ITO WD 3(4), THANE V. UDAY KASHINATH SATHE, THANE

ITA 2343/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3147 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M MADHAVI DR
• Assessee Lawyers: DHANSHREE KELKAR
• Keywords: Reopening of assessment; Capital asset; Cost of acquisition; Benefit of exemption

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.2343/MUM/2014 ASSESSMENT YEAR: 2009-10 INCOME TAX OFFICER, WARD-3(4), ROOM NO.9, B-WING, 6 TH FLOOR, ASHAR IT PARK, WAGLE ESTATE, THANE(W)-400604 / VS. SHRI UDAY KASHINATH SATHE, 403,404, HAPPY VALLEY PHASE VI, MANPADA, NR. TIKUJINIWADI, THANE-400604 ( / REVENUE) ( !' # /ASSESSEE) PAN. NO. ADUPS7623L / REVENUE BY MS. R.M. MADHAVI-DR !' # / ASSESSEE BY SHRI DHANSHREE KELKAR $ % & # ' / DATE OF HEARING : 30/09/2015 & # ' / DATE OF ORDER: 21/10/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 13/12/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED IN THIS APPEAL PERTAINS TO H OLDING THAT THE DATE OF POSSESSION IS RELEVANT FOR AVAILING EXE MPTION U/S UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 2 54 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT ) INSTEAD OF DATE OF REGISTRATION. 2. DURING HEARING OF THIS APPEAL, THE LD. DR, ADVA NCED THE ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAI SED BY DEFENDING THE CONCLUSION DRAWN IN THE ASSESSMENT OR DER DENYING THE CLAIMED DEDUCTION/EXEMPTION. ON THE OT HER HAND, THE LD. COUNSEL FOR THE ASSESSEE, DEFENDED TH E CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY PLAC ING RELIANCE UPON THE DECISION FROM THE TRIBUNAL IN THE CASE OF SHRI AZAD ZABARCHAND BHANDARI VS ACIT (ITANO.7800/ MUM/2011) ORDER DATED 26/04/2013. THIS FACTUAL MATR IX WAS NOT CONTROVERTED BY THE REVENUE. RELIANCE WAS ALSO PLACED UPON THE DECISION IN CIT VS MS SHAHZADA BEGU M (173 ITR 397) (AP). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 26/0 4/2013 FOR READY REFERENCE:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 16.08.2011 PASSED BY CIT(A)-30, MUMBAI AND IT PERTAINS TO A.Y. 2006-07. 2. THE ASSESSEE IS ADMITTEDLY ENGAGED IN THE ACTIV ITY OF DEVELOPMENT OF PLOTS/HOUSES AS BUILDER. ASSESSEE EN TERED INTO AN AGREEMENT FOR SELLING THE PROPERTY AT CADDLE ROA D ON 16.03.2005. ACCORDING TO THE ASSESSEE POSSESSION WA S GIVEN TO THE DEVELOPER ON 20.09.2005 WHICH FALLS IN THE ACCO UNTING UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 3 YEAR RELEVANT TO A.Y. 2006-07 AND GOING BY THE CLAU SES IN THE AGREEMENT THE ASSESSEE HELD THE VIEW THAT THE TRANS FER, WITHIN THE MEANING OF SECTION 2(47) OF THE INCOME TAX ACT R.W.S. 53A OF THE TRANSFER OF PROPERTY ACT, TOOK PLACE IN THE FINANCIAL YEAR 2005-06 RELEVANT TO A.Y. 2006-07 AND THE ASSESSEE H AVING INVESTED A SUM OF RS.25 LAKHS IN DECEMBER, 2005, IT CLAIMED DEDUCTION THEREOF UNDER SECTION 54EC OF THE ACT. TH E AO WAS, HOWEVER, OF THE VIEW THAT THE ASSESSEE HAVING ENTER ED INTO CONTRACT WITH THE BUILDER ON 16.03.2005, THE TRANSF ER IS DEEMED TO HAVE TAKEN PLACE IN THE PREVIOUS YEAR REL EVANT TO A.Y. 2005-06 AND HENCE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 54EC OF THE ACT IN THE YEAR UNDER CONSIDERATION. IN RESPONSE TO A SHOW CAUSE NOTICE T HE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO INVEST T HE WHOLE OR ANY PART OF THE CAPITAL, UPON TRANSFER OF LONG TERM CAPITAL ASSETS, WITHIN A PERIOD OF SIX MONTHS AFTER THE DAT E OF SUCH TRANSFER. REFERENCE WAS ALSO MADE TO CAUSE 7 OF THE ARTICLES OF AGREEMENT TO STATE THAT THE OWNERS, I.E. THE ASSESS EE AND ANOTHER, DEPOSITED ALL THE ORIGINAL TITLE DEEDS AND DOCUMENTS OF THE SAID PROPERTY WITH M/S. ALN KHATRI & CO. ADV OCATES AND SOLICITORS, WHO SHALL HOLD THE SAME AS ESCROW AGENT S TILL THE TIME OF PAYMENT UNDER CLAUSE 2(C) OF THE AGREEMENT AND THEREAFTER HAND OVER THE DOCUMENTS TO M/S. PURNANAN D & CO., ADVOCATES AND SOLICITORS OF THE DEVELOPER. THUS THE PROPERTY WOULD REMAIN WITH THE ASSESSEE TILL THE DEVELOPER P AYS THE ENTIRE CONSIDERATION. IN THE INSTANT CASE A SUM OF RS.7,75,000/- TO EACH OWNER IS PAYABLE BEFORE EXECU TION OF THIS AGREEMENT, I.E. BEFORE 16TH MARCH, 2005 AND WI THIN THREE MONTHS FROM EXECUTION OF THE AGREEMENT A SUM OF RS. 10 LAKHS IS PAYABLE TO MR. BHARAT V. GADA, ONE OF THE CO-OWN ERS AND RS.40 LAKHS IN FAVOUR OF SHRI AZAD Z. BHANDARI, THE ASSESSEE HEREIN. THEREAFTER, WITHIN SIX MONTH, A SUM OF RS.5 0 LAKHS IS PAYABLE TO SHRI BHARAT V. GADE AND RS.20 LAKHS TO S HRI AZAD Z. BHANDARI. THE BALANCE CONSIDERATION OF RS.10 LAKHS EACH IS PAYABLE TO THE OWNERS SIMULTANEOUSLY AGAINST COMPLE TION OF UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 4 THE SALE AND EXECUTION OF DEED OF CONVEYANCE IN FAV OUR OF THE NOMINEES OF THE DEVELOPER. TIME FOR PAYMENT OF THE ABOVE CONSIDERATION IS THE ESSENCE OF THE CONTRACT. IT WA S THEREFORE CONTENDED THAT TILL THE PAYMENT IS MADE THE DEVELOP ER COULD NOT HAVE TAKEN POSSESSION. UNLESS BOTH THE CONDITIO NS, I.E. EXECUTION OF AGREEMENT AND GIVING POSSESSION, ARE S ATISFIED IT CANNOT BE TREATED AS A TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. 3. THE AO REJECTED THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT CLAUSES 9 AND 10 OF THE AGREEMENT GIV ES COMPLETE CONTROL TO THE DEVELOPERS ON EXECUTION OF THE AGREEMENT AND DEVELOPERS HAVE AUTHORITY TO ENTER UP ON THE SAID PROPERTY, TO PUT UP THEIR SIGN BOARD ON THE SA ID PROPERTY, TO NEGOTIATE AND SETTLE WITH THE EXISTING TENANTS A ND OCCUPANTS, TO APPLY FOR AND OBTAIN SANCTION OF THE BUILDING PLANS FOR DEVELOPMENT, TO COMMENCE, CARRY ON AND CO MPLETE CONSTRUCTION OF THE BUILDING AND ALL SUCH THINGS AN D MATTERS AS MAY BE REQUIRED TO BE DONE FOR DEVELOPMENT OF THE S AID PROPERTY. ACCORDING TO THE AO THE TERMS OF THE AGRE EMENT CLEARLY IMPLIES THAT THE ASSESSEE HAS TRANSFERRED C OMPLETE CONTROL OVER THE PROPERTY IN FAVOUR OF THE DEVELOPE RS ON 16.03.2005 ITSELF. HE THEREUPON REFERRED TO THE DEC ISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHATRUBHUJ DWARKADAS KAPADIA VS. CIT 260 ITR 491 WHEREIN THE C OURT OBSERVED THAT ANY TRANSACTION INVOLVING POSSESSION TO BE TAKEN OVER OR RETAINED IN PART-PERFORMANCE OF A CON TRACT WOULD COME WITHIN THE AMBIT OF SECTION 2(47)(V) OF THE ACT. IN THE INSTANT CASE THE TRANSFEREE HAS THE RIGHT TO EN TER UPON THE PROPERTY AND HENCE IT IS DEEMED POSSESSION. THE COU RT FURTHER OBSERVED THAT DEVELOPERS AGREEMENT, PER SE, DO NOT CONSTITUTE TRANSFER, IN GENERAL LAW, BUT THE LEGISLATURE INTRO DUCED SECTION 2(47)(V) R.W.S. 45 OF THE INCOME TAX ACT TO BRING T O TAX CAPITAL GAINS IN SUCH CASES IN THE YEAR IN WHICH SUCH TRANS ACTIONS ARE ENTERED INTO EVEN IF THE TRANSFER OF IMMOVABLE PROP ERTY IS NOT UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 5 EFFECTIVE OR COMPLETE UNDER THE GENERAL LAW. ACCORD ING TO THE AO, ON AN APPLICATION OF THE AFOREMENTIONED PRINCIP LES, THE TRANSFER IN THE INSTANT CASE CAN BE DEEMED TO HAVE TAKEN PLACED IN MARCH, 2005 AND NOT IN SEPTEMBER, 2005. 4. IT IS NOT IN DISPUTE THAT THE ASSESSEE OFFERED T HE INCOME FOR TAXATION IN A.Y. 2006-07. ACCORDING TO THE AO IT HA S TO BE TAXED IN A.Y. 2005-06. IN THIS REGARD HE OBSERVED A S UNDER: - THE INCOME OFFERED BY THE ASSESSEE IS ASSESSED PROTE CTIVELY IN A.Y. 2006-07 AND CONSEQUENTLY THE SUBSTANTIVE ADDITION M AY BE MADE IN A.Y. 2005-06 AS PER LAW. 5. HAVING OBSERVED THAT THE TRANSFER HAS TAKEN PLAC E ON 16.03.2005 THE AO DENIED THE CLAIM OF DEDUCTION UND ER SECTION 54EC OF THE ACT ON THE GROUND THAT THE INVE STMENT IS NOT MADE WITH SIX MONTHS FROM THE DATE OF TRANSFER OF THE ASSETS. ACCORDINGLY EXEMPTION OF RS.25 LAKHS WAS DE NIED. IT MAY BE NOTICED THAT THE ASSESSEE OFFERED THE ENTIRE INCOME RECEIVED ON TRANSFER OF THE CAPITAL ASSETS IN A.Y. 2006-07 (PAGE 93 OR THE PAPER BOOK) AND THE AO ADMITTED THE TAXAB ILITY OF THE ENTIRE SALE PROCEEDS IN THE YEAR UNDER CONSIDER ATION. 6. IT MAY BE NOTICED THAT THOUGH THE AO MADE PROTEC TIVE ASSESSMENT IN A.Y. 2006-07, ACCORDING TO THE LEARNE D COUNSEL FOR THE ASSESSEE NO SUBSTANTIVE ADDITION WAS MADE I N A.Y. 2005-06 TILL DATE AND AS ON DATE THE PERIOD OF LIMI TATION HAS EXPIRED AND THE AO CANNOT REOPEN THE ASSESSMENT FOR 2005-06 TO BRING TO TAX ANY INCOME. THUS THE ASSESSMENT FOR A.Y. 2006- 07 CAN BE SAID TO HAVE BECOME A SUBSTANTIVE ASSESSM ENT WHICH FURTHER IMPLIES THAT THE AO ADMITTED THAT THE TRANSFER TOOK PLACE IN THE YEAR UNDER CONSIDERATION. TO PUT IT IN OTHER WORDS, IF THE TRANSFER HAD NOT TAKEN PLACE IN THIS YEAR THERE IS NO QUESTION OF TAXING THE RECEIPT IN THIS YEAR AS I T OUGHT TO HAVE BEEN TAXED IN THE YEAR IN WHICH EFFECTIVE TRAN SFER HAS TAKEN PLACE. UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 6 7. UNDER THESE CIRCUMSTANCES THE ASSESSEE WAS AGGR IEVED BY THE ORDER OF THE AO AND THEREFORE PREFERRED AN APPE AL BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN IT WAS CONTEN DED THAT THE ASSESSEE WAS A 50% JOINT OWNER OF A PLOT OF LAND AT CADDLE ROAD, MAHIM. ASSESSEE PURCHASED THE PROPERTY ON 31.03.1994. VIDE AGREEMENT DATED 16.03.2005 THE ASS ESSEE, WITH REGARD TO HIS SHARE, ENTERED INTO A DEVELOPMEN T AGREEMENT WHEREBY HE AGREED TO GRANT DEVELOPMENT RI GHTS TO THE DEVELOPERS AS PER THE CONDITIONS STIPULATED THE REIN. ACCORDING TO THE ASSESSEE THE TRANSFER CAN BE SAID TO HAVE TAKEN PLACE ONLY AFTER RECEIVING THE TOTAL CONSIDER ATION. IT WAS ALSO CONTENDED THAT THE ASSESSEE TRANSFERRED TWO DI STINCT RIGHTS, I.E. DEVELOPMENT RIGHTS AND RIGHT TO CONVEY ANCE WHEREAS A CONSOLIDATED PRICE WAS AGREED WITH REGARD TO THE SAID TRANSFER. IN THE INSTANT CASE, UPON SIGNING TH E DEVELOPMENT AGREEMENT THE ASSESSEE DID NOT TRANSFER THE TITLE DEEDS TO THE DEVELOPERS, IT WAS IN FACT KEPT WITH T HE ESCROW AGENT TILL SUCH TIME THE DEVELOPERS MADE THE ENTIRE PAYMENT IN TERMS OF CLAUSE 2(C) OF THE AGREEMENT, THOUGH TH E DEVELOPER WAS PERMITTED TO ENTER THE PREMISES UNDER A LICENCE . IT WAS ALSO CONTENDED THAT THOUGH THE DEVELOPER WOULD INSI ST UPON POSSESSION EVEN ON SIGNING THE CONTRACT, IN THE INT EREST OF SECURITY/SAFETY OF THE ASSESSEE, VARIOUS CONDITIONS WERE PROVIDED IN THE AGREEMENT WHEREBY THE EFFECTIVE DAT E OF POSSESSION WOULD BE ONLY UPON PAYMENT OF THE ENTIRE CONSIDERATION. IN SHORT, THE CASE OF THE ASSESSEE B EFORE THE FIRST APPELLATE AUTHORITY WAS THAT THE TRANSFER TOO K PLACE ON 20.09.2005 WHICH FALLS IN THE PREVIOUS YEAR RELEVAN T TO A.Y. 2006-07 AND THE ASSESSEE HAVING INVESTED WITHIN SIX MONTHS FROM THE SAID DATE, HE IS ENTITLED TO EXEMPTION UND ER SECTION 54EC OF THE ACT. 8. THE LEARNED CIT(A) REJECTED THE CONTENTION OF TH E ASSESSEE BY OBSERVING AS UNDER: - UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 7 3.5 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDE R AND THE SUBMISSIONS MADE BY THE AR OF THE APPELLANT. THE MO OT POINT IS WHETHER THE DATE OF AGREEMENT I.E. 16.03.2005 OR THE D ATE OF POSSESSION I.E. 20.09.2005 IS THE RELEVANT DATE FOR C OMPUTING THE CAPITAL GAINS? THE CASE OF CHATURBHUJ DWARKADAS KAPAD IA VS. CIT 260 ITR 491 IS APPLICABLE TO THE APPELLANTS CASE. FOLLOWING THE SAID JUDGEMENT I HOLD THAT THE DATE OF AGREEMENT IS THE RE LEVANT DATE FOR COMPUTING CAPITAL GAINS IN A.Y. 2005-06. FOR CLAI MING EXEMPTION U/S. 54EC, THE APPELLANT SHOULD HAVE INVE STED THE MONEY WITHIN SIX MONTHS. THE APPELLANT HAD INVESTED MONEY IN DECEMBER, 2005 WHICH IS BEYOND SIX MONTHS. THEREFORE, THE APPELLANT IS NOT ENTITLED FOR EXEMPTION U/S. 54EC. T HESE GROUNDS OF APPEAL ARE DISMISSED. 9. FURTHER AGGRIEVED, ASSESSEE PREFERRED SECOND APP EAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE ADVERTED OUR ATTENTION TO THE OBSERVATIONS OF THE LEARNED CI T(A) TO SUBMIT THAT EVEN THE LEARNED CIT(A) ADMITTED THAT T HE DATE OF POSSESSION OF THE PROPERTY WAS 20.09.2005 WHEREAS O N 16.03.2005 AN AGREEMENT WAS ENTERED INTO WITH THE DEVELOPER. HE RELIED UPON AN UNREPORTED DECISION OF THE HON'BLE DELHI HIGH COURT, IN THE CASE OF CIT VS. DE LHI APARTMENT PVT. LTD. (ITA 569/2012 DATED 07.03.2013) , TO SUBMIT THAT IN ORDER TO BRING A TRANSACTION WITHIN THE EXPRESSION TRANSFER, UNDER SECTION 2(47)(V) R.W.S . 53A OF THE TRANSFER OF PROPERTY ACT, TWO CONDITIONS ARE TO BE FULFILLED, I.E. (A) EXECUTION OF A WRITTEN AGREEMENT, AND (B) HANDI NG OVER OF POSSESSION OF THE PROPERTY. THE HON'BLE DELHI HIGH COURT UPHELD THE VIEW TAKEN BY ITAT IN THE AFOREMENTIONED CASE AND HELD THAT EXECUTION OF WRITTEN AGREEMENT AND HANDIN G OVER OF POSSESSION HAVE TO BE CUMULATIVELY SATISFIED IN ORD ER TO BRING THE CASE WITHIN THE AMBIT OF SECTION 2(47)(V) OF TH E ACT. BY STRONGLY RELYING ON THE AFOREMENTIONED DECISION THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE INST ANT CASE THE ASSESSEE FILED RETURN OF INCOME FOR A.Y. 2006-07 ON LY ON THE PRESUMPTION THAT APART FROM EXECUTION OF DEVELOPMEN T UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 8 AGREEMENT THE TRANSFER TOOK PLACE IN THE PREVIOUS Y EAR RELEVANT TO A.Y. 2006-07. IF THE AO IS OF THE OPINI ON THAT THE TRANSFER TOOK PLACE ON 16.03.2005 IT WOULD HAVE BEE N INCORRECT ON THE PART OF THE AO TO BRING TO TAX THE AMOUNT RECEIVED BY THE ASSESSEE ON THE SO CALLED TRANSFER OF RIGHTS OVER THE PROPERTY. THE VERY FACT THAT THE AO BROUGH T TO TAX THE SALE CONSIDERATION IMPLIES THAT HE