Kerala High Court
Mrs. Sainaba Hamza Koya vs The Income Tax Officer on 16 September, 2025
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE ZIYAD RAHMAN A.A.
TUESDAY, THE 16TH DAY OF SEPTEMBER 2025 / 25TH BHADRA, 1947
WP(C) NO. 40744 OF 2024
PETITIONER/S:
MRS. SAINABA HAMZA KOYA,
AGED 67 YEARS
PRASHANTHAM, S.A. ROAD, MANORAMA JUNCTION, KOCHI M.G.
ROAD S.O., ERNAKULAM, PIN - 682016
BY ADVS.
SHRI.AKHIL SURESH
SMT.KALLIYANI KRISHNA B.
SHRI.AMRITH M.J.
SMT.ISABELL MANOJ
SHRI.RAHUL T.
RESPONDENT/S:
1 THE INCOME TAX OFFICER,
CENTRAL REVENUE BUILDING, IS PRESS ROAD, KOCHI, KERALA,
PIN - 682018
2 STATE BANK OF INDIA,
ERNAKULAM SOUTH, MANORAMA JUNCTION, SA ROAD, PANAMPILLY
NAGAR, ERNAKULAM, PIN - 682036
R1 BY ADV. CYRIAC TOM
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
17.06.2025, THE COURT ON 16.09.2025 DELIVERED THE FOLLOWING:
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WP(C) No.40744 OF 2024 2
JUDGMENT
The petitioner, a widow and senior citizen, has
approached this Court, being aggrieved by the denial of
permission to her, by the 1 st respondent, to close a Capital Gain
SB Account maintained by the petitioner, with the 2 nd
respondent-Bank, and to release the amounts in the said
account.
2. The facts that led to the filing of this writ petition are
as follows:
A property having an extent of 4.04 Ares in Survey
No.42/13/A/2 Edappally North Village, in Ernakulam District, was
acquired by the petitioner by way of a gift deed dated 2.3.2020,
executed by the brother of the petitioner. Subsequently, the
petitioner sold a portion of the said property having an extent of
2.02 Ares, to one M.H. Abdul Jamal for a sale consideration of
Rs.39,60,000/- as per document No.839/20 dated 13.3.2020 of
SRO, Edappally. Thereafter, the remaining portion of the
property was also sold to the same purchaser on 26.6.2020 for a
consideration of Rs.43,64,000/-. Ext.P1 and P2 are the deeds
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evidencing the same.
3. On 6.3.2020, the petitioner opened a Capital Gain SB
Account with the 2nd respondent-Bank and on 14.03.2020, she
deposited an amount of Rs.39,60,000/- which is the sale
consideration of the 1st transfer, which comes within the financial
year 2019-2020. Similarly, Rs.43,64,000/-, which is the sale
consideration of the second transfer, was also remitted on
3.7.2020 which comes within the financial year, 2020-2021.
4. The aforesaid deposits were made by the petitioner
for getting the benefit of exemption of tax from capital gain, as
contemplated under Section 54F of the Income Tax Act, 1961, as
the petitioner wanted to construct a new case within three years
of the sale of the landed properties. According to the petitioner,
she spent an amount equal to Rs.39,60,000/- for constructing a
residential property at Edappally. However, the construction was
affected without withdrawing the amounts in the Capital Gain SB
account and by borrowing the funds from her daughter and
son-in-law. To be precise, the petitioner intended to utilize the
money deposited with the 2nd respondent for repaying the debt
which she incurred for constructing the house within the period
of three years. As far as the deposit of Rs.43,64,000/-, which is
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the sale consideration of the 2 nd transfer is concerned, the
petitioner did not claim the benefit and the tax in respect of the
same was paid in the financial year 2021-2022 on capital gains.
5. Later, on 20.06.2023, the petitioner submitted two
letters, which are produced as Ext.P4, before the 1 st respondent,
requesting for permission to submit G forms for the closure of the
said Capital Gain account and to release the entire amount to the
petitioner. In response to the same, a notice dated 27.6.2023
was issued by the 1st respondent, requiring the petitioner to
produce certain details on or before 6.7.2023, which was replied
to by the petitioner, seeking an adjournment to the second week
of August, 2023. Thereafter, Ext.P6 letter was issued by the 1 st
respondent, rejecting the request placed by the petitioner, taking
note of the fact that, the petitioner failed to submit the return
for the assessment yea, 2020-2021 and also citing the following
reasons:
"(i) There are no supporting evidence for the deductions claimed from
Gross Sales Consideration to compute Net consideration for both the
assessment years.
