The Hindu : Business : Relief u/s 54 in the case of development agreement

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Monday, Apr 26, 2004

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Relief u/s 54 in the case of development agreement

QUESTION: I had entrusted development of my residential property for construction of a multi-storeyed building. The agreement provided for payment partly in cash and partly by a flat to be built. Since I had handed over possession to the developer I had presumably become liable for capital gains tax on the date of possession as advised by my auditor and had also taken credit for the reinvestment benefit under Section 54 for the flat to be constructed. But the developer was unable to complete the same within three years. Should I lose exemption?

ANSWER: Sec. 54 requires that if the sale proceeds are utilised either in purchase or construction of residential property, purchase has to be made either one year before or two years after the date of transfer. If it is construction, it has to be completed within three years of the date of transfer. If it could not be done within the due date of filing return for the year of transfer, it has to be deposited under the Capital Gains Account Scheme in a specified branch of a bank and utilised therefrom within the period. Where the construction is entrusted with the developer, the question of investment in capital gains account scheme would not arise, because handing over of possession without paying for the construction, would mean utilisation of sale proceeds. But the condition as regards completion of construction would not be satisfied, if the constructed plot is not handed over within three years of the date of transfer.

Incomplete construction will be excusable, if the residential house is in a position to be lived in, even if some finishing work remains. Where even that has not been possible, Board had taken liberal view in Circular No. 471 dated October 15, 1986 (1986) 162 ITR (St.) 41 authorising the benefit, where a flat is purchased under self-financing scheme of Delhi Development Authority. This concession was extended by Circular No. 672 dated February 16, 1993 (1994) 205 ITR (St) 47 to houses/flats constructed by the co-operative societies under similar circumstances both for purposes of Sec. 54 and 54F. It follows, therefore, that this principle should be applicable even for schemes floated by promoters, if the development agreement is identical or substantially similar to those framed by Government agencies or co-operative societies, though the Circular has not stated so with the result that the assessing officers will not find it easy to accept the claim.

Probably, hope lies in such cases in seeking extension of time from the Board for complying with the requirements under Sec. 119(2)(ii), which enables the Board to authorise exemption, deduction, refund or any other relief under this Act after the expiry of the time limit specified by or under this Act for making such application and deal with the same on merits in accordance with law. Hence, the Board has got the power to relax the time limit, if it is convinced that the delay has occurred not due to the fault of the assessee but due to circumstances which are beyond him.

Exemption for 10-year treasury deposit scheme

Q: In your Tax Forum column dated January 26, 2004, you have stated that Treasury Savings Deposit Certificate (10 years) is exempted from income-tax under Sec. 10(15)(i) Chapter III.

At present in Kerala Government's `Treasury Savings Deposit Certificates' one can specify the duration including ten years. Monthly interest is payable on the same. But the Treasury Officials say that, even if the duration is ten years, it is not exempt from income tax. This certificate is named as Treasury Savings Deposit Certificate. I would appreciate if you could kindly clarify?

A: One of the securities notified for purposes of exemption of interest therefrom under Sec. 10(15)(i) is Treasury Savings Deposit Certificates (ten years).

It appears that Kerala Government Bonds with same title gives the option to the depositor as to the period of holding, so that exemption is not considered as admissible, even if it is held for more than ten years.

Where it is contributed for ten-year period even initially, the exemption should probably be available. The doubt is best got clarified from the Central Government. There is likely to be better response, if it is taken up by the State government.

PPF: how long can one continue as a member?

Q: I started my Public Provident Fund account in September 1978 completing 15 year in April 1994. Two block periods of five years are completed by April 2004.

Kindly advise me whether I can continue the account for another block period of five years? If it is not permissible, can I open a fresh account and transfer the same to new account?

A: A Public Provident Fund (PPF) account can be continued indefinitely. In order that one gets the benefit of rebate under Sec. 88(2)(iv) for contributions made to PPF, a taxpayer is expected to subscribe to the PPF account, which runs for a period of 15 years under sub-rule (3) of Rule 9, at the end of which the amount is liable to be returned under Rule 9 of the PPF Scheme, 1968.

But a sub rule (3A) of Rule 9 has been later introduced enabling extension for further period of five years, such extension being renewed every five years.

In the result the subscriber may at his option to be exercised before the expiry of the one year from the 15 year period or every extended block period of five years avail the benefit of continuation of membership of the PPF for a further block period of five years.

There is no limit for the number of blocks for which it could be continued. The Form in which such option has to be exercised is Form H.

Sub-rule (3B) provides for partial withdrawal at every extension of the balance standing to the credit of the subscriber at the commencement of the block period not exceeding 60 per cent of such balance under sub-rule (3A) of Rule 9.

Hence, it is not necessary for the reader to open a new account.

If he does so, he cannot transfer the entire balance in the old account, because of the limit for maximum contribution of Rs. 70,000 increased from Rs. 60,000 from November 15, 2002.

S. Rajaratnam

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