Dr. (Mrs.) Ranjana S. Nargolkar, Pune V. Income-tax Officer,

ITA 1786/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0911 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-09-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 30-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: V L JAIN
• Keywords: Capital asset; Gift; Principle of natural justice; Revised return; Reassessment proceedings
• Section: 54F; 147; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1786/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2003-04 DR. (MRS.) RANJANA S. NARGOLKAR, PROP. INDIRA MATERNITY HOME, 1277, JANGALI MAHARAJ ROAD, PUNE 411 004 PAN : AANPN9162D ....... / APPELLANT ' / V/S. ITO, WARD-5 (1),PUNE . / RESPONDENT ASSESSEE BY : SHRI V.L. JAIN REVENUE BY : SHRI B.C. MALAKAR / DATE OF HEARING : 09-09-2015 / DATE OF PRONOUNCEMENT : 06-11-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-III, PUNE DATED 01-08-2013 FOR THE A.Y. 2003-04. 2. THE ASSESSEE HAS ASSAILED THE ORDER OF CIT(A) ON THE FOLLOWING GROUNDS : 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ASSUMPTION OF JURISDICTION U/S.148. 2. THE LD.CIT(A) HAS FURTHER ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.70,00,000/- ON ACCOUN T OF FULL LONG TERM CAPITAL GAIN ON TRANSFER OF DEVELOPMENT RIGHTS OF A CO-OWNED PROPERTY. 3. THE LD.CIT(A) HAS FURTHER ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF EXEMPTI ON U/S.54F OF THE I.T. ACT, 1961. 2 ITA NO.1786/PN/2013 A.Y. 2003-04 3. THE ASSESSEE IS A DOCTOR BY PROFESSION AND IS RUNNING A MATERNITY HOME AT 1277, JANGALI MAHARAJ ROAD, DECCAN ZYMKHANA. THE ASSESSEE FILED HER RETURN OF INCOME FOR A.Y. 2003- 04 ON 03-10-2003 DECLARING LOSS OF RS.9,19,804/-. THEREAFTE R, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING LOSS OF RS.8,66,270/- ON 20-12-2003. A SURVEY ACTION U/S.133A WA S CARRIED OUT AT THE PREMISES OF ASSESSEE ON 19-01-2006. ON INVESTIGATION, IT WAS FOUND THAT THE ASSESSEE HAD ACQUIRED A PROPERTY SITUATED AT 1277, BHAMBURDA TOWN, JANGALI MAHA RAJ ROAD, PUNE THROUGH WILL DATED 25-09-1991 FROM HER MOT HER SMT. MADHUMALTI N. SURU. THE SAID PROPERTY WAS SUB-DIVIDED IN 4 EQUAL PARTS BETWEEN ASSESSEE AND HER 3 CHILDREN. DURING SUR VEY 4 DEVELOPMENT AGREEMENTS IN THE NAME OF ASSESSEE AND HER CHILDREN ALL DATED 28-07-2001 WITH KUMAR GROUP WERE FOUND. SEPAR ATE AGREEMENTS FOR TRANSFER OF DEVELOPMENT RIGHTS WERE EXECU TED WITH THE CONSIDERATION OF RS.17.50 LAKHS EACH (TOTAL CONSIDERATION OF RS.70 LAKHS). ADMITTEDLY, THE BANK STATEMENT OF THE ASSES SEE REFLECTED RECEIPT OF RS.17.50 LAKHS THROUGH CHEQUES. THE A SSESSEE HAD DECLARED CAPITAL GAIN ON TRANSFER OF DEVELOPMENT RIGHT S IN RESPECT OF AFORESAID PROPERTY FALLING IN HER SHARE IN HER RE VISED RETURN OF INCOME AND HAD ALSO CLAIMED EXEMPTION U/S.54F OF THE ACT FOR PURCHASE OF RESIDENTIAL HOUSE IN TWIN TOWERS, AUNDH. 4. THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS HELD TH AT THE ASSESSEE WAS THE ABSOLUTE OWNER OF THE PROPERTY, ALTHOUGH IN WILL IT HAS BEEN MENTIONED THAT THE ASSESSEE WOULD ENJ OY ALL THE RIGHTS IN THE PROPERTY DURING HER LIFE TIME AND WOULD NOT ALIENATE, SALE, MORTGAGE OR PART WITH IT IN ANY FORM OR NATURE AND AFTER HER LIFE THE PROPERTY WOULD AUTOMATICALLY PASS ON TO HER 3 CH ILDREN IN EQUAL SHARE. THE AO FURTHER HELD THAT THE ASSESSEE IS N OT ELIGIBLE TO 3 ITA NO.1786/PN/2013 A.Y. 2003-04 CLAIM THE BENEFIT OF SECTION 54F AS THE FLATS WERE ACQUIRED BY THE ASSESSEE MORE THAN ONE YEAR PRIOR TO THE TRANSFER OF D EVELOPMENT RIGHTS IN THE PROPERTY. THE ASSESSEE HAD MADE INVESTME NT IN FLATS AT TWIN TOWERS, AUNDH ON 28-08-2000, WHEREAS THE TRANS FER OF DEVELOPMENT RIGHTS WAS MATERIALIZED ON 13-12-2002. THUS, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S.54F. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-200 6 THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A). THE CIT(A) VIDE IMPUGNED ORDER UPHELD THE FINDING OF AO ON BOTH THE ABOVE ACCOUNTS. THE ASSESSEE HAD ALSO IMPUGNED THE ASSESSM ENT PROCEEDINGS U/S.147 ON THE GROUND THAT THE OBJECTIONS OF THE ASSESSEE WERE NOT DECIDED BY THE AO SEPARATELY. THUS , THERE WAS VIOLATION OF THE PRINCIPLES OF NATURE JUSTICE. THE CIT(A) REJ ECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND OF JURISDICTION AS WELL. NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDING OF THE CIT(A) ON THE GROUND OF JURISDICTION AS WE LL AS ON MERITS. 6. SHRI V.L. JAIN APPEARING ON BEHALF OF THE ASSESSEE SUBM ITTED THAT NO REASON FOR INVOKING THE JURISDICTION U/S.147 WAS M ENTIONED IN THE NOTICE ISSUED U/S.148 TO THE ASSESSEE. NO SEPARA TE SPEAKING ORDER WAS PASSED BY THE AO ON THE OBJECTIONS FILED BY T HE ASSESSEE. THE AO WAS DUTY BOUND TO DECIDE THE OBJECTIONS OF THE ASSESSEE IN THE FIRST INSTANCES BEFORE TAKING UP THE ASSESSMENT PROC EEDINGS. THE CIT(A) IN HIS ORDER HAS ADMITTED THE FACT THAT THE AO HAS NOT PASSED SPEAKING ORDER ON THE OBJECTIONS YET HE UPHELD THE ACTION OF THE AO IN INVOKING THE JURISDICTION U/S.147 OF THE ACT. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF GKN DRIVE S HAFTS 4 ITA NO.1786/PN/2013 A.Y. 2003-04 (INDIA) LTD. VS. ITO REPORTED AS 259 ITR 19, THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SAMSUNG INDIA ELECTRONICS P VT. LTD. VS. DY. CIT REPORTED AS 362 ITR 460 (DELHI) AND THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BHARAT JAYANTILA L PATEL VS UNION OF INDIA REPORTED AS 122 DTR 321 (BOMBAY). 7. THE LD. AR OF THE ASSESSEE ASSAILING THE FINDING OF THE AUTHORITIES BELOW ON MERITS SUBMITTED, THAT THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCLUSION THAT THE ASSES SEE WAS HAVING ABSOLUTE OWNERSHIP RIGHTS OF THE BEQUEATHED PROPE RTY. THE LD. AR REFERRED TO CLAUSE 8B OF THE WILL EXECUTED BY DR . MRS. MADHUMALTI NARHAR SURU DATED 25-09-1991. THE LD. DR POIN TED OUT THAT A PERUSAL OF THE SAID CLAUSE WOULD SHOW THAT TH E ASSESSEE WAS NOT THE ABSOLUTE OWNER OF THE PROPERTY CALLED MADHU RANJAN, 1277, SHIVAJI NAGAR, JANGALI MAHARAJ ROAD, PUNE. THE ASSES SEE WAS ONLY HAVING LIFE TIME INTEREST IN THE PROPERTY, I.E. TILL HER DEATH. THE ASSESSEE HAD NO RIGHT TO GIFT, DONATE, SALE, LEASE OUT , ALIENATE OR DISPOSE OF THE PROPERTY IN ANY MANNER. AFTER HER DEATH, THE PROPERT Y WOULD HAVE PASSED ON TO HER 3 CHILDREN, I.E. GAURI, ROHIT AN D RADHIKA IN EQUAL PROPORTION. SINCE THERE WAS DISPUTE BETW EEN THE ASSESSEE AND HER CHILDREN, A FAMILY SETTLEMENT WAS DRAWN ON 14-07-2000. ACCORDING TO THE FAMILY SETTLEMENT THE ASSE SSEE AND HER 3 CHILDREN SHARED THE PROPERTY IN EQUAL PROPORTION. SUBSEQUENTLY, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH KUMAR GROUP FOR ALIENATION OF HER 1/4 TH SHARE IN PROPERTY FOR A CONSIDERATION OF RS.17.50 LAKHS. SIMILAR SEPARATE AGREEMENTS WERE MADE BY THE OTHER CO-OWNERS OF THE PROPERTY, I.E. 3 CHILDR EN OF THE ASSESSEE WITH KUMAR GROUP FOR TRANSFER OF DEVELOPMENT R IGHTS IN RESPECT OF THEIR INDIVIDUAL SHARES. THE ASSESSEE RECEIVED RS.17.50 LAKHS IN HER BANK ACCOUNT VIDE CHEQUE FOR RS.13.50 LAKHS O N 5 ITA NO.1786/PN/2013 A.Y. 2003-04 13-06-2002 AND FOR RS.3.90 LAKHS ON 26-02-2003. THE REM AINING RS.10,000/- WAS RECEIVED IN CASH. THUS, THE ASSESSEE WAS LIABLE FOR LONG TERM CAPITAL GAIN ON RS.17.50 LAKHS ONLY, WHICH ASSESS EE DECLARED IN HER REVISED RETURN OF INCOME. THE LD. AR ST ATED THAT THE REMAINING AMOUNT HAS BEEN ASSESSED IN THE HANDS OF THE 3 CHILDREN OF THE ASSESSEE. 8. THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN DENYING DEDUCTION OF SECTION 54F TO THE ASSESSEE. AS P ER THE PROVISIONS OF SECTION 54F, THE ASSESSEE IS ELIGIBLE TO GET BE NEFIT OF DEDUCTION IF THE CAPITAL GAIN ARISING FROM TRANSFER OF ANY LONG TERM CAPITAL ASSET IS UTILIZED WITHIN A PERIOD OF 1 YEAR BEFORE OR 2 YEARS AFTER THE DATE OF THE TRANSFER OF CAPITAL ASSET. IN THE P RESENT CASE, THE ASSESSEE HAD MADE INVESTMENT TOWARDS PURCHASE OF FLATS ON 28-08-2000. THE ASSESSEE HAD EXECUTED DEVELOPMENT AG REEMENT WITH RESPECT TO HER 1/4 TH SHARE ON 28-07-2001. THE CONFIRMATION DEED WAS EXECUTED IN PURSUANCE TO THE ORIGINAL DEVELOP MENT AGREEMENT ON 13-12-2002. THUS, THE ASSESSEE HAD MA DE INVESTMENT WITHIN 1 YEAR BEFORE THE TRANSFER OF DEVELOPMEN T RIGHTS. THE AUTHORITIES BELOW HAVE ERRED IN COMPUTING THE PERIOD OF ONE YEAR FROM THE DATE OF CONFIRMATION DEED. 9. THE LD. AR FURTHER SUBMITTED THAT THE TERM TRANSFER AS DEFINED U/S. 2(47) OF THE ACT WOULD INCLUDE THE EXTINGUISHME NT OF ANY RIGHTS IN THE CAPITAL ASSET. THUS, AFTER THE EXECUTION OF TRANSFER OF DEVELOPMENT AGREEMENT THERE WAS EXTINGUISHMENT OF RIGH TS IN THE SHARE OF PROPERTY ACQUIRED BY THE ASSESSEE THROUGH WI LL. TO SUPPORT HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF SANJEEV LAL ETC. VS . 6 ITA NO.1786/PN/2013 A.Y. 2003-04 CIT IN CIVIL APPEAL NO. 5899 5900 OF 2014 DECIDED ON 01-07-2014. 10. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTA TIVE VEHEMENTLY SUPPORTING THE ORDER OF CIT(A) SUBMITTED THAT THE ASSESSEE IS ESTOPPED FROM RAISING THE OBJECTION ON THE G ROUND OF INVOKING OF JURISDICTION U/S.147 OF THE ACT FROM HER ACT AND CONDUCT. DURING THE REASSESSMENT PROCEEDINGS THE ASSE SSEE COOPERATED THROUGHOUT AND HAD NOT RAISED ANY OBJECTIO N WITH REGARD TO DECIDING OF OBJECTIONS AGAINST INVOKING OF SECTION 147 PROCEEDINGS SEPARATELY. THE LD. DR ALSO REFERRED TO PRO VISIONS OF SECTION 292BB OF THE ACT TO BUTTRESS HIS SUBMISSIONS. THE LD. DR CONTENDED THAT NOW AT THE APPELLATE STAGE ASSESSEE CA NNOT RAISE THE ISSUE THAT OBJECTIONS WERE NOT DECIDED SEPARATELY OR T HERE IS ANY VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 11. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAD DISPOSED OF THE PROPERTY IN VIOLATION OF THE RECITALS IN THE WILL. ACCORDING TO THE WILL THE ASSESSEE HAD LIFETIME INTEREST IN THE PROPER TY BUT HAD NO RIGHT TO SELL THE SAME. DESPITE RESTRICTIVE COVENANT THE ASSESSEE COULD DISPOSE OF THE PROPERTY, THIS CLEARLY SHOWS THAT TH E ASSESSEE WAS ABSOLUTE OWNER OF THE PROPERTY. SEPARATE DEVELOPM ENT AGREEMENTS IN THE NAME OF ASSESSEE AND HER 3 CHILDREN IS MERELY A SHAM TRANSACTION TO REDUCE TAX LIABILITY. THE ACTUAL OWNE RSHIP RIGHTS IN THE PROPERTY VESTED WITH THE ASSESSEE. 12. THE LD. DR FURTHER SUBMITTED THAT SINCE THERE WAS NO TRANSFER OF TITLE AS PER THE PROVISIONS OF TRANSFER OF PROPE RTY ACT, THE ASSESSEE CANNOT TAKE BENEFIT OF DEDUCTION U/S.54F OF THE ACT. FURTHER, EVEN IF IT IS ASSUMED THAT THE ASSESSEE HAD INV ESTED THE AMOUNT FOR PURCHASE OF FLATS AT TWIN TOWERS, AUNDH WITHIN 1 YEAR 7 ITA NO.1786/PN/2013 A.Y. 2003-04 FROM THE DATE OF TRANSFER OF DEVELOPMENTS RIGHTS, STILL THE A SSESSEE WOULD NOT BE ELIGIBLE FOR THE BENEFIT OF SECTION 54F. AS PE R THE PROVISIONS OF SECTION 54F, INVESTMENT HAS TO BE MADE IN A RESIDENTIAL HOUSE WHICH MEANS ONLY ONE RESIDENTIAL HOUSE. WHEREAS, THE ASSESSEE IN THE PRESENT CASE HAD PURCHAS ED 2 FLATS. THUS, THE ASSESSEE IS NOT LIABLE TO CLAIM BENEFIT OF SECTION 54F OF THE ACT. 13. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. A R OF THE ASSESSEE HAS PLACED RELIANCE IN SUPPORT OF HIS SUBMISSIONS. WE WOULD LIKE TO FIRST TAKE UP GROUND NOS. 2 AND 3 IN THE APP EAL ASSAILING THE ORDER OF CIT(A) ON MERITS. IN GROUND NO.2 T HE ASSESSEE HAS ASSAILED THE FINDING OF CIT(A) IN CONFIRMING TH E ADDITION OF RS.70 LAKHS ON ACCOUNT OF LONG TERM CAPITAL GA IN ON TRANSFER OF DEVELOPMENT RIGHTS OF UNDIVIDED SHARE IN A PROP ERTY. THE ASSESSEE HAD ACQUIRED THE PROPERTY FROM HER MOTHE R THROUGH WILL DATED 25-09-1991. THE RELEVANT EXTRACT OF RECITA L IN THE WILL IS REPRODUCED HEREUNDER : THE REMAINING PART OF THE GROUND FLOOR WHICH IS NO W USED BY THE FIRM OF M/S. INDIRA MATERNITY HOME, IST FLOOR, AND 2 ND FLOOR OF MY PROPERTY CALLED AS MADHU RANJAN SITUATED AT 1277, SHIVAJINAG AR, JANGALI MAHARAJ ROAD, PUNE 411 004, SHALL PASS ON TO MY DAUGHTER DR. MRS. RANJANA WHO CAN OCCUPY AND ENJOY THAT PROPERTY TILL HER DEA TH WITH A RESERVATION THAT SHE HAS NO RIGHT TO GIFT, DONATE, SALE LEASEOU T, ALIENATE OR DISPOSE OFF THE SAME IN ANY FORM OR NATURE AND AFTER HER DEATH, PROPERTY WILL PASS ON TO MY GRAND CHILDREN, I.E. GAURI, ROHIT AND RADHIKA IN EQUAL PROPORTION. A PERUSAL OF THE AFORESAID RECITAL SHOWS THAT THE ASSESSE E HAS ONLY LIFETIME INTEREST IN THE PROPERTY AND THE ASSESSEE IS BARRED FROM ALIENATING THE PROPERTY IN ANY MANNER WHATSOEVER. A FTER THE DEATH OF THE ASSESSEE THE PROPERTY WILL PASS ON TO THE GRAND CHILDREN OF THE TESTATOR, I.E. 3 CHILDREN OF THE ASSESSEE NAM ED GAURI, 8 ITA NO.1786/PN/2013 A.Y. 2003-04 ROHIT AND RADHIKA IN EQUAL PROPORTION. IT IS AMPLY EVIDEN T THAT THE ASSESSEE IS NOT ABSOLUTE OWNER OF THE PROPERTY BUT HAD ACQUIRED ONLY A LIMITED RIGHT TO ENJOY THE PROPERTY DURING HER LIFET IME WITH RESTRICTIVE CONDITIONS. THEREAFTER, IN THE YEAR 2003, THERE WAS A FAMILY SETTLEMENT BETWEEN THE ASSESSEE AND HER 3 CHILDRE N, I.E. GAURI, ROHIT AND RADHIKA. ACCORDING TO THE FAMILY SETTLEMEN T, THE PROPERTY WAS DIVIDED IN EQUAL SHARE BETWEEN THE ASSESSE E AND HER AFORESAID 3 CHILDREN. SUBSEQUENTLY, THE ASSESSEE AND TH E OTHER CO- OWNERS OF THE PROPERTY EXECUTED SEPARATE DEVELOPMENT AGREEMENTS ON 28-07-2001 WITH KUMAR GROUP. THE ASSESSEE IN VIEW O F TRANSFER OF HER RIGHTS IN THE SAID PROPERTY RECEIVED A CONSIDERATIO N OF RS.17.50 LAKHS. UNDISPUTEDLY, THE ASSESSEE ONLY RECEIVED RS.17.50 LAKHS, I.E. TO THE EXTENT OF HER 1/4 TH SHARE IN THE SAID PROPERTY. THE ASSESSEE IN HER REVISED RETURN OF INCOME DISCLOSED THE LO NG TERM CAPITAL GAIN ON THE AFORESAID AMOUNT. 14. WE OBSERVE THAT THE AUTHORITIES BELOW HAVE ERRED IN HOLDING THAT THE ASSESSEE WAS THE ABSOLUTE OWNER OF THE PROPE RTY ACQUIRED BY HER THROUGH WILL. AS STATED EARLIER THE ASSESSEE HAD ONLY LIFETIME INTEREST IN THE PROPERTY WITH NO RIGHT OF ALIENATION. IT WAS ONLY THROUGH A FAMILY ARRANGEMENT THAT THE ASSESSEE GOT ABSOLUTE RIGHT OVER 1/4 TH SHARE IN THE PROPERTY. THE LD. AR OF THE ASSESSEE HAS STATED AT THE BAR THAT THE OTHER 3 CO-OWNERS OF THE PROPERTY HAVE DECLARED THE LONG TERM CAPITAL GAINS IN THEIR RESPECT IVE RETURN OF INCOME AND THE SAID AMOUNT HAS ALREADY BEEN ASSESSED TO TAX IN THE HANDS OF RESPECTIVE CO-OWNERS. THIS FACT HAS NOT B EEN CONTROVERTED BY THE LD. DR. IN THE LIGHT OF THE FACTS D ISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS ONLY LIABLE FOR LONG TERM CAPITAL GAINS ON THE CONSIDERED RECEIVED , I.E. RS.17.50 LAKHS ON TRANSFER OF HER 1/4 TH SHARE IN THE PROPERTY. 9 ITA NO.1786/PN/2013 A.Y. 2003-04 THUS, THE SECOND GROUND OF APPEAL RAISED BY THE ASSESSE E IS ALLOWED IN THE AFORESAID TERMS. 15. IN THE THIRD GROUND OF APPEAL THE ASSESSEE HAS ASS AILED THE FINDING OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF EXEMPTION U/S.54F OF THE ACT. 16. BEFORE WE PROCEED TO DECIDE THIS ISSUE IT WOULD BE ESSENTIAL TO HAVE THE GLIMPSE OF THE IMPORTANT DATES. DATES EVENTS 28-08-2000 ASSESSEE PURCHASED TWO FLATS 801 AND 802 AT TWIN TOWERS, AUNDH, PUNE 28-07-2001 ASSESSEE ENTERED INTO A DEVELOPMENT AGRE EMENT WITH SMT. KOMAL KEWAL KUMAR JAIN OF KUMAR GROUP FOR SURRENDER OF HER OCCUPANCY/TENANCY RIGHTS IN RESPEC T OF HER 1/4 TH SHARE IN PROPERTY 1277, BHAMBURDA TOWN, JANGALI MAHARAJ ROAD, PUNE. 13-12-2002 DEED OF CONFIRMATION EXECUTED BETWEEN AS SESSEE AND OTHER CO-OWNERS ON THE ONE PART AND SMT. KOMAL KEW AL KUMAR JAIN AND OTHERS (KUMAR GROUP) ON THE SECOND PART IN PURSUANCE TO DEVELOPMENT AGREEMENT DATED 28 - 07-2001 17. THE CONTENTION OF THE REVENUE IS THAT INITIAL DEVELOPME NT AGREEMENT WITH KUMAR GROUP COULD NOT BE MATERIALIZED, THE REFORE, THE ASSESSEE ENTERED INTO ANOTHER DEVELOPMENT AGREEME NT WITH KUMAR JAIN OF THE SAME GROUP ON 28-07-2001. THE REVE NUE HAS NOT PLACED ON RECORD ANY DOCUMENT TO SHOW THAT THE IN ITIAL AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND KUM AR GROUP WAS CANCELLED. THE ASSESSEE HAS PLACED ON RECORD THE DEVELO PMENT AGREEMENT DATED 28-07-2001 (AT PAGES 121 TO 135 OF PA PER BOOK) BETWEEN THE ASSESSEE AND SMT. KOMAL KEWAL KUMAR JAIN OF THE KUMAR GROUP WHICH IS EXECUTED WITHIN A PERIOD OF 1 YEAR FR OM THE DATE OF PURCHASE OF FLATS BY THE ASSESSEE IN THE MONTH OF AUGUST 10 ITA NO.1786/PN/2013 A.Y. 2003-04 2000. IT IS NOT IN DISPUTE THAT THE SUBSEQUENT CONFIRMAT ION DEED DATED 13-12-2002 IS IN PURSUANCE TO THE ORIGINAL AGREEME NT. THUS, IT IS EVIDENT THAT BOTH THE TRANSACTIONS I.E. PURCHASE OF FLATS AT TWIN TOWERS, AUNDH, PUNE AND TRANSFER OF DEVELOPMENT RIGHTS H AD TAKEN PLACE WITHIN THE SPAN OF 1 YEAR. THE EXECUTION OF CONFIRMAT ION DEED AT A LATER DATE WOULD NOT MAKE THE ASSESSEE INELIGIBLE FROM THE BENEFIT OF SECTION 54F. A PERUSAL OF CONFIRMATION DEED DAT ED 13-12- 2002 WOULD SHOW THAT THE SAME IS IN FURTHERANCE TO THE DEVELOPMENT AGREEMENT DATED 28-07-2001 WITH ASSESSEE. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR CLAIMING EXEMPTION U/ S. 54F OF THE ACT. 18. WE OBSERVE THAT THE CIT(A) IN THE IMPUGNED ORDER HA S HELD THAT THE ASSESSEE HAS SOLD ONE OF THE NEW FLATS I.E. FLAT NO. 802, TWIN TOWERS, AUNDH, PUNE IN THE YEAR 2004-05 THEREFORE, T HE ASSESSEE IS NOT ELIGIBLE TO CLAIM EXEMPTION U/S. 54F OF THE ACT. THIS FINDING OF THE CIT(A) HAS NOT BEEN REBUTTED BY THE LD. AR O F THE ASSESSEE. IN VIEW OF THE FACT THAT THE ASSESSEE HAS SUB SEQUENTLY I.E. WITHIN A PERIOD OF THREE YEARS HAS SOLD ONE OF THE FLATS P URCHASED ON WHICH EXEMPTION U/S. 54F HAS BEEN CLAIMED, THE ASSESSEE W OULD NOT BE ELIGIBLE FOR CLAIMING EXEMPTION ON THE SAID FLAT. THE C LAIM OF EXEMPTION U/S. 54F IN SUCH CIRCUMSTANCES IS RESTRICTED TO THE AMOUNT OF CAPITAL GAIN INVESTED IN ONE FLAT I.E. 801, TWIN TOWER S, AUNDH, PUNE ONLY. 19. ONE OF THE OBJECTIONS RAISED BY THE REVENUE IS THAT THE TRANSFER OF RIGHTS DOES NOT CONSTITUTE TRANSFER OF CAPITAL ASSET FOR CLAIMING DEDUCTION U/S.54F. 20. A PERUSAL OF SECTION 2(47) OF THE ACT WHICH DEFINES THE T ERM TRANSFER SHOWS THAT CLAUSE (II) OF SECTION 2(47) DEALS WITH T HE 11 ITA NO.1786/PN/2013 A.Y. 2003-04 EXTINGUISHMENT OF ANY RIGHTS IN THE CAPITAL ASSETS. THUS, T RANSFER IN RELATION TO CAPITAL ASSETS INCLUDES EXTINGUISHMENT OF ANY RIGHTS THEREIN. SINCE, THE ASSESSEE HAS TRANSFERRED DEVELOPMENT RIGHTS IN THE PROPERTY ACQUIRED BY HER THROUGH WILL IT CONSTITUT ES TRANSFER FOR THE PURPOSE OF SECTION 54F. 21. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF SANJEEV LAL ETC. VS. CIT (SUPRA) HAS ELABORATELY DEALT WITH THE TERM TRANSFER IN RELATION TO SECTION 54. THE RELEVANT EXTRACT OF THE FINDIN GS OF HON'BLE APEX COURT ARE REPRODUCED HEREUNDER : 17. UPON PLAIN READING OF SECTION 54 OF THE ACT, IT IS VERY CLEAR THAT SO AS TO AVAIL THE BENEFIT UNDER SECTION 54 OF THE ACT, ONE MUST PURCHASE A RESIDENTIAL HOUSE/NEW ASSET WITHIN ONE Y EAR PRIOR OR TWO YEARS AFTER THE DATE ON WHICH TRANSFER OF THE RESID ENTIAL HOUSE IN RESPECT OF WHICH THE LONG TERM CAPITAL GAIN HAD ARI SEN, HAS TAKEN PLACE. 18. IN THE INSTANT CASE, THE FOLLOWING THREE DATES ARE NOT IN DISPUTE. THE RESIDENTIAL HOUSE WAS TRANSFERRED BY THE APPELL ANTS AND THE SALE DEED HAD BEEN REGISTERED ON 24TH SEPTEMBER, 20 04. THE SALE DEED HAD BEEN EXECUTED IN PURSUANCE OF AN AGREEMENT TO SELL WHICH HAD BEEN EXECUTED ON 27TH DECEMBER, 2002 AND OUT OF THE TOTAL CONSIDERATION OF RS.1.32 CRORES, RS. 15 LAKHS HAD B EEN RECEIVED BY THE APPELLANTS BY WAY OF EARNEST MONEY WHEN THE AGR EEMENT TO SELL HAD BEEN EXECUTED AND A NEW RESIDENTIAL HOUSE/NEW A SSET HAD BEEN PURCHASED BY THE APPELLANTS ON 30TH APRIL, 200 3. IT IS ALSO NOT IN DISPUTE THAT THERE WAS A LITIGATION WHEREIN THE WILL OF LATE SHRI AMRIT LAL HAD BEEN CHALLENGED BY HIS SON AND THE AP PELLANTS HAD BEEN RESTRAINED FROM DEALING WITH THE HOUSE IN QUES TION BY A JUDICIAL ORDER AND THE SAID JUDICIAL ORDER HAD BEEN VACATED ONLY IN THE MONTH OF MAY, 2004 AND THEREFORE, THE SALE DEED COULD NOT BE EXECUTED BEFORE THE SAID ORDER WAS VACATED THOUGH THE AGREEM ENT TO SELL HAD BEEN EXECUTED ON 27TH SEPTEMBER, 2002. 19. IF ONE CONSIDERS THE DATE ON WHICH IT WAS DECID ED TO SELL THE PROPERTY, I.E. 27TH DECEMBER, 2002 AS THE DATE OF T RANSFER OR SALE, IT CANNOT BE DISPUTED THAT THE APPELLANTS WOULD BE ENT ITLED TO THE BENEFIT UNDER THE PROVISIONS OF SECTION 54 OF THE A CT BECAUSE LONG TERM CAPITAL GAIN EARNED BY THE APPELLANTS HAD BEEN USED FOR PURCHASE OF A NEW ASSET/RESIDENTIAL HOUSE ON 30TH A PRIL, 2003 I.E. WELL WITHIN ONE YEAR FROM THE DATE OF TRANSFER OF T HE HOUSE WHICH RESULTED INTO LONG TERM CAPITAL GAIN. 20. THE QUESTION TO BE CONSIDERED BY THIS COURT IS WHETHER THE AGREEMENT TO SELL WHICH HAD BEEN EXECUTED ON 27TH D ECEMBER, 2002 CAN BE CONSIDERED AS A DATE ON WHICH THE PROPERTY I .E. THE RESIDENTIAL HOUSE HAD BEEN TRANSFERRED. IN NORMAL C IRCUMSTANCES BY EXECUTING AN AGREEMENT TO SELL IN RESPECT OF AN IMM OVEABLE PROPERTY, 12 ITA NO.1786/PN/2013 A.Y. 2003-04 A RIGHT IN PERSONAM IS CREATED IN FAVOUR OF THE TRA NSFEREE/VENDEE. WHEN SUCH A RIGHT IS CREATED IN FAVOUR OF THE VENDE E, THE VENDOR IS RESTRAINED FROM SELLING THE SAID PROPERTY TO SOMEON E ELSE BECAUSE THE VENDEE, IN WHOSE FAVOUR THE RIGHT IN PERSONAM I S CREATED, HAS A LEGITIMATE RIGHT TO ENFORCE SPECIFIC PERFORMANCE OF THE AGREEMENT, IF THE VENDOR, FOR SOME REASON IS NOT EXECUTING THE SA LE DEED. THUS, BY VIRTUE OF THE AGREEMENT TO SELL SOME RIGHT IS GIVEN BY THE VENDOR TO THE VENDEE. THE QUESTION IS WHETHER THE ENTIRE PROP ERTY CAN BE SAID TO HAVE BEEN SOLD AT THE TIME WHEN AN AGREEMENT TO SELL IS ENTERED INTO. IN NORMAL CIRCUMSTANCES, THE AFORESTATED QUES TION HAS TO BE ANSWERED IN THE NEGATIVE. HOWEVER, LOOKING AT THE P ROVISIONS OF SECTION 2(47) OF THE ACT, WHICH DEFINES THE WORD T RANSFER IN RELATION TO A CAPITAL ASSET, ONE CAN SAY THAT IF A RIGHT IN THE PROPERTY IS EXTINGUISHED BY EXECUTION OF AN AGREEMENT TO SELL, THE CAPITAL ASSET CAN BE DEEMED TO HAVE BEEN TRANSFERRED. RELEVANT PO RTION