ELVIS Stephenson, ec'bad., Secunderabad V. ITO, Ward-10(4), Hyderabad

ITA 1924/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59240 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Capital asset; Additional evidence
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1924/HYD/2011 ASSESSMENT YEAR : 2008-09 MR. ELVIS STEPHENSON HYDERABAD PAN: AABPE7145D VS. INCOME TAX OFFICER WARD-10(4) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI M.V. ANIL KUMAR RESPONDENT BY: SMT. K. MYTHILI RANI DATE OF HEARING: 25.01.2012 DATE OF PRONOUNCEMENT: 17.02.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT-VI, HYDERABAD DATED 26.9.2011 FOR A.Y. 2008 -09. 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WIT H REGARD TO NON GRANTING OF DEDUCTION U/S. 54F OF THE INCOME-TA X ACT, 1961. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS P ROPRIETOR OF GAS POINT, DOING BUSINESS IN MANUFACTURING OF KITCH EN STOWS AND EQUIPMENT AS WELL AS RELATED JOB WORK. DURING THE YEAR, THE ASSESSEE ADMITTED INCOME FROM CAPITAL GAIN ON WHICH DEDUCTION U/S. 54F HAD BEEN CLAIMED. ACCORDING TO THE ASSESS EE HE HAS PURCHASED A PLOT OF LAND AT JEEDIMETLA FROM APSFC V IDE SALE DEED DATED 11.5.2004 FOR A SUM OF RS. 10.5 LAKHS. HE SO LD IT TO M/S. NEO PETCON (INDIA) PVT. LTD. VIDE SALE DEED DATED 2 1.1.2008 FOR A SUM OF RS. 1,75,00,000. IT WAS SUBMITTED BEFORE TH E ASSESSING OFFICER THAT OUT OF THE TOTAL SALE CONSIDERATION, A SUM OF RS. 75,00,000 HAD BEEN INVESTED IN THE BUSINESS OF M/S. GAS POINT AND THE BALANCE SUM OF RS. 1,00,00,000 HAD BEEN PAI D AS ADVANCE I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 2 TO M/S. ANDREW & SONS COMPANY FOR PURCHASE OF LAND AS PER AGREEMENT OF SALE DATED 21.2.2008. THIS DEAL DID N OT MATERIALISE. THE ASSESSEE THEN ENTERED INTO ANOTHER AGREEMENT DA TED 29.11.2010 WITH S/SRI SANDEEP SANGAM AND R. RANJINI KER FOR PURCHASE OF HOUSE FOR A SUM OF RS. 1,08,00,000 FOR WHICH SALE DEED WAS EXECUTE D ON 21.1.2011. THE ASSESSEE ALSO ENTERED INTO AN AGREEMENT WITH M/S. GRENIX PROJECTS INFRA PVT. L TD., FOR RENOVATION OF THE RESIDENTIAL BUILDING FOR A SUM OF RS. 48,29,637. THE ASSESSEE DID NOT DEPOSIT ANY AMOUNT IN THE CAPI TAL GAINS ACCOUNT SCHEME AT ANY POINT OF TIME. 4. THE ASSESSING OFFICER HELD THAT THE INVESTMENT OF R S. 1,08,00,000 IN THE RESIDENTIAL HOUSE WAS FOR PURCHA SE OF THE HOUSE FOR WHICH THE TIME LIMIT SPECIFIED IN THE ACT IS WITHIN TWO YEARS AFTER THE SALE OF THE ASSET. SINCE THE INVES TMENT HAD BEEN MADE ON 29.11.2010, I.E., MORE THAN TWO YEARS AFTER THE SALE ON 21.1.2008, THE ASSESSEE WAS NOT ELIGIBLE FOR THE EX EMPTION U/S. 54F. THE LAND PROPOSED TO BE PURCHASED FROM M/S. A NDREW & SONS COMPANY WAS INDUSTRIAL LAND WHICH IN ANY CASE WOULD NOT HAVE BEEN ELIGIBLE FOR EXEMPTION U/S. 54F WHICH APP