Bharat Shah, Indore V. The ITO3(4), Indore

ITA 181/Ind/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9402 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 23-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Set aside; Capital Gains
• Section: 54; 143(3); 54F; 143(2)

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING ITA No.181/Ind/2020 Assessment Year: 2013-14 Bharat Shah Indore PAN No.ALWPS2185B : Appellant V/s ITO-3(4) Indore : Respondent Appellant by Shri Pankaj Shah, AR Respondent by Shri Amit Soni, Sr.DR Date of Hearing 24.11.2021 Date of Pronouncement 31 .01.2022 O R D E R PER MANISH BORAD, A.M.: The above captioned appeal filed at the instance of the Assessee are directed against the order of Ld. Commissioner of Income Tax(Exemption) (in short ‘Ld. CIT]-1 Indore dated 15.01.2020 which is arising out of the order u/s 143(3) of the Bharat Shah ITA No.181/Ind/2020 2 Income Tax Act 1961(In short the ‘Act’) dated 03.03.2016 by ITO- 3(4), Indore. The Assessee has raised following grounds of appeal in: Ground 1: Disallowance of Deduction u/s 54F On the facts and circumstances of the case and in law the learned Commissioner of Income tax (Appeals)-l, Indore (CIT(A)) erred in confirming the disallowance of deduction under Section 54F of the Act amounting to Rs.79,09,572 The Appellant prays that the said disallowance be deleted. Ground 2: Erroneous application of Supreme Court decision in case of Balbir Singh Maini (SC) On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of section 54F of the act on the ground that there is no registered conveyance by purportedly following the decision in case of CIT vs. Balbir Singh Maini[2017] 86 taxmann.com 94 (SC)cited in the appellate order to the effect that there is no transfer without appreciating that the decision relied by CIT(A) is laid down in altogether different context of term "transfer" whereas in Section 54F the term "purchase" is relevant. Ground 3: Non consideration of Binding Precedents relied by Appellant On the facts and circumstance of the case and in law the learned CIT(A) erred in not considering, distinguishing and following the binding decisions in case of CIT Vs. T.N. Aravinda Reddy [1979] 120 ITR 46(SC), CIT vs. Ajit Singh Khajanchi (297 ITR 0095)(MP) and ShashiVerma vs. CIT (224 ITR 0106)(MP) where it is held that registration of sale deed is not imperative to claim the deduction under Section 54F of the Act. Accordingly the Appellant prays that the binding decisions be followed and the consequent disallowance under section 54F be deleted. Ground 4: Apparent mistakes noticed in the appellate order of the Ld.CIT (A) A number of apparent, glaring, obvious and self evident mistakes on the records had taken placed while passing the appellate order by Ld. CIT (A) ( as per annexure- --1--attached herewith) Ground 5: General The Appellant craves leave to add, amend any or all grounds at the time of hearing. Bharat Shah ITA No.181/Ind/2020 3 2. Brief facts of the case as culled out from the records are that the assessee is a non-resident Indian. Income of Rs.2,37,560/- declared in the e-return filed on 27.07.2013. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of assessment proceedings Ld. AO noticed that assessee has claimed deduction u/s 54F of the Act at Rs.79,09,572/- and also claimed transfer of property at Rs. 4,86,250/-. On further examination it was noticed that the assessee sold two plots of land situated at Indore for consideration of Rs.87,81,000/-. Expenditure of Rs.4,86,250/- was incurred for transfer of the said plots of land. Thereafter in order to claim deduction u/s 54 of the Act assessee purchased a residential house from his mother at a consideration of Rs.84,00,000/-. Payment through cheque was given on various dates totaling to Rs.83,00,000/-. However, Ld. AO on observing that the said consideration was used to make fixed deposits in the bank of the seller Smt. Shardaben Shah jointly with assessee’s wife Smt. Purnima Shah and further before the registry of the house property could be completed Smt. Shardaben Shah died. Ld. AO also observed that the seller has not used the consideration for purchasing any other property nor any documents was filed to Bharat Shah ITA No.181/Ind/2020 4 prove the ownership of the residential house sold by Smt. Shardaben Shah. Ld. AO was also not satisfied with the expenditure of Rs.4,86,250/- incurred by the assessee on transfer for sale of plots of lands. Ld. AO accordingly disallowed the claim of deduction u/s 54F of the Act at Rs.79,09,572/- and also disallowed the claim of expenditure of Rs.4,86,250/- and assessed the income at Rs.86,33,382/-. 3. Aggrieved assessee preferred an appeal before the Ld. CIT(A) making detailed submissions stating that the assessee has duly complied to the condition provided u/s 54F of the Act by way of entering into an agreement for purchase of residential house, making payment of the agreed consideration of Rs.83,00,000/- and also taking possession of the residential house. Registry of the house in the name of assessee could not be completed due to untimely death of the seller on 16.04.2014. However, ld. CIT(A) was not convinced and he confirmed the view taken by the Ld. AO holding that the assessee has entered into a colourable transaction for avoiding the capital gain tax on profit from sale of plots of land sold by way of purchasing property from his own mother, consideration given has been used to make fixed deposit in the Bharat Shah ITA No.181/Ind/2020 5 name of his mother and his wife and subsequently on death of the mother assessee’s wife becomes the owner of the fixed deposit and in this way the consideration paid by the assessee for purchase of residential house from his mother came back to him and therefore no deduction for u/s 54 of the Act is allowable. However, Ld. CIT(A) allowed the claim of transfer expenditure of Rs.4,86,250/- after being satisfied with the documentary evidences filed by the assessee. 