Prashanth Prakash, Bangalore V. Addl.C.I.T., Bangalore

CO 86/BANG/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0934 (ITAT-BANGALORE)
• Duration Of Justice: 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 26-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Assessee Lawyers: H N KHINCHA
• Keywords: Capital asset; Period of limitation; Question of law; Cost of acquisition; Time period of passing order
• Section: 143(3); 54F; 2(14); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.864/BANG/2014 ASSESSMENT YEAR : 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 8(1), BANGALORE. VS. SHRI PRASHANT PRAKASH, NO.113, LALBAGH ROAD CROSS, KRISHNAPPA LAYOUT, BANGALORE 560 027. PAN : AHMPP 8079P APPELLANT RESPONDENT CO NO.86/BANG/2015 [IN ITA NO.864/BANG/2014] ASSESSMENT YEAR : 2009- 10 SHRI PRASHANT PRAKASH, BANGALORE 560 027. PAN : AHMPP 8079P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 8(1), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : SHRI P. DHIVAHAR, JT. CIT(DR) ASSESSEE BY : SHRI H.N. KHINCHA, CA DATE OF HEARING : 02.06.2015 DATE OF PRONOUNCEMENT : 11.06.2015 ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 2 OF 24 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.864/B/14 IS AN APPEAL BY THE REVENUE AGAINS T THE ORDER DATED 28.3.2014 OF THE CIT(APPEALS), LTU, BANGALORE RELATING TO ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS FILED TH E CROSS OBJECTION AGAINST THE VERY SAME ORDER OF THE CIT(APPEALS). 2. AS FAR AS APPEAL OF THE REVENUE IS CONCERNED, TH E ONLY CHALLENGE IS TO THE ORDER OF CIT(APPEALS) WHEREBY THE CIT(A) ALL OWED THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 54F OF THE INCOME TAX A CT, 1961 (ACT). 3. THE ASSESSEE IS AN INDIVIDUAL. THE ASSESSMENT Y EAR UNDER APPEAL IS ASSESSMENT YEAR 2009-10. FOR THE ASSESSMENT YEAR 2009-10 THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30.09.2009 D ECLARING A TOTAL INCOME OF RS.2,09,08,576. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT. F OLLOWING ADDITIONS WERE MADE TO THE RETURNED INCOME: RETURNED INCOME 2,09,08,576 ADD : DISALLOWANCE OF DEDUCTION U/S. 54F 49,2 7,996 DISALLOWANCE OF INTEREST PAID IN COMPUTING LONG TERM CAPITAL GAIN 7,82,394 ----------------- ASSESSED INCOME 2,66,18,966 ----------------- ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 3 OF 24 4. IN THE RETURN OF INCOME FILED, AMONG OTHERS, TH E ASSESSEE HAD RETURNED GROSS LONG TERM CAPITAL GAIN OF RS.1,65,57 ,000 ON SALE OF SHARES. THIS GAIN AROSE ON ACCOUNT OF SALE OF SHARE S OF MUSIGMA INC., CONSIDERATION FOR WHICH WAS RECEIVED ON 04.09.2008. OUT OF THE ABOVE GAIN A SUM OF RS.49,27,996 WAS CLAIMED AS DEDUCTION U/S. 54F ON ACCOUNT OF INVESTMENT IN RESIDENTIAL PROPERTY. ON 21.11.2006, THE ASSESSEE HAD ENTERED INTO TWO AGREEMENTS WITH M/S. TOTAL ENVIRON MENT BUILDING SYSTEMS PRIVATE LIMITED AS FOLLOWS:- A) LAND AGREEMENT FOR PURCHASE OF LAND AT HOODI VI LLAGE FOR A CONSIDERATION OF RS.79,63, 872/-. B) CONSTRUCTION AGREEMENT FOR CONSTRUCTION OF RESI DENTIAL HOUSE FOR A CONSIDERATION OF RS.45, 14,712. AGAINST THE ABOVE AGREEMENTS, DURING THE FINANCIAL YEAR 2008-09, FOLLOWING PAYMENTS WERE MADE BY THE ASSESSEE. RS . 08.06.2008 : 56,70,000 03.11.2008 : 16,97,333 12.11 .2008 : 12,00,000 -------------- 85,67,333 -------------- PROPORTIONATE DEDUCTION OF RS. 49,27,996/- WAS CLAI MED U/S. 54F OF THE ACT. 5. IN THE ASSESSMENT ORDER DATED 30.12.11 THE ENTI RE DEDUCTION U/S. 54F HAS BEEN DISALLOWED ON FO1LOWING GROUNDS :- ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 4 OF 24 A) CONSTRUCTION AGREEMENT WAS ENTERED INTO BY THE ASSESSEE ON 21.11.06 WHICH IS BEYOND ONE YEAR OF THE RECEIPT OF SALE CONSIDERATION FOR THE SALE OF SHARES. B) FOR BUYING AND SELLING OF IMMOVABLE PROPERTY, P ROVISIONS OF REGISTRATION ACT, 1908 HAVE TO BE ADHERED TO. THE A SSESSEE HAS REGISTERED THE PURCHASE ON 02.05.2011 AND POSSESSIO N OF THE PROPERTY WAS TAKEN IN MAY 2011. C) NO SUMS HAVE BEEN DEPOSITED BY THE APPELLANT UN DER THE CAPITAL GAIN ACCOUNT SCHEME. D) CONSTRUCTION OF THE RESIDENTIAL HOUSE COMMENCED IN NOVEMBER 2006. E) RESIDENTIAL HOUSE HAS BEEN PURCHASED IN MAY 201 1, BEYOND THE LIMITATION PERIOD OF 2 YEARS WHICH ENDS ON SEPTEMBE R 2010. 6. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DIR ECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 54F OF THE ACT, OBSERVING AS FOLLOWS:- 9.5 I HAVE GONE THROUGH THE APPELLANTS SUBMISSIO N AND THE JUDICIAL DECISIONS RELIED UPON. THE AGREEMENT WITH THE BUILDER COMPANY DT. 21.11.2006 IS CLEARLY DESCRIBED AS A C ONSTRUCTION AGREEMENT AND THE IMPUGNED RESIDENTIAL PROPERTY HA S BEEN GIVEN POSSESSION BY MAY 2011. ONLY WHERE THE INVEST MENT IN A RESIDENTIAL HOUSE, FOR THE PURPOSES OF DEDUCTION U/ S. 54F, IS IN THE FORM OF PURCHASE AND THE INVESTMENT PRECEDES THE TRANSFER OF CAPITAL ASSETS DOES THE STATUTE PRESCRIBE THAT S UCH PURCHASE SHOULD HAVE BEEN DONE WITHIN ONE YEAR PRIOR TO THE DATE OF TRANSFER OF CAPITAL ASSET. WHERE THE INVESTMENT IS BY WAY OF CONSTRUCTION, THIS REQUIREMENT IS NOT MENTIONED IN SECTION 54F NOR IS ANYTHING PRESCRIBED IN THE PROVISIONS ABOUT THE DATE OF COMMENCEMENT OF CONSTRUCTIONS. THIS HAS ALSO BEEN E NDORSED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS J. R SUBRAMANYA BHAT (1987) 165 ITR 571. THE OTHER JUDIC IAL DECISIONS CITED IN THE CONTEXT OF REQUIREMENT OF RE GISTRATION OF TRANSFER DEEDS SUPPORT THE APPELLANTS GROUNDS. ON CONSIDERATION OF THE FACTS AND THE APPLICABLE JUDIC IAL PRECEDENTS, THEREFORE, IT IS REASONABLY CONCLUDED THAT THE APPE LLANTS CONTENTIONS ARC CORRECT. THE AO IS DIRECTED TO ALLO W THE DEDUCTION U/S 54F. THESE GROUNDS, THEREFORE, SUCCEE D. ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 5 OF 24 7. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE GROUND S OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS:- 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE HAD FAILED TO FULFIL THE REQUISITE CONDITI ONS STIPULATED U/S. 54F FOR CLAIMING DEDUCTION UNDER THE SAID SECT ION. 3. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLO W THE DEDUCTION U/S. 54F WHEN THERE IS NO EXPLICIT PROVI SION REGARDING INVESTMENT IN CONSTRUCTION OF THE PROPERTY FOR THE PURPOSE OF CLAIM OF DEDUCTION UNDER THE SAID SECTION IN THE ST ATUTE. 4. THE LD. CIT(A) HAD ERRED IN CONSIDERING THE AGRE EMENT FOR CONSTRUCTION OF BUILDING WHICH HAD NOT EVEN BEEN REGISTERED FOR RECKONING THE PERIOD PREREQUISITE FOR CLAIM OF DEDU CTION U/S. 54F. 8. THE PROVISIONS OF SECTION 54F OF THE ACT READ A S FOLLOWS:- 54F. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (4), W HERE, IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HI NDU UNDIVIDED FAMILY, THE CAPITAL GAIN ARISES FROM THE TRANSFER OF ANY LONG-TERM CAPITAL ASSET, NOT BEING A RESIDENTIAL HO USE (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 PUR CHASED, OR HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONS TRUCTED, A RESIDENTIAL HOUSE (HEREAFTER IN THIS SECTION REFERR ED TO AS THE NEW ASSET), THE CAPITAL GAIN SHALL BE DEALT WITH IN ACC ORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y, ( 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 CA PITAL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL GAIN THE SAME PRO PORTION AS THE COST OF THE NEW ASSET BEARS TO THE NET CONSIDERATIO N, SHALL NOT BE CHARGED UNDER SECTION 45: ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 6 OF 24 PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL A PPLY 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 O F TRANSFER OF THE ORIGINAL ASSET; OR (III) CONSTRUCTS ANY RESIDENTIAL HOUSE, OTHER THA N THE NEW ASSET, WITHIN A PERIOD OF THREE YEARS AFTER THE DAT E OF TRANSFER OF THE ORIGINAL ASSET; AND (B) THE INCOME FROM SUCH RESIDENTIAL HOUSE, OTHER T HAN THE ONE RESIDENTIAL HOUSE OWNED ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET, IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HO USE PROPERTY'. 9. AN ANALYSIS OF THE PROVISIONS OF SECTION 54F OF THE ACT IN THE LIGHT OF THE GROUNDS RAISED BY THE REVENUE IN THE APPEAL WOU LD SHOW THAT THERE IS NO MERIT IN THE GROUNDS RAISED BY THE REVENUE IN IT S APPEAL. SECTION 54F(1) LAYS DOWN THAT ANY CAPITAL GAIN ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET, NOT BEING A RESIDENTIAL HOUSE, WILL BE ALLOWED EXEMPTION, IF THE ASSESSEE HAS AFTER THE DATE ON WHICH THE TRANSF ER TOOK PLACE, WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE, CONSTRUCTED RESIDENTIAL HOUSE, THE ASSESSEE WILL BE ENTITLED TO CLAIM DEDUCTION, EVEN AFTER THE CAPITAL GAIN IS INVESTED IN CONSTRUCTION OF A RESIDENTIAL HOUSE. I T CANNOT BE DISPUTED BY THE REVENUE THAT THE PAYMENT MADE BY THE ASSESSEE TO TH E BUILDER IS FOR THE PURPOSE OF CONSTRUCTION OF A RESIDENTIAL HOUSE. IT IS PERTINENT TO MENTION ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 7 OF 24 THAT THERE IS NO REQUIREMENT REGARDING REGISTRATION AND VALID TITLE, AS A CONDITION FOR AVAILING EXEMPTION U/S. 54F(1). THE PURPORT OF THE SECTION IS INVESTMENT IN CONSTRUCTION OF A PROPERTY AND THE FA CT THAT PROVISIONS OF SECTION 54F(1) DOES NOT USE THAT EXPRESSION WILL NO T MEAN MONEY SPENT FOR CONSTRUCTION OF RESIDENTIAL PROPERTY WILL NOT BE EL IGIBLE FOR DEDUCTION U/S. 54F OF THE ACT. IT IS THEREFORE CLEAR THAT NONE OF THE GROUNDS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL HAS ANY MERIT AND ACCORDINGLY THE APPEAL BY THE REVENUE IS DISMISSED. 