LIES ONLY TO A RESIDENTIAL HOUSE. EVEN OTHERWISE, NO BENEFIT CAN BE GIVEN FOR THIS TRANSACTION SINCE IT DID NOT MATERIALIZE AT ALL. T HE ASSESSEE WAS REQUIRED TO DEPOSIT THE SALE CONSIDERATION IN THE C APITAL GAINS ACCOUNT SCHEME BEFORE THE DUE DATE FOR FILING THE R ETURN OF INCOME U/S. 139(1) IN CASE THE CONSIDERATION WAS NOT APPRO PRIATED TOWARDS PURCHASE OR CONSTRUCTION OF THE NEW RESIDEN TIAL HOUSE. SINCE THE ASSESSEE HAD FAILED TO DO SO, HE WAS NOT ELIGIBLE FOR THE EXEMPTION. ACCORDINGLY, THE DEDUCTION CLAIMED BY T HE ASSESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER. 5. BEFORE THE CIT(A) THE ASSESSEE FILED A SALE DEED DA TED 21.1.2011 AS ADDITIONAL EVIDENCE. THE CIT(A) CALLE D FOR A REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSING O FFICER VIDE HIS I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 3 REPORT DATED 11.7.2011 OBJECTED GRANTING OF DEDUCTI ON U/S. 54F OF THE ACT. CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE, THE CIT(A) HELD THAT THE ASSESSEE CANNOT CLAIM THAT HE HAS CONSTRUCTED RESIDENTIAL HOUSE AS THE ASSESSEE PURCHASED RESIDEN TIAL BUILDING ON 21.1.2011 AT RS. 1,08,00,000 AND THEREAFTER SPEN T AN AMOUNT OF RS. 48,29,637 TOWARDS RENOVATION. BEING SO, IT CANNOT BE SAID THAT THE ASSESSEE CONSTRUCTED ANY RESIDENTIAL HOUSE TO AVAIL BENEFIT U/S. 54F. THE PRESCRIBED TIME LIMIT IS WIT HIN 2 YEARS FROM SALE OF PROPERTY I.E., WITHIN 20.1.2010. IT IS ONL Y IN THE CASE WHEN CONSTRUCTION HAS TAKEN PLACE, THE TIME IS EXTENDED FURTHER ONE YEAR I.E., 20.1.2011. ACCORDINGLY, THE CIT(A) DISM ISSED THE CLAIM OF THE ASSESSEE. AGAINST THIS THE ASSESSEE IS IN A PPEAL BEFORE US. 6. BEFORE US THE LEARNED AR REITERATED THE SAME ARGUME NTS AS MADE BEFORE THE CIT(A). THE LEARNED DR SUBMITTED T HAT THE CONDITIONS LAID DOWN U/S. 54F ARE NOT COMPLIED WITH . THE ASSESSEE ENTERED INTO A SALE AGREEMENT ON 29.11.201 0 AND GOT REGISTERED THE PROPERTY ON 21.1.2011 AND THEREAFTER THE ASSESSEE INCURRED AN AMOUNT OF RS. 48,29,637 TOWARDS RENOVAT ION. BEING SO, THE ASSESSEE CANNOT BE GRANTED WITH THE DEDUCTI ON U/S. 54F OF THE ACT. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUG H THE JUDGEMENT RELIED ON BY THE ASSESSEE'S COUNSEL IN TH E FOLLOWING CASES: I. RAJNEET SANDHU V. DCIT, 133 TTJ 64 II. SATISH CHANDRA GUPTA V. ASSESSING OFFICER (1995) 54 ITD 508 (DEL.) III. CIT V. SARDARMAL KOTHARI (2008) 302 ITR 286 (MAD) IV. JYOTI PAL RAM V. ITO 92 TTJ 199 (LUCKNOW) V. SALEEM FAZELBHOY V. DCIT, 106 ITR 167 (MUM) VI. GOURISHANKER GUPTA V. ACIT, 22 SOT 141 (HYD) VII. MRS. SONIA GULATI V. ITO, 115 TAXMAN 232 VIII. MRS. MEERA JACOB V. ITO, 313 ITR 411 (KER) I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 4 8. ACCORDING TO THE ASSESSEE THE ASSESSEE PURCHASED OL D BUILDING OF 53 YEARS OLD CONSTRUCTED IN THE YEAR 19 53 AND CONSTRUCTION INCLUDES DISMANTLING OF WALLS, WATER P ROOFING, WALL FINISHES, PLUMBING, KITCHEN REMODELLING AND FURNISH ING THE BEDROOM TO MAKE THE HOUSE HABITABLE. 