CAN A TAXPAYER CLAIM EXEMPTION UNDER BOTH SECTION 54 AND SECTION 54F BY INVESTING IN A SINGLE NEW HOUSE
The assessee has challenged the denial of exemption claimed under section 54 of the Act by the lower authorities on the ground that the assessee cannot claim exemption both under section 54 and 54F for investment in the same house.
Sec. 54 provides for exemption when the asset transferred is a residential house property whereas sec. 54F applies when the asset transferred is an asset other than a residential house property. However, both the sections require investment in a new house.
The assessee contended that section 54 and 54F are independent provisions and are not mutually exclusive.
It was submitted, neither sec. 54 and 54F nor any other provision of the Act restrict the assessee from claiming exemption under both the aforesaid sections against investment in the same residential property.
It was submitted that the Act does not require that for claiming exemption under section 54 and 54F of the Act, the assessee has to invest in two separate houses.
the facts are, the assessee is an individual. During the assessment proceeding the AO noticed that the assessee during the relevant financial year has transferred land to a developer under a development agreement and has earned long term capital gain of Rs. 49,19,513.
The assessee has also sold a house along with land and earned long term capital gain of Rs. 44,05,302. Assessee had claimed the entire amount of long term capital gain of Rs. 93,24,815/- exempt under section 54 and 54F of the Act towards investment in a new house at Sagar Society, Banjara Hills, Hyderabad which was purchased for a total price of Rs. 1,43,26,665.
The AO on interpreting sec. 54 and 54F came to a conclusion that for claiming exemptions under both the sections i.e., 54 and 54F, the assessee has to invest in two houses.
On the aforesaid basis the AO disallowed exemption claimed under section 54 of the Act and added back an amount of Rs. 44,05,302/- to the total income.
The court Held that sec. 54 and 54F apply under different situations.
While sec. 54 applies to long term capital gain arising out of transfer of long term capital asset being a residential house, sec. 54F applies to long term capital gain arising out of transfer of any long term capital asset other than a residential house.
However the condition for availing exemption under both the sections is purchase or construction of a new residential house within the stipulated period. There is also no specific bar either under section 54 and 54F or any other provision of the Act prohibiting allowance of exemption under both the sections in case the conditions of the provisions are fulfilled.
In the facts of the present case, since long term capital gain arises from sale of two distinct and separate assets viz., residential house and plot of land and the assessee has invested the entire capital gain in purchase of a new residential house, in our view, he is entitled to claim exemption both under section 54 and 54F of the Act.
We therefore direct the AO to delete the addition of Rs. 44,05,302/-.