10. THE REASONS GIVEN BY THE AO FOR REJECTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.54F OF THE ACT AND OUR OBSERVATIO NS ON THOSE REASONS ARE AS FOLLOWS:- (A) THE CONSTRUCTION AGREEMENT WITH M/S. TOTAL ENV IRONMENT BUILDING SYSTEMS PVT. LTD. WAS DATED 2L NOVEMBER, 2006. ACCO RDING TO THE AO, THE ASSESSEE RECEIVED RS.1,65,75,000 ON SALE OF SHARES ON 4TH SEPTEMBER, 2008. SECTION 54F STIPULATES THAT THE NEW ASSET THA T IS THE RESIDENTIAL HOUSE SHOULD BE PURCHASED WITHIN THE PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLA CE. ACCORDING TO THE AO THEREFORE THE ASSESSEE HAS NOT PURCHASED WITHIN THE STIPULATED TIME AS IT IS ONLY A CONTRACT FOR CONSTRUCTION. IN OUR VIEW THIS CONCLUSION IS UNSUSTAINABLE. SEC.54F GIVES EXEMPTION FOR PURCHAS E AS WELL AS FOR CONSTRUCTION. IF IT IS A CASE OF PURCHASE THE FULL VALUE OF CONSIDERATION CAN BE INVESTED 1 YEAR BEFORE TRANSFER OR 2 YEARS AFTER THE TRANSFER OF THE CAPITAL ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 8 OF 24 ASSET GIVING RAISE TO LONG TERM CAPITAL GAINS. THI S IS CLEAR FROM THE EXPRESSION USED IN SEC.54F OF THE ACT, WHICH READS THUS: WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AF TER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASED, OR HAS WIT HIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED, A RESIDENT IAL HOUSE (HEREAFTER IN THIS SECTION REFERRED TO AS THE NEW A SSET),. (B) ACCORDING TO THE AO PURCHASE OR SALE OF IMMOVA BLE PROPERTY WILL BE COMPLETE ONLY ON DUE REGISTRATION UNDER THE PROVISI ONS OF THE REGISTRATION ACT, 1908. ACCORDING TO THE AO THE REGISTRATION OF THE PROPERTY IN THE NAME OF THE ASSESSEE HAPPENED ONLY ON 2ND MAY. 2011 AND THE POSSESSION OF THE PROPERTY WAS GIVEN TO YOU ONLY IN MAY, 2011. T HE AO IN THIS REGARD RELIED ON A LETTER DATED 07-05-2011 BY M/S TOTAL EN VIRONMENT BUILDING SYSTEMS PVT LTD IN RESPONSE TO NOTICE U/S.133(6) IS SUED BY HIM. THIS OBJECTION IN OUR VIEW IS ALSO UNSUSTAINABLE BECAUSE THE ASSESSEE CLAIMS EXEMPTION FOR INVESTING CONSIDERATION RECEIVED ON T RANSFER BY CONSTRUCTING A HOUSE. FOR CONSTRUCTION OF A HOUSE THERE IS NO R EQUIREMENT OF REGISTRATION UNDER THE REGISTRATION ACT, 1908. (C) ACCORDING TO SECTION 54F(2) THE AMOUNT OF CAPI TAL GAIN WHICH IS NOT APPROPRIATED BY THE ASSESSEE TOWARDS THE PURCHASE O F THE NEW ASSET MADE WITHIN ONE YEAR BEFORE THE DATE ON WHICH THE TRANSF ER OF THE ORIGINAL ASSET TOOK PLACE, OR WHICH IS NOT UTILIZED 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 FURNI SHING SUCH RETURN [SUCH ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 9 OF 24 DEPOSIT BEING MADE IN ANY CASE NOT LATER THAN THE D UE DATE APPLICABLE IN THE CASE OF THE ASSESSEE FOR FURNISHING THE RETURN OF INCOME UNDER SECTION (1) OF SECTION 139] IN AN ACCOUNT IN ANY SUCH BANK OR INSTITUTION AS MAY HE SPECIFIED IN AND UTILIZED IN ACCORDANCE WITH, ANY S CHEME WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZ ETTE, FRAME IN THIS BEHALF AND SUCH RETURN SHALL BE ACCOMPANIED BY PROOF OF SU CH DEPOSIT. ACCORDING TO THE AO THE ASSESSEE FAILED TO FULFILL THE ABOVE REQUIRED CONDITION, MAKING THE ASSESSEE INELIGIBLE TO CLAIM DEDUCTION UNDER SE CTION 54F. THIS OBJECTION IN OUR VIEW IS ALSO UNSUSTAINABLE. THE R EQUIREMENT OF THE SECTION IN THE CASE OF UTILIZATION OF CAPITAL GAIN FOR CONS TRUCTION OF HOUSE IS TO DEPOSIT THE UNUTILIZED CAPITAL GAIN IN CAPITAL GAIN S ACCOUNT BEFORE THE DUE DATE FOR FILING RETURN U/S.139 OF THE ACT. THIS IS CLEAR FROM THE LANGUAGE OF SECTION 54F(4) WHICH USES THE FOLLOWING EXPRESSION . CAPITAL GAIN WHICH IS NOT APPROPRIATED BY THE ASSE SSEE TOWARDS THE PURCHASE OF THE NEW ASSET MADE WITHIN ONE YEAR BEFORE THE DATE ON WHICH THE TRANSFER OF THE ORIGINAL ASSET TOOK PL ACE, OR WHICH IS NOT UTILIZED BY HIM FOR THE PURCHASE OR CONSTRUCTION OF THE NEW ASSET BEFORE THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SECTION 139 THE HONBLE KARNATAKA HIGH COURT JUDGMENT IN THE CA SE OF FATIMA BAI V. ITO, [2009] 32 DTR 243 (KAR) . IN THE AFORESAID CASE, THE FACTS WERE THAT THE CAPITAL GAINS WERE INVESTED ON OR BEFORE THE DU E DATE SPECIFIED U/S. 139(4) OF THE ACT, BUT THE UNUTILIZED CAPITAL GAIN HAD NOT BEEN DEPOSITED IN THE SPECIFIED BANK ACCOUNT ON OR BEFORE THE DUE DAT E PRESCRIBED U/S. 139(1) ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 10 OF 24 OF THE ACT. ON THE ABOVE FACTS, THE HONBLE KARNAT AKA HIGH COURT HELD AS FOLLOWS:- THE S. 54(1) DECLARES THAT WHEN THE ASSESSEE SELLS ANY LONG- TERM CAPITAL ASSET, THE ASSESSEE SHOULD PURCHASE TH E BUILDING WITHIN ONE YEAR BEFORE THE TRANSFER OR WITHIN TWO Y EARS AFTER THE TRANSFER BY INVESTING CAPITAL GAINS. IN WHICH EVENT THE ASSESSEE WILL NOT BE LIABLE FOR CAPITAL GAIN TAX. SECTION 54(2) DECLARES THAT WITHIN ONE YEAR FROM TH E DATE OF TRANSFER IF THE CAPITAL GAIN IS NOT INVESTED IN PUR CHASE OF BUILDING, HE SHOULD DEPOSIT THE AMOUNT IN THE CAPITAL GAIN AC COUNT SCHEME OR ELSE THE ASSESSEE SHOULD INVEST THE CAPIT AL GAINS BEFORE FILING OF RETURN WITHIN THE PERMITTED PERIOD UNDER S. 139. IN WHICH EVENT, THE ASSESSEE WILL NOT BE LIABLE TO PAY CAPITAL GAIN TAX. THE S. 139(4) DECLARES THAT THE ASSESSEE SHOULD FIL E RETURNS WITHIN THE TIME PRESCRIBED, IF HE FAILS TO FILE RET URNS, HE MAY FILE RETURNS FOR ANY PREVIOUS YEAR AT ANY TIME BEFORE EX PIRY OF ONE YEAR FROM THE END OF RELEVANT ASSESSMENT YEAR. IN THE INSTANT CASE, THE DUE DATE FOR FILING OF RET URN IS 30TH JULY, 1988. UNDER S. 