[Opinion] Whether assessee is entitled to Sec. 54 deduction if investment made by date of filing of revised ITR?

Mukesh Kohli – [2022] 145 taxmann.com 81 (Article)

There is a dispute whether exemption under section 54 or 54F to be allowed in regard to the amount invested in purchase or construction of the Residential House till the date of filing of return of Income under section 139(1) or section 139(4) of the Income-tax Act, 1961.

Let us discuss the provisions of section 54 and section 139 and various case laws of this subject to get the answer

Section 54

Section 54 provides that long-term capital gains arising from transfer of a residential house is exempt from income-tax, if the amount of such capital gain is utilised to acquire/construct one residential house in India within specified period, subject to compliance of other conditions.

Conditions to claim exemption under section 54

Section 54 exemption is allowed to an individual or HUF from the long-term capital gains arising from transfer of capital asset, being residential house property. This exemption is allowed if following conditions are satisfied:

(a) The individual or HUF owns a long-term capital asset, being a residential house property or land appurtenant thereto.
(b) Such capital asset is transferred during the year.
(c) Long-term capital gains arise from transfer of such capital asset.
(d) The amount of capital gain is invested, by way of purchase or construction, in one residential house property.
(e) The purchase of new residential house should be made either within 1 year before the date of the transfer or within 2 years after the date of transfer of original capital asset.
(f) In case of construction, the new house should be constructed within 3 years after the date of transfer of old residential house.
(g) If the assessee has not utilized the capital gains by the due date of filing of return, then assessee should deposit the capital gains in Capital Gain Account Scheme.

If above conditions are satisfied, the quantum of exemption shall be the amount of long-term capital gains or aggregate of amount invested in new house property and amount deposited in Capital Gain Account scheme, whichever is lower.

Amendment made by the Finance Act, 2019

With effect from assessment year 2020-21, the Finance Act, 2019 has amended section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year. In other words, the assessee can exercise this option only once in his lifetime.

The benefit of new provision is allowed from assessment year 2020-21 and onwards.

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