(ii) Your claim for cost of acquisition was by adopting notional value,
which is baseless and accordingly not admissible.
(iii) Your claim for deduction u/s.54F of the Act for the A Y 2020-21
was not made through a return of income filed for the year.
(iv). Your have not utilized the amounts deposited under Capital Gains
Account Scheme, 1988 for acquisition or construction of a new
residential house within the stipulated time limits of 3 years from the
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date of transfer of original assets as stipulated under the provisions of
section 54F of the Act. Spot equiry conducted in your case on
19.10.2023 revealed that the construction of the building as per
building permit No.GYP3/104/5716/22 dated 29.11.2022, which is
claimed by you as investment in new asset, has not ye been completed.
(v) Amounts claimed by you as invested into construction of new
residential building were paid prior to the date of issue of construction
permit by the Local Government authorities.
(vi) Amounts claimed by you as invested into construction of new
residential building were not paid from your bank account, but from the
bank account of another person and accordingly cannot be considered
as your investment in new residential asset"
6. In the said communication, the tax liability of the
petitioner was determined as Rs 8,51,482/- and Rs.7,69,693/-
pertaining to the assessment year, 2021-2022 and 2020-2021
respectively. As against Ext.P6, Ext.P7 objection was submitted
by the petitioner, disputing the rejection of the request made by
the petitioner and the determination of the tax liability by the 1 st
respondent. This writ petition is submitted by the petitioner in
such circumstances seeking the following reliefs:
"(i) To Quash Exhibit P-6 letter dated 27.10.2023 of the 1 st
respondent which states that the funds in Capital Gain SB A/c
39196518292 will be blocked till payment of alleged assessed
amount.
(ii) Issue a suitable writ, order, or direction in the nature of
mandamus commanding the 2nd respondent to refund the entire
amount lying in Capital Gain SB A/c 39196518292 amounting to
Rs.83,24,000/- (Rs.39,60,000/-+Rs.43,64,000/-)
(iii) To issue such other writs, orders, or direction which this
Hon'ble Court may deem fit and proper to issue in the facts and
circumstances of the case."
7. A statement was submitted on behalf of the 1 st
respondent, wherein, the respondents incorporated averments to
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support of the views taken in Ext.P6. It was also mentioned in the
said statement that, the construction of the petitioner's building
has not been completed yet and that, the construction so far
conducted were made from the funds which were not drawn from
the accounts of the petitioner. Therefore, it was contended that,
the petitioner failed to construct the building by utilizing her own
funds, within the period of three years from the date of transfer
of the property, which is a mandatory requirement for availing
the benefits of exemption contemplated under section 54F of the
Income Tax Act.
8. I have heard Sri. Akhil Suresh, the learned
counsel appearing for the petitioner and Sri Cyriac Tom, the
learned counsel appearing for the 1st respondent.
9. The learned counsel for the petitioner
vehemently contended that, the reasons mentioned in Ext.P6 for
rejecting the request for closing the capital gain account and to
release the entire amounts to the petitioner, are not legally
sustainable. It is also the contention of the learned counsel for
the petitioner that, the applications submitted by the petitioner
as per Ext.P4, were only to grant permission to close account, as
the Capital Gains Account Scheme 1988, envisages such
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permission. However, as per Ext.P6, the 1 st respondent converted
the same, into an assessment proceedings, which was not at all
permissible. It was also pointed out that, as of now, proceedings
of assessment under Section 148 or under Section 143 of the Act
are not initiated against the petitioner for the relevant
assessment years and therefore under no circumstances Ext.P6,
where the tax liability of the petitioner was determined, can be
treated as a legally sustainable order. The learned counsel also
placed reliance upon the decision rendered by High Court of
Gujarat in Rashesh Shirish Sanjanwala v. Assistant
Commissioner of Income Tax [MANU/GJ/2520/2021] and also
referred to two orders passed by the Income Tax Appellate
Tribunal, Chennai in Seetha Subramanian v. Assistant
Commissioner of Income Tax [MANU/IM/0246/1996] and yet
another decision of the said Tribunal in Shri Puranchand and
Family (HUF) v. The Income Tax Officer [ITA
No.2974/Mds/2016].
10. On the other hand, learned Standing counsel stoutly
opposed the contentions raised by the learned Standing Counsel
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for the 1st respondent by pointing out that, Ext.P6 was issued for
justifiable reasons, which are specifically mentioned therein and
also in the statements submitted on behalf of the 1 st respondent.