139(4) THE ASSESSEE WAS ENTITLED TO FILE RETURN IN THE EXTENDED TIME, WHICH IS WITHIN 31ST MARCH, 1990 . THE EXTENDED DUE DATE UNDER S. 139(4) WOULD BE 31ST MARCH, 1990. THE ASSESSEE DID NOT FILE THE RETURN WITHIN T HE EXTENDED DUE DATE, BUT FILED THE RETURN ON 27TH FEB., 2000. HOWEVER, THE ASSESSEE HAD UTILISED THE ENTIRE CAPITAL GAINS BY P URCHASE OF HOUSE PROPERTY WITHIN THE STIPULATED PERIOD OF S. 5 4(2) I.E., BEFORE THE EXTENDED DUE DATE FOR RETURN UNDER S. 139. THE ASSESSEE TECHNICALLY MAY HAVE DEFAULTED IN NOT FILING THE RE TURN UNDER S. 139(4). BUT, HOWEVER, UTILISED THE CAPITAL GAINS FO R PURCHASE OF PROPERTY BEFORE THE EXTENDED DUE DATE UNDER S. 139( 4). THE CONTENTION OF THE REVENUE THAT THE DEPOSIT IN THE S CHEME SHOULD HAVE BEEN MADE BEFORE THE INITIAL DUE DATE AND NOT THE EXTENDED DUE DATE IS AN UNTENABLE CONTENTION. THE GAUHATI HIGH COURT IN CIT VS. RAJESH KUMAR JALA N (2006) 206 CTR (GAU) 361 : (2006) 286 ITR 274 (GAU) HAS TA KEN A SIMILAR VIEW THAT THE TIME-LIMIT FOR DEPOSIT UNDER THE SCHEME OR UTILISATION CAN BE MADE BEFORE THE DUE DATE FOR FIL ING OF RETURNS UNDER S. 139 (4). ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 11 OF 24 FOR THE REASONS AND DISCUSSIONS MADE ABOVE WE ANSWE R THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE ASSESS EE. THE APPEAL IS ALLOWED. IN THE PRESENT CASE THE CAPITAL GAIN WAS UTILIZED B Y THE ASSESSEE ON RS . 08.06.2008 : 56,70,000 03.11.2008 : 16,97,333 12.11 .2008 : 12,00,000 -------------- 85,67,333 -------------- THE ABOVE DATES ARE WELL WITHIN THE DUE DATE FOR FI LING RETURN U/S.139 OF THE ACT, FOR AY 09-10. THE OBJECTION OF THE AO IN THIS REGARD IS THEREFORE WITHOUT ANY MERIT. (D) ACCORDING TO THE AO, THE INFORMATION FURNISHED BY M/S. TOTAL ENVIRONMENT BUILDING SYSTEM PVT. LTD. U/S 133(6), S HOWED THAT THE REGISTRATION OF THE SAID PROPERTY WAS MADE ONLY IN MAY 2011 AS EVIDENCED BY THE SALE DEED DT. 2ND MAY, 2011. ACCORDING TO TH E AO, U/S 54F(4) DEDUCTION IS ALLOWABLE ONLY HAS WITHIN A PERIOD OF THREE YEARS AFTER RECEIPT OF FULL VALUE OF CONSIDERATION ON TRANSFER OF CAPIT AL ASSET GIVING RAISE TO LONG TERM CAPITAL GAIN CONSTRUCTED A RESIDENTIAL HOUSE, IT IS ONLY THEN THE COST OF THE NEW ASSET WOULD BE ALLOWED AS DEDUCTION IN COMP UTING THE CAPITAL GAIN. SINCE THE ASSESSEES CASE THE CONSTRUCTION COMMENCE D IN NOVEMBER 2006, THE AO HELD THAT THE REQUIREMENTS OF SEC.54F ARE NOT COMPLIED WITH BY THE ASSESSEE. IN OUR VIEW, THIS OBJECTION IS AL SO WITHOUT ANY MERIT. THE ASSESSEE HAS UTILIZED THE CONSIDERATION RECEIVED ON TRANSFER ON WHICH ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 12 OF 24 EXEMPTION IS CLAIMED U/S.54F IN CONSTRUCTION OF THE PROPERTY. THE REQUIREMENT OF THE SECTION IS THAT THE CAPITAL GAIN SHOULD BE INVESTED IN CONSTRUCTION. THE INVESTMENT SHOULD BE WITHIN 3 YE ARS FROM THE DATE OF TRANSFER OF THE CAPITAL ASSET. THERE IS NO REQUIRE MENT THAT THE CONSTRUCTION AGREEMENT SHOULD ALSO BE WITHIN THE PERIOD SET OUT IN SEC.54F(4) OF THE ACT. THE HONBLE KARNATAKA HIGH COURT, IN THE DECISION R ENDERED IN THE CASE OF SAMBANDAM UDAYKUMAR 251 CTR 317, HAD TAKEN A VIEW THAT UNDER THE PROVISIONS OF SECTION 54F OF THE ACT, THE CONDITION PRECEDENT WAS THAT THE CAPITAL GAIN REALIZED FROM SALE OF CAPITAL ASSET SH OULD HAVE BEEN PARTED BY THE ASSESSEE AND INVESTED IN CONSTRUCTING A RESIDEN TIAL HOUSE. IF THE MONEY IS INVESTED IN CONSTRUCTING THE RESIDENTIAL H OUSE, MERELY BECAUSE THE CONSTRUCTION WAS NOT COMPLETE IN ALL RESPECTS A ND WAS NOT IN A CONDITION TO BE OCCUPIED WITHIN THE STIPULATED PERIOD, THAT CANNOT BE A GROUND FOR REJECTING THE BENEFIT OF DEDUCTION U/S. 54F TO THE ASSESSEE. THE HONBLE COURT OBSERVED THAT THE ESSENCE OF THE PROVISIONS O F SECTION 54F IS WHETHER THE ASSESSEE WHO RECEIVED THE CAPITAL GAIN HAS INVE STED IN THE HOUSE. ONCE IF IT IS DEMONSTRATED THAT THE CONSIDERATION R ECEIVED ON TRANSFER HAS BEEN INVESTED IN CONSTRUCTION OF THE RESIDENTIAL HO USE, THEN THOUGH THE CONSTRUCTION IS NOT COMPLETE IN ALL RESPECTS AND AS REQUIRED UNDER LAW, THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF SECTION 54F . A READING OF THE AFORESAID DECISION OF THE HONBLE KARNATAKA HIGH CO URT WOULD SHOW THAT THERE IS NO PARTICULAR STAGE OF COMPLETION OF CONST RUCTION THAT IS CONTEMPLATED. IT IS NOT IN DISPUTE THAT THE LATER THE CONSTRUCTION WAS ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 13 OF 24 COMPLETED AND HAS OCCUPIED THE RESIDENTIAL HOUSE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO FAULT CAN BE FOUND WITH THE ORDER OF THE CIT(APPEALS) ALLOWING BENEFIT OF DEDUCTION U/S. 54F OF THE ACT TO THE ASSESSEE. 11. FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND A NY MERITS IN THIS APPEAL BY THE REVENUE AND THE SAME IS DISMISSED. CO 86/BANG/2015 12. AS FAR AS CROSS OBJECTION BY THE ASSESSEE IS CO NCERNED, THE GROUNDS OF APPEAL READ AS FOLLOWS:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW APPLICABLE, THE INTEREST ON BORROWED FUNDS UTILIZED FOR ACQUISITION OF PROPERTY CONSTITUTED COST OF ACQUISITION AND SAM E SHOULD HAVE BEEN ALLOWED AS SUCH WHILE COMPUTING THE LONG TERM CAPITAL GAIN ON SALE OF PROPERTY. 13. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFO RESAID ISSUE ARISES FOR CONSIDERATION ARE AS FOLLOWS. ONE, M/S. CONCOR DE HOUSING CORPORATION (HEREINAFTER REFERRED TO AS CONCORDE HOUSING), A DEVELOPER OF RESIDENTIAL LAYOUT OF SITES AS WELL AS BUILDER, DEVELOPED HOUSI NG SITES KNOWN AS SILICON VALLEY IN SY. NOS. 85, 164, 165 & 166 OF DODDATHOGU R VILLAGE, BEGUR HOBLI, BANGALORE SOUTH TALUK. THE ASSESSEE PURCHASED A HO USE SITE BEARING NO.197. CONCORDE HOUSING ALSO AGREED TO CONVEY THE LAND AND CONSTRUCT A VILLA FOR THE ASSESSEE. ONE OF ITS SISTER CONCERNS , CONCORDE SHELTERS PVT. ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 14 OF 24 LTD. (HEREINAFTER REFERRED TO CONCORDE SHELTERS) AGREED TO CONSTRUCT A VILLA ON THE SITE SOLD BY CONCORDE HOUSING TO THE ASSESSE E. BY A REGISTERED SALE DEED DATED 21.10.2004, THE SITE WAS CONVEYED T O THE ASSESSEE FOR A SALE CONSIDERATION OF RS.9 LAKHS. THE COST OF CONS TRUCTION OF VILLA WAS RS.24,39,526. THE ASSESSEE HAD TO PAY THE COST OF CONSTRUCTION OF VILLA IN INSTALMENTS AS SET OUT IN THE AGREEMENT DATED 4.10. 2004 BETWEEN THE ASSESSEE AND CONCORDE SHELTERS. ULTIMATELY CONSTRU CTION OF VILLA GOT COMPLETED IN THE YEAR 2008 ONLY. THE ASSESSEE AGRE ED TO SELL THE LAND AS WELL AS VILLA UNDER AN AGREEMENT FOR SALE DATED 5.5 .2008 TO ONE SHAKTI MOHAN FOR A CONSIDERATION OF RS.58,96,006. THE LAN D AS WELL AS VILLA WAS ULTIMATELY SOLD TO SHAKTI MOHAN UNDER A REGISTERED SALE DEED DATED 10.10.2008. THE SALE CONSIDERATION MENTIONED IN TH IS SALE DEED IS A SUM OF RS.21 LAKHS. THE REVENUE HAS NOT CHOSEN TO TAKE COGNIZANCE OF THE SALE CONSIDERATION AS REFLECTED IN THE SALE DEED, B UT HAS PROCEEDED ONLY ON THE BASIS OF SALE CONSIDERATION AS SET OUT IN THE A GREEMENT DATED 5.5.2008. 14. IT IS NOT IN DISPUTE THAT THE AGREEMENT FOR SA LE DATED 5.5.2008 BY WHICH THE LAND AS WELL AS VILLA WAS AGREED TO BE SO LD BY THE ASSESSEE TO SHAKTI MOHAN WAS A TRANSFER AND CAPITAL GAIN ON SUC H TRANSFER WAS CHARGEABLE TO TAX IN THE A.Y. 2009-10. THE ASSESSE E COMPUTED CAPITAL GAIN BY BIFURCATING THE CAPITAL GAIN ON SALE OF LAN D AND CAPITAL GAIN ON SALE OF VILLA. ACCORDING TO ASSESSEE, THE LAND WAS PURC HASED UNDER SALE DEED DATED 21.10.2004 AND WAS SOLD AFTER CONSTRUCTION OF VILLA THEREON ON 5.5.2008. THE LAND, ACCORDING TO ASSESSEE, WAS HEL D FOR A PERIOD OF MORE ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 15 OF 24 THAN 36 MONTHS AND THEREFORE TRANSFER OF LAND WOULD GIVE RISE TO LONG TERM CAPITAL GAIN. 15. AS FAR AS VILLA IS CONCERNED, CONSTRUCTION OF VILLA WAS COMPLETED IN 2008 AND SAME WAS SOLD ON 5.5.2008 WITHIN A SHORT P ERIOD AND THEREFORE SALE OF VILLA WOULD GIVE RISE TO SHORT TERM CAPITAL GAIN. THE COMPUTATION OF LONG TERM AND SHORT TERM CAPITAL GAINS MADE BY THE ASSESSEE WAS AS FOLLOWS:- LAND RS. . SALE CONSIDERATION FROM CONCORDE PROPERTY LAND 36, 81,926 LESS: INDEXED COST OF ACQUISITION 9,90,920 = RS.12,01,491 480X 582 INTEREST PAID ON BORROWING: RS. 7,82,394 19,83,885 16,98,042 BUILDING CONCORDE PROPERTY BUILDING 22,14,080 LESS: COST OF CONSTRUCTION 22,14,080 16. THE ASSESSING OFFICER ACCEPTED THE AFORESAID C LAIM OF THE ASSESSEE. THE ONLY OBJECTION OF THE AO WAS WITH REG ARD TO CLAIM OF ASSESSEE FOR DEDUCTION OF A SUM OF RS.7,82,394 WHIC H WAS INTEREST PAID ON BORROWING, WHICH WAS CLAIMED AS DEDUCTION WHILE COM PUTING LONG TERM CAPITAL GAIN ON SALE OF LAND. ACCORDING TO AO, SEC TION 48 PROVIDES THE MODE OF COMPUTATION FOR CHARGING CAPITAL GAIN TO TA X. INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN SHALL BE COMPUTED BY DE DUCTING FROM THE FULL ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 16 OF 24 VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET (I) EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER, AND (II) COST OF ACQ UISITION OF ASSET AND THE COST OF ANY IMPROVEMENT THERETO. IN VIEW OF THE AB OVE PROVISION, HE WAS OF THE VIEW THAT THE SUM OF RS.7,82,394 CLAIMED AS DED UCTION CANNOT BE ALLOWED AS IT IS NEITHER COST OF ACQUISITION OR IMP ROVEMENT TO THE LAND NOR IS IT WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WI TH THE TRANSFER. THE AO THEREFORE ADDED THE SAID AMOUNT TO CAPITAL GAINS AN D BROUGHT TO TAX. 17. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) HAD TO ADDRESS THE QUESTION AS TO WHETHER THE INTEREST PAID ON LOANS BORROWED FOR ACQ UIRING THE PROPERTY WHICH WAS NOT ALLOWED AS A DEDUCTION WHILE COMPUTIN G CAPITAL GAIN, CAN BE ALLOWED AS A DEDUCTION? THE CIT(A) WITHOUT GOING INTO THIS QUESTION, WENT INTO THE QUESTION OF CORRECTNESS OF THE ASSESSEE HA VING BIFURCATED THE CAPITAL GAIN ON SALE OF LAND AND VILLA INTO LONG TE RM AND SHORT TERM CAPITAL GAINS. ACCORDING TO CIT(A), THE TRANSACTION FOR PUR CHASE OF LAND AND BUILDING WAS A SINGLE INTEGRATED TRANSACTION AND TH EREFORE AO OUGHT NOT TO HAVE ACCEPTED THE BIFURCATION OF CAPITAL GAIN ON SA LE OF LAND AND BUILDING INTO LONG TERM AND SHORT TERM CAPITAL GAINS. THE C IT(A) WAS OF THE VIEW THAT CONSEQUENT BENEFIT AND INDEXATION WHILE COMPUT ING LONG TERM CAPITAL GAIN OUGHT NOT TO HAVE BEEN ALLOWED TO THE ASSESSEE . THE CIT(A) IN THIS REGARD REFERRED TO AGREEMENT DATED 4.10.2004 TO CON STRUCT THE VILLA ON THE LAND PROPOSED TO BE PURCHASED BY THE ASSESSEE FROM CONCORDE HOUSING ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 17 OF 24 AND CAME TO THE CONCLUSION THAT SALE OF LAND AND CO NSTRUCTION OF VILLA WAS A SINGLE TRANSACTION. WHEN THE FACTUM OF LAND HAVING ALREADY BEEN REGISTERED IN THE NAME OF ASSESSEE CONSEQUENT TO SA LE DEED DATED 21.10.2004 AND THE RECITAL IN THE SALE DEED THAT AS SESSEE WAS GIVEN POSSESSION OF THE PROPERTY BY CONCORDE HOUSING WAS BROUGHT TO THE NOTICE OF THE CIT(A), HE OBSERVED THAT SUCH POSSESSION WAS ONLY A PAPER TRANSFER. THE CIT(A) ALSO REFERRED TO THE FACT THAT THE ASSES SEE WAS MAKING COMPOSITE PAYMENTS FOR THE LAND & VILLA AND THEREFO RE THE TRANSACTION WITH CONCORDE HOUSING AND CONCORDE SHELTERS HAD TO BE TR EATED BY THE ASSESSEE AS ONE HOLISTIC TRANSACTION ROUTED THROUGH A COMMON LEDGER. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN CGT V. ETHIRAJALU, 93 ITR 366 AND THE JURISDICTIONAL ITAT DECISION IN T.S. KRISHNAMURTHY V. DCIT, ITA NO.569/BANG/2012 DA TED 14.2.14 , WHEREIN THE CONCEPT OF POSSESSION AND THE EXPRESS ION HELD WERE HELD TO BE WORDS NOT HAVING THE SAME MEANING. 18. THE CIT(A), HOWEVER, REJECTED THE AFORESAID CO NTENTION AND HELD AS FOLLOWS:- 8.3 FOR PURPOSES OF CONSIDERING ASSESSIBILITY UN DER THE HEAD OF CAPITAL GAINS, THE INTERPRETATION OF THE WORD HELD IS MUCH WIDER THAN NOTIONS OF OWNERSHIP AND THE HONBLE S UPREME COURT IN THE CASE OF CIT VS PODAR CEMENT PVT LTD. ( 1997) 226 ITR 625 HELD THAT THE OWNER IS THE ONE WHO EFFECTIV ELY CONTROLS THE PROPERTY AND NOT MERELY THE ONE WHO HOLDS TITLE TO THE SAME (EMPHASIS ADDED). IN THE APPELLANTS CASE, IN SPITE OF THE APPEARANCE OF THE SALE DEED HAVING BEEN REGISTERED IN RESPECT OF LAND THE EFFECTIVE POSSESSION AND CONTROL OF T HIS CAPITAL ASSET REMAINED WITH THE CONCORDE GROUP, AND ITS POSSESSIO N ALONG ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 18 OF 24 WITH THE CONSTRUCTED VILLA, WAS HANDED OVER TO THE APPELLANT IN FY 2008-09 SHORTLY BEFORE THE ENTIRE PROPERTY WAS S OLD TO SAKTHI MOHAN. THE ISSUE IN DISPUTE HERE IS NOT WHETHER THE SALE CONSIDERATION RECEIVED FROM SAKTHI MOHAN COULD HAVE BEEN BIFURCATED INTO CONSIDERATION FOR LAND AND BUILD ING WITH SEPARATE TREATMENT OF EACH. THE ISSUE, ESSENTIALLY, IS THE PERIOD OF HOLDING IN RESPECT OF THE COMPONENT OF LAND CO MPRISED IN THE PROPERTY SOLD TO SAKTHI MOHAN. SINCE THE PERIOD OF HOLDING OF BOTH THE LAND AND THE CONSTRUCTED VILLA THEREON WAS LESS THAN 36 MONTHS AS DISCUSSED ABOVE, THE PROCEEDS OF THE TRAN SFER ARE TO BE CONSIDERED FOR COMPUTATION OF SHORT TERMS CAPITA L GAINS ONLY. 19. THE CIT(APPEALS) ULTIMATELY DIRECTED THE AO TO ASSESS THE ENTIRE GAIN AS SHORT TERM CAPITAL GAIN BY ADOPTING THE FUL L VALUE OF CONSIDERATION ON TRANSFER AT RS.58,96,006. 20. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE AS SESSEE HAS PREFERRED ITA NO.573/BANG/2012 APPEAL BEFORE THE TRIBUNAL. T HIS TRIBUNAL BY AN ORDER DATED 20.3.2015 HAS HELD AS UNDER:- 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. FROM A PERUSAL OF AGREEMENT DATED 4.1 0.2004 BETWEEN THE ASSESSEE AND CONCORDE SHELTERS, IT IS CLEAR THAT CONCORDE SHELTERS AGREED TO CONSTRUCT A VILLA ON TH E PLOT SOLD BY CONCORDE HOUSING. CLAUSE 5 OF THE SAID AGREEMENT I S VERY MATERIAL AND IT READS AS FOLLOWS:- 5. THE FIRST PARTY HEREBY IRREVOCABLY PERMITS AND AUTHORIZES THE SECOND PARTY TO HOLD THE SCHEDULE PR OPERTY TO DEVELOP THE SAME BY CONSTRUCTING A RESIDENTIAL V ILLA FOR HIM BY OBTAINING THE SANCTIONED PLAN. THE FIRST PAR TY SHALL NOT REVOKE THE PERMISSION SO GRANTED, TILL COMPLETI ON OF THE ENTIRE VILLA WITH THE PLAN AND THE SPECIFICATIO NS AGREED TO IN ANNEXURE-I AND II AS THE AGENCY CREATED HEREI N IS ONE COUPLED WITH INTEREST IN SO FAR AS THE SECOND P ARTY CONSTRUCTING A RESIDENTIAL VILLA IN THE SCHEDULE PR OPERTY. ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 19 OF 24 16. THE LAND WAS SOLD BY CONCORDE HOUSING TO THE AS SESSEE BY A REGISTERED SALE DEED DATED 21.10.2004. IN THE SAID SALE DEED, CONCORDE HOSING HAS AFFIRMED THAT POSSESSION OF THE SITE SOLD TO THE ASSESSEE HAS BEEN DELIVERED AND THAT TH E ASSESSEE WILL BE IN LEGAL POSSESSION OF THE PROPERTY FROM TH E DATE OF SALE DEED. IT IS THUS CLEAR THAT THE ASSESSEE ACQUIRED TITLE TO THE LAND AS EARLY AS ON 21.10.2004. THE POSSESSION OF CONCO RDE SHELTERS UNDER AGREEMENT DATED 4.10.2004, WAS ONLY A LICENSE TO CARRY OUT CONSTRUCTION WHICH CANNOT BE EQUATED T O POSSESSION AS UNDERSTOOD IN LEGAL PARLANCE. THE ASSESSEE HAVI NG ACQUIRED TITLE TO THE LAND AS EARLY AS ON 21.10.2004 AND HAV ING SOLD THE LAND TOGETHER WITH VILLA UNDER AN AGREEMENT DATED 5 .5.2008, IT IS TO BE HELD THAT THE TRANSACTION OF SALE HAS TO BE B IFURCATED AS ONE RELATING TO LAND AND THE OTHER RELATING TO BUIL DING. AS FAR AS THE TRANSACTION OF SALE OF LAND IS CONCERNED, THE G AIN ON SUCH SALE SHOULD BE CONSTRUED AS LONG TERM CAPITAL GAIN BECAUSE THE ASSESSEE HELD THE LAND FOR A PERIOD OF MORE THAN 36 MONTHS. THE CONCLUSIONS OF THE CIT(APPEALS) THAT THE EXPRES SION HELD AS USED IN THE DEFINITION OF LONG TERM CAPITAL ASSE T IN THE ACT MEANS PHYSICAL POSSESSION, IN OUR VIEW, IS ERRONEOU S AND IS NOT CONTEMPLATED BY THE PROVISIONS OF SECTION 2(42A) OF THE ACT. THE LAW IS WELL SETTLED THAT WHEN THERE IS A TRANSF ER OF CAPITAL ASSET BEING LAND TOGETHER WITH BUILDING AND WHERE T HE LAND IS HELD FOR A PERIOD OF MORE THAN 36 MONTHS AND THE BU ILDING HELD FOR LESS THAN 36 MONTHS, THE CAPITAL GAIN ON LAND A ND BUILDING HAS TO BE BIFURCATED AS ONE RELATING TO LAND AND TH E OTHER RELATING TO BUILDING. IF THE LAND IS HELD FOR MORE THAN 36 MONTHS, THEN CAPITAL GAIN ON SALE OF LAND HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RAMACHANDRA RAO, 236 ITR 51 (MAD) HAD AN OCCASION TO DEAL WITH IDENTICAL CASE. THE HONBLE COURT HELD A S FOLLOWS:- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS OF BOTH PARTIES. THE EXPRESSION 'CAPITAL ASSET' IS DEF INED IN S. 2(14) OF THE ACT AS UNDER : 'CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY A N ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE - (I) ANY STOCK-IN-TRADE, CONSUMABLE STORES OR RAW MA TERIALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION S, .......... ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 20 OF 24 (III) AGRICULTURAL LAND IN INDIA, ETC. THE KEY WORD S OF THE DEFINITIONS OF CAPITAL ASSET FOUND IN S. 2(14) ARE THE PROPERTY OF ANY KIND AND THE TERM COMPREHENDS AND INCLUDES WITHIN ITSELF ANY INTEREST IN THE PROPERTY . IT MAY BE MOVABLE OR IMMOVABLE PROPERTY OR ANY INTEREST THERE ON. THE TERM 'SHORT-TERM CAPITAL ASSET' IS DEFINED IN S . 2(42A) OF THE ACT AS UNDER : 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET HE LD BY AN ASSESSEE FOR NOT MORE THAN SIXTY MONTHS IMMEDIAT ELY PRECEDING THE DATE OF TRANSFER'. DURING THE RELEVANT PERIOD, S. 2(42A) OF THE ACT PR ESCRIBED THE PERIOD OF THIRTY SIX MONTHS. THE EMPHASIS THAT IS GIVEN IN S. 2(42A) IS THAT THE CAPITAL ASSETS SHOULD BE H ELD BY AN ASSESSEE FOR A PERIOD NOT MORE THAN 36 MONTHS IMMEDIATELY PRECEDING THE DATE FOR THE ASSET TO BE TERMED AS A SHORT-TERM CAPITAL ASSETS. HERE ALSO, THE EMPH ASIS IS GIVEN ON THE EXPRESSION HELD BY AN ASSESSEE. THE MO DE OF COMPUTATION OF THE CAPITAL GAIN IS PROVIDED UNDE R S. 48 OF THE ACT WHICH READS AS UNDER : 'THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAIN S' SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS , NAMELY :- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE CAPITAL ASSET A ND THE COST OF ANY IMPROVEMENT THERETO'. SEC. 80T OF THE ACT GRANTS DEDUCTION IN RESPECT OF THE LONG-TERM CAPITAL GAINS IN THE CASE OF AN ASSESSEE OTHER THAN COMPANIES WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE NOT BEING A COMPANY INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' RELATING TO CAPITAL ASSETS OTHER THAN SHORT-TERM CAPITAL ASSETS . IN THE CASE OF BUILDINGS OR LAND, SEPARATE DEDUCTION IS PR OVIDED UNDER S. 80J(B) OF THE ACT. IT IS RELEVANT TO NOTE WHEN S. 80T GRANTS DEDUCTION, IT USES THE EXPRESSION BOTH T HE BUILDINGS OR LAND OR ANY RIGHTS IN BUILDING OR LAND S. THE QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER I T IS POSSIBLE TO BIFURCATE THE CAPITAL GAINS THAT ARISES ON THE ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 21 OF 24 SALE OF THE LAND AND BUILDING, WHEN IT IS SOLD AS O NE UNIT. THE DECISION OF THIS COURT IN PARK VIEW ENTERPRISES (CITED SUPRA) MAKES IT CLEAR THAT THE INDIAN LAW RECOGNISE S DUAL OWNERSHIP OF THE LAND AND BUILDING. THE PRIVY COUNC IL IN NARAYAN DAS VS. JATINDRANATH AIR 1923 PC 135 HAS AL SO TAKEN THE VIEW THAT HAVING REGARD TO THE LAW IN IND IA IT IS POSSIBLE TO HAVE SEPARATION OF OWNERSHIP OF THE BUI LDING FROM THE OWNERSHIP OF THE LAND. THIS VIEW OF THE PR IVY COUNCIL WAS APPROVED BY THE SUPREME COURT IN BISHAN DAS VS. STATE OF PUNJAB . IN SO FAR AS THE DEFINITI ON OF CAPITAL ASSET IS CONCERNED, AS ALREADY SEEN, THE DE FINITION OF CAPITAL ASSET INCLUDES PROPERTY OF ANY KIND AND THE LAND HELD BY THE ASSESSEE IS A CAPITAL ASSET AND THE BUI LDING HELD BY THE ASSESSEE IS ALSO A CAPITAL ASSET AND IT IS POSSIBLE TO BIFURCATE THE CAPITAL GAIN ARISING WITH REFERENCE TO THE SALE OF THE LAND AND BUILDING EVEN IF THEY A RE SOLD AS ONE UNIT, IF THE LANDS ARE HELD BY THE ASSESSEE FOR A PERIOD MORE THAN THAT PRESCRIBED UNDER S. 2(42A) OF THE AC T. IT IS NOT POSSIBLE TO SAY THAT BY CONSTRUCTION OF THE BUI LDING, THAT THE LAND WHICH WAS A LONG-TERM CAPITAL ASSET, HAS