OF SECTION 2(47), DEFINING THE WORD TRANSFER IS AS UNDER: 2(47) TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDES,- (I). (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR 21. NOW IN THE LIGHT OF DEFINITION OF TRANSFER AS DEFINED UNDER SECTION 2(47) OF THE ACT, IT IS CLEAR THAT WHEN ANY RIGHT IN RESPECT OF ANY CAPITAL ASSET IS EXTINGUISHED AND THAT RIGHT IS TRANSFERRED TO SOMEONE, IT WOULD AMOUNT TO TRANSFER OF A CAPITAL A SSET. IN THE LIGHT OF THE AFORESTATED DEFINITION, LET US LOOK AT THE F ACTS OF THE PRESENT CASE WHERE AN AGREEMENT TO SELL IN RESPECT OF A CAP ITAL ASSET HAD BEEN EXECUTED ON 27TH DECEMBER, 2002 FOR TRANSFERRI NG THE RESIDENTIAL HOUSE/ORIGINAL ASSET IN QUESTION AND A SUM OF RS. 15 LAKHS HAD BEEN RECEIVED BY WAY OF EARNEST MONEY. IT IS ALSO NOT IN DISPUTE THAT THE SALE DEED COULD NOT BE EXECUTED BE CAUSE OF PENDENCY OF THE LITIGATION BETWEEN SHRI RANJEET LAL ON ONE HAND AND THE APPELLANTS ON THE OTHER AS SHRI RANJEET LAL HAD CHALLENGED THE VALIDITY OF THE WILL UNDER WHICH THE PROPERTY HAD D EVOLVED UPON THE APPELLANTS. BY VIRTUE OF AN ORDER PASSED IN THE SUI T FILED BY SHRI RANJEET LAL, THE APPELLANTS WERE RESTRAINED FROM DE ALING WITH THE SAID RESIDENTIAL HOUSE AND A LAW-ABIDING CITIZEN CA NNOT BE EXPECTED TO VIOLATE THE DIRECTION OF A COURT BY EXECUTING A SALE DEED IN FAVOUR OF A THIRD PARTY WHILE BEING RESTRAINED FROM DOING SO. IN THE CIRCUMSTANCES, FOR A JUSTIFIABLE REASON, WHICH WAS NOT WITHIN THE CONTROL OF THE APPELLANTS, THEY COULD NOT EXECUTE T HE SALE DEED AND THE SALE DEED HAD BEEN REGISTERED ONLY ON 24TH SEPT EMBER, 2004, AFTER THE SUIT FILED BY SHRI RANJEET LAL, CHALLENGI NG THE VALIDITY OF THE WILL, HAD BEEN DISMISSED. IN THE LIGHT OF THE AFORE STATED FACTS AND IN VIEW OF THE DEFINITION OF THE TERM TRANSFER, ONE CAN COME TO A CONCLUSION THAT SOME RIGHT IN RESPECT OF THE CAPITA L ASSET IN QUESTION HAD BEEN TRANSFERRED IN FAVOUR OF THE VENDEE AND TH EREFORE, SOME RIGHT WHICH THE APPELLANTS HAD, IN RESPECT OF THE C APITAL ASSET IN QUESTION, HAD BEEN EXTINGUISHED BECAUSE AFTER EXECU TION OF THE AGREEMENT TO SELL IT WAS NOT OPEN TO THE APPELLANTS TO SELL THE PROPERTY TO SOMEONE ELSE IN ACCORDANCE WITH LAW. A RIGHT IN PERSONAM HAD BEEN CREATED IN FAVOUR OF THE VENDEE, IN WHOSE FAVOUR THE AGREEMENT TO SELL HAD BEEN EXECUTED AND WHO HAD ALSO PAID RS.15 LAKHS BY WAY OF EARNEST MONEY. NO DOUBT, SUCH CONTRACTUAL RIGHT CAN BE SURRENDERED OR NEUTRALIZED BY THE PART IES THROUGH 13 ITA NO.1786/PN/2013 A.Y. 2003-04 SUBSEQUENT CONTRACT OR CONDUCT LEADING TO NO TRANSF ER OF THE PROPERTY TO THE PROPOSED VENDEE BUT THAT IS NOT THE CASE AT HAND. 22. IN ADDITION TO THE FACT THAT THE TERM TRANSFER HAS BEEN DEFINED UNDER SECTION 2(47) OF THE ACT, EVEN IF LOOKED AT T HE PROVISIONS OF SECTION 54 OF THE ACT WHICH GIVES RELIEF TO A PERSO N WHO HAS TRANSFERRED HIS ONE RESIDENTIAL HOUSE AND IS PURCHA SING ANOTHER RESIDENTIAL HOUSE EITHER BEFORE ONE YEAR OF THE TRA NSFER OR EVEN TWO YEARS AFTER THE TRANSFER, THE INTENTION OF THE LEGI SLATURE IS TO GIVE HIM RELIEF IN THE MATTER OF PAYMENT OF TAX ON THE LONG TERM CAPITAL GAIN. IF A PERSON, WHO GETS SOME EXCESS AMOUNT UPON TRANSFER OF HIS OLD RESIDENTIAL PREMISES AND THEREAFTER PURCHASES OR CO NSTRUCTS A NEW PREMISES WITHIN THE TIME STIPULATED UNDER SECTION 5 4 OF THE ACT, THE LEGISLATURE DOES NOT WANT HIM TO BE BURDENED WITH T AX ON THE LONG TERM CAPITAL GAIN AND THEREFORE, RELIEF HAS BEEN GI VEN TO HIM IN RESPECT OF PAYING INCOME TAX ON THE LONG TERM CAPIT AL GAIN. THE INTENTION OF THE LEGISLATURE OR THE PURPOSE WITH WH ICH THE SAID PROVISION HAS BEEN INCORPORATED IN THE ACT, IS ALSO VERY CLEAR THAT THE ASSESSEE SHOULD BE GIVEN SOME RELIEF. THOUGH IT HAS BEEN VERY OFTEN SAID THAT COMMON SENSE IS A STRANGER AND AN INCOMPA TIBLE PARTNER TO THE INCOME TAX ACT AND IT IS ALSO SAID THAT EQUITY AND TAX ARE STRANGERS TO EACH OTHER, STILL THIS COURT HAS OFTEN OBSERVED THAT PURPOSIVE INTERPRETATION SHOULD BE GIVEN TO THE PRO VISIONS OF THE ACT. IN THE CASE OF OXFORD UNIVERSITY PRESS V. COMMISSIO NER OF INCOME TAX [(2001) 3 SCC 359] THIS COURT HAS OBSERVED THAT A P URPOSIVE INTERPRETATION OF THE PROVISIONS OF THE ACT SHOULD BE GIVEN WHILE CONSIDERING A CLAIM FOR EXEMPTION FROM TAX. IT HAS ALSO BEEN SAID THAT HARMONIOUS CONSTRUCTION OF THE PROVISIONS WHICH SUB SERVE THE OBJECT AND PURPOSE SHOULD ALSO BE MADE WHILE CONSTRUING AN Y OF THE PROVISIONS OF THE ACT AND MORE PARTICULARLY WHEN ON E IS CONCERNED WITH EXEMPTION FROM PAYMENT OF TAX. CONSIDERING THE AFORESTATED OBSERVATIONS AND THE PRINCIPLES WITH REGARD TO THE INTERPRETATION OF STATUTE PERTAINING TO THE TAX LAWS, ONE CAN VERY WE LL INTERPRET THE PROVISIONS OF SECTION 54 READ WITH SECTION 2(47) OF THE ACT, I.E. DEFINITION OF TRANSFER, WHICH WOULD ENABLE THE AP PELLANTS TO GET THE BENEFIT UNDER SECTION 54 OF THE ACT. 23. CONSEQUENCES OF EXECUTION OF THE AGREEMENT TO S ELL ARE ALSO VERY CLEAR AND THEY ARE TO THE EFFECT THAT THE APPELLANT S COULD NOT HAVE SOLD THE PROPERTY TO SOMEONE ELSE. IN PRACTICAL LIF E, THERE ARE EVENTS WHEN A PERSON, EVEN AFTER EXECUTING AN AGREEMENT TO SELL AN IMMOVEABLE PROPERTY IN FAVOUR OF ONE PERSON, TRIES T O SELL THE PROPERTY TO ANOTHER. IN OUR OPINION, SUCH AN ACT WO ULD NOT BE IN ACCORDANCE WITH LAW BECAUSE ONCE AN AGREEMENT TO SE LL IS EXECUTED IN FAVOUR OF ONE PERSON, THE SAID PERSON GETS A RIG HT TO GET THE PROPERTY TRANSFERRED IN HIS FAVOUR BY FILING A SUIT FOR SPECIFIC PERFORMANCE AND THEREFORE, WITHOUT HESITATION WE CA N SAY THAT SOME RIGHT, IN RESPECT OF THE SAID PROPERTY, BELONGING T O THE APPELLANTS HAD BEEN EXTINGUISHED AND SOME RIGHT HAD BEEN CREATED I N FAVOUR OF THE VENDEE/TRANSFEREE, WHEN THE AGREEMENT TO SELL HAD B EEN EXECUTED. 24. THUS, A RIGHT IN RESPECT OF THE CAPITAL ASSET, VIZ. THE PROPERTY IN QUESTION HAD BEEN TRANSFERRED BY THE APPELLANTS IN FAVOUR OF THE VENDEE/TRANSFEREE ON 27TH DECEMBER, 2002. THE SALE DEED COULD NOT BE EXECUTED FOR THE REASON THAT THE APPELLANTS HAD BEEN PREVENTED FROM DEALING WITH THE RESIDENTIAL HOUSE BY AN ORDER OF A COMPETENT COURT, WHICH THEY COULD NOT HAVE VIOLATED. 14 ITA NO.1786/PN/2013 A.Y. 2003-04 FROM THE PERUSAL OF THE AFORESAID DECISION IT IS EXPLICITLY CLE AR THAT TRANSFER OF ANY RIGHTS IN THE CAPITAL ASSET WOULD CON STITUTE TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT AND THE ASSESSEE IS ELIGIBLE TO CLAIM BENEFIT U/S. 54 ON SUCH TRANSFE R. IN VIEW OF OUR ABOVE FINDINGS, WE HOLD THAT THE ASSESSEE IS ELIG IBLE TO CLAIM EXEMPTION U/S.54F OF THE ACT. THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ACCEPTED IN THE AFORESAID TERMS. 22. SINCE WE HAVE ACCEPTED THE APPEAL OF THE ASSESSEE O N MERITS, WE ARE NOT DECIDING THE ISSUE OF JURISDICTION U/S.148 OF THE ACT. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ACCEPTED. ORDER PRONOUNCED ON FRIDAY, THE 06 TH DAY OF NOVEMBER, 2015. SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUD ICIAL MEMBER / PUNE; / DATED : 06 TH NOVEMBER, 2015 SATISH/RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. CIT(A)-III, PUNE 4. CIT-III, PUNE 5. !' ##$% , & $% , B '() , / DR, ITAT, B BENCH, PUNE. 6. '*+ ,- / GUARD FILE. // # // TRUE COPY// &. / BY ORDER, #/ $) / PRIVATE SECRETARY, & $% / ITAT, PUNE