The exemption would be available to the following extent:

Query

Will reinvestment in more than one residential house qualify for exemption under Section 54?

Reply

Section 54 refers to reinvestment in "a" residential house. Experts have expressed contrary on whether reinvestment in more than one house will qualify for the exemption. The Bombay Bench of the Tribunal, in K. G. Vyas vs 7th ITO (1986 16 ITD 195), had held that the assessee was entitled to the exemption in respect of reinvestment in more than one flat. Recently, however, the Mumbai Bench of the Tibunal, in Mrs Gulshanbanoo R. Mukhi vs JCIT (2002 83 ITD 649), held that the statute unambiguously provides for an exemption only in respect of one residential house and not many.

Query

Can I sell an asset other than a residential house and reinvest in a residential house and claim any exemption?

Reply

An exemption is available under Section 54F in such circumstances provided the following conditions are fulfilled:

The assessee is an individual or HUF;

The gain arises from the transfer of a long-term capital asset not being a residential house;

The assessee does not within two years purchase, or within three years construct, any residential house other than the new house; and

The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be on the following basis:

Query

For exemption under Sections 54 and 54F, there is time available to make the reinvestment. Until such time, can the assessee hold the money and make the reinvestment later, say, after one-and-a-half years?

Reply

For claiming exemption under Sections 54 or 54F, the new residential house should have been purchased within a year before or two years after the date of transfer, or the construction of the new residential house should have been completed before the expiry of three years from the date of transfer of the capital asset.

For claiming the exemption, the amount not invested towards purchase of the new asset within a year before the date of transfer or which is not utilised for the purchase or construction of the new asset before the due date for furnishing the return of income for the relevant assessment year may be deposited before the due date for furnishing the return of income, in any bank or institution in a specified account known as "Capital Gains Account Scheme".

The proof of having so invested the same should be furnished along with the return of income and if this is done, this amount invested will be deemed to have been utilised for the purpose of purchase or construction of the new asset.

The amount so invested may be withdrawn for the purchase or construction of the new asset within the specified time. If within three years from the date of transfer of the original asset, the money so invested is not utilised for investment in the new asset, the same shall be treated as income of the year in which the three-year period from the date of transfer of the original asset expires.

Query

If a person who invested in the capital gains account scheme dies and if the money is drawn by the legal heirs from the said scheme, how is it taxable?

Reply

The unutilised deposit withdrawn by the legal heirs from the said scheme will not be taxable either in the hands of the deceased or in the hands of the legal heirs. In the hands of the legal heirs, the deposit does not partake the character of income; it is only part of the estate devolving on them (Circular No 743 dated May 6, 1996).

Query

Will reinvestment in land on which a building is to be constructed also qualify for the exemption under Section 54 and 54F?

Reply

If the amount of capital gain (for the purposes of Section 54) or the net consideration (for the purposes of Section 54F) is used for purchasing a plot and also towards construction of a residential house thereon, the aggregate cost should be taken for determining the quantum of exemption under Section 54 and 54F.

To enjoy this benefit, the acquisition of the plot and also the construction thereon should be completed within the period specified in the sections. In this connection, reference may be made to Circular No 667 of October 18, 1993.

Query

Other than in a residential house, are there any other forms of investment that can be made to claim capital gains exemption?

Reply

Exemption may also be claimed by reinvestment under Sections 54EC and 54ED.The exemption under Section 54EC is available subject to satisfying the following conditions: The asset transferred is a long-term capital asset; the investment is in bonds of Nabard, National Highway Authority of India, Rural Electrification Corporation, National Housing Bank or SIDBI; and the bonds are redeemed after a period of three years.

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