CEASED TO BE A LONG-TERM CAPITAL ASSET. THE LAND IS AN INDEPENDENT AND AN IDENTIFIABLE CAPITAL ASSET, AND IT CONTINUES TO REMAIN AS AN IDENTIFIABLE CAPITAL ASSE T EVEN AFTER CONSTRUCTION OF BUILDING AND AT THE TIME OF T HE SALE OF THE HOUSE. SINCE THE LAND WAS HELD BY THE ASSESSEE FOR A PERIOD EXCEEDING 36 MONTHS, THE LAND CANNOT BE REGA RDED AS A SHORT-TERM CAPITAL ASSET ONLY BY VIRTUE OF THE CONSTRUCTION OF BUILDING THEREON. HENCE WE ARE UNAB LE TO ACCEPT THE CONTENTIONS OF LEARNED COUNSEL FOR THE REVENUE THAT IT IS NOT POSSIBLE TO BIFURCATE THE CA PITAL ASSET INTO TWO. WE ARE OF THE OPINION THAT THE TRIB UNAL HAS COME TO A CORRECT CONCLUSION THAT IT IS POSSIBLE TO WORK OUT CAPITAL GAIN WITH REFERENCE TO SALE OF BUILDING AND LAND SEPARATELY. THE DECISION OF THE SUPREME COURT IN ST ATE OF KERALA VS. P. P. HASSAN KOYA (SUPRA) RELIED ON BY T HE LEARNED COUNSEL FOR THE REVENUE HAS NO APPLICATION TO THE FACTS OF THIS CASE AS IT DEALS WITH THE CASE WHERE COMPENSATION WAS PAYABLE IN RESPECT OF LAND AND BUI LDING AND IN THAT SITUATION, THE SUPREME COURT HAS HELD T HAT BOTH THE LAND AND BUILDING SHOULD BE VALUED AS ONE UNIT AND HENCE, THE DECISION RENDERED BY THE SUPREME COU RT WITH REFERENCE TO DETERMINATION OF COMPENSATION UND ER THE LAND ACQUISITION ACT HAS NO APPLICATION, PARTIC ULARLY IN THE LIGHT OF S. 80T OF THE ACT. IT IS IMPERMISSIBLE FOR THE LEARNED COUNSEL TO RELY ON A DECISION FOR A POINT W HICH WAS NOT DECIDED IN THAT CASE. IN CIT VS. VIMAL CHAN D ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 22 OF 24 GOLECHA (SUPRA), THE RAJASTHAN HIGH COURT HELD THAT EVEN IF THE LAND AND BUILDING ARE SOLD AS ONE UNIT FOR A CONSOLIDATED PRICE, THE ASSESSEE IS ENTITLED TO BIF URCATE THE SAME AND THE CAPITAL GAIN ARISING FROM THE SALE OF THE LAND HAD TO BE TREATED AS LONG-TERM CAPITAL GAINS. WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY THE RAJASTH AN HIGH COURT IN THE ABOVE CASE. WE ARE OF THE VIEW TH AT THE LAND CAN BE REGARDED AS CAPITAL ASSET AS PER S. 2(1 4) OF THE ACT AND IN ACCORDANCE WITH THE SCHEME OF THE AC T, LAND WOULD BE CONSIDERED AS A SEPARATE CAPITAL ASSE T, EVEN IF A BUILDING IS CONSTRUCTED THEREON. WE ARE A LSO OF THE OPINION THAT WHERE THE LAND HAVING BEEN HELD FO R MORE THAN A PRESCRIBED PERIOD, THE GAINS ARISING FROM TH E SALE OF THE LAND COULD BE CONSIDERED AS A LONG-TERM CAPITAL GAINS, THOUGH THE BUILDING THEREON WAS A NEW CONSTRUCTION HELD FOR A PERIOD LESS THAN 36 MONTHS. SINCE THE TRIBUNA L HAS COME TO THE CORRECT CONCLUSION BY APPLYING THE WELL SETTLED PRINCIPLES OF LAW, WE ARE OF THE OPINION THAT NO RE FERABLE QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIB UNAL. THEREFORE, WE REJECT THE TAX CASE PETITION. NO COST S. 17. WE ARE THEREFORE OF THE VIEW THAT BIFURCATION O F CAPITAL GAIN AS MADE BY THE ASSESSEE SHOULD BE ACCEPTED. W E, HOWEVER, DESIST FROM MAKING ANY OBSERVATIONS WITH R EGARD TO CLAIM OF ASSESSEE FOR DEDUCTION OF INTEREST PAID ON BORROWINGS WHILE COMPUTING LONG TERM CAPITAL GAIN ON SALE OF L AND, AS THE SAME IS NOT SUBJECT MATTER OF APPEAL BEFORE US. WI TH THESE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS ALLOWED . 21. IT CAN BE SEEN FROM THE AFORESAID ORDER OF THE TRIBUNAL THAT THE ASSESSEE DID NOT RAISE THE ISSUE WITH REGARD TO DED UCTION OF RS.7,82,394 WHICH WAS INTEREST PAID ON BORROWING CLAIMED AS DED UCTION WHILE COMPUTING LONG TERM CAPITAL GAIN ON SALE OF LAND. THIS SUM OF RS.7,82,394 WAS INTEREST PAID ON FUNDS THAT THE ASSESSEE BORROW ED TO ACQUIRE THE LAND. THE AO DID NOT ALLOW THE SAID CLAIM FOR THE REASON THAT IT COULD NEITHER BE CONSIDERED AS EXPENDITURE INCURRED IN CONNECTION WI TH TRANSFER NOR COST OF ACQUISITION NOR COST OF ANY IMPROVEMENT THEREON. T HE ASSESSEE ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 23 OF 24 CHALLENGED THIS PART OF THE ORDER OF AO BEFORE THE CIT(APPEALS). THE CIT(APPEALS) DID NOT ADJUDICATE THIS ISSUE AT ALL. IN THE CROSS OBJECTION, THE SUBMISSION OF THE ASSESSEE IS THAT THE CIT(APPE ALS) FAILED TO ADJUDICATE THIS ISSUE. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE IS CO RRECT. SINCE THE CIT(APPEALS) HAS NOT ADJUDICATED THIS ISSUE, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE CIT(APP EALS) TO ADJUDICATE THIS ISSUE AFTER AFFORDING THE ASSESSEE OPPORTUNITY OF B EING HEARD. ALL OTHER ISSUES WHICH ARE CONCLUDED BY THIS ORDER OR BY THE ORDER DATED 20.03.2015 IN ITA NO.573/BANG/2012 WILL REMAIN CONCLUDED AND W ILL NOT REMAIN OPEN TO ANY SCRUTINY IN THE SET ASIDE PROCEEDINGS BEFORE TH E CIT(APPEALS). WITH THESE OBSERVATIONS, THE CROSS OBJECTION BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED, WHILE THE CROSS OBJECTION BY ASSESSEE IS TREATED AS ALLOWED F OR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF JUNE, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 11 TH JUNE, 2015. /D S/ ITA NO. 864/BANG/2014 & CO 86/BANG/2015 PAGE 24 OF 24 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.