ITO 21(2)(4), MUMBAI V. SAROJA S. MEKAL, MUMBAI

ITA 132/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78967 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: P D JOSHI
• Keywords: Capital asset
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 132/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) INCOME TAX OFFICER-21(2)(4), ROOM NO. 503, 5 TH FLOOR, C-10, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. SAROJA S. MEKAL 201, PLANNET INDUSTRIAL ESTATE, SUBHASH ROAD, VILE PARLE (E), MUMBAI-400 057 ' ./# ./PAN/GIR NO. AACPM 8430 E ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI PITAMBAR DAS %&'$ ' ( / RESPONDENT BY : SHRI P. D. JOSHI )* + ' , / DATE OF HEARING : 13.05.2014 -./ ' , / DATE OF PRONOUNCEMENT : 21.05.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-32, MUMBAI (CIT(A) FOR SH ORT) DATED 10.10.2012, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2009-10 VIDE ORDER DATED 19.12.2011. 2 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL 2. THE BRIEF FACTS OF THE CASE, AS GATHERED FROM TH E RECORD, ARE THAT THE ASSESSEE, AN INDIVIDUAL, CLAIMED EXEMPTION U/S.54F OF THE ACT I N RESPECT OF THE LONG TERM CAPITAL GAINS (LTCG) ARISING TO IT ON THE SALE OF AN INDUSTRIAL G ALA AT PRAGATI INDUSTRIAL COMPLEX, PUNE FOR RS.40.50 LACS VIDE SALE AGREEMENT DATED 21.07.2 008 (PB PGS.20-26), IN VIEW OF THE PURCHASE OF A RESIDENTIAL FLAT IN A BUILDING KNOWN AS RADHA KRISHNA NIWAS AT VILE PARLE (E), MUMBAI (FROM A BUILDER, R. R. CONSTRUCTIONS) A LONG WITH ONE, SHRI SWAPNEIL SANTOSH MAKEL, FOR A CONSIDERATION OF RS.101 LACS (VIDE ARTICLE OF AGREEMENT DATED 24.03.2009 /PB PGS.9-18), CLAIMING THE ENTIRE AMOUNT OF LTCG A RISING THUS TO HER (AT RS.26,58,147/-) AS EXEMPT. OF THE TOTAL CONSIDERATI ON, RS.91 LACS, REPRESENTING 90% THEREOF, IS TO BE CONTRIBUTED BY THE ASSESSEE AND T HE BALANCE 10% BY THE OTHER CO-OWNER, A FAMILY MEMBER. DURING THE YEAR, THE ASSESSEE PAID R S.40 LACS TO THE BUILDER, BESIDES ANOTHER RS.5,19,312/- TOWARDS STAMP DUTY & REGISTRA TION CHARGES (PB PG.1) FOR THE RADHA KRISHNA (NEW) FLAT, AND WHICH FORMED THE BASIS FOR THE CLAIM OF DEDUCTION U/S.54F IN ITS RESPECT. THE SAME WAS FOUND NOT ACCEPTABLE BY THE A SSESSING OFFICER (A.O.) IN-AS-MUCH AS THE ASSESSEE HAD ON THE RELEVANT DATE, I.E., THE DATE OF TRANSFER OF INDUSTRIAL GALA, THE ORIGINAL ASSET, MORE THAN ONE RESIDENTIAL HOUSE, BE ING: A) RESIDENTIAL FLAT AT 204, KOTESHWAR PALACE, SAHAR ROAD, ANDHERI (E), MUMBAI- 400 069 (HEREINAFTER REFERRED TO AS FLAT A); B) FLAT NO.401, RADHA KRISHNA NIWAS, MUMBAI (HEREIN AFTER REFERRED TO AS FLAT B). EVEN THOUGH THE PURCHASE AGREEMENT FOR FLAT B IS DA TED 24.03.2009, THE DATE OF ITS PURCHASE WOULD BE THAT OF ITS ALLOTMENT, I.E., 27.0 7.2007 . THE ASSESSEE HAD, IN FACT, ALREADY CLAIMED EXEMPTION U/S.54F FOR THE PURCHASE OF NEW FLAT OR THE NEW ASSET AT RS.40 LACS FOR THE A.Y. 2007-08. IN APPEAL, THE ASSESSEE FOUND FAVOUR WITH THE LD. C IT(A) ON THE BASIS THAT THE FLAT B ITSELF WAS THE NEW ASSET, SO THAT IT COULD NOT BE SAID THAT THE ASSESSEE HAD MORE THAN ONE RESIDENTIAL HOUSE, EXCLUDING THE NEW ASSET, AS ON THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET, I.E., 21.07.2008. ANY INVESTMENT MA DE DURING THE PERIOD 