9. NOW WE WILL LOOK INTO THE PROVISIONS OF SECTION 54F . SECTION 54F SPEAKS OF CAPITAL GAIN ON TRANSFER OF CERTAIN C APITAL ASSET NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE WHICH READS AS UNDER: '1) [SUBJECT TO THE PROVISIONS OF SUB-SECTION (4), WHERE IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HI NDU UNDIVIDED FAMILY], THE CAPITAL GAIN ARISES FROM THE TRANSFER OF ANY LONG-TERM CAPITAL ASSET, NOT BEING A RESIDENTIAL HOUSE HEREINAFTER IN THIS SECTION REFER RED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS, WITHI N 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, A RESIDENTIAL HOUSE (HEREINAFTER IN TH IS SECTION REFERRED TO AS THE NEW ASSET), THE CAPITAL GAIN SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWIN G PROVISIONS OF THIS SECTION, THAT IS TO SAY, (A) IF THE COST OF THE NEW ASSET IS NOT LESS THAN THE N ET 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:' 10. BY A PLAIN READING OF THE ABOVE SECTION IT IS EVIDE NT THAT FOR CLAIMING EXEMPTION U/S. 54F THE FOLLOWING CONDITION S ARE TO BE FULFILLED: I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 5 A) THE ASSESSEE SHOULD BE AN INDIVIDUAL OR HUF; B) CAPITAL GAIN SHOULD ARISE FROM TRANSFER OF LONG TER M CAPITAL GAIN; C) THE ASSESSEE WITHIN A PERIOD OF ONE YEAR PRIOR TO O R TWO YEARS AFTER THE DATE OF TRANSFER OF ORIGINAL ASSET, PURCHASED A RESIDENTIAL HOUSE PROPERTY OR WITHIN THREE YEARS FR OM THE DATE OF TRANSFER OF ORIGINAL ASSET CONSTRUCTED A RE SIDENTIAL HOUSE PROPERTY WITHIN THREE YEARS FROM THE DATE OF TRANSFER OF ORIGINAL ASSET CONSTRUCTED RESIDENTIAL HOUSE PRO PERTY. 11. SUBJECT TO THE FULFILMENT OF THE ABOVE THREE CONDIT IONS, IF THE INVESTMENT IS MORE THAN NET CONSIDERATION, FULL CAP ITAL GAIN IS EXEMPT, OTHERWISE PROPORTIONATE CAPITAL GAIN IS EXE MPT. THE DEPARTMENT'S CONTENTION IS THAT THE ASSESSEE HAD NO T CONSTRUCTED A NEW RESIDENTIAL HOUSE PROPERTY. ON THE OTHER HAN D, THE ASSESSEE HAS ONLY PURCHASED RESIDENTIAL PROPERTY AND THE REN OVATION OF THAT PROPERTY DOES NOT AMOUNT TO CONSTRUCTION OF NEW RES IDENCE. 12. IN THE CASE OF SALEEM FAZELBHOY (SUPRA) IT WAS HEL D AS FOLLOWS: 'THE PROVISIONS OF S. 54F ARE INCENTIVE PROVISION S INTENDED TO AUGMENT THE INVESTMENT IN RESIDENTIAL HOUSES. IT IS THE SETTLED LEGAL POSITION THAT INCE NTIVE PROVISIONS SHOULD BE CONSTRUED LIBERALLY IN SUCH A MANNER THAT OBJECT OF THE STATUTE IS FULFILLED RATH ER THAN THE MANNER WHICH MAY FRUSTRATE THE OBJECT. INVESTMENT IN RESIDENTIAL HOUSE WOULD NOT ONLY INC LUDE COST OF PURCHASE OF THE HOUSE BUT ALSO THE COST INC URRED IN MAKING THE HOUSE HABITABLE. AN INHABITABLE