Queries on Capital Gains Account Scheme
Yesterday we have received few queries regarding capital gain utilization which we thought could also be useful for our readers. So here we are sharing those queries with replies and notifications for the same.
Query 1: What would be the consequences of non-utilization of amount deposited in Capital Gains Account Scheme within stipulated time period?
Reply: Under Section 54, 54B, 54D, 54F and 54G of the Income-Tax Act, 1961, capital gain is not chargeable to tax if the amount of capital gain or net consideration has been utilized for specified purposes by the assessee within stipulated time period laid down in the relevant section. These provisions also provide for the deposit in specified banks, etc. , of the amount of capital gain which is not utilized by by the assessee for the acquisition of new assets before the date of furnishing of return of income under section 139(1). The amount of capital gain already utilized for the acquisition or construction of new assets together with the amount deposited is deemed to be the cost of new asset and, consequently, this amount is not chargeable to gains in the year of transfer of asset.
The provisions of section 54, 54B, 54D, 54F and 54G further provide that if the amount deposited is not utilized wholly or partly for the prescribed purposes, within the period specified, the amount not so utilized shall be charged under section 45 as the income of the financial year in which the period of two/three years (as prescribed in the relevant section) from the date of transfer of the original asset expires.
Query 2: What would be taxability of unutilized deposit under the Capital Gains Account Scheme, 1988 in the hands of legal heirs of assess?
Reply: CBDT has clarified the above query vide Circular no. 743 dated 6.5.1996 by stating that in such cases the said amount cannot be taxed in the hands of deceased. This amount is not taxable in the hands of legal heirs also as the unutilized portion of the deposit does not partake the character of income of their hands but is only a part of the estate devolving upon them.
Query 3: What would happen if the amount of unutilized capital gain is not deposited in Capital Gains Account Scheme before due date prescribed under section 139(1)?
Reply: In section 54(2) two sections are mentioned viz. section 139 and section 139(1). It must be understood that there are two different sentences in which both these sections are referred. In the first sentence with reference to utilization of the amount section 139 is mentioned without mentioning any sub section. While in the second sentence with reference to deposition of amount in capital gain account, section 139(1) is specifically mentioned. Which means though nothing in deposited in capital gain account, exemption can be availed if the full amount of capital gain is utilized within time limit under section 139(4) as section 139 mentioned in the act for that purpose includes all subsections. However, if the amount is not actually utilized within the time limit, exemption can’t be claimed by depositing the amount after due date mentioned under section 139(1). If the assessee wants to deposit the amount in capital gain account, the deposition has to be within the time limit mentioned u/s 139(1). In case assessee fails to utilize the capital gain and to deposit the amount in Capital Gains Account Scheme before filing return of income under section 139(1), then he will be liable to pay tax on the capital gain.