11. Thus, the question that arises for consideration is
with regard to the sustainability of Ext.P6 issued by the 1 st
respondent, by which, the request for closure of the Capital Gain
SB Account of the petitioner was rejected. Section 54F is the
relevant provision under which, the claim of exemption from
capital gains tax was sought by the petitioner. The said provision
reads as follows:
"54F. (1) Subject to the provisions of sub-section (4), where
in the case of an assessee being an individual or a Hindu
undivided family, the capital gain arises from the transfer of
any long-term capital asset, not being a residential house
(hereafter in this section referred to as the original asset),
and the assessee has, within a period of one year before or
[two years] after the date on which the transfer took place
purchased, or has within a period of three years after that
date constructed, one residential house in India (hereafter
in this section referred to as the new asset), the capital
gain shall be dealt with in accordance with the following
provisions of this section, that is tosay,--
(a) if the cost of the new asset is not less than the net
consideration in respect of the original asset, the whole of
such capital gain shall not be charged under section 45;
(b) if the cost of the new asset is less than the net
consideration in respect of the original asset, so much of
the capital gain as bears to the whole of the capital gain the
same proportion as the cost of the new asset bears to the
net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall
applywhere-
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(a)theassessee,--
(i) owns more than one residential house, other than the
new-asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new
asset, within a period of one year after the date
of transfer of the original asset; or
(iii) constructs any residential house, other than the
new asset, within a period of three years after the
date of transfer of the original asset; and
(b) the income from such residential house, other than the
one residential house owned on the date of transfer of the
original asset, is chargeable under the head 'Income from
houseproperty'.
Explanation.--For the purposes of this section,--
'net consideration', in relation to the transfer of a capital
asset, means the full value of the consideration received or
accruing as a result of the transfer of the capital asset as
reduced by any expenditure incurred wholly and exclusively
in connection with such transfer.
(2) Where the assessee purchases, within the period of two
years after the date of the transfer of the original asset, or
constructs, within the period of three years after such date,
any residential house, the income from which is chargeable
under the head 'Income from house property', other than the
new asset, the amount of capital gain arising from the
transfer of the original asset not charged under section 45
on the basis of the cost of such new asset as provided in
clause (a), or, as the case may be, clause (b), of sub-section
(1), shall be deemed to be income chargeable under the
head 'Capital gains' relating to long-term capital assets of
the previous year in which such residential house is
purchased or constructed.
(3) Where the new asset is transferred within a period of
three years from the date of its purchase or, as the case
may be, its construction, the amount of capital gain arising
from the transfer of the original asset not charged under
section 45 on the basis of the cost of such new asset as
provided in clause (a) or, as the case may be, clause (b), of
sub-section (1) shall be deemed to be income chargeable
under the head 'Capital gains' relating to long-term capital
assets of the previous year in which such new asset is
transferred.
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(4) The amount of the net consideration which is not
appropriated by the assessee towards the purchase of the
new asset made within one year before the date on which the
transfer of the original asset took place, or which is not
utilised by him for the purchase or construction of the new
asset before the date of furnishing the return of income
under section 139, shall be deposited by him before
furnishing such return such deposit being made in any case
not later than the due date applicable in the case of the
assessee for furnishing the return of income under sub-
section (1) of section 139 in an account in any such bank or
institution as may be specified in, and utilised in accordance
with, any scheme which the Central Government may, by
notification in the Official Gazette, frame in this behalf and
such return shall be accompanied by proof of such deposit;
and, for the purposes of sub-section (1), the amount, if any,
already utilised by the assessee for the purchase or
construction of the new asset together with the amount so
deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section
is not utilised wholly or partly for the purchase or
construction of the new asset within the period specified in
sub-section (1), then,--
(i) the amount by which--
(a) the amount of capital gain arising from the transfer of the
original asset not charged under section 45 on the basis of
the cost of the new asset as provided in clause (a) or, as the
case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have been so charged had the
amount actually utilised by the assessee for the purchase or
construction of the new asset within the period specified in
sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the previous
year in which the period of three years from the date of the
transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw the unutilized
amount in accordance with the scheme aforesaid."
12. From the above, it is clear that, one of the
essential requirements for claiming the benefit under the said
provision is that, the amount acquired by the Assessee from the
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transfer of the property must have been utilised within a period
of one year before or within two years after the date on which
the transfer took place, for purchasing one residential building,
or the said amounts must have been utilised for constructing a
residential building within three years from the date of the said
transfer. In this case, the case of the petitioner is that, the
petitioner had utilised the funds generated from the transfer of
her property, within the period of three years from the date of
such transfer, for the purpose of construction of a residential
building for her at Edappally. According to her, the construction
was completed by using the funds borrowed by her from her
daughter and son-in-law, and she wants to repay the debt by
utilizing the amounts in the said property. In short, the case of
the petitioner is that the construction was made by her, utilizing
the borrowed funds with an intend to appropriate the amounts
lying in the deposit for repaying the same. However, the said
contentions are rejected by the 1 st respondent as per Ext.P6 and
it was found that, the petitioner failed to utilise any amount from
the funds she received from the transfer of her property. There is
also a finding that, the construction itself was not completed
within the time as claimed by the petitioner.
