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IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH : JAIPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND
SHRI N.K. SAINI, ACCOUNTANT MEMBER.
ITA No. 182/JP/2013
(A.Y. 2009-10)
Ram Prakash Miyan Bazaz, Vs. DCIT, Circle-6,
S-225, Mahaveer Nagar, Jaipur.
Tonk Road, Jaipur.
PAN No. ABHPP 9332 J
(Appellant) (Respondent)
Assessee by : Shri R.K. Jain
Department By : Shri D.C. Sharma - D.R.
Date of hearing : 29/01/2014.
Date of pronouncement : 05/05/2014.
O R D E R
PER HARI OM MARATHA, J.M
This appeal of the assessee for A.Y. 2009-10 is directed against the
order of Ld. CIT(A)-II, Jaipur dated 28/01/2013.
2 Briefly stated, the facts of the case are that the assessee, as an
individual, derives his income from long term capital gain and from other
sources. For A.Y. 2009-10, he filed his return of income (RIICO) on
30/09/2009 declaring total income of Rs. 2,06,86,650/-. The assessee
2
has derived income from other sources of Rs. 77,23,448/- from long term
capital and of Rs. 1,34,63,204/- form of interest. During the relevant
period, the Rajasthan State Industrial Development and Investment
Corporation Ltd. (in short, ‘RIC’) acquired land owned by the assessee
jointly with other members of his family located at Vimalpura, Jaipur for
a total consideration of Rs. 5,81,19,891/-. Particulars of the entire land
acquired are as under:-
Khasara No. Area Date of
purchase
Amount Share of the assessee
731 0.43 feet 25.01.1991 42000 ½ share / Rs. 21000
28 0.63 feet 31.05.1994 151200 ½ share / Rs. 75600
27.29 1.51 feet 01.06.1994 362400 ¼ share of Rs. 90600
2.1 Income under the head ‘long term capital gain’ of Rs. 77,23,448/-
has been computed by the assessee as under:-
Sale consideration of Vimalpura Land on 03/10/2008 Rs. 20881079
Less: Vimalpura land –
1. Indexed cost of acquisition
F.Y. 1991-92 42000/199 x 582 = 122834
2. Vimalpura Land
F.Y. 1991-92 170000/259x582 = 382008 Rs. 504842
Long term capital gain Rs. 20376237
Deduction u/s 54F Rs. 12652789
(Investment in house property u/s 54F
Of Rs. 12966275) taxable LTCG Rs. 7723448
3
3. The assessee has claimed exemption under section 54F of the I.T.
Act, 1961 (hereinafter referred to as ‘the Act’ in short). The Assessing
Officer has called for the complete details regarding this claim. The
assessee filed reply dated 18/07/2011 stating that he had utilized Rs.
1,29,66,275/- in terms of section 54F of the Act. He had deposited Rs. 40
Lac under capital gain account scheme opened with the Bank of Baroda
on 29/09/2009 and Rs. 79,66,275/- was utilized in purchasing residential
flat in the village Maidawas (Gurgoan). To prove purchase of flat, the
assessee produced a photocopy of the application form issued by the
Emaar MGF Land Ltd., on a stamp paper of Rs. 50/- dated 10/12/2009.
Annexure-3 of the application-cum-agreement form bears the name of
the assessee for unit area 1975 sq.ft. dated 23/09/2009 and its price has
been calculated as under:-
Basic price - Rs. 7108025/-
IDC & EDC - Rs. 533250/-
Car Park - Rs. 250000/-
And club membership - Rs. 75000/-
-------------------
Total Rs. 7966275/-
--------------------
3.1 The assessee has also claimed further expenditure of Rs. 10 Lac as
given to the Interior Designer-Shri Mukesh Aren, a Civil Engineer, towards
4
supervision and interior decoration. After receipt of this reply, the
Assessing Officer sought clarification from the assessee as to how section
54F of the Act applies to this case and why he should allow this
exemption. The Assessing Officer wanted proof of the entire claim made
by him. The assessee replied vide letter dated 12/08/2011 as under:-
“1. The assessee has booked resident flat at Gurgaon with EMAAR MGF
Land Ltd. by giving cheque No. 531797 of Rs. 5,00,000/- on
24/09/2009, the cheque was cleared on bank on 29/09/2009. The
date of booking 23/09/2009 is mentioned in Schedule of payment of
said agreement. Bank statement has also been submitted. The
assessee has given full amount of cheques amounting to Rs.
