Sri. Ramakrishna Nishtala, Bangalore V. The Assistant Commissioner Of Income Tax, Circle- 7(1)(2), Bangalore

ITA 164/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4284 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 04-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KANNAN NARAYAN
• Assessee Lawyers: CHYTANYA K K
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 54; 54F; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.164/BANG/2020 ASSESSMENT YEAR : 2016-17 SRI RAMAKRISHNA NISHTALA, VILLA NO.735, ADARSH PALM RETREAT, PHASE-III, SY. NO.94/4, DODDAKANNEHALLI, VARTHUR HOBLI, BENGALURU EAST TALUK-562106. PAN A BWPN 0410 E V S. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI CHYTANYA KK, ADVOCATE REVENUE BY : SHRI KANNAN NARAYAN, JCIT(DR) DATE OF HEARING : 22-07-2021 DATE OF PRONOUNCEMENT : 30 -09-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE A GAINST ORDER DATED 15/12/2019 PASSED BY THE LD. CIT (A)-7, BANGA LORE FOR ASSESSMENT YEAR 2016-17 ON FOLLOWING GROUNDS OF APP EAL: 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIFIED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIF IED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DENYING THE EXEMPTION OF CAPITAL GAINS OF RS.59,73,467/- CLAIMED UNDER SECTI ON 54F OF IT ACT. 3. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN UPHOLDING DISALLOWANCE OF EXEMPTION UNDER SECTION 54F ON THE BASIS THAT THE VILLA WAS REGISTERED ON 21.02.2015 I.E. PRIOR TO TRANSFER OF ORIGINAL ASSET I.E. PAGE 2 OF 16 ITA NO.164/BANG/2020 13.11.2015 WHEN SECTION 54F DOES NOT BAR CONSTRUCTI ON WITHIN ONE YEAR PRIOR TO DATE OF TRANSFER AND WHEN THE EXPENSES UPT O RS.12,50,000/- WERE INCURRED DURING ONE YEAR PRIOR TO THE SAID DATE AND EXPENSES UPTO RS.23,63,380/WERE INCURRED AFTER THE SAID DATE TOWA RDS FURNISHING THE VILLA. 4. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN PLACING RELIANCE ON THE DECISION OF PARSWANATH PADMARAJAIAH JAM [20191 102 TAXMANN.COM 92 (BENGALURU), WHEN THE FACTS WERE DIFFERENT AND I GNORING THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS. K RAMACHANDRA RAO, [2015] 230 TAXMAN 334 WHEREIN IT WAS HELD THAT ALL INVESTMENTS MADE IN THE CONSTRUCTION OF THE RESIDENTIAL HOUSE WITHIN A PERI OD OF ONE YEAR PRIOR TO SALE OF ORIGINAL ASSET ARE ELIGIBLE FOR EXEMPTION U NDER SECTION 54F(1). 5. THE LEARNED COMMISSIONER (APPEALS) HAS FAILED TO APPRECIATE THAT THE REGISTRATION CHARGES OF RS. 3,12,765/-, STAMP DUTY RS.17,44,200/-, STATUTORY CHARGES OF RS.3,29,655/- AND INTERIOR WOR KS OF RS. 36,13,380/- FORM PART OF PURCHASE COST OF NEW RESIDENTIAL HOUSE (I.E., ADARSH PALM RETREAT VILLA) AND THE APPELLANT IS ENTITLED TO CLA IM EXEMPTION UNDER SECTION 54F ON SUCH INVESTMENTS. 6. THE LEARNED COMMISSIONER (APPEALS) HAVING NOTED THE SUBMISSION AND JUDICIAL PRECEDENTS SUBMITTED BY THE APPELLANT THAT THE REGISTRATION CHARGES, STAMP DUTY AND STATUTORY CHARGES FORM PART OF PURCHASE COST OF NEW RESIDENTIAL HOUSE, HAS UNJUSTLY UPHELD THE DISA LLOWANCE. 7. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN DENYING THE EXEMPTION ON INVESTMENT MADE TOWARDS INTERIOR WORKS BY STATING THAT 'EXPENDITURE ON INTERIORS TO MAKE THE HOUSE PLUSH A ND LUXURIOUS WHICH NOT INCLUDED IN THE TOTAL COST OF THE HOUSE PAID TO THE BUILDER... ', WHEN NO SUCH CONDITION PRESCRIBED UNDER SECTION 54F OF IT A CT. 8. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN STATING 'THUS, IT IS FOUND FROM ABOVE DETAILS THAT THE HOUSE ON COMPLETI ON WAS IN LIVABLE CONDITION WHEN IT WAS PURCHASED BY THE APPELLANT' W ITHOUT APPRECIATING THAT AMOUNT INVESTED FOR INTERIOR WORKS IS ESSENTIA L IN ORDER FURNISH AND MAKE THE HOME HABITABLE IN THE MANNER CONSIDERED AP PROPRIATE BY THE APPELLANT. 9. THE LEARNED COMMISSIONER (APPEALS) HAS FAILED TO APPRECIATE THAT WHEN APPELLANT HAS SATISFIED ALL THE CONDITIONS STI PULATED UNDER SECTION 54F TOWARDS THE CONSTRUCTION OF NEW RESIDENTIAL HOU SE, THE APPELLANT IS DULY ENTITLED TO CLAIM EXEMPTION OF RS. 59,73,467/- UNDE R SECTION 54F OF IT ACT. 10. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COM MISSIONER (APPEALS) HAVING DENIED THE EXEMPTION UNDER SECTION 54F ON TH E BASIS THAT INVESTMENT IN NEW RESIDENTIAL HOUSE IS MADE SUBSEQU ENT TO THE DATE OF REGISTRATION, OUGHT TO HAVE ALLOWED THE EXEMPTION O N INVESTMENTS MADE ON OR BEFORE THE REGISTRATION OF NEW RESIDENTIAL HOUSE . PAGE 3 OF 16 ITA NO.164/BANG/2020 11. THE LEARNED COMMISSIONER (APPEALS) HAS FAILED T O APPRECIATE THAT SECTION 54F BEING BENEFICIAL PROVISION, AND HE OUGH T NOT TO HAVE DENIED THE BENEFIT THEREUNDER BY IMPOSING NON EXISTING CON DITIONS. FOR THE ABOVE GROUNDS AND FOR SUCH OTHER GROUNDS WH ICH MAY BE ALLOWED BY THE HONOURABLE MEMBERS TO BE URGED AT THE TIME O F HEARING, IT IS PRAYED THAT THE AFORESAID APPEAL BE ALLOWED. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS AN INDIVIDUAL AND FILED ITS RETU RN OF INCOME ON 31/07/2016 DECLARING TOTAL INCOME OF RS.14,05,82 ,260/-. THE CASE WAS SELECTED 1 ST IS LIMITED SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ALONG WITH NOTICE UNDER SECTION 1 42 (1) OF THE ACT. FROM THE DETAILS FILED BY ASSESSEE, THE LD.AO OBSERVED THAT ASSESSEE IS A DIRECTOR AND SHAREHOLDER IN THE COMPA NY M/S VISTAAR FINANCIAL SERVICES PVT.LTD., AND WAS ALLOTT ED 29,97,433 SHARES UNDER ESOP. ASSESSEE SOLD 7 LAKH EQUITY SHAR ES ON 13/11/2015 FOR A CONSIDERATION OF RS.13,50,00,000/- DURING FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CO NSIDERATION. ASSESSEE EARNED LONG TERM CAPITAL GAIN OF RS.13,44, 03,010/-. THE LD.AO OBSERVED THAT ASSESSEE INVESTED RS.60 LAKH IN NEW RESIDENTIAL HOUSE AND CLAIMED EXEMPTION OF AN AMOUN T OF RS.59,73,467/- UNDER SECTION 54F OF THE ACT. 2.1 THE LD.AO CALLED UPON ASSESSEE TO SUBMIT THE DE TAILS TO SATISFY ALL THE CONDITIONS TO CLAIM EXEMPTION UNDER SECTION 54F OF THE ACT. ASSESSEE SUBMITTED THAT HE PURCHASED THE N EW RESIDENTIAL HOUSE ON 21/02/2015 FOR WHICH HE INVEST ED RS.60 LAKHS AND CLAIMED EXEMPTION UNDER SECTION 54F OF TH E ACT. ASSESSEE PROVIDED THE FOLLOWING BREAKUP OF INVESTME NT BEFORE THE LD.AO: PAGE 4 OF 16 ITA NO.164/BANG/2020 INVESTED(DATE ) AMOUNT 21/FEB/2015-PAID TOWARDS REGISTRATION CHARGES-REFER PG 2 OF SALE DEED 3,12,765 21/FEB/2015-PAID TOWARDS STAMP DUTY CHARGES-REFER P G 8 OF SALE DEED 17,44,200 28/JAN/2015 - PAID TO BUILDER - REFER THE STATEMENT OF ACCOUNT 1,23,836 1,89,663 04/MAR/2015-PAID TO BUILDER-REFER THE STATEMENT OF ACCOUNT 04/MAR/2015 - PAID TO INTERIOR WORKS FOR THE HOUSE 16,156 AMOUNT PAID TOWARDS INTERIOR WORKS FOR THE HOUSE 36,13,380 TOTAL AMOUNT FOR CLAIMING EXEMPTION U/S 54F IN A.Y 2016 - 17 60,00,000 2.2 THE ASSESSEE SUBMITTED THAT HE HAD INVESTED IN PURCHASE OF NEW RESIDENTIAL HOUSE WITHIN ONE YEAR BEFORE THE DA TE OF SALE OF ORIGINAL ASSET AND SATISFIES ALL THE CRITERIA OF SE CTION 54F. THE LD.AO REJECTED THE CLAIM OF ASSESSEE FOR FOLLOW ING REASONS: THAT ASSESSEE HAS NOT PAID FOR PURCHASE OF NEW RESI DENTIAL HOUSE BUT IT IS FOR REGISTRATION CHARGES STAMP DUTY CHARGES AND INTERIOR WORKS; THAT ASSESSEE HAS ALREADY CLAIMED AN AMOUNT OF RS.93,18,118/- AND RS.43,43,289/- AS EXEMPTION UNDE R SECTION 54 OF THE ACT DURING ASSESSMENT YEAR 2013-1 4 AND 2014-15 RESPECTIVELY, FOR PURCHASE OF THE SAME NEW PROPERTY. 2.3 THE LD.AO WAS OF THE OPINION THAT ASSESSEE HAS MISUSED PROVISIONS UNDER SECTION 54 AND 54F OF THE ACT AND HAS AVOIDED TAX BY CLAIM EXEMPTION UNDER DIFFERENT SECTIONS FOR DIFFERENT ASSESSMENT YEARS ON DIFFERENT CAPITAL GAINS ARISEN ON SALE OF DIFFERENT CAPITAL ASSETS. HE THUS DENIED THE EXEMPT ION OF RS.59,73,467/- CLAIMED BY ASSESSEE UNDER SECTION 54 F OF THE ACT, FOR YEAR UNDER CONSIDERATION. PAGE 5 OF 16 ITA NO.164/BANG/2020 2.4 AGGRIEVED BY THE DISALLOWANCE MADE, ASSESSEE PR EFERRED APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) OBSERVED THAT ASSESSEE SOLD RESIDENTIAL HOUSE ON 20/07/2012 AND CLAIMED EX EMPTION UNDER SECTION 54 FOR ASSESSMENT YEAR 2013-14 FOR IN VESTMENT IN PURCHASE/CONCEPTION OF VILLA AT APR, BANGALORE. LD. CIT(A) WAS OF THE OPINION THAT AS PER PROVISIONS OF SECTION 54, T HE CONSTRUCTION OF THE HOUSE HAS TO BE COMPLETED WITHIN 3 YEARS AFT ER THE DATE OF SALE OF ORIGINAL ASSET AND THAT IN THE CASE OF PRES ENT ASSESSEE REGISTRATION OF THE HOUSE TOOK PLACE AFTER COMPLETI ON OF CONSTRUCTION ON 21/02/2015 WHICH IS WITHIN 3 YEARS OF SALE OF ORIGINAL CAPITAL ASSET ON 20/07/2012. THE LD.CIT(A) HELD THAT THE ASSESSEE HAS TO SATISFY ONE OF THE FOLLOWING INGRED IENTS FOR CLAIMING BENEFIT UNDER SECTION 54F OF THE ACT: THAT THE CAPITAL ASSET SHOULD BE PURCHASED WITHIN O NE YEAR BEFORE THE SALE OF LONG-TERM CAPITAL ASSET; OR THE CAPITAL ASSET SHOULD HAVE BEEN ACQUIRED WITHIN 2 YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE; OR WITHIN A PERIOD OF 3 YEARS AFTER THE DATE OF SALE O F CAPITAL ASSET THE ASSESSEE HAD CONSTRUCTED ONE RESIDENTIAL HOUSE IN INDIA. 