432. Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee
Circular No. 743 was issued by the Central Board of Direct Taxes on 6 May 1996. Its subject is 432. Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee.
Settles that an unused capital gains deposit is not taxed when the depositor dies. Sections 54, 54B, 54D, 54F and 54G exempt capital gain where the gain or the net consideration is applied to the specified purpose within the period allowed, and let the unapplied part be deposited with a specified bank before the due date under section 139(1), the deposit together with what is already spent being treated as the cost of the new asset; if the deposit is not used for the prescribed purpose within the two or three years the section allows, the unused part is charged under section 45 as income of the financial year in which that period expires. Asked what happens where the individual dies before that period runs out, the Board clarifies that the amount cannot be taxed in the hands of the deceased, and is not taxable in the hands of the legal heirs either, because in their hands the unutilised deposit is not income at all but part of the estate that devolves on them.
A question had been raised on the taxability of the unutilised deposit where the assessee died before the stipulated period expired.
432. Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee
1. Under sections 54, 54B, 54D, 54F and 54G of the Income-tax Act, 1961, capital gain is not chargeable to tax if the amount of capital gain or net consideration has been utilised for specified purposes by the assessee within the stipulated period laid down in the relevant section. These provisions also provide for the deposit in specified Banks, etc., of the amount of capital gain which is not utilised by the assessee for the acquisition of new assets before the date of furnishing the return of income under section 139(1). The amount of capital gain already utilised for the acquisition/construction of new asset together with amount deposited is deemed to be the cost of new asset and, consequently, this amount is not chargeable to capital gain in the year of transfer of asset. The provisions of sections 54, 54B, 54D, 54F and 54G further provide that if the amount deposited is not utilised wholly or partly for the prescribed purposes, within the period specified, the amount not so utilised shall be charged under section 45 as the income of the financial year in which the period of two/three years (as prescribed in the relevant section) from the date of transfer of the original asset expires.
2. A question has been raised regarding the taxability of the unutilised deposit amount in the case of an individual who dies before the expiry of the stipulated period.
3. The matter has been considered by the Board and it is clarified that in such cases the said amount cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.
Circular : No. 743, dated 6-5-1996.
In the assessment of a deceased person through legal heirs where the Assessing Officer proposes to bring the balance in the capital gains account to tax.
Source: the Income Tax Department’s own published text — its page for this instrument.