79,66,275/- which was subsequently cleared time to time.
The stamp paper date is not so important as it is evident from record
that assessee has given & booked flat within due time. The
registration of documents etc. is subsequent process.
10 SOT 139 Mumbai Angela J Kazi Vs. ITO 75 Taxman 145 (Bomb.)
Placed letter of booking of new flat record, copy cheque to builder
and ultimate sale agreements.
Hence assessee’s intention was clear for purchasing new flat with in
period of furnishing of return. So claim of assessee is well justified
and within ambit of income-tax law.
2. The assessee is having only one residential house at S-225, Mahaveer
Nagar, Jaipur, as appearing in balance sheet of Rs. 43,50,534/-. The
above mentioned flat is only another residential flat within condition
of section 54F as prior to it assessee is having only Mahaveer Nagar
residential house.
The other alleged flats are not residential flast as appearing in
balance sheet as assessee has never occupied them for residential
5
purposes, as these are for investment purposes, according also
shown under investments is balance sheet. The assessee has
invested in ATS Paradiso, Greater Noida (U.P.) amounting to Rs.
51,23,000/- and possession of it has been taken on 10/07/2010, copy
enclosed.
The another investment was in ATS prelude – Golf Medow
Chandigarh amounting to Rs. 29,90,000/- its possession is pending.
The heritage city flat was jointly owned by brother Om Prakash
possession taken on 08/03/1999 it was also for investment purposes
letter enclosed.
3. It has already been explained that assessee has utilized amount of
capital gain for purchase of new residential house i.e. amounting to
Rs. 79,66,275/- given to builder and further Rs. 10 lac against
supervision and interior work. Thus total amounting to Rs.
89,66,275/- and balance Rs. 40 lac has been deposited in capital gain
account, evident of same has been filed. Thus total investment u/s
54F is of Rs. 1,29,66,275/- as claimed in computation of income and
on balance amount assessee has paid capital gain tax. The following
judgments are in this context.
Smt. Shashi Verma VS. CIT 224 ITR 106 (M.P.)
i) The circulate N. 672 dated 16/12/1993 and 471 dated
15/10/1986 (That amount was allowed to be paid in
installments does not effect the legal position in such schemes.
These cases shall be treated as cases of construction for the
purposes of capital gains.
ii) If substantial investment is made in the construction of house
than it should be deemed that sufficient steps have been taken
and this satisfies the requirements of section 54.
Mrs. Seetha Subramanian VS. ACIT 59 ITD 94 Mad.
The allotment itself is a sufficient compliance for getting benefit u/s
54F even though the assessee has not paid all the installments due
under said scheme. The intention of legislature was to invest in the
6
acquisition of a residential house and completion of construction of
occupation is not required.
4. The assessee has given explanation for the interior & supervision
work in letter dated 05/08/2011, the copy of the claim of receipt of
amount of Rs. 10 lac given to Mr. Mukesh Aren Engineer for making
house habitable is enclosed.”
4. After considering the above reply and making various observations,
the Assessing Officer has finally concluded that the assessee is not
eligible for exemption under section 54F of the Act because at the time
of acquisition of land, the assessee owned more than one residential
house. Therefore, as per Assessing Officer assessee does not fulfill even
the primary condition for claiming exemption under section 54F of the
Act. Further, advance payment made for the purchase of residential flat
has not been treated as investment/utilization of the capital gain in the
purchase of a residential house. That is why on both these counts, the
Assessing Officer has rejected this claim of the assessee. He has not
treated the deposit of Rs. 40 Lakhs in the capital gain account scheme.
He has distinguished the decisions/case law on which the assessee placed
reliance in support of his claim. The claim of payment of Rs. 10 Lac to
the Civil Engineer on account of supervision was also declined on the
reasoning that on the receipt issued by Shri Mukesh Aren, he has not
7
mentioned his degree and amount was paid in cash. The Assessing Officer
has computed the income of the assessee as under:-
A Income from Long Term Capital Gain
2,04,37,654/-
B Income from other sources
1,34,63,204/-
Gross Total Income
3,39,00,858/-
Deduction under Chapter VIA
(i) u/s 80C 1,00,000/-
(ii) u/s 80 G (Eligible for 50% of contribution
Rs.. 8,00,000/-) 4,00,000/- 5,00,000/-
Total income
3,44,00,858/-
Rounded of
3,34,00,860/-
4.1 Aggrieved, assessee preferred appeal before Ld. CIT(A) against the
order of Assessing Officer. After making lengthy discussions, Ld. CIT(A)
has also dismissed the appeal of the assessee. The assessee is further
aggrieved. He has filed this second appeal by raising the following
grounds:-
1. The Ld. CIT(A) had denied the claim of assessee u/s 54F of I.T. Act and
had erred in holding that assessee owned to ‘Residential Houses’
(ATS-Noida Flat and ATS-Chandigarh Flat) on the date of transfer of
original asset, under proviso (a)(i) to section 54F(1) by overlooking
the apparent fact that the assessee neither had possession nor
ownership of these so called flats on the date of transfer of original
asset (i.e. 05/06/2008).
2. That Ld. CIT(A) had ignored the fact that income from so called two
‘Residential Houses’ (ATS-Noida Flat and ATS-Chandigarh Flat), said
to be owned by assessee, had to be chargeable under ‘Income from
House Property’ as per proviso (business) to section 54F(1), so as to
8
deny the exemption u/s 54F. The assessee did not have any access,
control, possession, ownership etc. on the date of transfer of original
asset (i.e. 05/06/2008) and therefore, no income was chargeable
under the ‘Income from House Property’ on that date.
3. The Ld. CIT(A) had failed to differentiate between nature of asset
owned by the assessee i.e. ‘Right to acquire the Flat’ and ‘the Flat
itself’. Assessee had ‘Right to Acquire the Flats’ and not the
‘Flat/residential houses itself’ on the date of transfer of original asset
(i.e. 05/06/2008) in terms of Section. 54F.
Ld. CIT(A) also ignored the fact that ATS-Noida became the
‘Residential House’ on 10/07/2010 after getting control/possession
on this date, the ‘Right to Acquire Flat’ was converted into the
‘Ownership of Flat/Residential Houses’. ATS Chandigarh’s possession
has still not been received till the date of this appeal and therefore it
remains a ‘Right to Acquire Flat’ only.
4. Without prejudice to the above grounds, the Ld. CIT(A) had erred in
holding that no exemption would be available to the assessee for the
new asset acquired for residence u/s 54F where the assessee has
made the payment of the booking only and not obtained the
possession of the new house before due date of filing the return.
While holding so, the Ld. CIT(A) has ignored the CBDT Circular No.
471 dated 15/10/1986 which lays down that payment to builder is
sufficient compliance for claiming exemption u/s 54F.
5. That the appellant craves leave to reserve to itself the right to
additional, alter, amend, substitute, withdraw and/or any ground(s)
of appeal at or before the time of hearing.”
5. We have heard rival submissions and have carefully perused the
entire record. Both the parties have reiterated their arguments taken
before Ld. CIT(A). After considering rival submissions in the light of the
9
evidence available on record including the paper book filed by the
assessee, we have found that the following facts are not disputed by the
parties:-
(1) that the assessee got his share in the compensation of Rs.
