MUMBAI: The Income-Tax Appellate Tribunal (ITAT) has held that a taxpayer can invest capital gains for the second or third time towards the same ‘new’ house property. Tax benefits cannot be denied on this ground, provided the cost of the new house is within capital gains that have arisen to the taxpayer.

ITAT also held that as the new property was under construction, it cannot be counted towards the number of houses already owned by the taxpayer.

Various provisions of the Income-Tax (I-T) Act grant a tax benefit, where long-term capital gains (LTCGs) arising out of a sale of certain assets are invested in acquiring a new house property. To the extent of investment in the new property, the taxable component of LTCGs is reduced, which results in lower I-T outgo. But if the taxpayer owns more than one house, other than the ‘new’ residential property, on the date of transfer of the original assets, the I-T benefit is not available.

It is not uncommon for taxpayers to sell more than one asset to buy a larger accommodation or to purchase one in a relatively more tony area. ITAT Delhi bench’s decision early this month will support I-T deduction claims of taxpayers.

“ITAT has rightly held that the new house was not complete, so it could not be regarded as a house already ‘owned’ by the taxpayer. Also, there is no bar on claim on exemption of more than one capital gain in respect of investment in one house, which ITAT upheld. The only aspect taxpayers need to keep in mind is meeting timelines for acquisition of the new house,” said Gautam Nayak, tax partner at CNK & Associates.

This case decided by ITAT relates to section 54F, which provides for I-T deduction where LTCGs arising from sale of non-residential property are invested to acquire a new house property. Tax experts said the same tenet will apply to section 54 too, which covers investment of LTCGs arising from sale of a residential property in another house property. LTCGs arise where property held for more than three years is sold for a profit.

Mohinder Kumar Jain, whose case was heard by ITAT, had sold five properties and invested the LTCGs, for construction of a house at Mehendi Farm. He claimed a deduction of Rs 1.59 crore under section 54F in his I-T returns for 2010-11.

The I-T official disputed this claim and said a deduction of Rs 47.84 lakh had been claimed earlier by Jain under section 54F for construction of the same house at Mehendi Farm. This claim had been allowed by the I-T authorities for 2008-09. The I-T official contended that on the date of sale of these five properties, Jain owned more than one residential house (at Vasant Vihar and the property under construction). Thus, he denied the I-T benefit that was sought by the taxpayer. When the dispute reached ITAT, it decided in favour of the taxpayer.

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