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13. The specific contention raised by the petitioner is
that, as per the stipulations contained in Section 54F, it is not
necessary that, the construction should be carried out only with
the funds generated by way of transfer of property, which is the
subject matter of assessment for capital gains. According to the
petitioner, purchasing or constructing the residential building, by
utilising the funds borrowed by the assessee and later
appropriating the funds from the transfer of property to those
transactions, are also permissible under Section 54F.
To substantiate the said point, the petitioner relied on the orders
passed by the Income Tax Appellate Tribunal which are referred
to above.
14. After carefully examining the statutory
stipulations in Section 54F, I have no reason to reject the said
contention as such. Section 54F does not prohibit such an
exercise and therefore, nothing would preclude the assessee
from arranging funds from other sources for fulfilling the
obligation of purchasing or constructing a residential building
within the period stipulated. The same is evident from the fact
that, in Section 54F, when it comes to the case of purchase of a
residential building, the time mentioned for utilisation of the
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amount, is one year before or two years after the date on which
the transfer took place. Thus, as the appropriation is permissible
in respect of the purchase even before one year preceding to the
date of transfer of the property from which the funds are
generated, it gives a clear indication as to the permission for
utilisation of the funds, as highlighted by the petitioner in this
case. Ofcourse, it is true that, in the case of construction, period
fixed is after three years from the date of transfer of property,
and adjustment of the amount spent prior to the transfer of
property is not contemplated. However, the permission granted
to appropriate the funds spent by the assessee within one year
before the transfer of property, in the case of the purchase of the
residential building, clearly conveys the scheme envisaged in
section 54F, where, such adjustment is permitted.
15. However, merely because of that reason, the
contentions raised by the learned counsel for the petitioner
cannot be accepted. This is because, even in a case where, the
residential building was purchased, or it was constructed utilising
the borrowed funds or funds from other sources, there is an
obligation on the part of the Assessee to satisfy the authorities
that, the funds were spent by the assessee either through
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borrowing or arranging from other sources at his/her own risks
and costs, in anticipation of or with an intention to appropriate
the income to be subjected to capital gain tax, for such purchase
or construction. For the said purpose, materials will have to be
produced before the appropriate Authority and such Authority
has to scrutinize such materials, for arriving at the conclusion
that, the petitioner established the link between the utilisation of
the income to be subjected to tax, and the purchase or
construction of residential building, as the case may be.
Therefore, mere claim of the petitioner by itself is not sufficient,
but what is relevant is the satisfaction of the appropriate
authority that the petitioner had indeed utilised the funds, which
are otherwise subject to tax, for the purposes referred to Section
54F of the Income Tax Act.
16. In this case, after going through the materials
placed by the petitioner, the 1 st respondent was not convinced
that, the petitioner had utilised the income for the purposes
mentioned in the said provision and therefore the request of the
petitioner to close the account and release the amount, was
rejected. It is true that, the adjudication with regard to the tax
liability of the petitioner or the entitlement of the petitioner
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under Section54F of the Act, can be conducted only in a
proceeding of assessment of the Income Tax Act, either under
sections 143 or 148 thereof. It is also true that, as pointed out
by the learned counsel for the petitioner, as of now, no such
proceedings are initiated at the instance of the Department.
However, it is to be noted in this regard that, as per Section
54F(4) of the Act, in case, the Assessee fails to comply with the
conditions stipulated in Section 54F, within the period specified,
such income shall be charged under Section 45, as the income of
the previous year in which, the period of three years from the
date of the transfer of the original Assessee expires. Therefore,
it is a matter to be finally decided in an assessment proceeding
pertaining to the Assessment year, as mentioned above, which is
yet to take place.
