Ambiguity cleared regarding investment of 'a residential house'

Capital gains exemption in case of investment in a residential house property

The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act.

The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.

The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. 

These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.

Summary of latest important tax caselaws

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX ACT

SECTION 11

CHARITABLE OR RELIGIOUS TRUST - EXEMPTION OF INCOME FROM PROPERTY HELD UNDER

Depreciation : In case of assessee, a charitable trust, before computing application of 85 per cent of income under section 11, Assessing Officer has to allow claim for depreciation if requisite conditions are satisfied as allowance of said claim does not result in granting double benefit to assessee-trust - Assistant Director of Income-tax (Exemptions) –IV v. Mohamed Sathak Trust (2014) 42 taxmann.com 278 (Chennai - Trib.)     SECTION 13 CHARITABLE OR RELIGIOUS TRUST - DENIAL OF EXEMPTION Repayment of money to trustee : Where assessee, a trust registered under section 12A, received money from trustees for carrying on of its activities and those monies had been repaid to them or to their nominees as and when funds were available with assessee-trust, there was no violation of section 13(1) (c) and, therefore, assessee's claim for exemption under section 11 was to be allowed - Assistant Director of Income-tax (Exemptions) –IV v. Mohamed Sathak Trust (2014) 42 taxmann.com 278 (Chennai - Trib.)       SECTION 54 CAPITAL GAINS – PROFIT ON SALE OF PROPERTY USED FOR RESIDENTIAL HOUSE Expression 'a residential house' used in section 54 doesn't refer to a single residential house; it permits use of plural - The assessee was not attempting to evade tax when instead of one big house, assessee chose to purchase two small residential houses (out of the sales consideration) for his two sons to avoid litigation or disharmony amongst brothers - Therefore, the assessee was entitled to exemption under sec. 54 in respect of acquisition of two residential houses - Commissioner of Income-tax v. Khoobchand M. Makhija (2014) 43 taxmann.com 143 (Karnataka)       SECTION 92C TRANSFER PRICING - COMPUTATION OF ARM’S LENGTH PRICE Geographical location of market is of no consequence in judging comparability of an uncontrolled transaction under CUP method, unless market condition in which uncontrolled transactions have taken place are materially different - Held, Yes - No TP adjustment to be made on account of single transaction and unsecured loan extended to foreign subsidiary, on the reasoning that the subsidiary is under management and control of the lender-parent company, and the business risk is much lower - Bharti Airtel Ltd. v. Additional Commissioner of Income-tax (2014) 43 taxmann.com 50 (Delhi - Trib.)       SECTION 194H DEDUCTION OF TAX AT SOURCE - COMMISSION OR BROKERAGE ETC. Discount : Where Treasury Department sold stamp papers to stamp vendor and latter received certain amount from Treasury Department in lieu of subsequent sale of stamp papers to individuals, stamp vendor could not be treated as agent of Treasury Department and TDS was not liable to be deducted on above payment - Roorkee Stamp Vendor Association v. State of Uttarakhand (2014) 42 taxmann.com 271 (Uttarakhand)