208.81 Lac from jointly owned land consequent upon acquisition thereof
by the Rajasthan State Industrial Development and Investment
Corporation Ltd. (RIICO) on 05/06/2008 and has earned the long term
capital gain (LTCG) of Rs. 203.76 Lac in this process. (2) that the assessee
invested his share of compensation of Rs. 208.81 Lac before 30/09/2009
(i.e. due date of filing of ROI for A.Y. 2009-10). The details of entire
investment are as under:-
1. Investment under section 54F Rupees
a) Payment for residential flat of
Emaar – MGF (a builder) at
Gurgaon
89.66 Lac
b) Deposit in Capital Gain account
with BOB
40.00 Lac
2. Offered for Tax as LTCG 77.23 Lac
Assessee had following houses & bookings as on 05/06/2008:-
S.No. Properties and their
address
Year of
acquisition
Share of
the
assessee
Whether assessed
under section 22
1 Residential House
S-225, Mahaveer
Nagar, Jaipur
Around 15 years
back
100% YES, as self
occupied house
10
2 Business office
Flat No. 101, Block
NO. 43, Heritage City,
Gurgaon
Since June 1998 50% Property used for
business &
exempted u/s 22
3 Bookings of Flat
ATS-Noida and
ATS-Chandigarh
Advance
bookings on the
date of transfer
i.e. 05/06/2008
100% In absence of
ownership,
possession etc. the
question does not
arise.
4. New Residential
House booking at
Emaar-MGF, Gurgaon
2009 100% Exemption u/s 54F
claimed for
acquiring second
house
Bookings for the flats namely ATS-Noida and ATS-Chandigarh existed on
05/06/2008, wherein the assessee did not have ownership, control, possession,
title etc. by virtue of these bookings and the only valuable right/asset, assessee
had, was the ‘Right to acquire Flat’ which could be either converted into a ‘Flat’ or
the right itself could be transferred for a consideration.”
6. To understand the nature of claim made under section 54F of the
Act, we have to incorporate this section in its entirety herein as under:-
54F. Capital gain on transfer of certain capital assets not to be charged in
case of investment in residential house.- (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, a residential house (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 to say,—
11
(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 apply where—
(a) the assessee,—
(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 house property”.
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
12
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.
(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
13
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 unutilised amount in
accordance with the scheme aforesaid.
From the plain and normal reading of the above sections one can
easily construe that this provision aims at encouraging either construction
or purchase of a residential house out of a capital gain arising from the
sale of certain capital assets. The title above the main section is very
clear in this direction. We would like to repeat this title to emphasize
our point of view:-
“54F. Capital gain on the transfer of certain capital assets not to
be charged in case of investment in residential house”
This section describes vendors of the capital gain, as an individual
or a HUF. All other entities like a firm, a company etc. have been
excluded from its ambit. This fact also clears the intention of the
legislations because the individuals and/or the HUF which is composed of
individuals, are only capable of residing in a house. This section binds
14
the individual/HUF to get a new-asset (= a residential house) either by
way of purchase or construction within the stipulated period after the
sale of the ‘original asset’. We are not concerned about this limitation in
this case. This section also helps the individual to claim benefit by
depositing the ‘capital gain’ in a particular manner. We are not
concerned about this aspect now. Apart from defining the terms like –
the net-consideration etc. this section imposes other conditions via a
provision appended thereto. And we are concerned only with the
provision 54F(b)(a)(i) as extracted above and we are required to answer
the dispute between the parties by using this provision alone. This
provision proscribes that the individual/HUF must not own more than one
residential house on the date of transfer of the original asset. They have
excluded new-asset i.e. new residential house from being counted at the
time of such transfer because the section provides a leeway of one year
for purchasing/constructing the residential house before this transfer.
