Capital Gain on compulsory acquisition of urban agricultural land is exempt under Section 10(37)

It is applicable to Individual & HUF.

Capital gain arising on transfer by way of compulsory acquisition on urban agricultural land is not chargeable to tax w.e.f. Assessment year 2005-2006.

The agricultural land must be used by the assessee or by any of his parents for agricultural purposes during two years immediately prior to the transfer.

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Deduction of Capital Gains arising from transfer of residential house u/s.54

Section 54 is applicable to individuals and HUF. This is applicable in respect of long term Capital Gains arising on account of residential house. The deduction under this Section is applicable only when the long term Capital Gain arising on transfer of residential house which is chargeable under the head in come from house property is invested in purchasing or constructing the house within stipulated period. The deduction is applicable if the assessee purchases one year before or two years after the date of transfer of the residential house. In case, if the house is to be constructed, than it should be three years from the date of transfer of the house. The amount of Capital Gain or the amount invested in purchasing or constructing including the amount deposited in Capital Gain account scheme whichever is lower shall be exempt. If the land is appurtenant to the new house, the same will be qualified u/s.54- P.K. Lahiri v/s. CIT (2005) 275 ITR 17 (All)

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Deduction of Capital Gains arising from transfer of residential house u/s.54- contd…

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The date of commencement of construction of the new house is irrelevant, (construction may be commenced even before the transfer of the house) however, the date of completion of the construction of the house must be within three years from the date of transfer.

The deduction u/s.54 is not limited to acquisition of one house property and the assessee can acquire more than one house for the purpose of claiming deduction u/s.54. It means that, Section 54 does not impose limitation to the effect that, the assessee should acquire only one house. If we peruse, Section 23(2) & 23(4), Section 54F and Section 5(vi) of the Wealth Tax Act , we find that there is express limit of one house only. However, such numeric limit is not given u/s. 54.

Under Section 54 the wording are ‘a residential house’ and ‘A’ connotes ‘Any’. The expression ‘A residential house’ has been defined u/s.54 as, ‘Buildings or lands appurtenant thereto’. The use of plurality in the meaning given u/s.54, itself suggest that, the investment u/s.54, can be made in more than one house.

Deduction of Capital Gains arising from transfer of residential house u/s.54- contd…

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Construction of the house may be by a third party and the assessee need not himself construct – CIT v/s. Uma Budhia (2004) 141 Taxman 39 (Kol) The allotment of the flat in the self financing scheme of DDA or other schemes of Co-operative societies shall be treated as construction of the house u/s.54 – Circular No.471, Dated 05.10.1986 and Circular no. 672 Dated 16.12.1993. Section 54 is complied with if the legal title has not been passed to the owner, but only possession is given. In case of compulsory acquisition the time limit prescribed u/s.54 for purchase or construction of the house shall be determined from the date of receipt of the compensation. The deduction u/s.54 shall be allowed even if the house is in India or outside India – Prema P. Shah v/s. CIT (2006) 100 ITD 60 (Mum). Acquisition of the new flat under a development agreement in exchange of an old flat, amounts to construction of a new flat u/s.54 – Jatinder Kumar Madan v/s. ITO (2012) 51 SOT 583 (Mum).

Deduction of Capital Gains arising from transfer of residential house u/s.54- contd…

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Purchase of tenancy rights in a building does not amount to purchase of a house and deduction u/s. 54 shall not be allowed – Yogesh Sunderlal Shah v/s. CIT (2012) 139 ITD 194 (Mum). When two flats are sold in two different years and Capital Gain arising from sale of both flats is invested in one residential house, exemption u/s.54 is available- CIT v/s. Ranjit Vithaldas (2012) 137 ITD 267 (Mum). Where the assessee’s wife’s name is entered in sale agreement of new residential property just for the purpose of security, the benefit of Section 54 will be allowed to the assessee – CIT v/s. Suresh Verma (2012) 135 ITD 102 (Del). For claiming exemption u/s.54 the investment in residential house would not only include the cost of purchase of house but also include other costs incurred for making the house habitable – Saleem Fazalbhoy v/s. CIT (2006) 9 SOT 601 (Mum).

Deduction of Capital Gains arising from transfer

of residential house u/s.54-cont…

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There is no requirement that, the assessee should file the return of Income before the due date prescribed u/s. 139(1) – Esther Christopher Mascarenhas v/s. ITO (2011) 9 Taxmann.com 99 (Mum ITAT) The cost of land is included as cost of acquisition u/s.54 – Circular no.667, dated 18.10.1993.

Section 54 – if the new house is transferred within three years.

If the new residential property is transferred within three years from the date of it’s

acquisition the amount of exemption given earlier, would be taken back – Section 54(1) (ii).

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Capital gains account scheme1988(Notification vide GSR No.724(E) Dated 22.6.1988

If the amount of Capital Gain could not be utilized for purchase or construction of the new house till the date of submission of return of income, then it should be deposited in ‘Capital Gain account scheme’.

