[Section 54H]: Extension of Time for Acquiring New Asset or Depositing or Investing Amount of Capital Gain, in case of Compulsory Acquisition

Here we analyze Section 54H under Capital Gains towards Extension of Time for Acquiring New Assets or Depositing or Investing Amount of Capital Gains, in case of Compulsory Acquisition by Law.

There may be a time lag between the previous year in which the asset is compulsorily acquired aid the previous year in which the compensation is actually received.

As per section 54H, the period for acquiring the new asset by the assessee referred to in sections 54, 54B, 54D, 54EC and 54F (i.e., six months, one year before or two/three years after the date of transfer of the asset) shall be reckoned from the date of receipt of such compensation and not from the date on which the asset was originally transferred.

In the case of compulsory acquisition, the ‘transfer’ takes place in the year in which the asset is compulsorily acquired by law, but the capital gain arises in the previous year in which the part/full amount of compensation is received.

Analysis of the above provisions and the provisions discussed for compulsory acquisition earlier would reveal the following:

(a)        the transfer takes place in the year of compulsory acquisition. Therefore, indexation will be done till the year of compulsory acquisition;

(b)        the capital gain will, however, arise in the previous year in which the part/full compensation is received;

(c)        the period for investment in the specified new asset u/ss 54, 54B, 54D, 54EC and 54F or under capital gain scheme, wherever applicable will begin from the date when the compensation is received. If such a compensation is received in instalments, the period for investment in the specified asset/deposit in capital gain scheme will be considered for each instalment separately, although the entire capital gain will arise in the previous year in which the first instalment is received;

(d)        similarly, if enhanced compensation is received, the period for investment shall be reckoned from the date the enhanced compensation is received. Where such enhanced compensation is received in instalments, the period for reinvestment shall be reckoned from the date each instalment of enhanced compensation is received.