17. As far as the findings entered into by the 1 st
respondent in Ext.P6 is concerned, the same cannot be treated
as a conclusive findings, but instead the same will have the
impact of a prima facie finding only, entered into, for the purpose
of deciding whether the permission for closing the account and
releasing the amount is to be granted or not. To be precise,
while entering into the findings in Ext.P6, and determining the
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tax liability of the petitioner for the relevant years, the 1 st
respondent was only ensuring that, the petitioner is not getting
away with the amount by evading the tax liability, after claiming
the benefit of Section 54F, without complying with the mandatory
requirements under the said provision. In other words, it was
only to protect the interest of the Revenue, such a determination
was made, which can only be treated as a prima facie finding,
until a proper adjudication with regard to the claims of the
petitioner is made, by way of assessment proceedings. In this
regard, it is also to be noted that, as far as Rs.39,60,000/- is
concerned, the petitioner failed to submit return for the relevant
assessment year, during which such transaction took place. By
virtue of stipulations in Section 54F (4), in case of non
compliance of the conditions in the said provision, an assessment
has to be made by treating it as the income of the petitioner for
the previous year in which the period of three years from the
date of the transfer of the original asset expired.
18. Since I have already found that, the finding in
Ext.P6 are only prima facie finding and not final, it is not
necessary to go into the sustainability of the findings at this
stage of the proceedings, that too, in a writ proceeding. The said
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question has to be finally decided by the competent authority in
appropriate assessment proceedings, after complying with the
principles of natural justice and after examining the contentions
raised and the documents already produced and to be produced
by the petitioner. In this regard, it is to be noted that, going by
the Capital Gains Accounts Scheme, 1988, a specific stipulation
has been made insisting the permission of the Assessing Officer,
for closing the account and releasing the amount. Evidently, such
stipulation was made, with the purpose of ensuring that, such
accounts are not closed, without fulfilling the conditions to be
complied with for availing the exemption from payment of
Capital Gain Tax under the relevant provision. Thus, when it was
made obligatory for the Assessee to get permission of the Officer
concerned, it clearly implies that, such officer has a duty to
ensure that, the necessary conditions are prima facie satisfied by
the Assessee before permission is granted for closure of the
account. Any other interpretation for the relevant provisions that
provide for such insistence, would destroy or defeat the purpose
for which the prior permission of the Officer is envisaged, for
closure of account and releasing the amount.
19. In such circumstances, I do not find any
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necessity to interfere with Ext.P6, as far as the findings entered
into therein is concerned. However, it is to be clarified that, those
findings are only prima facie and not final. One important aspect
to be noticed in this regard is that, as per Ext.P6, the request for
the petitioner as such is declined after determining the tax
liability, of course, as a preliminary finding, as observed above.
Therefore, to that extent, some interference is required. Since
the liability of the petitioner already determined, and it is also
evident that such tax liability along with the interest and other
charges are lesser than the amount lying in the Capital Gain SB
Account of the petitioner, it was not proper to reject the request
as a whole. On the other hand, the petitioner should have been
permitted to withdraw the excess amount, if any, in the deposit,
after retaining the amounts payable by the petitioner towards
the Revenue, by way of tax and other incidental liabilities.
In such circumstances, this writ petition is disposed of
directing the 1st respondent to grant permission to the petitioner to
release the balance amount, if any, in the Capital Gain SB Account
maintained by the petitioner with the 2 nd respondent-Bank, after
retaining the amounts equivalent to the liability of the petitioner
pertaining to the relevant assessment years referred to in Ext.P6.
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Necessary orders in this regard shall be passed within a period of
one month from the date of receipt of copy of this judgment. It is
clarified that, the findings in Ext.P6 are only prima facie in nature
and the same have to be finalized in a proceeding of assessment
to be conducted, if permissible. In case, such an assessment
proceedings are not initiated within a reasonable time as
stipulated in the statute or if initiation of such proceedings are
impossible as of now, it shall be open for the petitioner to invoke
the remedies under law, to seek release of the amount retained
in the account as per the directions issued in this judgment.
Sd/-
ZIYAD RAHMAN A.A.
JUDGE
pkk
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APPENDIX OF WP(C) 40744/2024
PETITIONER EXHIBITS
EXHIBIT P-1 TRUE COPY OF THE SALE AGREEMENT DATED
13.03.2020
EXHIBIT - P3 A TRUE COPY OF THE A/C STATEMENT OF CAPITAL
GAIN SB A/C 39196518292
EXHIBIT P-2 TRUE COPY OF THE SALE AGREEMENT DATED
26.06.2020
EXHIBIT — P3. A TRUE COPY OF THE A/C STATEMENT OF CAPITAL
GAIN SB A/C 39196518292
EXHIBIT — P4 TRUE COPY OF LETTERS ALONG WITH FORM G
DATED 20.06.2023
EXHIBIT P-5. A TRUE COPY OF LETTER DATED 27.06.2023
EXHIBIT- P-6. A TRUE COPY OF THE LETTER DATED 27.10.2023
EXHIBIT P-7. A TRUE COPY OF THE LETTER DATED 14.02.2024