The assessee has to withdraw from this deposit account and utilize the amount on purchase or construction of the residential house.

If the amount deposited is not utilized within the stipulated period, in that case the balance which is unutilized shall be treated as long term Capital Gain.

If the assessee dies before the expiry of the stipulated period and later on the un-utilized amount is refunded to the legal heirs, the same shall not be taxed in the hands of legal heirs as per Circular no.743, dated 06.05.1996.

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Capital gain arising from the transfer of land used for agricultural purposes- Section 54B

The exemption is available to individual and HUF. The agricultural land is transferred. The agricultural land may be a short term or long term Capital Asset. The agricultural land was used by assessee as an i8ndividual or his parents or by HUF for a period of two years immediately preceding the date of transfer. The tax payer purchased another land for agricultural purposes within a period of two years from the date of it’s transfer. In case if it compulsorily acquired than within two years from the date of receipt of compensation. The Capital Gain should be invested in the new agricultural land. The investment in Capital Gain account scheme can be made. The amount of Capital Gain on account of transfer of agricultural land or the amount invested in purchasing new agricultural land including the amount deposited in the deposit scheme whichever is less shall be exempt. The new agricultural land should not be transferred within a period of three years.

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Capital gain on compulsory acquisition of land and building forming part of industrial undertaking – Section 54D

Exemption u/s.54D can be claimed by Individual, HUF, Firm, Company or any other person. The asset may be short term or long term. The Capital Gain should arise by way of compulsory acquisition of land or building which forms part of industrial undertaking belonging to the tax payer. The land or building was used by the assessee for the purpose of industrial undertaking for at least two years, preceding the date of compulsory acquisition. The assessee has purchased or constructed any other land or building within a period of three years from the date of receipt of compensation. The newly acquired land or building should be used for the purposes of re-establishing the said undertaking or setting up another industrial undertaking.

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Capital gain on compulsory acquisition of land and building forming part of industrial undertaking – Section 54D – contd…

The amount of Capital Gains or the amount invested in new land or building whichever is lower will be exempt. If the new land and building is transferred within a period of three years the exemption u/s.54D shall be withdrawn. The investment can be made in Capital Gain account scheme.

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Capital Gain on investment in certain bonds – Section 54EC It is applicable to any person. The Capital Asset must be a long term Capital Asset. The assessee should invest the whole or any part of the Capital Gain in long term specified assets within six months from the date of transfer of the asset. From assessment year 2006-2007, long term specified asset means bonds issued by National Highway Authority of India or Rural ElectrificationCorporation. The amount of Capital Gain or the amount invested in specified assets whichever is lower is exempt. From assessment year 2007-2008, the long term specified asset cannot exceed Rs.50 Lakh. If the specified asset is transferred within three years the deduction shall be withdrawn.

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Capital Gain on investment in certain bonds – Section 54EC- contd….

Capital gains on transfer of depreciable asset u/s.50 is eligible for benefit u/s.54EC – CIT v/s. Assam Petroleum Industries (P) Ltd. (2003) 131 Taxman 699 (Gau), CIT v/s. Bhart Enterprises (2011) 14 Taxmann.com 110 (Mum – ITAT) If the sale consideration is received in installments and the amount is invested in specified bonds within the period of six months from the date of receipts, exemption u/s.54EC is available – Mahesh N. Ganesh Wade v/s. ITO (2012) 51 SOT 155 (Pune – ITAT) If the assessee wants to invest in a particular specified bonds and the same is not available throughout the period of six months, the time limit of six months should be extended even if other specified bond is available- CIT v/s. Cello Plast (2012) 209 Taxman 617 (Mum), Aspi Ginwala v/s. CIT (2012) 52 SOT 16 (Ahd). If a minor child or spouce is clubbed in the hands of the individual they can separately claim exemption u/s. 54EC and the balance amount after claiming exemptions from 54 to 54GB will be clubbed. CIT v/s. Rajiv Goyal (2012) 22 Taxmann.com 34 (Kol). 13

Capital Gain on investment in certain bonds – Section 54EC- contd….

The specified bonds purchased prior to the sale of property- deduction is not available- Daksha Ben Patel v/s. CIT (2012) 22 Taxmann.com 237 (Ahd.). Where the investment is made within six months, exemption u/.s 54EC cannot be denied nearly on the ground that, the date of investment falls in year subsequent to year in which claim of exemption is made – ITO v/s. Chetana H. Trivedi (2012) 53 SOT 544 (Mum). Deeming fiction of Section 50C cannot be considered for the purposes of Section 54EC – Neela V. Shah v/s. CIT (2012) 51 SOT 461 (Mum).

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

The exemption under section 54 F is available only to Individuals and HUF.

It is available to any long term Capital Asset other than residential house property.