21.07.2007 AND 21.07.2010 WOULD THUS QUALIFY FOR EXEMPTION U/S.54F . THE PAYMENT OF RS.45.19 LACS 3 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL TOWARD THE NEW ASSET DURING THE YEAR FELL IN THIS P ERIOD. THE SAME EXCEEDING THE CONSIDERATION ARISING ON THE SALE OF THE ORIGINAL A SSET, I.E., RS.40.50 LACS, THE ENTIRE LTCG WAS EXEMPT U/S.54F. THE ASSESSEES APPEAL HAVING BE EN ALLOWED THUS, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 IT WOULD BE RELEVANT TO, TO BEGIN WITH, REPRODU CE THE RELEVANT PROVISION. SECTION 54F, IN ITS RELEVANT PART, READS AS UNDER: CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE. 54F. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (4), WHERE, IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HINDU UNDIVIDE D FAMILY, THE CAPITAL GAIN ARISES FROM THE TRANSFER OF ANY LONG-TERM CAPI TAL ASSET, NOT BEING A RESIDENTIAL HOUSE (HEREAFTER IN THIS SECTION REFERR ED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS, WITHIN A PERIOD OF ONE YEAR B EFORE 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 RESID ENTIAL HOUSE (HEREAFTER IN THIS SECTION REFERRED TO AS THE NEW ASSET), THE CAP ITAL GAIN SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SAY, - ( A ) IF THE COST OF THE NEW ASSET IS NOT LESS THAN TH E NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CA PITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45 ; ( B ) IF THE COST OF THE NEW ASSET IS LESS THAN THE NE T CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, SO MUCH OF THE CAPIT AL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL GAIN THE SAME PROPORTION A S 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 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 N EW ASSET, WITHIN A PERIOD OF ONE YEAR AFTER THE DATE OF TRANS FER 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 TR ANSFER OF THE ORIGINAL ASSET; AND 4 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL ( B ) THE INCOME FROM SUCH RESIDENTIAL HOUSE, OTHER TH AN THE ONE RESIDENTIAL HOUSE OWNED ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET, IS CHARGEABLE UNDER THE HEAD INCOME FROM HO USE PROPERTY. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, NET CONSIDERATION, IN RELATION TO THE TRANSFER O F A CAPITAL ASSET, MEANS THE FULL VALUE OF THE CONSIDERATION RE CEIVED 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. [EMPHASIS, BY UNDERLINING, OURS] THE REVENUES CASE, AS PROJECTED PER ITS GROUNDS, I S THAT THE FIRST APPELLATE AUTHORITY HAD FAILED TO CONSIDER THAT FLAT B STOOD ALREADY PURC HASED BY THE ASSESSEE ON 27.07.2007, I.E., PRIOR TO THE TRANSFER OF ORIGINAL ASSET ON 21 .07.2008, BY PAYING RS.51 LACS TO THE BUILDER, SO THAT SHE HAD, AS ON THE RELEVANT DATE, TWO RESIDENTIAL FLATS, I.E., FLAT A & FLAT B AND, ACCORDINGLY, NO DEDUCTION U/S.54F COULD BE ALL OWED. THE SAME OVERLOOKS, AS POINTED OUT BY THE LD. CIT(A), THE FACT THAT FLAT B IS THE NEW ASSET ( QUA THE COST OF WHICH RELIEF U/S.54F IS BEING CLAIMED), SO THAT IT IS TO BE EXCL UDED. THE ASSESSEE, THUS, HAS ONLY ONE RESIDENTIAL HOUSE, FLAT A, ON THE RELEVANT DATE, EX CLUDING THE NEW ASSET, PRECLUDING THE APPLICATION OF CLAUSE (A)(I) OF PROVISO TO SECTION 54F(1). MERELY BECAUSE