2.5 THE LD.CIT(A) WAS THUS OF THE OPINION THAT ASSE SSEE SOLD ESOP SHARES ON 13/11/2015 AND FOR CLAIMING DEDUCTIO N UNDER SECTION 54F, THE CONSTRUCTION OF THE HOUSE NEEDS TO BE COMPLETED WITHIN 3 YEARS AFTER THE DATE OF SALE OF CAPITAL AS SET. THE LD.CIT(A) HELD THAT THE CONSTRUCTION OF THE HOUSE AT APR HAD ALREADY COMPLETED ON 21/02/2015 AND THEREFORE ASSESSEE WAS NOT PAGE 6 OF 16 ITA NO.164/BANG/2020 ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 54F F OR INVESTING IN THE VILLA AT APR. THE LD.CIT(A) PLACED RELIANCE ON FOLLOWING TO DECISION: DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CA SE OF PARSWANATH PADMARAJAIAH JAIN REPORTED IN 102 TAXMANN.COM 92; DECISION OF HONBLE SUPREME COURT IN CASE OF COMMIS SIONER OF CUSTOMS (IMPORT), MUMBAI VS M/S. DILIP KUMAR & CO.& ORS. RE PORTED IN (2018) 9 SCC 1. 2.6 THE LD.CIT(A) ALSO OBSERVED THAT THE ASSESSEE H AD INCURRED EXPENDITURE FOR INTERIOR DECORATOR WHICH WAS FOR MA KING THE HOUSE MORE COMFORTABLE. ON VERIFICATION OF VARIOUS INVOICES FILED BY THE ASSESSEE, THE LD.CIT(A) HELD THAT EXPENDITUR E ON INTERIORS TO MAKE THE HOUSE PLUSH AND LUXURIOUS IS NOT INCLUD ED IN THE TOTAL COST OF THE HOUSE PAID TO THE BUILDER AND THE REFORE CANNOT BE CONSIDERED AS EXPENDITURE NECESSARY TO MAKE THE HOU SE HABITABLE. HE THUS HELD THAT THE ASSESSEE IS NOT EL IGIBLE FOR CLAIMING THE PAYMENT TO INTERIOR DECORATORS AS INVE STMENT IN THE CONSTRUCTION OF THE HOUSE FOR THE PURPOSE OF DEDUCT ION UNDER SECTION 54F. 2.7 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US NOW. 2.8 AT THE OUTSET THE LD.AR SUBMITTED THAT AUTHORIT IES BELOW ARE NOT JUSTIFIED IN DENYING EXEMPTION ON INCORRECT PRE MISES. HE SUBMITTED THAT REGISTRATION CHARGES STAMP DUTY CHAR GES AND INTERIOR WORKS DO CONSTITUTE THE COST OF NEW RESIDE NTIAL HOUSE THAT ARE ENTITLED FOR DEDUCTION UNDER SECTION 54F. PAGE 7 OF 16 ITA NO.164/BANG/2020 2.9 REFERRING TO THE PROVISIONS OF SECTION 54F THE LD.AR SUBMITTED THAT, CAPITAL GAIN AROSE IN THE HANDS OF ASSESSEE FROM TRANSFER OF LONG-TERM CAPITAL ASSET NOT BEING A RES IDENTIAL HOUSE. IT WAS SUBMITTED THAT ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR 2 YEARS AFTER THE DATE ON WHICH THE TRANS FER TOOK PLACE PURCHASED THE NEW ASSET. HE ALSO SUBMITTED THAT ASS ESSEE DOES NOT OWN MORE THAN ONE RESIDENTIAL HOUSE OTHER THAN THE NEW ASSET AS ON THE DATE OF TRANSFER OF ORIGINAL ASSET AND THAT ASSESSEE HAS NOT CONSTRUCTED ANY OTHER RESIDENTIAL HOUSE OTHER THAN THE NEW ASSET WITHIN THE PERIOD OF 3 YEARS AFT ER THE DATE OF TRANSFER OF ORIGINAL ASSET. 2.10 THE LD.AR SUBMITTED THAT THE TERM COST UNDER SECTION 54F INCLUDES THE COST IN RELATION TO THE NEW ASSET. IN THE PRESENT FACTS OF THE CASE, ASSESSEE INVESTED THE SALE PROCEEDS FR OM ESOP SHARES TOWARDS REGISTRATION CHARGES, STAMP DUTY CHA RGES, INTERIOR WORKS. IT WAS SUBMITTED THAT, ALL THESE FORM PART O F THE COST THAT IS INCURRED OUT OF THE CAPITAL GAINS RECEIVED FROM TRANSFER OF ORIGINAL ASSET. IT HAS BEEN SUBMITTED THAT ALL THES E EXPENSES FORMED PART OF THE COST OF ACQUISITION. THE STAMP D UTY CHARGES AND THE REGISTRATION EXPENSES INCURRED FORMS PART O F THE AGREEMENT AND THEREFORE IT WAS SUBMITTED BY THE LD. AR, THAT THE AUTHORITIES BELOW WERE RIGHT IN EXCLUDING THESE EXP ENSES AS NOT FORMING PART OF COST. 3. ON THE CONTRARY, THE LD.SR.DR PLACED RELIANCE ON THE DECISIONS REFERRED BY THE LD.CIT(A) AND OBSERVATION S THEREIN. PAGE 8 OF 16 ITA NO.164/BANG/2020 4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 4.1 EVENTS RELATING TO THE FACTS OF THE PRESENT CAS E ARE AS UNDER: PAGE 9 OF 16 ITA NO.164/BANG/2020 4.2 THE LD.AR HAS SUBMITTED THAT THE SALE OF ESOP S HARES WAS ON 13/11/2015 AND ASSESSEE HAD INVESTED THE CAPITAL GAIN ARISING OUT OF THE SALE OF SHARES TOWARDS STAMP DUT Y & REGISTRATION + INCREASED THE BALANCE CG TOWARD INTE RIOR WORKS OF NEW RESIDENTIAL HOUSE WITHIN ONE YEAR BEFORE THE DA TE OF TRANSFER OF THE ORIGINAL CAPITAL ASSET BEING THE ESOP SHARES . HE SUBMITTED THAT THE PRIMARY CONDITION FOR BEING ELIGIBLE FOR D EDUCTION UNDER SECTION 54F STANDS SATISFIED. 4.3 THE LD.AR PLACED RELIANCE ON THE DECISIONS OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS K RAMACHANDRA RAO REPORTED IN (2015) 230 TAXMANN 334 . THE HONBLE COURT OBSERVED AND HELD AS UNDER: 'IF THE INTENTION IS NOT TO RETAIN CASH BUT TO INVE ST IN CONSTRUCTION OR ANY PURCHASE OF THE PROPERTY AND IF SUCH INVESTMENT IS MADE WITHIN THE PERIOD STIPULATED THEREIN, THEN SECTION 54F(4) IS N OT AT ALL ATTRACTED AND THEREFORE, THE CONTENTION THAT THE ASSESSEE HAS NOT DEPOSITED THE AMOUNT IN THE BANK ACCOUNT AS STIPULATED AND THEREFORE, HE IS NOT ENTITLED TO THE BENEFIT EVEN THOUGH HE HAS INVESTED THE MONEY IN CO NSTRUCTION IS ALSO NOT CORRECT.' PAGE 10 OF 16 ITA NO.164/BANG/2020 4.4 IT IS ALSO NOTED THAT HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS SAMBANDAM UDAYKUMAR REPORTED IN (2012) 345 ITR 389 OBSERVED AS UNDER : '11. SECTION 45 OF THE ACT MAKES IT VERY CLEAR THAT ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECT ED IN THE PREVIOUS YEAR SHALL, SAVE OR OTHERWISE PROVIDED IN SECTIONS 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G AND 54H IS CHARGEABLE TO INCOM E TAX UNDER THE HEAD 'CAPITAL GAINS' AND SHALL BE DEEMED TO BE INCO ME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. THE AFORESAI D SECTIONS WHICH FORM PART OF SECTION 54 OF THE ACT ARE CASES WHERE CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET NOT TO BE CHARGED IN THOS E CASES. SECTION 54F OF THE ACT IS A BENEFICIAL PROVISION OF PROMOTING T HE CONSTRUCTION OF RESIDENTIAL HOUSE. THEREFORE, THE SAID PROVISION HA S TO BE CONSTRUED LIBERALLY FOR ACHIEVING THE PURPOSE FOR WHICH IT WA S INCORPORATED IN THE STATUTE. THE INTENTION OF THE LEGISLATURE WAS T O ENCOURAGE INVESTMENTS IN THE ACQUISITION OF A RESIDENTIAL HOU SE AND COMPLETION OF CONSTRUCTION OR OCCUPATION IS NOT THE REQUIREMENT O F LAW. THE WORDS USED IN THE SECTION ARE 'PURCHASED' OR 'CONSTRUCTED '. FOR SUCH PURPOSE, THE CAPITAL GAIN REALIZED SHOULD HAVE BEEN INVESTED IN A RESIDENTIAL HOUSE. THE CONDITION PRECEDENT FOR CLAIMING BENEFIT UNDER THE SAID PROVISION IS THE CAPITAL GAIN REALIZED FROM SALE OF CAPITAL ASSET SHOULD HAVE BEEN PARTED BY THE ASSESSEE AND INVESTED EITHE R IN PURCHASING A RESIDENTIAL HOUSE OR IN CONSTRUCTING A RESIDENTIAL HOUSE. IF AFTER MAKING THE ENTIRE PAYMENT, MERELY BECAUSE A REGISTERED SAL E DEED HAD NOT BEEN EXECUTED AND REGISTERED IN FAVOUR OF THE ASSES SEE BEFORE THE PERIOD STIPULATED, HE CANNOT BE DENIED THE BENEFIT OF SECTION 54F OF THE ACT. SIMILARLY, IF HE HAS INVESTED THE MONEY IN CON STRUCTION OF A RESIDENTIAL HOUSE, MERELY BECAUSE THE CONSTRUCTION WAS NOT COMPLETE IN ALL RESPECTS AND IT WAS NOT IN A FIT CONDITION T O BE OCCUPIED WITHIN THE PERIOD STIPULATED, THAT WOULD NOT DISENTITLE TH E ASSESSEE FROM CLAIMING THE BENEFIT UNDER SECTION 54F OF THE ACT. THE ESSENCE OF THE SAID PROVISION IS WHETHER THE ASSESSEE WHO RECEIVED CAPITAL GAINS HAS INVESTED IN A RESIDENTIAL HOUSE. ONCE IT IS DEMONST RATED THAT THE CONSIDERATION RECEIVED ON TRANSFER HAS BEEN INVESTE D EITHER IN PURCHASING A RESIDENTIAL HOUSE OR IN CONSTRUCTION O F A RESIDENTIAL HOUSE EVEN THOUGH THE TRANSACTIONS ARE NOT COMPLETE IN ALL RESPECTS AND AS REQUIRED UNDER THE LAW, THAT WOULD NOT DISEN TITLE THE ASSESSEE FROM THE SAID BENEFIT.' PAGE 11 OF 16 ITA NO.164/BANG/2020 4.5 THE CONDITIONS PRECEDENT FOR EXEMPTION OF CAPIT AL GAIN FROM BEING CHARGED TO INCOME TAX ARE: (I)THE ASSESSEE SHOULD HAVE PURCHASED A RESIDENTIAL HOUSE IN INDIA EITHER ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE OF TRANSFER OF THE RESIDENTIAL HOUSE WHICH RESULTED IN CAPITAL GAIN OR ALTERNATIVELY CONSTRUCTED A NEW RESIDENTIAL HOUSE I N INDIA WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF THE TRANSF ER OF THE RESIDENTIAL PROPERTY WHICH RESULTED IN THE CAPITAL GAIN. (II)IF THE AMOUNT OF CAPITAL GAIN IS GREATER THAN T HE COST OF THE RESIDENTIAL HOUSE SO PURCHASED OR CONSTRUCTED, THE DIFFERENCE BETWEEN THE AMOUNT OF THE CAPITAL GAIN AND THE COST OF THE NEW ASSET IS TO BE CHARGED UNDER SECTION 45 AS THE INCO ME OF THE PREVIOUS YEAR. (III)IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO OR LESS THAN THE COST OF THE NEW RESIDENTIAL HOUSE, THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45. 4.6 HON'BLE KARNATAKA HIGH COURT ANALYSED THE CONDITIONS THAT NEEDS TO BE FULFILLED TO ENTER EXEMPTION CLAUSE AND THEREAFTER APPLICABILITY WAS LIBERALLY INTERPRETED. 4.7 SIMILAR IS THE ANALYSIS BY HON'BLE MADRAS HIGH COURT IN DECISIONS OF M/S MOTURI LAXMI VS. ITO IN ITA NO.181 OF 2019 BY ORDER DATED 17/08/2020 . HON'BLE DELHI HIGH COURT IN CASE OF CIT VS. BHARTI MISHRA REPORTED IN (2014) 41 TAXMANN.COM 50 , DECISIONS OF HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT VS J.R SUBRAMNYA BHAT REPORTED IN (1986) 28 TAXMAN 578 AND CIT VS. K PAGE 12 OF 16 ITA NO.164/BANG/2020 RAMACHANDRA RAO REPORTED IN (2015) 56 TAXMANN.COM 1 63 , ALL PRINCIPALLY ALLOWED EXEMPTION U/S 54/54F, ONLY ON S UBSTANTIAL SATISFACTION OF REQUIRED CONDITIONS THEREIN. HON'BLE KARNATAKA HIGH COURT AND HON'BLE MADRAS HIGH COURT HAS WIDELY INTERPRETED THE PROVISION, CONSEQUENT TO STRICT SATISFACTION OF CONDITIONS THEREIN. 