The exemption is available only when the assessee purchases or constructs a new residential house.

The new house may be in India or outside India.

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

Particulars Time limit

For purchasing a new house Within one year before, or within two years after, the date of transfer of the original asset.

For constructing a new house The construction should be completed within three years from the date of transfer of original asset. Construction may commence before transfer of Capital Asset.

In case the long term Capital Asset is compulsorily acquired under the law

The time limit of one year , two year or three years shall be determined from the date of receipt of compensation (whether initial or additional).

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

Allotment of flat under self financing scheme of DDA (or any similar scheme of co-operative society or other institution) is treated as construction of house. (circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993.

If the assessee has paid full consideration or substantial portion of it within the stipulated period under 54 F , the exemption under is available even if possession is handed over after the stipulated period or the sale deed is registered later on i.e. after the stipulated period under section 54F.

The house acquired under 54 F may or may not be used for residential purposes. –Mahvir Prasad Gupta V/s. CIT (2006) 5 SOT 355 (Del)

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

Investment under 54 F must be made only in the name of transferor – Prakash V/s. ITO (2008) 173 Taxman 311(Bom). However in the case of CIT V/s. Kamal Wahal (2013) 30 Taxmann.com 34 (Del)

Section 54 F does not provide for renovation or modification of an existing house. Pushpa v/s. ITO (2013) 213 Taxman 191 (Ker)

The cost of residential house constructed on agricultural land shall be eligible u/s. 54 F- CIT v/s. Omprakash Goel (2012) 53 SOT 158 (Jaipur).

If the Investment is made within time limit but construction is not completed , exemption under 54 F cannot be denied. Usha vaid v/s. ITO (2012) 53 SOT 385 (ASR)

Merely because Capital Gains earned has been utilized for other purposes and borrowed funds are deposited in Capital Gains investment account scheme 1988 , the benefit of exemption u/s. 54 F cannot be denied.-J.V. Krishna Rao v/s. C.I.T. (2012)54 SOT 44(Hyd)

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F.

Not more than one residential house property (other than the new house) should be owned by taxpayer on the date of transfer of original Capital Asset.

The assessee should also not purchase another new house within a period of two years or construct another house within a period of three years from the date of new house.

Amount of exemption: Cost of new house x Capital Gains *Net sale Consideration * Net sale consideration = Full value of consideration received or

accrued as a result of transfer of the Capital Asset after deduction of any expenditure incurred wholly and exclusively in connection with the transfer.

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

Cost of new house includes cost of land – Circular no.667 dated 18.10.1993.

Cost of vacant land appurtenant to ,and forming part of a residential unit is to be considered for claim of exemption u/s. 54 F, even if no construction has been done on appurtenant land. –CIT v/s Narendra Mohan Uniyal (2009) 34 SOT 152 (Del).

If the transferor allows the transferee to retain and apply a part of total consideration to discharge the mortgage to which the property has been subjected to, the amount so applied for discharge of mortgage would have to be excluded from the full value of consideration. CIT V/s. N.M.A Mohammed Haniffa (2001) 115 Taxman 181 (Mad)

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Capital Gains on Transfer of long term Capital Asset other than a House Property -54 F

Expenses incurred in making a semi finished house habitable shall be considered as

investment in purchase of the house. –Saleem Fazelbhoy v/s. C.I.T. (2006) 9 SOT 603 (Mum)

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Circumstances when exemption u/s. 54 F may be withdrawn

Defaults Consequences If the assessee transfers the new house within 3 years of purchase or construction

Capital gains on transfer of new house will be taken as short term Capital Gains. The Capital Gain which was exempt under section 54 F shall be deemed to be treated as a long term Capital Gain.

If the assessee purchases within a period of two years of the transfer of original asset or constructs within a period of three years of transfer of such asset , a residential house other than the new house :

The Capital Gain which was exempt under section 54 F shall be deemed to be long term Capital Gain of the year in which another residential house is purchased or constructed.

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Capital gains account scheme1988(Notification vide GSR No.724(E) Dated 22.6.1988 - 54 F

If the amount of Capital Gain could not be utilized for purchase or construction of the new house till the date of submission of return of income, then it should be deposited in ‘Capital Gain account scheme’.

The assessee has to withdraw from this deposit account and utilize the amount on purchase or construction of the residential house.

If the amount deposited is not utilized within the stipulated period, in that case the balance which is unutilized shall be treated as long term Capital Gain.

If the assessee dies before the expiry of the stipulated period and later on the un-utilized amount is refunded to the legal heirs, the same shall not be taxed in the hands of legal heirs as per Circular no.743, dated 06.05.1996.

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Shifting of industrial undertaking from urban area to any other

area except urban area.

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Exemption under section 54 G

Exemption u/s. 54 GA

Exemption of Capital Gain on transfer of assets in case of shifting of industrial undertaking from urban area to any SEZ

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