SOME INVESTMENT STANDS MADE, OR CONTINUES TO BE MADE, THEREIN, I.E. , THE NEW ASSET, IN A SUBSEQUENT YEAR, THE CURRENT YEAR, WOULD NOT MAKE IT A DIFFERENT ASS ET. THE ASSESSEE, BY PAYING THE BALANCE INSTALLMENTS AND, THUS, MEETING THE BALANCE COST (OF RS.45.19 LACS - HIS TOTAL SHARE, INCLUSIVE OF INCIDENT COSTS, BEING AT RS.96.19 LACS ), IS ONLY COMPLETING THE PURCHASE OF FLAT B, A RESIDENTIAL HOUSE. IT BEING TERMED AS T HE NEW ASSET IN THE PROVISION IS ONLY FOR IDENTIFICATION, SO AS TO DIFFERENTIATE IT FROM THE RESIDENTIAL HOUSE/S BEING ALREADY OWNED BY THE ASSESSEE, I.E., AS ON THE RELEVANT DATE, THE DA TE OF THE TRANSFER OF THE ORIGINAL ASSET (21.07.2008). 3.2 IT COULD BE ARGUED THAT THE PROVISION ENVISAGES A PURCHASE (OR CONSTRUCTION) OF A NEW RESIDENTIAL HOUSE, I.E., OTHER THAN THOSE ALREA DY OWNED BY THE ASSESSEE. AND WHICH IS NOT SO IN THE INSTANT CASE IN-AS-MUCH AS FLAT B S TOOD ALREADY PURCHASED DURING THE 5 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL PREVIOUS YEAR RELEVANT TO A.Y. 2008-09 AND, THUS, O WNED BY THE ASSESSEE, SO THAT THE PRIMARY CONDITION OF SECTION 54F(1), I.E., PURCHASE OR CONSTRUCTION OF A RESIDENTIAL HOUSE, STANDS NOT MET FOR THE CURRENT YEAR. THIS IN FACT I S THE CASE OF THE REVENUE AS MADE BY THE A.O. WE CONSIDER THE SAME TO BE A NEGATIVE OR RESTR ICTIVE MANNER OF READING THE PROVISION; RATHER, ONE WHICH IS NOT IN HARMONY OR I N KEEPING WITH THE SPIRIT THEREOF. THE RESTRICTIONS, AS OF A MAXIMUM OF TWO RESIDENTIAL HO USES; RETENTION OF ONE QUA WHICH DEDUCTION IS AVAILED FOR A PERIOD OF THREE YEARS (L EST THE SAME BECOMES A TRADE), ETC., STAND CLEARLY SPELT OUT IN THE SECTION ITSELF (SECTION 54 F). ONCE THE PURCHASE OF A RESIDENTIAL HOUSE HAS CRYSTALLIZED, AS OSTENSIBLY ON 27.07.2007 IN THE PRESENT CASE, ANY CAPITAL GAIN ARISING ON A LONG-TERM CAPITAL ASSET (NON-RESIDENTI AL) COULD BE APPROPRIATED TOWARD ITS COST AS LONG AS THE CONDITIONS OF THE SECTION ARE MET. A BENEFICIAL PROVISION, AS SECTION 54F, HAS EVEN OTHERWISE TO BE CONSTRUED LIBERALLY. THE D ECISIONS BY THE TRIBUNAL, AS IN THE CASE OF ANAGHA AJIT PATNEKAR VS. ITO [2006] 9 SOT 685 (MUM) AND MRS. KRISHNADEVI KEJRIWAL VS. ITO (IN ITA NOS. 93/MUM/2009 & 2961/MUM/2008 DATED 25.0 6.2010) SUPPORT THE ASSESSEES CASE. 3.3 IT WOULD AT THIS STAGE BE RELEVANT TO DISCUSS A NOTHER ASPECT OF THE MATTER, AND WHICH TO OUR MIND IS THE MOOT POINT ARISING IN THE INSTAN T CASE, NOT ADDRESSED BY THE FIRST APPELLATE AUTHORITY, I.E., AS WHAT CONSTITUTES A P URCHASE FOR THE PURPOSES OF SECTION 54F OR, FOR THAT MATTER, THE OTHER PARA MATERIA PROVISIONS. THE SAME, WITHOUT DOUBT, IS RELATED TO THE ISSUE DISCUSSED BY US AT PARA 3.2 ABOVE, AND WHICH EXPLAINS OUR STATING OF IT AS ANOTHER ASPECT OF THE MATTER. THAT IS, TO PUT IT SU CCINCTLY: WHETHER THE PURCHASE OF FLAT B TOOK PLACE ON 27.07.2007 OR ON 24.03.2009 ? THIS IS RELEVANT AS ONLY UPON PURCHASE COULD AN ASSESSEE BE SAID TO HAVE SATISFIED THE QUA LIFYING CONDITION OF S. 54F(1), ENTITLING IT TO EXEMPTION THERE-UNDER. THERE IS NO QUESTION O F THE ISSUE NOT ARISING IN THE INSTANT CASE, AS CONTENDED BEFORE US BY THE LD. AR, FORMING IN FACT THE SUBSTRATUM OF THE REVENUES CASE. IT WOULD ACCORDINGLY BECOME RELEVAN T TO DETERMINE WHETHER THE PURCHASE OF FLAT B HAD TAKEN PLACE DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09 OR THE CURRENT YEAR, OR, IN SHORT, THE DATE OF ITS PURCHASE. 