PREMI SES CANNOT BE EQUATED WITH A RESIDENTIAL HOUSE. IF ONE PERSON CANNOT LIVE IN A PREMISES, THEN SUCH PREMISE S CANNOT BE CONSIDERED A RESIDENTIAL HOUSE. IN THE MODERN AGE, THE BUILDER MAY PROVIDE SEMI-FINISHED HOUSE OR COMPLETE HOUSE DEPENDING UPON THE PRICE AGREED TO BETWEEN THE PARTIES. IN CASE OF SEMI-FINI SHED HOUSE, THE PURCHASER WILL HAVE TO INVEST ON FLOORIN G, WOODEN WORK, SANITARY WORK, ETC., TO MAKE IT HABITA BLE. THEREFORE, THE INVESTMENT IN HOUSE WOULD BE COMPLET E I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 6 ONLY WHEN SUCH HOUSE BECOMES HABITABLE. EXPENDITUR E INCURRED ON MAKING THE HOUSE HABITABLE SHOULD BE CONSIDERED AS INVESTMENT IN PURCHASE OF THE HOUSE SUBJECT TO THE CONDITION THAT PAYMENT WAS MADE DURI NG THE PERIOD SPECIFIED IN S. 54F. THERE IS DISTINCTI ON BETWEEN EXPENDITURE INCURRED ON MAKING THE HOUSE HABITABLE AND THE EXPENDITURE ON RENOVATION. ONE MA Y VISUALIZE A SITUATION WHERE ASSESSEE MAY BUY A HABITABLE HOUSE BUT THE ASSESSEE MAY LIKE TO INCUR EXPENDITURE BY WAY OF RENOVATION TO MAKE IT MORE COMFORTABLE. HE MAY NOT BE HAPPY WITH THE QUALITY O F MATERIAL USED BY THE BUILDER AND, THEREFORE, HE MAY INCUR THE EXPENDITURE ON IMPROVEMENT OF THE HOUSE. SUCH EXPENDITURE CANNOT BE EQUATED WITH THE EXPENDITURE ON MAKING THE HOUSE HABITABLE. WHETHER THE HOUSE PURCHASED BY THE ASSESSEE WAS IN A HABITABLE CONDITION OR NOT WOULD DEPEND ON THE STAT E OF CONDITION OF THE HOUSE AT THE TIME OF PURCHASE. HEN CE, THIS ASPECT WOULD HAVE TO BE KEPT IN MIND WHILE ADJUDICATING SUCH ISSUE. IN THE PRESENT CASE, THE AO AS WELL AS THE LEARNED CIT(A) HAD REJECTED THE CLAIM O F THE ASSESSEE ON THE GROUND THAT NO EXPENDITURE COULD BE CONSIDERED FOR EXEMPTION UNDER S. 54F WHICH WAS INCURRED AFTER THE DATE OF PURCHASE. THE AO HAD NO OCCASION TO EXAMINE THE STATE OF THE CONDITION OF T HE HOUSE PURCHASED BY THE ASSESSEE. THOUGH THE LIST OF EXPENDITURE HAS BEEN PROVIDED BY THE ASSESSEE, YET IT IS TO BE EXAMINED WHETHER SUCH EXPENDITURE WAS INCURRED TO MAKE THE HOUSE HABITABLE OR JUST TO MAK E THE HOUSE MORE COMFORTABLE. THIS ASPECT OF THE MAT TER REQUIRES EXAMINATION BY THE AO. ACCORDINGLY, THE O RDER OF THE CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO READJUDICATE THE ISSUE IN ACCORDANCE WITH THE GUIDELINES GIVEN AND AFTER CONSIDERING THE ENTIRE MATERIAL PRODUCED BY ASSESSEE BEFORE HIM. THE ASSESSEE SHALL BE GIVEN PROPER OPPORTUNITY TO REPRE SENT HIS CASE.' 13. IN THE CASE OF MRS. MEERA JACOB (CITED SUPRA) IT WA S HELD THAT SINCE THE ASSESSEE HAD ONLY MADE ADDITION TO T HE PLINTH AREA WHICH WAS IN THE FORM OF MODIFICATION OF AN EXISTIN G HOUSE, SHE WAS NOT ENTITLED TO DEDUCTION CLAIMED UNDER SECTION 54F OF THE INCOME-TAX ACT, 1961. I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 7 14. IN THE CASE OF JYOTI PAL RAM (SUPRA) IT WAS HELD TH AT THE TERM REMODELLING AND RENOVATION SUFFICIENT REFERRED TO N EW CONSTRUCTION ALSO AND, THEREFORE, THE ASSESSEE HAS TO BE HELD TO HAVE MADE INVESTMENT IN CONSTRUCTION OF RESIDENTIAL HOUSE WIT HIN THE STIPULATED TIME. IN PRINCIPLE, IT IS ENTITLED FOR EXEMPTION U/S. 54F. 15. THE HONBLE SUPREME COURT IN THE CASE OF K.P. VARGH ESE VS. ITO (131 ITR 597) IT WAS HELD AS UNDER: A STRICTLY LITERAL READING OF A STATUTORY PROVISIO N IGNORES SEVERAL VITAL CONSIDERATIONS WHICH MUST ALW AYS BE BORNE IN MIND WHILE INTERPRETING SUCH PROVISION. THE TASK OF INTERPRETATION OF A STATUTORY ENACTMENT IS NOT A MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORDS POSSESS THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMP T TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LAN GUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGH AND AS POINTED OUT BY LORD DENNING, IT WOULD BE IDLE TO EXPECT EVERY STAT UTORY PROVISION TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. 16. FURTHER IN THE CASE OF CIT VS. VEGETABLE PRODUCTS L TD. (88 ITR 192) (SC) IT WAS HELD AS UNDER: IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQ UENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESU LT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETI NG A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AN D REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABL E CONSTRUCTIONS OF A TAX PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCT ION. 17. COMING TO THE FACTS OF THE PRESENT CASE, THE ASSESS EE HAVING PURCHASED THE NEW PROPERTY VIDE SALE DEED DATED 21. 1.2011. FOR THIS AGREEMENT OF SALE WAS ENTERED ON 29.11.2010 AL ONG WITH THE CONTRACT FOR CONSTRUCTION ON 29.11.2010 AND CONSTRU CTION WAS COMPLETED BEFORE THE SALE DEED IS EXECUTED AND THE COST OF THE BUILDING WAS PAID BETWEEN 28.11.2010 TO 18.1.2011. IN OUR I.T.A. NO. 1924/HYD/2011 MR. ELVIS STEPHENSON ==================== 8 OPINION, WE HAVE TO TAKE A LIBERAL VIEW OF THE BENE FICIAL PROVISIONS OF SECTION 54F AND REMODELLING OR RENOVATION OF THE HOUSE TO MAKE IT HABITABLE TO SUIT THE REQUIREMENT OF THE ASSESSE E AND THEREBY WE HAVE TO HOLD THAT THE PROVISIONS OF SECTION 54F HAV E BEEN COMPLIED WITH BY THE ASSESSEE. IN OUR OPINION, DEDUCTION U/ S. 54F HAS TO BE GRANTED TO THE ASSESSEE. ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSESSEE. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 17 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. MR. ELVIS STEPHENSON, C/O. M/S. M. ANANDAM & CO. , CHARTERED ACCOUNTANTS, 7A, SURYA TOWERS, S.P. ROAD, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD-10(4), HYDERABAD. 3. THE CIT(A)-VI, HYDERABAD. 4. THE CIT-V, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD TPRAO