Maharshi Gogineni , Hyderabad V. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 1644/Hyd/2019

AI Insights

The case revolves around the eligibility of the assessee, Maharshi Gogineni, to claim exemptions under section 54F of the Income Tax Act, 1961, for the assessment year 2015-16. The primary issue was whether the assessee could claim the exemption despite the new residential property not being ready for occupation within three years of selling the original asset. The Tribunal examined precedents and interpretations of section 54F, noting that substantial investments in the new property were made within the required timeframe, even though the legal title and full occupation did not occur within the three years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133320 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-B
• Next Hearing Date: 25-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 12-11-2019
• Other Referred Cases: ITO vs. Akepati Manogna, Sh. Hasmukh N Gala vs. ITO, Sh. Pradeep Kumar vs. DCIT, CIT vs. Kuldeep Singh, Sanjeev Lal v. CIT, Smt. Shashi Varma vs. CIT, CIT vs. Smt. Bharati C. Kothari, Shri Khemchand Fagwani vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Capital expenditure; Capital Gains
• Section: 54; 54F; 20

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT & SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 1644/Hyd/2019 (निर्धारण वर्ा / Assessment Year: 2015-16) Maharshi Gogineni, Hyderabad [PAN No. ADGPG7180E] Vs. Assistant Commissioner of Income Tax, Circle-14(1), Hyderabad अपीलधर्थी / Appellant प्रत्‍यर्थी / Respondent निर्धाररती द्वधरध/Assessee by: Shri K.A. Sai Prasad, AR रधजस्‍व द्वधरध/Revenue by: Shri Kumar Aditya, DR स ु िवधई की तधरीख/Date of hearing: 26/07/2023 घोर्णध की तधरीख/Pronouncement on: 31/07/2023 आदेश / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 08/07/2019 passed by the learned Commissioner of Income Tax (Appeals)-6, Hyderabad (“Ld. CIT(A)”), in the case of Sri Maharshi Gogineni (“the assessee”) for the assessment year 2015-16, assessee preferred this appeal. 2. Substantive question that arises in this appeal is whether the assessee is entitled to claim exemptions under section 54F of the Income ITA No. 1644/Hyd/2019 Page 2 of 8 Tax Act, 1961 (for short “the Act”), when the assessee invests the sale consideration of the original asset sold, for purchase of a residential house within three years from the sale of the original asset, but the house was not ready for occupation. 3. On this aspect, briefly stated facts are that the assessee, being the owner, sold an immovable property under the registered sale deed dated 04/06/2014 for a consideration of Rs. 3.6 crores, and computed the Long Term Capital Gains (LTCG) at Rs. 2.9 crores. Out of this amount assessee claims to have invested a sum of Rs. 1.9 crores for purchase of a residential house under an agreement of sale dated 17/06/2015. The agreement was for Rs. 2.4 crores, but the assessee could not pay Rs.50 lakhs, but made the investment only to the tune of Rs. 1.9 crores. Assessee claimed proportionate taxable LTCG. To this extent, the facts are not in dispute. Learned CIT(A) noted in the order that even by the month of June, 2019 the residential house under purchase by the assessee has not been completed in all respects so as to occupy the premises by the assessee. It is, therefore, the authorities declined to allow the benefit of deduction under section 54F of the Act, on the ground that the acquisition of the residential house did not take place within three years, as depicted by law. Ultimately, however, the Sale deed was executed in favour of the assessee on 25/10/2019. Copies of agreement of sale dated 17/06/2015 and the sale deed dated 24/10/2019 are filed and they form part of record. 4. In these circumstances, the counsel placed reliance on the decision of Co-ordinate Benches in the case of ITO vs. Akepati Manogna in ITA No. 993/Hyd/ 2015 for the assessment year 2011-12 by order dated 05/08/2016, Sh. Hasmukh N Gala vs. ITO in ITA No. 7512/Mum/2013 for the assessment year 2010-11 by order dated 19/08/2015 and Sh. Pradeep Kumar vs. DCIT in ITA No. 1520 /Hyd/ 2013 for the assessment year 2009- 10 by order dated 31/12/2014. He submits that though the legal title in the property has not been passed or transferred to the assessee within the specified period and when it is also quite apparent that the new property ITA No. 1644/Hyd/2019 Page 3 of 8 was still under consideration, still the assessee would be entitled to the benefit of deduction under section 54F of the Act. 5. Per contra, it is the case of the Revenue that the letter of law says that in order to avail the benefit of deduction under section 54F of the Act, the assessee must acquire the new property of a residential house within the time limit specified by the law, and in this case admittedly, no sale deed was executed within the time stipulated and, therefore, the authorities are justified in denying the benefit of deduction section 54F of the Act to the assessee. 6. We have gone through the record in the light of the submissions made on either side. Facts are not in dispute. Assessee sold the immovable property, there are capital gains and invested a part of such capital gains for purchase of residential house, and claimed the benefit of deduction under section 54F of the Act in proportion to his investment. It is also not in dispute that the assessee made the payment for the new residential house by way of banking channels, and such payment is not in dispute. In the assessment order, the learned Assessing Officer noted that such payments are to the tune of Rs. 1.5 crores, Rs. 20 lakhs and another Rs. 20 lakhs on 05/11/2013, 06/11/2013 and 07/11/2013 respectively. These payments are not in dispute. 7. As stated above, the question is whether the assessee could be disentitled to claim the benefit under section 54F of the Act on the ground that the construction of the property was not complete or that the title was not passed within the time is depleted by law? While placing reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kuldeep Singh 270 CTR 561 (Del), a Co-ordinate Bench of this Tribunal held the issue in favour of the assessee in the case of Sri Hasmukh (supra). For the sake of ready reference we deem it just and necessary to extract the relevant portions of the order in the case of Sh. Hasmukh (supra), hereunder:- ITA No. 1644/Hyd/2019 Page 4 of 8 7.1. The controversy is as to whether under these facts assessee can be said to have purchased the new property so as to entitle him for exemption in relation to the amount spent towards the new property under section 54 of the Act. It is not disputed by the Revenue that the sum of Rs. 1 crore has been invested by the assessee towards acquiring new property. Of course, the legal title in the said property has not passed or transferred to the assessee within the specified period and it is also quite apparent that the new property was still under construction. So however, the allotment letter by the builder mentions the flat number and gives specific details of the property. 7.2 In this context, the Hon’ble Delhi High Court in the case of Kuldeep Singh (supra) has explained the meaning of the expression ‘purchased’ in the context of section 54 of the Act in following words:- “8.The word 'purchase' can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. 'Purchase' can also refer to payment of consideration or part consideration alongwith transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT v. T.N Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word 'purchase'. It was observed that the word 'purchase' used in Section 54 of the Act should be interpreted pragmatically. In a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that ‘purchase’ primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money’s worth. The word 'purchase', it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy ITA No. 1644/Hyd/2019 Page 5 of 8 the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain. 9. Recently Supreme Court in Civil Appeal Nos. 5899- 5900/2014 titled Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received RS.15 lacs by way of earnest money and subsequently received the balance sale consideration of Rs.l.17 crores (total being Rs.1.32 crores) when the sale deed was executed on 24th September, 2004. In the meanwhile, the assessee had purchased another house on 30th April, 2003. Benefit under Section 54 was denied] by the High Court observing that the new house had been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient the purpose of Section 2(47), which defines the term transfer in relation to a capital asset. In the light of the factual matrix, it was observed that the intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observations made in the said decision are also relevant on the question whether the payments made by the assessee to the person with whom he had entered.into.an earlier agreement to sell should be allowed ITA No. 1644/Hyd/2019 Page 6 of 8 to be set off as expenses incurred in relation to the sale deed which was executed.” The Hon’ble Delhi High Court further referred to the decision of Hon’ble Madhya Pradesh High Court in the case of Smt. Shashi Varma vs. CIT, 224 ITR 106 (M.P) and that of the Hon’ble Calcutta High Court in the case of CIT vs. Smt. Bharati C. Kothari (Cal) 244 ITR 352 and opined that when substantial investment was made in the new property, it should be deemed that sufficient steps had been taken and it would satisfy the requirements of section 54 of the Act. As per the Hon’ble High Court, the basic purpose behind section 54 of the Act is to ensure that the assessee is not taxed on the capital gain, if he replaces his house and spend money earned on the capital gain within the stipulated period. The parity of reasoning explained by the Hon’ble Delhi High Court in the case of Kuldeep Singh (supra) squarely covers the controversy in the present case in favour of the assertions made by the assessee. Therefore, we are inclined to uphold the plea of the assessee for exemption under section 54 of the Act qua the impugned investment in acquisition of the new residential house. 7.3 The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid does not militate against assessee’s claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee’s claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 of the Act as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provisions also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year. 7.4 In view of the aforesaid discussion and on the basis of material and evidence on record, we find that the assessee can be said to have complied with the requirement of section 54 of the Act; and, the exemption has been incorrectly denied by the lower authorities. As a matter of passing, we may also mention here the reliance placed by Ld. Representative of the assessee on the decision ITA No. 1644/Hyd/2019 Page 7 of 8 of our Co-ordinate Bench in the case of Shri Khemchand Fagwani vs. ITO, ITA No.7876/M/10 order dated 10/09/2014, wherein also claim of exemption under section 54 of the Act was allowed under similar circumstances. In the light of the precedent, we find no reason to deny the claim under section 54 of the Act. We direct accordingly. 8. Similar view is taken by a Co-ordinate Bench of this Tribunal in the case of Akepati Manogna (supra), and also in the case of Pradeep Kumar (supra). This view is applicable to the facts of the case on all fours. Respectfully following the same, we allow this ground of appeal and direct the authorities to allow the deduction under section 54F of the Act. 9. Coming to the other ground, it relates to the allowance of the watchman salary towards cost of improvement. Learned CIT(A) held that watchman salary does not fall in realm of ‘capital expenditure’ and, therefore, is not eligible as a part of cost of improvement. We concur with the said findings of the learned CIT(A) and dismiss this ground. 10. In the result, appeal of assessee is allowed in part. Order pronounced in the open court on this the 31 st day of July, 2023. Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER Hyderabad, Dated: 31/07/2023 TNMM ITA No. 1644/Hyd/2019 Page 8 of 8 Copy forwarded to: 1. Shri Maharshi Gogineni, Plot No. 203, Block-III, Road No. 76, Jubilee Hills, Hyderabad. 2. Asst.Commissioner of Income Tax, Circle-14(1), Hyderabad. 3. Pr.CIT-6, Hyderabad 4. DR, ITAT, Hyderabad. 5. GUARD FILE. TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD