1. Facts of the Case
- The assessee is a senior citizen who owned a house property purchased in the year 1967.
- He made substantial investments towards extension and improvement of the property in 1983.
- In the year 2006, the assessee sold the house for Rs. 56 lakhs.
- After applying indexation benefits, the long-term capital gain was calculated as Rs. 49.80 lakhs.
- To claim exemption under Section 54 of the Income Tax Act, 1961, the assessee deposited the capital gain amount in a Capital Gains Account Scheme (CGAS) with SBI, with a lock-in period of three years.
- However, the assessee did not utilize the amount for either purchasing or constructing a residential house within the time limit prescribed under the Act.
2. Issues in the Case (Questions)
- Can the assessee withdraw the unutilized amount deposited under the Capital Gains Account Scheme after the expiry of the lock-in period?
- Will the assessee still be eligible for exemption under Section 54 if the amount is not used for the purchase or construction of a new house?
- Is the unutilized amount taxable, and if so, in which year does the tax liability arise?
- What is the prescribed procedure for withdrawal of the deposit after the lock-in period?
3. Legal Principles Covered to Support Case Proceedings and Judgements
Section 54 of the Income Tax Act, 1961
- Section 54 provides exemption on capital gains arising from the transfer of a long-term residential house property, if the capital gain is reinvested in:
- Purchase of another residential house property within one year before or two years after the date of transfer, or
- Construction of a residential house within three years from the date of transfer.
- If the reinvestment is not made before the due date for filing the return of income under Section 139, the amount of capital gain must be deposited in a Capital Gains Account Scheme with an authorized bank.
Unutilized Deposit Under Section 54(2)
- If the amount deposited in the Capital Gains Account Scheme is not utilized for the purchase or construction of a house within the specified period, the unutilized amount will be treated as long-term capital gain of the previous year in which the period of three years expires.
Capital Gains Account Scheme (CGAS) Withdrawal Procedure
- The assessee may withdraw the amount by submitting Form G to the concerned bank.
- For closure of the account after the expiry of the time limit, approval from the Assessing Officer may be required.
- The bank will release the funds based on CGAS guidelines and notify the Income Tax Department if necessary.
4. Possible Judgement
The assessee can legally withdraw the deposit from the Capital Gains Account Scheme after the maturity of the deposit by following the prescribed procedure, including submission of Form G and necessary approvals, if required.
However, since the assessee did not utilize the amount for purchasing or constructing a new house within the time limit specified under Section 54, the exemption claimed earlier is no longer valid. The entire unutilized deposit amount will be considered as long-term capital gain and will be taxable in the previous year in which the three-year investment period expired. In this case, it would be taxable in the financial year 2008–09, relevant to the assessment year 2009–10.
