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

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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

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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

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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

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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

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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

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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

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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

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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,—

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(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

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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

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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

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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

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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

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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

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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.