Section 45 and 54F of the income tax Act, 1961 — Capital gains — It is very clear that if only a part of the amount deposited in the Capital Gains Account Scheme is utilized for the construction or purchase of a new asset within the specified time, income tax is chargeable on the unutilized amount.[2020] 53 ITCD 10 (KARN)
Facts : The appellant who is the writ petitioner, filed his return of income in respect of the assessment year 2016-17. A show-cause notice under sub-section (3) of Section 142 was issued to the appellant. The said show-cause notice was based on admitted facts. The appellant sold an immovable property held by him and out of the sale consideration received by him, he deposited a sum of Rs. 1,15,00,000/- in the Capital Gain Account Scheme, 1988. A return of income for the assessment year 2013-14 was filed on 14th July, 2013 by claiming exemption under Section 54F of the said Act. The appellant purchased a premises for the price of Rs.  21,32,470/- on 20th August, 2013 which was before the expiry of three years from the date of transfer of the capital assets. The notice which was the subject matter of challenge in the writ petition filed by the appellant was issued with a view to bring the unutilized capital gains to tax as per sub-section (4) of Section 54F. The effect of the impugned notice was that the unutilized amount (' 1,15,00,000/- minus
'  21,32,470/-) after the expiry of three years from the date of transfer of the original capital asset was proposed to be subjected to tax under Section 45. The learned Single Judge after consideration of the provisions of Sections 45 and 54F and in particular sub-section (4) of Section 54F held that the appellant was entitled to withdraw the amount deposited in the Capital Gains Account subject to deduction of tax applicable to the case in hand.
Held, that by virtue of sub-section (1) of Section 45, the amount deposited will be chargeable to income tax under the head 'Capital Gains' and shall be deemed to be income of the previous year in which the transfer took place. The proviso to sub-section (4) of Section 54F carves out an exception to sub-section (4) of Section 54F which deals with two contingencies - (i) where the amount deposited in Capital Gain Scheme Account is wholly utilized for the purchase or construction of a new asset within the period specified in sub-section (1) of Section 54F; and (ii) where only a part of the said amount is utilized for the purchase or construction of a new asset. The next part of the proviso itself lays down that when the amount deposited in the Scheme is utilized only partly for the purchase or construction of a new asset, the amount by which the amount of Capital Gains arising from the transfer of the original asset not charged under Section 45 on the basis of the cost of the new asset as provided in clause (a), or as the case may be, of clause (b) of sub-section (1), exceeds the amount that would not have been so charged, had the amount been actually utilized by the assessee for the purchase or construction of a new asset within the period specified in sub-section (1) of Section 54F been the cost of the new asset, shall be chargeable under Section 45 as income of the previous year in which the period of three years from the date of transfer of the original asset expires. Thus, it is very clear that if only a part of the amount deposited in the Capital Gains Account Scheme is utilized for the construction or purchase of a new asset within the specified time, income tax is chargeable on the unutilized amount. That is why the learned Single Judge, by the impugned order, has directed that the appellant is entitled for withdrawal of the amount deposited under sub-section (4) of Section 54F subject to deduction of tax applicable. There was no error in the view taken by the learned Single Judge as, on its plain reading, the interpretation of the proviso to sub-section (4) of Section 54F made by the learned Single Judge is correct. The writ appeal is accordingly dismissed.