is a higher amount) has to be invested.

31. 31
(b) As per provisions of section 54F the assessee who has transferred the
asset (property other than the residential property) should not own more than
one residential house property on the date of transfer of the property whereas
there is no such restriction under section 54.
(c) As per provisions of section 54F the assessee loses exemption under this
section if he purchases any residential house, other than the new asset, within a
period of one year after the date of transfer of the original asset; or constructs
any residential house, other than the new asset, within a period of three years
after the date of transfer of the original asset; There is no such restriction in
section 54 of the Act.
So when a residential building with an extensive piece of land is sold the
advantage would be plenty if the transfer of property is brought under section 54.
In fact section 54 opens with the following-
“Subject to the provisions of sub-section (2), where, in the case of an
assessee being an individual or a Hindu undivided family the capital gain arises
from the transfer of a long-term capital asset, being buildings or lands
appurtenant thereto, and being a residential house, the income of which is
chargeable under the head “Income from house property” (hereafter in this
section referred to as the original asset)”
The decision of the Andhra Pradesh High Court in the case of
Commissioner of Income-tax vs. Zaibunnisa Begum [1985] 151 ITR 0320(A.P.)
provides an answer in favour of the assessee in the sense that only more
beneficial provisions of section 54 (and not section 54F) are applicable. The
head note from the decision of the Andhra Pradesh High Court in the case of
Commissioner of Income-tax vs. Zaibunnisa Begum [1985] 151 ITR
0320(A.P.)(supra) buttresses the above point. It runs as under-
“Section 54 of the Income-tax Act, 1961, grants a concession where
capital gains arise from the transfer of buildings or lands appurtenant thereto
used by the assessee in the two years immediately preceding the date of
transfer as his own or his parent's residence, if he constructs a house property or
purchases one for purposes of residence within the time specified in the
provision. The expression "land appurtenant thereto" occurring in section 54 has
not been defined. It must, therefore, be understood in its popular and non-
technical sense. It is not possible to accept the contention that clause (b) of the
Explanation to section 5(1)(ivc) of the Wealth-tax Act, 1957, defining "land
appurtenant" for the purpose of that clause should be considered equally
applicable for the purpose of understanding that expression occurring in section
54 of the Income-tax Act. The Explanation in the Wealth-tax Act is only for the
purpose of section 5(1)(ivc) because it is specifically stated so. The meaning
assigned to that expression in the Urban Ceiling and Regulation Act is also not
relevant. The tax authorities will have to determine the extent of land
appurtenant to a building transferred, taking into consideration a variety of
circumstances that may be relevant for the purpose. It is not possible to lay down
infallible tests to be applied as the tests would vary depending upon the facts
and circumstances of each case. For instance: (1) If the building together with
the land is treated as an indivisible unit and enjoyed as such by the persons
occupying the building, it is an indication that the entire extent of land is
appurtenant to the building; (2) If the building has extensive lands appurtenant
thereto and even if the building and the land have been treated as one single
unit and enjoyed as such by the occupiers, an enquiry could be made to find out