The date of transfer of the original asset in this case is 05/06/2008. Let
use examine if the assessee had more than one residential house on that
date or not. The chart extracted at pages 9 & 10 of this order makes it
amply clear that on 05/06/2008, this assessee did not own more than one
residential house. However, he had booked two flats (residential houses)
15
– one each at ATS-Noida and ATS-Chandigarh. Regarding these ‘bookings’
and the investments made the contention of the assessee is that “the
booking of flats” does not tantamount to ‘ownership’ of the flats unless
these are completed and their ownership is transferred in his names. But
at the same it is contended that after 05/06/2008, in the year of 2009
i.e. within the period of leeway provided in this section, the assessee has
booked one flat in the Emaar-MGF, Gurgaon and has treated the booking
amount paid as an ‘investment made’ in the purchase of a new-asset i.e.
a residential house in consonance with the provisions of section 54F which
does not suffer with the prohibitions of section 54F(4) or the proviso
54F(1)(b)(a)(i). This submission seems to be contradictory at the first
sight. But, when this issue is examined it is not noticed that there is
neither contradiction in assessee’s claim nor there is inherent
contradiction in the Act. The Act is very clear. It speaks about
‘investment’ in the new-asset (refer the title of this section). The term
‘purchased’ or ‘constructed’ used in section 54F(1) may not necessarily
mean that the new-asset must have been transferred in the name of the
assessee and the investment made by way of booking a flat and if such
investment is proved it must be treated as an ample compliance of this
proviso when it is examined in the light of the aim and object with which
16
the legislators have enacted this beneficial provision. On the other hand
the “transfer of ownership” in other flats is material because the section
uses the term ‘owns’ in the proviso. Thus investment & ownership are
two distinct terms which have their meanings and connotations in
different ways. The investment of capital gains is a beneficial provision
and ‘ownership’ at the time of transfer of the original asset is to be
interpreted strictly as per law. In our considered opinion both these
stages cannot be dealt with in the same manner. Our this view is further
fortified by the same provision as the proviso 54F(1)(b)(b) to this section
postulates that such residential house, other than the residential house
owned on the date of transfer of the original asset is chargeable under
the head “income from house property”. The proviso 54F(1)(b)(a)(i) is
further clarified by this proviso. If the assessee owns more than one
residential house the income from that house is chargeable under the
head “income from house property”. In this case no such income is
chargeable from the flats booked at Noida and Chadigarh. Thus, in the
totality of the facts and the law the flats booked at ATS-Noida and ATS-
Chandigarh ‘owned’ by the assessee as on 05/06/2008.
7. Now, we have to see as to whether appellant has fulfilled all the
requisite conditions of this section or not? As per Ld. CIT(A), the assessee
17
owned two residential houses, situated at ATS-Noida flat and ATS-
Chandigarh flat, on the date of transfer of the original asset, which is a
proscribed condition and, therefore, this benefit is not available to the
assessee. As against this, the case of the assessee, throughout has been
that he neither possessed nor owned these houses which are flats, on the
date of transfer of original asset which fall on 05/06/2008. In fact, under
proviso a(i) to section 54F (1) of the Act, the assessee is not entitled to
this benefit, in case, he owns more than one residential house other than
the new asset on the date of transfer of the original asset.
8. Now we have to see as to whether on the date of transfer of the
original asset, which is of 05/06/2008, the assessee owned more than one
residential house other than the new asset or not? As per the above
chart, the facts which remained undisputed. On 05/06/2008, the
assessee had one residential house at S-225, Mahaveer Nagar, Jaipur
which was self occupied, one business office at Heritage City, Gurgaon
which is business property, in which the assessee had 50% share. The
assessee had booked two flats one each at Noida & Chandigarh and had
made advance bookings on the date of transfer i.e. on 05/06/2008. But
neither possession had been taken nor ownership had transferred of those
18
flats in the name of the assessee till that date. The assessee has booked
one new residential house at Emaar-MGF, Gurgaon in the year 2009 i.e.
after the date of 05/06/2008. The assessee has treated this new
residential house at MGF, Jaipur as a new asset and the house at
Mahaveer Nagar, Jaipur, as his sole residential house. Regarding two flats
booked, one each at Noida and Chandigarh, the case of the assessee is
that assessee has not become owner of those houses until 05/06/2008 as
neither possession of the same had been given to him. According to him,
on 05/06/2008 he owned only one residential house and therefore, he is
entitled for exemption under section 54F of the Act in respect of new
asset booked at Emaar-MGF, Gurgaon. It is stated that in those two flats,
assessee has only ‘Right to Acquire Flat’.
