The Rajasthan High Court, Jaipur Bench has held that capital gains exemption is valid even if investment made before filing return under Section 139(4) of the Income Tax Act.
The bench of Justice K.S. Jhaveri and Justice Vijay Kumar Vyas has observed that a taxpayer is entitled to claim deductions under Sections 54B and 54F of the Income Tax Act, 1961, even if the investment in a new property is made before filing a belated return under Section 139(4), and not necessarily by the due date under Section 139(1).
The appellant/assessee, Shankar Lal Saini, sold two parcels of land in 2010–11 and claimed deductions of ₹1.6 crore under Section 54B (for purchase of agricultural land) and ₹52 lakh under Section 54F (for construction of a residential house). The Assessing Officer (AO) denied both claims, stating that Saini failed to deposit the capital gains in the Capital Gains Account Scheme before the due date for filing the return under Section 139(1), i.e., July 31, 2011.
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s view. However, the ITAT Jaipur reversed this decision, ruling that “Section 139” in Sections 54B(2) and 54F(4) includes both subsections (1) and (4), thus allowing the exemption if the investment is made before the extended due date for filing returns under Section 139(4).
The court observed that while prosecution provisions must be interpreted strictly, exemption provisions — meant to grant relief — should be read liberally.
The Court held that the purpose of Sections 54B and 54F is to promote reinvestment of capital gains, not to penalize procedural delays when the substantive conditions are fulfilled.
“While considering prosecution, provisions are to be strictly construed, whereas in the case of exemption and other benefits, they must be construed liberally. The Tribunal rightly followed the view of the Karnataka, Gauhati, and Punjab & Haryana High Courts. Hence, the issue is answered in favour of the assessee and against the department,” the court said.
The Court dismissed the appeal filed by the Income Tax Department and affirmed the ITAT’s decision allowing deductions of Rs. 1.6 crore under Section 54B and ₹52 lakh under Section 54F.
Case Details
Case Title: PCIT Versus Shri Shankar Lal Saini
Case No.: D.B. Income Tax Appeal No. 153 / 2017
Date: 19/12/2017
Counsel For Petitioner: Anuroop Singhi
Counsel For Respondent: Gunjan Pathak
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