4.8 IT IS PERTINENT TO NOTE THAT, THERE IS NO STRIC T REQUIREMENT REGARDING COMPLETION OF CONSTRUCTION UNDER SECTION 54F(1) TO BE ENTITLED FOR AVAILING EXEMPTION. THE PASSPORT TO DE RIVE BENEFIT UNDER SEC.54F(1) IS INVESTMENT IN CONSTRUCTION OF P ROPERTY WITHIN THE PERIOD REQUIRED U/S 54(1)F OR TO INVEST IN RESI DENTIAL PROPERTY WITHIN THE STIPULATED TIME FOR ENABLING DEDUCTION U NDER SECTION 5 4F OF THE ACT. HON'BLE KARNATAKA HIGH COURT IN DECISION OF CIT VS.SAMBANDAM UDAYKUMAR (SUPRA) TOOK THE VIEW THAT, UNDER PROVISIONS OF SECTION 54F OF THE ACT, THE CONDITION PRECEDED IS THAT, CAPITAL GAINS REALISED FROM SALE OF CAPITAL A SSET SHOULD HAVE BEEN PARTED BY ASSESSEE AND INVESTED OR CONSTRUCTED A RESIDENTIAL HOUSE, AS THE CASE MAY BE. HON'BLE COURT ALSO OBSERVED THAT, THE ESSENCE OF THE PURPOSE OF SECTION 54F, IS WHETHER, THE ASSESSEE WHO RECEIVED THE CAPITAL GAIN HAS INVESTED IN A HOU SE. ONCE IT IS DEMONSTRATED THAT THE CONSIDERATION RECEIVED ON TRA NSFER OF CAPITAL ASSET HAS BEEN INVESTED IN OR CONSTRUCTION OF RESIDENTIAL HOUSE, EVEN THOUGH THE CONSTRUCTION IS NOT COMPLETE IN ALL RESPECT AS REQUIRED UNDER LAW, ASSESSEE CANNOT BE D ENIED BENEFIT UNDER SECTION 54F. PAGE 13 OF 16 ITA NO.164/BANG/2020 4.9 WE ALSO REFER TO FULL BENCH DECISION OF HON'BLE SUPREME COURT IN CASE OF COMMISSIONER OF CUSTOMS (IMPORT) VS. M/S DILIP KUMAR & SONS & ORS. (SUPRA). THIS DECISION WAS RELIED BY LD.CIT(A) TO DENY EXEMPTION CLAIMED BY ASSESSEE U/S 54F. ON CAREFUL STUDY OF DECISION BY HON'BLE SUPEME COURT WE NOTE THAT, RATIO HAS BEEN EXPRESSLY MENTIONED IN PARA 27 AS UN DER: '27. NOW COMING TO THE OTHER ASPECT, AS WE PRESENTL Y DISCUSS, EVEN WITH REGARD TO EXEMPTION CLAUSES OR EXEMPTION NOTIFICATI ONS ISSUED UNDER A TAXING STATUTE, THIS COURT IN SOME CASES HAS TAKEN THE VIEW THAT THE AMBIGUITY IN AN EXEMPTION NOTIFICATION SHOULD BE CO NSTRUED IN FAVOUR OF THE SUBJECT. IN SUBSEQUENT CASES, THIS COURT DILUTE D THE PRINCIPLE SAYING THAT MANDATORY REQUIREMENTS OF EXEMPTION CLAUSE SHO ULD BE INTERPRETED STRICTLY AND THE DIRECTORY CONDITIONS OF SUCH EXEMP TION NOTIFICATION CAN BE CONDONED IF THERE IS SUFFICIENT COMPLIANCE WITH THE MAIN REQUIREMENTS. THIS, HOWEVER, DID NOT IN ANY MANNER TINKER WITH TH E VIEW THAT AN AMBIGUOUS EXEMPTION CLAUSE SHOULD BE INTERPRETED FA VOURING THE REVENUE. HERE AGAIN THIS COURT APPLIED DIFFERENT TESTS WHEN CONSIDERING THE AMBIGUITY OF THE EXEMPTION NOTIFICATION WHICH REQUI RES STRICT CONSTRUCTION AND AFTER DOING SO AT THE STAGE OF APPLYING THE NOT IFICATION, IT CAME TO THE CONCLUSION THAT ONE HAS TO CONSIDER LIBERALLY.' 4.10 HON'BLE COURT ON CONSIDERING CATENA OF DECISIO NS OBSERVED AS UNDER:- '46.THE ABOVE DECISION, WHICH IS ALSO A DECISION OF TWO JUDGE BENCH OF THIS COURT, FOR THE FIRST TIME TOOK A VIEW THAT LIB ERAL AND STRICT CONSTRUCTION OF EXEMPTION PROVISIONS ARE TO BE INVOKED AT DIFFER ENT STAGES OF INTERPRETING IT. THE QUESTION WHETHER A SUBJECT FAL LS IN THE OR IN THE EXEMPTION CLAUSE, HAS TO BE STRICTLY CONSTRUED. WHE N ONCE THE AMBIGUITY OR DOUBT IS RESOLVED BY INTERPRETING THE APPLICABIL ITY OF EXEMPTION CLAUSE STRICTLY, THE COURT MAY CONSTRUE THE NOTIFICATION B Y GIVING FULL PLAY BESTOWING WIDER AND LIBERAL CONSTRUCTION. THE RATIO OF PARLE EXPORTS CASE (SUPRA) DEDUCED AS FOLLOWS: 'DO NOT EXTEND OR WIDEN THE AMBIT AT STAGE OF APPLI CABILITY. BUT ONCE THAT HURDLE IS CROSSED, CONSTRUE IT LIBERALLY'. 