4. Aggrieved assessee is now in appeal before this Tribunal challenging the finding of Ld. CIT(A) denying the benefit of deduction u/s 54F of the Act. Ld. counsel for the assessee vehemently argued referring to the written synopsis, paper book dated 28 th July 2021 containing 171 pages and plethora of judgments referred in the paper book dated 4 th August 2021 containing 51 pages. Crux of the argument of the assessee are that the assessee has acted within the parameters provided u/s 54F of the Act by way of entering into an agreement to purchase a residential house within time limit provided under section, taken possession of the house property after making payment of the total Bharat Shah ITA No.181/Ind/2020 6 consideration and therefore, assessee should be allowed the benefit of deduction u/s 54F of the Act. 5. Per contra ld. DR vehemently argued supporting the orders of both lower authorities and again asserted that the transaction carried out by the assessee to claim deduction u/s 54F of the Act are colourable in nature entered in order to avoid the capital gain tax liability. 6. We have heard rival contentions and perused the records placed before us and carefully gone through decisions referred and relied by the Ld. counsel for the assessee. The issue raised by the assessee is with regard to denial of deduction u/s 54F of the Act claimed for applying the consideration received from sale of any capital asset other than the residential house for the purpose of purchasing a residential house even when the assessee has fulfilled all the conditions provided u/s 54F of the Act. We will fist like to refer to the provisions of section 54F of the Act which reads as follows: 54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 purchased, or has within a period of three years after that date constructed, one residential Bharat Shah ITA No.181/Ind/2020 7 house in India (hereafter in this section referred to as the new asset), the capital 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 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 capital gain as bears to the whole of the capital gain the same proportion as 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 apply 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 of transfer 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 transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". Explanation.—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received 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. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. Bharat Shah ITA No.181/Ind/2020 8 (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised 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 furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub- section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid. 7. Now we need to examine the facts of the case, so as to verify as to whether the assessee has fulfilled conditions provided in the provisions of section 54F of the Act. We find that as far as sale consideration from sale of plots of land is concerned there is no Bharat Shah ITA No.181/Ind/2020 9 dispute. Genuineness of transfer expenditure of Rs.4,86,250/- has been proved. The assessee received total consideration of Rs.87,81,000/- from sale of the two plots of land and after claiming the transfer cost of Rs.4,86,250/- the net consideration is Rs.82,94,750/-. Assessee in order to claim the benefit of section 54F of the Act decided to purchase a residential house owned by her mother Smt. Shardaben Shah. On 25.07.2013 assessee paid Rs.83,00,000/- to his mother in three parts (Rs.50,98,067/-, Rs.4,30,000/- & Rs.27,71,933/-). The assessee also took the possession of the residential house owned by her mother. There is also no dispute to the fact that within two years of sale of the plots of land, assessee has paid the consideration for purchase of residential house. The only glaring fact which has been pressed by the revenue authorities is that the registry of the residential house was not made in the name of the assessee and before this could happen the seller Smt. Shardaben Shah expired. Another issue raised by the revenue authorities is that the alleged purchase consideration has been used by the seller Smt. Shardaben Shah for investing in fixed deposit jointly held with her daughter-in-law and therefore for all practical purposes consideration paid for residential house came back to the assessee. Bharat Shah ITA No.181/Ind/2020 10 We, however, on perusal of the facts discussions find that so far as the conditions mentioned in the provisions of section 54F of the Act are concerned the same have been duly fulfilled as within the prescribed time limit of two years assessee has purchased residential house and agreement had been entered with seller and consideration has been paid at Rs.83,00,000/- through banking channel. There is no bar under the act which stops the assessee from purchasing immovable property from his relatives. The fact remains that the consideration was paid under an agreement entered between the assessee and his mother but before the registry of the house could be completed in the name of assessee the seller i.e. assessee’s mother expired. As far as the finding of lower authorities that fixed deposit were made by the seller jointly in the name of self and daughter-in-law is totally immaterial in the instant issue relating to deduction u/s 54F of the Act since only the condition needs to be fulfilled by the purchaser of property and seller of property is an individual separately assessed to tax. It has been consistently held time and again that merely not getting the registry done in the name of a person can not preclude him/her for claiming benefit of section 54F of the Act if all other conditions are fulfilled including making payment for purchase of the immovable Bharat Shah ITA No.181/Ind/2020 11 property within prescribed time limit and taking possession of the same. Following judicial pronouncement supports this view as claimed by the ld. counsel for the assessee in its written submissions: On disallowance of Section 54F exemption 1. Absence of registration deed should not affect exemption under Section 54F •The benefit to be availed under Section 54F stipulates the purchase or construction of a new house property. It is immaterial if such purchase has been evidenced by a registered deed or not. Merely on account of absence of registered sale deed, the assessee should not be disentitled to exemption under Section 54F. The same has been held by the Apex Court in the case of Sanjeev Lal v. CIT (2014) 46 taxmann 300/ 225 taxmann 239 •'Purchase' does not mean that the new house must be registered in assessee's name, as held in Balraj v. CIT (2002) 123 taxmann 290 •Date of taking possession is relevant for the purpose of Section 54F, and not date of registration, as held in CIT v. Shahzada Begum (1988) 173 ITR 397 and CIT v. R.L. Sood (2000) 245 ITR 727 •Exemption under Section 54F is allowable even if no registration deed has been made in favour of the assessee, as held in CIT v. Mrs. Rekha Mathur (2005) 98 TTl 900 (Delhi-Trib) 2. Holding of legal title is not necessary for exemption from capital gains 'Purchase' for the purpose of exemption from capital gains is not used in the strict sense of legal transfer and holding of legal title within one year is not a condition precedent for attracting Section 54/54F, as was held in CIT v. Dr. Laxmichand Narpal Nagda (1995) 211 ITR 804(Bom) and Dr. R. K. Bhatnagar v. ITO (1993) 45 ITO 45 (Del) •Where investment is made in purchase of house, registration is not mandatory for the purpose of claiming exemption, as held in Seema Sabharwal v. ITO (2018) 169 ITO 0319 3.Purchase of house permitted from Brother/Mother/Son/Father or any other relative There are various precedents, which expressly allow claiming of Bharat Shah ITA No.181/Ind/2020 12 exemption from capital gains tax, even if reinvestment of sale consideration or amount of capital gains, as the case may be, is in assets owned by family members. This has been held in: •CIT, A.P. v. T.N. Aravinda Reddy 120 ITR 0046 •CIT v. Chandanben Maganlal (2000) 245 ITR 0182 •Chandrakant S. Choksi HUF v. Asst. CIT, 2015 Tax Pub(DT) 0724 (Mum-Trib) On failing to recognize Jurisdictional HC verdicts 4.It is clear that the law laid down by the Parliament stipulates purchase, and not title or legal ownership. The jurisdictional High Court of MP has also interpreted in an identical manner in the case of CIT v. Ajit Singh Khajanchi (2007) 297 ITR 95 (MP) where it was held as follows: Section 54F speaks of purchase and registration was not imperative. Therefore, Tribunal was justified in law in allowing the benefits of section 54F even if the transfer was not evidenced by a registered deed. [Para 3, 4, 11 of the judgment] It was similarly held in Smt Shashi Verma v. CIT (1997) 224 ITR 1016 (MP) On failing to comply with binding CBDT cjrculars 5.The learned AO has failed to comply with CBDT Circylar No. 471[F.No.207/27/85-ITCA-IIll. dt. 15-10-1986 and Circylar No. 672. dt. 16-12-1993 .which do not require the registration of the house for claiming benefits under Section 54 and 54F , The relevant portion of the circulars reads as under: 6.Sections 54 and 54F provide that capital gains arising on transfer of a longterm capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer .... registration of sale deed of house is not imperative for the benefits of section 54/ 8. We, therefore, respectfully following the decisions mentioned herein above and under the given facts and circumstances of the case, are of the considered view that both lower authorities erred in Bharat Shah ITA No.181/Ind/2020 13 denying the benefit of section 54F of the Act claimed by the assessee and on our examination of the facts we are inclined to hold that the assessee has rightly claimed deduction u/s 54F of the Act at Rs. 79,09,572/- by way of purchasing a residential house and fulfilling all the conditions provided u/s 54F of the Act. Thus, finding of Ld. CIT(A) is set aside and grounds raised by the assessee are allowed. 9. In the result, Assessee’s appeal ITANo.181/Ind/2020 is allowed. The order pronounced as per Rule 34 of ITAT Rules, 1963 on 31.01.2022. Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER दनांक /Dated : 31 .01.2022 Patel/PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Asstt.Registrar, I.T.A.T., Indore