Capital Gain Exemption 54 F :available if already have a house?

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A very interesting question recently received in comments .The answer to the comment may be useful for all the readers so I am publishing the comments received/given on the above subject.

qus: I also want to know if the exemption u/s 54F could be claimed if the assessee has existing residential property, other than the one which he is intending to buy. Section 54F relates to "a residential property" "A" includes many in judicial understanding.

But I want to know if there is any decided case law at high court / supreme court / any other valid circulars / notification that benefits the assessee in the above circumstances.


Ans:Relevant part of proviso to section 54 F is reproduced here under

" provided that noting contained in the sub section shall apply where
(a)the assessee
(i) owns more than one residential house other than the new assets on the date of the transfer of the original asset or
(ii)...................."

Clause (a) (i) to the proviso of section 54 F have been inserted by finance act 2000,and after this amendment person who owns a one house other than new house can also claim exemption of capital gain u/s 54 F.

So i thing "a residential House" clause does not apply in this section as there a word " one residential house" has been used.so In my opinion act is very mush clear and under section 54 F person can purchase/construct new house if he already has a one residential house on the date of transfer of the old long term capital asset.

qus:I yet to understand the view point.

Section 54 covers situation of residential property sold and residential property acquired Whereas Section 54F covers situation of other than residential property sold but residential property acquired,In our case, this vacant land and residential property being acquired.

Section 54 and Section 54F both uses, a residential house

Section 54 don't have any rider clause such as provided.Whereas section 54F has a rider clause
The clause for subsection 54F is reproduced.

" provided that noting contained in the sub section shall apply where

(a)the assessee
(i) owns more than one residential house other than the new assets on the date of the transfer of the original asset or
(ii)...................."

So from the above, it clearly says subsection 1 is not applicable when the condition following are applicable. And accordingly is it not clear that the exemption is not applicable for the present case where the assessee already has one property.?

Where do one infer that even if the assessee has one residential property can stand to benefit from this section?.

We may also note that, this rider clause is not there in section 54 and that is one reason that the assessee is entitled to claim exemption for reinvestment even if he has a residential house at that point.

Am i missing your point.?
regards
sathya

Ans:Before I can Give my comment on this issue ,I am giving what I have understood from your comment .

you want to say that section 54F is not very clear when the assessee already have one residential house on the date of transfer of long term asset other than the new house intended to be purchased.and hence doubtful when second house is being purchased.

But according to me the section is very much clear and proviso is applicable where third house is being purchased and exemption is available where second house is purchased to save the capital gain u/s 54 F and there is no need to follow case laws in this regard as the section is already clear .

As I have stated above earlier that amendment has been done in proviso to the section 54 F By finance which has been done to facilitate the person who already have one house other then the new house .Kindly have a look on memorandum t the new clause inserted by the finance act 2000 reproduced here under.

" Section 54F of the Income-tax Act exempts levy of tax on long-term capital gains arising from transfer of any long-term capital asset (not being a residential house), if invested in a residential house. There is, however, a stipulation that the above exemption cannot be availed of, if there is a house in existence on the date of transfer or if the person goes for a second house within the stipulated period. The above condition stands in the way of a large number of taxpayers from availing of the deduction under section 54F. The existing house may be a small house or a tenanted house which is difficult to sell in view of the stringent tenancy laws or a house which cannot be sold because of non-availability of buyers or slump in market prices. Therefore, it is proposed to amend section 54F of the Income-tax Act to provide that the deduction under this section may be available to an individual or Hindu undivided family as long as he has one and not more than one house existing on the date of transfer. Other conditions would remain the same. The proposed amendment will take effect from 1st day of April, 2001 and will, accordingly, apply to the assessment year 2001- 2002 and subsequent years."

The above memorandum is very much clear ,and I hope it will also resolve ur query .

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