9. On the other hand, the case of Ld. Sr. D.R. who has relied on the
orders of the authorities below, is that these two flats one each at Noida
and Chandigarh would be included in the term ‘owns’ on 05/06/2008 as
both these flats had been booked by that date. Still further, the case of
the assessee is that even the booking of a flat in a buildings under
construction tantamount to utilization of capital gain in the purchase of a
residential house and the amount paid in advance till the flat (house) is
ready and is transferred to the assessee or as per law its ownership is
19
transferred to the assessee. The ITAT, Cochin Bench rendered in the case
of Geroge Dominic Vs. ACIT reported in (2013) 35 taxmann.com 547.
With reference to para 12 of this judgment it was argued that only on
completion of construction of the building, it acquires the status of
‘residential house’. The Bench has further observed that proviso
appended to section 54 says that the income from residential house is
chargeable under the head ‘income from house property’. Meaning
thereby that house should be fit for residing at the relevant time, so that,
it should be treated as a house property and its income can be charged
under the law. Therefore, the ratio of this judgment is that on the date
of transfer of the original asset owned by the assessee if should be a
‘house’ ready for living therein. Further Delhi Bench in the case of Smt.
Bina Kedia Vs. ITO, Ward 23(2), New Delhi (discussed at pages 4 & 5 in
written submissions) has taken a similar view. The relevant portion of
this judgment reads as under:-
“The Ld. CIT(A) has mentioned that as on the date of transfer (i.e.
04/10/1999), the assessee was owner of another house (DDA Flat
Booking) and hence benefit of sec. 54F was not available. We find
that the flat in Dwarka was allotted on 28/06/2001 (possession taken
on 21/07/2001). Thus the assessee was not owner of any house on
the date of transfer (i.e. 04/10/1999) of capital assets. Ld. CIT(A) has
also held that benefit of sec. 54F cannot be granted as the assessee
had purchased residential house other than the new asset within the
period of one year after the date of transfer of capital asset as DDA
flat was acquired by her within one year. In this case the assessee
20
sold 125 shares of Castrol on 21/08/1999 for a sum of Rs. 53,108.75
and 66200 shares of Rajdhani Securities on 04/10/1999 for a sum of
Rs. 11,55,190 through Shree Balaji Share Trading Company.
Therefore, the DDA flat was not acquired within one year from the
date of transfer of capital asset. Hence proviso to section 54F is not
applicable in the case of assessee.”
10. Undisputedly, the assessee became owner of the Noida flat only on
10/07/2010 and has not acquired ownership of the Chandigarh flat till
date. Thus, picture becomes clear in respect of proviso (a)(i) to section
54F of the Act that the residential house mentioned therein has a
different connotation because ‘house’ means building in its normal
residential conditions which is found fit for living by human-beings and
not a house under construction’ and this house should be completely
owned by the assessee at the relevant time. The Legislators in their
wisdom have used two different terms to refer to the original residential
house sold as ‘old asset’ and by referring to the new residential house to
be purchased or constructed as the case may be, as ‘new asset’. The
collective reading of this section makes it clear that two conditions
should be satisfied and both are co-exist at the relevant time of transfer
of original asset 1) the assessee must owned the residential house on the
date of transfer and 2) income from such residential house should be
chargeable under the head ‘income from other house property’. If the
21
above two conditions co-exist, the assessee becomes disentitled to the
exemption section 54F of the Act, particularly when, the assessee owns
such a house other than the original asset and its income is chargeable as
a income from house property as per the provisions of section 22 of the
Act. The assessee needs to be owner rather legal owner of that house.
Hon'ble Supreme Court in the case of CIT Vs. Podar Cement (P) Ltd. etc.
reported in 226 ITR 625 (SC) has clearly explained this position by holding
that ‘owner’ is a person who is entitled to receive income from the
property in his own right. In the absence of completion and possession by
way of registration and transfer of its title etc., of these two flats booked
by the assessee on the date of transfer original capital asset i.e.