47. WE DO NOT FIND ANY STRONG AND COMPELLING REASON S TO DIFFER, TAKING A CONTRA VIEW, FROM THIS. WE RESPECTFULLY RECORD OUR CONCURRENCE TO THIS VIEW WHICH HAS BEEN SUBSEQUENTLY, ELABORATED BY THE CONS TITUTION BENCH IN HARI CHAND CASE(SUPRA). PAGE 14 OF 16 ITA NO.164/BANG/2020 4.11 HON'BLE COURT SUMMARISED THEIR OBSERVATION AS UNDER:- '52.TO SUM UP, WE ANSWER THE REFERENCE HOLDING AS U NDER: 1) EXEMPTION NOTIFICATION SHOULD BE INTERPRETED STR ICTLY; THE BURDEN OF PROVING APPLICABILITY WOULD BE ON THE ASSESSEE TO S HOW THAT HIS CASE COMES WITHIN THE PARAMETERS OF THE EXEMPTION CLAUSE OR EXEMPTION NOTIFICATION. (2) WHEN THERE IS AMBIGUITY IN EXEMPTION NOTIFICATI ON WHICH IS SUBJECT TO STRICT INTERPRETATION, THE BENEFIT OF SUCH AMBIGUIT Y CANNOT BE CANNOT BE CLAIMED BY THE SUBJECT/ASSESSEE AND IT MUST BE INTE RPRETED INFAVOUR OF THE REVENUE. (3) THE RATIO IN SUN EXPORT CASE (SUPRA) IS NOTCORR ECT AND ALL THE DECISIONS WHICH TOOK SIMILAR VIEW AS IN SUN EXPORT CASE (SUPR A) STANDS OVER- RULED. 4.12 HON'BLE COURT FIRST ANALYSED THE CONDITIONS THAT ASSESSEE FULFILLED TO ENTER EXEMPTION CLAUSE AND THEREAFTER APPLICABILITY WAS LIBERALLY INTERPRETED. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT PRE CON DITION TO BE ELIGIBLE FOR CLAIMING EXEMPTION UNDER SECTION 54 F IS SUBSTANTIAL SATISFACTION OF THE FOLLOWING: THAT, CAPITAL GAINS REALISED FROM SALE OF CAPITAL ASSET SHOULD HAVE BEEN PARTED BY ASSESSEE AND INVESTED OR CONSTR UCTED A RESIDENTIAL HOUSE, AS THE CASE MAY BE. 4.13 IN PRESENT FACTS ADMITEDLY ASSESSEE SUBSTANTIA LLY FULFILLED ALL NECESSARY CONDITIONS TO BE ENTITLED FOR LIBERAL INT ERPRETATION OF SEC.54F. IN OUR VIEW, F.B DECISION RELIED BY LD.SR. DR AND LD.CIT(A) OF HON'BLE SUPREME COURT IN CASE OF M/S DILIP KUMAR (SUPRA) NEEDS TO BE APPLIED AFTER ANALYSING THE FACTS IN E ACH CASE. IN OUR OPINION, IN PRESENT FACTS DECISION BY HON'BLE SUPREME COURT SUPPORT THE CASE OF ASSESSEE. PAGE 15 OF 16 ITA NO.164/BANG/2020 4.14 RESPECTFULLY APPLYING RATION OF HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT VS. SAMBANDAM (SUPRA) , WE HOLD THAT ASSESSE IS ELIGIBLE DURING THE YEAR UNDER CONSIDERA TION. HOWEVER, THE AMOUNT SAID TO HAVE BEEN SPENT ON INTERIOR DECO RATION CANT BE GRANTED SINCE IT IS NOT FOR THE PURPOSE OF MAKIN G THE HOUSE INTO HABITATS CONDITION. THIS VIEW OF OURS IS SUPP ORTED BY THE DECISION OF ITAT MUMBAIN BENCH IN THE CASE OF SALIN FACELBHOLY VS. DCIT REPORTED IN 106 ITD 167. 4.15 THE LD.AO IS DIRECTED TO COMPUTE THE PROPORTIO NATE DEDUCTION AS FOLLOWS :- LTCG X AMOUNT SPENT FOR REGISTRATION & STAMP DUTY -------------------------------------------------- ------------- NET CONSIDERATION ACCORDINGLY THE GROUNDS RAISED BY ASSESSEE STANDS P ARTLY ALLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPT, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 30 TH SEPT, 2021. /VMS/ PAGE 16 OF 16 ITA NO.164/BANG/2020 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE