I never deposited the unspent sale proceeds in a capital gains account. Can I still claim 54F?
No, not for the unspent part. Section 54F(4) requires the amount not utilised towards the new house to be deposited in the notified account before the due date under section 139(1), and failure to do so confines the exemption to what was actually spent.
Decided by the High Court (Bombay High Court, M. S. Sanklecha and A. K. Menon JJ) on 2016-08-18, reported as [2016] 73 taxmann.com 2 (Bombay); [2016] 387 ITR 421 (Bombay); [2016] 242 Taxman 189 (Bombay); [2016] 290 CTR 496 (Bombay); IT Appeal No. 545 of 2002. It bears on section 54F, section 54F(4), section 139(1), section 139, section 45 of the Income Tax Act 1961, in Capital Gains Exemptions and Capital Gains matters.
This one favours the revenue and is in the library because it is what the department will cite against you. It is the leading contrary authority to the line of cases reading the reinvestment period up to section 139(4), and it expressly holds the Karnataka decision in K. Ramchandra Rao to be sub-silentio and not good law on section 54F(4). The court accepted that the time limit reads with all sub-sections of section 139, including 139(4), but still required the deposit to be made. From AY 2024-25 the capital gains account deposit under sections 54(2) and 54F(4) is itself limited to Rs 10 crore.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee sold a plot in Mumbai on 29 April 1995 for Rs 85,33,250. On 16 July 1996 he agreed to buy a flat for Rs 69,60,000. He paid two instalments of Rs 10,00,000 each on 17 July and 23 October 1996 — both before the due date for filing the return under s.139(1), which was 31 October 1996 — and a further Rs 15,00,000 on 1 November 1996, after that due date but before he filed his return on 4 November 1996. Nothing was deposited in a notified capital gains account. In an assessment under s.143(3) read with s.147 dated 13 March 2001 the Assessing Officer took the net consideration at Rs 75.39 lakhs, allowed proportionate exemption of Rs 31.55 lakhs referable to the Rs 35 lakhs paid up to the date of filing, and charged the balance of Rs 43,84,334 to capital gains tax. The Commissioner (Appeals) recorded that possession of the flat had been taken on 27 January 1997 but did not disturb the assessment, and the Tribunal dismissed the further appeal.
The appeal was dismissed. Section 54F(1) is expressly subject to s.54F(4), and s.54F(4) requires that so much of the net consideration as is not utilised for the purchase or construction before the date of furnishing the return under s.139 be deposited, before that return is furnished and in any case not later than the due date under s.139(1), in a notified account. The assessee having deposited nothing, exemption was available only in the proportion that the amount actually utilised bore to the net consideration, which is what the Assessing Officer had allowed. On the language of the provision the Tribunal's order could not be faulted (paras 6(h), 6(i), 6(o), 6(p) and 6(x)). The Court also held that 'appropriated' in s.54F(4) governs only the first class of case, where the new house was bought within a year before the sale, and does not extend to a purchase or construction after the sale, which requires utilisation (paras 6(t) and 6(u)).
The Court traced the provision: s.54F as enacted in 1982 gave exemption where the consideration was used to buy a house within one year before or two years after the sale, or to construct one within three years; because assessments were often completed before those periods ran out, sub-section (4) was inserted with effect from 1 April 1988 and sub-section (1) was made subject to it (paras 6(e) to 6(g)). It then dealt with each authority the assessee relied on. Hilla J.B. Wadia and Shashi Varma were decided on s.54 at a time when there was no deposit requirement at all, so the question never arose; the CBDT circulars of 1986 and 1993 only extended the meaning of construction to allotment-based purchases and did not relax the deposit requirement (paras 6(k) to 6(n)). Ravinder Kumar Arora, on liberal construction, was about a claim denied because a spouse's name was added when every requirement was in fact met (para 6(r)). Where the words are clear there is no ambiguity to construe beneficially, and in a fiscal statute equitable considerations and assumed intention are out of place (para 6(s)). On the Karnataka High Court's decision in K. Ramachandra Rao the Court said it was with respect unable to accept the reasoning, that the requirement of deposit by the s.139(1) due date appeared not to have been noticed, that the decision proceeded on the intent of the parties which cannot override plain language, and that it had been rendered sub-silentio; a decision of another High Court on an all-India statute has persuasive value and would normally be followed for uniformity, but is not binding, so it declined to place reliance on it (paras 6(o) to 6(q)). Finally, Rajesh Kumar Jalan, on which the assessee relied for the proposition that utilisation counts up to the date the return is actually filed, did not help: even taking that reading, the Assessing Officer had allowed everything utilised up to 4 November 1996, and the balance was neither utilised nor deposited (para 6(w)).
in the face of the clear words of the Statute the intent of parties and/or beneficial construction is irrelevant
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Handle my notice → Ask a CA on WhatsAppNo, not for the unspent part. Section 54F(4) requires the amount not utilised towards the new house to be deposited in the notified account before the due date under section 139(1), and failure to do so confines the exemption to what was actually spent. This was decided by the High Court (Bombay High Court, M. S. Sanklecha and A. K. Menon JJ) and bears on section 54F, section 54F(4), section 139(1), section 139, section 45 of the Income Tax Act 1961. It is reported as [2016] 73 taxmann.com 2 (Bombay); [2016] 387 ITR 421 (Bombay); [2016] 242 Taxman 189 (Bombay); [2016] 290 CTR 496 (Bombay); IT Appeal No. 545 of 2002. This one favours the revenue and is in the library because it is what the department will cite against you. It is the leading contrary authority to the line of cases reading the reinvestment period up to section 139(4), and it expressly holds the Karnataka decision in K. Ramchandra Rao to be sub-silentio and not good law on section 54F(4). The court accepted that the time limit reads with all sub-sections of section 139, including 139(4), but still required the deposit to be made. From AY 2024-25 the capital gains account deposit under sections 54(2) and 54F(4) is itself limited to Rs 10 crore. If it applies to you, the first step is this: Work out the two numbers the AO will use: the section 139(1) due date for that year and the consideration still unutilised on that date.
The assessee sold a plot in Mumbai on 29 April 1995 for Rs 85,33,250. On 16 July 1996 he agreed to buy a flat for Rs 69,60,000. He paid two instalments of Rs 10,00,000 each on 17 July and 23 October 1996 — both before the due date for filing the return under s.139(1), which was 31 October 1996 — and a further Rs 15,00,000 on 1 November 1996, after that due date but before he filed his return on 4 November 1996. Nothing was deposited in a notified capital gains account. In an assessment under s.143(3) read with s.147 dated 13 March 2001 the Assessing Officer took the net consideration at Rs 75.39 lakhs, allowed proportionate exemption of Rs 31.55 lakhs referable to the Rs 35 lakhs paid up to the date of filing, and charged the balance of Rs 43,84,334 to capital gains tax. The Commissioner (Appeals) recorded that possession of the flat had been taken on 27 January 1997 but did not disturb the assessment, and the Tribunal dismissed the further appeal. The matter was decided on 2016-08-18 by the High Court (Bombay High Court, M. S. Sanklecha and A. K. Menon JJ). On those facts the High Court held as follows. The appeal was dismissed. Section 54F(1) is expressly subject to s.54F(4), and s.54F(4) requires that so much of the net consideration as is not utilised for the purchase or construction before the date of furnishing the return under s.139 be deposited, before that return is furnished and in any case not later than the due date under s.139(1), in a notified account. The assessee having deposited nothing, exemption was available only in the proportion that the amount actually utilised bore to the net consideration, which is what the Assessing Officer had allowed. On the language of the provision the Tribunal's order could not be faulted (paras 6(h), 6(i), 6(o), 6(p) and 6(x)). The Court also held that 'appropriated' in s.54F(4) governs only the first class of case, where the new house was bought within a year before the sale, and does not extend to a purchase or construction after the sale, which requires utilisation (paras 6(t) and 6(u)).