05/06/2008, the question of assessing ‘Income from House Property’
under section 22 of the Act will not arise. The Ld. CIT(A) has misdirected
himself has treating even ‘right to acquire a flat’ as owned by the
assessee. In our considered opinion, the conclusion of Ld. CIT(A) is not
correct. Thus with regard to Noida & Chandigarh flats it can be safely
concluded that these were not owned by the assessee on 05/06/2008 in
terms of section 54F of the Act. The Ld. CIT(A) has observed (at page 14
of her order) that “the argument that the flats at Noida and Chandigarh
are just booked and not possessed does not hold water, because if the
22
same logic is applied, no exemption would be available to the appellant
because the flat at the Gurgaon with respect to which exemption is being
sought from capital gain is also just booked and possession has not been
given to the appellant in the assessment year under consideration”.
The above observation seems to be plausible at the first reading.
Why – the booking at Noida/Chandigarh is to be treated differently from
the booking of Gurgaon flat. But, when this aspect is examined in depth
with ratiocination the above observation becomes wrong and contrary to
the intention of the Act. The meaning of term ‘owns’ used in section 54F
(conditions) – ‘owns more than one residential house on the date of
transfer of the capital asset’ – has a different meaning. That house needs
to be. This owner means a legal owner who is entitled to receive income
from the property in his own right. This house should be real and not
symbolic. In the absence of possession, registration, title etc., question
of assessing ‘income from house property’ under section 22 of the Act
does not arise. Thus, Ld. CIT(A) has failed to differentiate between the
nature of asset owned by the assessee when a flat is booked he has a
‘right to acquire’ and this ‘right to acquire’, is not equivalent to ‘own’ a
house. On the other hand the parameters which apply to investment of
‘capital gain’ in the construction – purchase of a house within two years
23
of sale of the original asset. That is why the CBDT has issued circular
Nos. 471 dated 15/10/1986 and circular No. 672 dated 06/12/1993 which
clarify that the amount paid towards booking as to be treated towards
‘construction’ for the purpose of section 54/54F. This assessee made
payment to the builder Emaar – MGF Gurgaon before 30/09/2009 for
buying a II residential house. Builder has promised to give possession of
the house before 05/06/2010 i.e. within 2 years of the sale of the original
asset but could not give possession by that time. Section 54F is a
beneficial provision for promoting the construction of residential houses
and requires an assessee to construct houses and for achieving that
purpose to intent of the Legislature is to encourage investments in the
acquisition of a residential house and completion of construction or
occupation is not the requirement of the law. In view of the above
discussion the assessee cannot be treated owner of Noida/Chandigarh
flats on 05/06/2010. At the same time, he to be allowed benefit of
section 54F because he has invested the capital gain as per the
requirement of the Act.
11. Now coming to a concomitant situation that if booking of flats does
not tantamount to ownership of the house then how come the assessee
claim that by booking a flat it has acquired ‘new house’ and becomes
24
entitle for this exemption. Similar situations repeatedly arose and to
settled them, the CBDT issued a circular No. 471 dated 15/10/1986
clarifying that payment made to a builder/developer is a sufficient
compliance for exemption under section 54F of the Act. Ld. CIT(A) has
gone by sheer technicalities to hold that the flat at Emaar-MGF, Gurgaon
is not covered under section 54F of the Act. To meet such recurrence of
situations in the modern days where properties are booked and thereafter
purchased, the CBDT in their wisdom further clarifies vide circular No.
672 dated 16/12/1993 that if any amount out of net sale consideration of
the original asset is paid to any builder or developer, this amount should
be considered towards the terms ‘purchase/construct’ for the purpose of
sections 54/54F of the Act. It is not disputed by the Revenue that the
assessee has not made payment for purchase of residential house in
Gurgaon in view of the above clarifications of CBDT, this is enough
compliance of the provision of section 54F of the Act and the assessee
became entitled to this exemption.
12. We have found that section 54F of the Act is a beneficial provision
aimed at promoting existence of new residential houses to further the
needs of the society. Thus, the intention of the Legislator is to
25
encourage investment in the acquisition of residential houses and section
54F of the Act prescribes and proscribes the conditions for availing its
benefit. The terms/words used in this section have been very selectively
& prudentially used by the legislature. This benefit is against the capital
gain arising out of transfer of any long term capital asset not being a
residential house and which has been referred to as an ‘original asset’
subject to a condition that if the ‘net-sale-consideration’ is invested
either in purchasing/constructing a residential house or in constructing
the same within the period prescribed in this section. However, if the
assessee owned more than one residential house other than the new asset
on the date of transfer of the original asset, this benefit is not available
to him. In the given case, undisputedly, the assessee had sold a capital
asset in the form of land on 03/10/2008 and earned long term capital
gain of Rs. 2,03,76,237/- (this LTCG has been calculated by the Assessing
Officer at Rs. 2,04,37,654/-) as there was some error in the computation
filed by the assessee with the return because in the indexing of the cost
of land in F.Y. 1991-92, the assessee’s half share was not considered.
The assessee has claimed exemption under section 54F (1)(b) of the Act
to the extent of Rs. 1,26,52,789/- as against total investment of Rs.
1,29,66,275/-. Thus, by now we have come to the conclusion that the
26
assessee did not own more than one residential house on the date of
transfer of the original asset. Therefore, one condition of this provision
stands satisfied.
13. As we have already held that owning of a residential house at the
time of transfer of the original asset has different meaning and
connotation and acquisition of new asset ‘which is equivalent to purchase
of new residential house’ has entirely different meaning and connotation.
This provision encourages people to purchase or construct new residential
houses. If the capital gain is invested in the manner prescribed in this
section to that extent the capital gain is spent or invested ‘has to be
allowed as deduction’. So, with regard to purchase of new residential
house, the provisions does not laid down a condition that a new house
should either be complete or it should be purchased as a complete livable
house. The aim is to direct the minds of the society in purchasing new
residential house so that the menace of shortage of houses is tackled to
some extent. Therefore, keeping in view the aim and object of the
legislator and in view of that clarifications of the CBDT, in our considered
opinion, Ld. CIT(A) has misdirected himself in giving the same meaning to
the residential house owned at the time of transfer of the original asset
27
and the investment made out of the capital gain in the purchase or
construction of new house, which has been defined as ‘new asset’ in the
Act. Therefore, any payment made towards acquisition of a new
residential house by way of making payment in advance even by booking
or by paying installments within the prescribed has to be is treated as
investment towards purchase / construction of a new house. Accordingly,
we hold that the assessee is entitled for exemption under section 54F of
the Act of LTCG of Rs. 2,04,37,654/-. We further derive support for our
above finding from the following decisions:-
1. Sardarmal Kothari [2008] 302 ITR 286 (Mad)
2. CIT Vs. Sambandam Udaykumar (2012) 345 ITR 389.
3. Smt. Ranjeet Sandhu Vs. DCIT [2011] 16 taxmann.com 201
(Chandigarh)
4. Smt. Usha Vaid Vs. ITO, Dasuaya [2010] 25 taxmann.com 188
(Amritsar)/[2012] 53 SOT 385 (Amritsar)
5. Smt. V.A. Tharabai Vs. DCIT, Circle –I, Vellore [2012] 19
taxmann. Com 276 (Chennai).
14. In view of our foregoing discussion, we allow grounds raised in this
appeal, which are in fact in relation to only one issue i.e. availability of
deduction of section 54F(1)(a)(i) of the Act or to say under section 54F of
28
the Act. Accordingly, this appeal of the assessee stands allowed and the
entire addition stands deleted.
15. In the result, the appeal of the assessee stands allowed.
(Order Pronounced in the Court on 05 th May, 2014).
Sd/- sd/-
(N.K.SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 5th May, 2014.
vr/-
Copy to:
1. The Appellant 2. The Respondent 3. The ld.CIT 4. The CIT(A) 5. The D.R.
Assistant Registrar, ITAT, Jaipur.