6 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL IN THIS REGARD IT IS TO BE NOTED THAT THE WORD PUR CHASE, ALONG WITH CONSTRUCTION, IS SPECIFIED IN THE PROVISION QUA THE NEW ASSET IN CONTRADISTINCTION TO THE WORD T RANSFER EMPLOYED IN RESPECT OF THE ORIGINAL ASSET ON WHIC H LTCG ARISES. CLEARLY, THEREFORE, THE SAME IS BEING USED TO REPRESENT A MODE OF ACQUISITI ON OF THE NEW ASSET. THE HONBLE JURISDICTIONAL HIGH COURT HAS EXPLAINED THE SAME IN CIT VS. MRS. HILLA J. B. WADIA [1995] 216 ITR 376 (BOM) (PB PGS.38-41) AS ACQUIRING SUBST ANTIAL DOMAIN OR CONTROL OVER THE PROPERTY BY VIRTUE OF ALMOST THE ENTIRE PAYMENT THE REOF. IN FACT, IN THE CASE OF ALLOTMENT OF FLATS THROUGH SELF-FINANCING SCHEMES, AS BY THE DDA , THE SAME IS CONSIDERED AS AN ACQUISITION BY WAY OF CONSTRUCTION, ENTITLING THE A SSESSEES TO COMPLETE THE TEST OF DOMINION OVER AN INCREASED PERIOD OF TIME, I.E., TH REE YEARS, AS PROVIDED BY THE STATUTE FOR THE SAME (CONSTRUCTION) AFTER THE DATE OF TRANSFER. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE PAID RS.51 LACS IN JULY, 2007, RECEIVING T HE LETTER OF ALLOTMENT. WHETHER THE SAME WOULD AMOUNT TO A PURCHASE OF THE RELEVANT ASSET WO ULD BE THE NEXT AND THE RELEVANT QUESTION TO BE ASKED. EVEN THOUGH THE SAME MAY NOT BY ITSELF BE CONSIDERED AS CONSTITUTING A PURCHASE IN TERMS OF TEST LAID DOW N BY THE HONBLE COURT IN THE CASE CITED SUPRA, THE SUBSEQUENT PAYMENTS WOULD DEFINITELY LEA D TO ONE, SO THAT THE PAYMENTS MADE IN JULY, 2007 CAN, IN RETROSPECTIVE, ONLY BE CONSID ERED AS TOWARD PURCHASE OF FLAT B, THE NEW ASSET. BUT FOR THE PAYMENTS IN JULY, 2007, IT M AY BE APPRECIATED, THE PAYMENT/S DURING THE RELEVANT PREVIOUS YEAR (RS.40 LACS) WOUL D NOT RESULT IN THE PAYMENT OF THE ENTIRE SUM DURING THE CURRENT YEAR, EVEN AS WE OBSE RVE SUBSTANTIAL PAYMENT TO HAVE BEEN MADE, MEETING THE TEST OF SUBSTANTIAL CONTROL, BY D ECEMBER, 2008, WHEREAT THEREFORE THE PURCHASE, AS EXPLAINED BY THE HONBLE COURT, CAN BE SAID TO HAVE TAKEN PLACE OR MATURED. A REASONABLE CONSTRUCTION OF THE PROVISION, THUS, W OULD ONLY BE OF THE PURCHASE, AS INDEED CONSTRUCTION, BEING A MANNER OF ACQUISITION, WHICH IS TO BE COMPLETED WITHIN THE TIME AS PROVIDED UNDER THE PROVISION, I.E., ONE YEA R BEFORE OR TWO YEARS SUBSEQUENT TO THE DATE OF TRANSFER OF THE RELEVANT CAPITAL ASSET. FUR THER, DETERMINATION OF THE PURCHASE DATE OF FLAT B IN DECEMBER, 2008 WOULD, HOWEVER, RESULT IN NO ADVERSE IMPACT ON THE ASSESSEES CASE EITHER FOR A.Y. 2007-08 OR FOR THE CURRENT YEAR. 7 ITA NO. 132/MUM/2013 (A.Y. 2009-10) ITO VS. SAROJA S. MEKAL 4. IN VIEW OF THE FOREGOING, WE FIND NO INFIRMITY I N THE ASSESSEES CASE AND, ACCORDINGLY, UPHOLD THE IMPUGNED ORDER. THE REVENUE FAILS IN RESULT. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 0/ 1 * ' 0 ' 23 ORDER PRONOUNCED IN THE OPEN COURT ON MAY 21, 2014 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 4+ MUMBAI; 5) DATED : 21.05.2014 *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. 8*9 : %);< , , ; ? + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 4+ / ITAT, MUMBAI