The Court traced the provision: s.54F as enacted in 1982 gave exemption where the consideration was used to buy a house within one year before or two years after the sale, or to construct one within three years; because assessments were often completed before those periods ran out, sub-section (4) was inserted with effect from 1 April 1988 and sub-section (1) was made subject to it (paras 6(e) to 6(g)). It then dealt with each authority the assessee relied on. Hilla J.B. Wadia and Shashi Varma were decided on s.54 at a time when there was no deposit requirement at all, so the question never arose; the CBDT circulars of 1986 and 1993 only extended the meaning of construction to allotment-based purchases and did not relax the deposit requirement (paras 6(k) to 6(n)). Ravinder Kumar Arora, on liberal construction, was about a claim denied because a spouse's name was added when every requirement was in fact met (para 6(r)). Where the words are clear there is no ambiguity to construe beneficially, and in a fiscal statute equitable considerations and assumed intention are out of place (para 6(s)). On the Karnataka High Court's decision in K. Ramachandra Rao the Court said it was with respect unable to accept the reasoning, that the requirement of deposit by the s.139(1) due date appeared not to have been noticed, that the decision proceeded on the intent of the parties which cannot override plain language, and that it had been rendered sub-silentio; a decision of another High Court on an all-India statute has persuasive value and would normally be followed for uniformity, but is not binding, so it declined to place reliance on it (paras 6(o) to 6(q)). Finally, Rajesh Kumar Jalan, on which the assessee relied for the proposition that utilisation counts up to the date the return is actually filed, did not help: even taking that reading, the Assessing Officer had allowed everything utilised up to 4 November 1996, and the balance was neither utilised nor deposited (para 6(w)). In the words reproduced by the source cited on this page: "in the face of the clear words of the Statute the intent of parties and/or beneficial construction is irrelevant"
It was decided by the High Court on 2016-08-18 and is reported as [2016] 73 taxmann.com 2 (Bombay); [2016] 387 ITR 421 (Bombay); [2016] 242 Taxman 189 (Bombay); [2016] 290 CTR 496 (Bombay); IT Appeal No. 545 of 2002. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 54F, section 54F(4), section 139(1), section 139, section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. Section 54F(1) is expressly subject to s.54F(4), and s.54F(4) requires that so much of the net consideration as is not utilised for the purchase or construction before the date of furnishing the return under s.139 be deposited, before that return is furnished and in any case not later than the due date under s.139(1), in a notified account. The assessee having deposited nothing, exemption was available only in the proportion that the amount actually utilised bore to the net consideration, which is what the Assessing Officer had allowed. On the language of the provision the Tribunal's order could not be faulted (paras 6(h), 6(i), 6(o), 6(p) and 6(x)). The Court also held that 'appropriated' in s.54F(4) governs only the first class of case, where the new house was bought within a year before the sale, and does not extend to a purchase or construction after the sale, which requires utilisation (paras 6(t) and 6(u)). It arises in Capital Gains Exemptions and Capital Gains matters, on section 54F, section 54F(4), section 139(1), section 139, section 45 of the Income Tax Act 1961, and was decided by Bombay High Court, M. S. Sanklecha and A. K. Menon JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where part of the money was genuinely spent on the new house before the due date, press the claim to that extent, which is what the court allowed here. Do not run beneficial construction or intention of the parties against section 54F(4); the court said the plain words leave no room for it. For a client still mid-transaction, open the capital gains account and deposit the unutilised amount before the due date instead of relying on the 139(4) cases.
Validity check could not be completed. The report carries no later-treatment note and no case review of this decision, and no case applying, following or affirming it was found on the full read. It remains the fullest Bombay High Court treatment of s.54F(4) and it declines to follow the Karnataka High Court in K. Ramachandra Rao, but that is the strength of its reasoning, not later treatment of it. Note precisely what it says about K. Ramachandra Rao: it held that decision to have been rendered sub-silentio on the deposit requirement and said it was unable to accept its reasoning and could not place reliance on it, adding that a decision of another High Court on an all-India statute is persuasive and not binding. It did not declare that decision to be no longer good law, and could not have. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Citations are now confirmed from the judgment, including the ITR reference the entry could not locate, and the date is 18 August 2016. Two points of precision. The instalment of Rs 15 lakhs was paid on 1 November 1996 — before the return was filed on 4 November but after the s.139(1) due date of 31 October — and the Assessing Officer nonetheless allowed it as utilised. So the case does not decide that utilisation must stop at the s.139(1) due date; what must happen by that date is the deposit of whatever is left over. And the Court did not declare the Karnataka decision in K. Ramachandra Rao to be no longer good law; it held it was rendered sub-silentio on this very requirement, said it was unable to accept its reasoning, and noted that another High Court's view on an all-India statute is persuasive but not binding. Read this together with Harminder Kaur v. ITO in this library, which is a Tribunal order going the other way on the s.139(4) reasoning. No later decision applying or following this judgment was identified, and it is not established whether it was carried to the Supreme Court. A second Bombay High Court order in the same matter is reported at [2016] 75 taxmann.com 157 (Bombay), dated 25 October 2016; what it decides was not examined. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed. Section 54F(1) is expressly subject to s.54F(4), and s.54F(4) requires that so much of the net consideration as is not utilised for the purchase or construction before the date of furnishing the return under s.139 be deposited, before that return is furnished and in any case not later than the due date under s.139(1), in a notified account. The assessee having deposited nothing, exemption was available only in the proportion that the amount actually utilised bore to the net consideration, which is what the Assessing Officer had allowed. On the language of the provision the Tribunal's order could not be faulted (paras 6(h), 6(i), 6(o), 6(p) and 6(x)). The Court also held that 'appropriated' in s.54F(4) governs only the first class of case, where the new house was bought within a year before the sale, and does not extend to a purchase or construction after the sale, which requires utilisation (paras 6(t) and 6(u)).
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