HAD ADMITTED THA T THE TRANSFER TOOK PLACE IN THIS YEAR. IN FACT THE AO ST ATED THAT HE IS ONLY MAKING A PROTECTIVE ASSESSMENT IN THIS YEAR, W HICH IS NOT PERMISSIBLE IN LAW BECAUSE THERE IS NO CONCEPT OF M AKING PROTECTIVE ASSESSMENT UNDER INCOME TAX ACT. THOUGH TRADITIONALLY PROTECTIVE ASSESSMENTS ARE MADE IN TH E CASE OF A PARTICULAR ASSESSEE OR IN A PARTICULAR YEAR, WITH F IRM CONVICTION THAT IT IS TAXABLE IN THE CASE OF ANOTHER PERSON OR YEAR, BUT IN THE INSTANT CASE THE AO HAS NOT MADE ANY EFFORT TO BRING TO TAX THE SALE PROCEEDS IN A.Y. 2005-06 AND NOW THE PROCEEDINGS, EVEN IF THE AO INTENDS TO, WOULD BE BA RRED BY LIMITATION. IT IS THUS SEEN THAT THE AO NEVER HAD A NY INTENTION TO MAKE A SUBSTANTIVE ASSESSMENT IN A.Y. 2005-06. T HE LEARNED COUNSEL FOR THE ASSESSEE ALSO CONTENDED THA T THE CIT(A) MADE AN OBSERVATION THAT THE DATE OF POSSESS ION IS 20.09.2005 AGAINST WHICH THE REVENUE HAS NOT PREFER RED ANY APPEAL AND IF THE DATE OF POSSESSION IS TAKEN AS 20 .09.2005, EVEN BY APPLYING THE DECISION OF HON'BLE BOMBAY HIG H COURT IN THE CASE CHATURBHUJ DWARKADAS KAPADIA 260 ITR 491, THE RECEIPTS ON TRANSFER OF RIGHTS ON IMMOVABLE PROPERT Y ARE ASSESSABLE TO TAX ONLY IN A.Y. 2006-07; THE ASSESSE E HAVING INVESTED THE MONEY IN DECEMBER, 2005, WHICH IS WITH IN SIX MONTH FROM THE DATE OF POSSESSION, IS ENTITLED TO E XEMPTION UNDER SECTION 54EC OF THE ACT. HE HAS ALSO TAKEN US THROUGH VARIOUS CLAUSES OF THE AGREEMENT TO CONTEND THAT TH E TITLE DEEDS AND THE DOCUMENTS WERE NOT HANDED OVER TO THE DEVELOPER UPON INITIAL PAYMENT SINCE THE PAPERS WER E IN THE CUSTODY OF ASSESSEES COUNSEL AS ESCROW AGENTS. SIN CE THE JOB OF A DEVELOPER IS TO DEVELOP THE PROPERTY, LICENCE WAS GRANTED UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 9 TO HIM TO ENTER UPON THE PREMISES BUT IT CANNOT BE EQUATED TO HANDING OVER POSSESSION OF THE PREMISES SINCE ONE O F THE CLAUSES STIPULATES THAT IN THE EVENT OF NONPAYMENT OF THE ENTIRE CONSIDERATION THE AGREEMENT COULD BE REVOKED AND THE DEVELOPER SHALL NOT BE ENTITLED TO POSSESSION. HE H AS ALSO TAKEN US THROUGH THE DECISION OF THE HON'BLE BOMBAY HIGH COURT TO SUBMIT THAT THE HON'BLE BOMBAY HIGH COURT RESTED ITS DECISION ON THE PECULIAR FACTS OF THAT CASE. THE LE ARNED COUNSEL ADVERTED OUR ATTENTION TO PAGE NO. 501 OF THE REPOR TED DECISION TO HIGHLIGHT THE OBSERVATION OF THE COURT I.E., IF ONE READS THE CONTRACT AS A WHOLE, IN THE AFOREMENTIONE D CASE IT CAN BE SEEN THAT THERE IS A DICHOTOMY IN THE TERMS OF THE CONTRACT, SINCE THE DEVELOPER WAS GIVEN IRREVOCABLE LICENCE TO ENTER THE PROPERTY AFTER THE DEVELOPER OBTAINS THE REQUISITE APPROVALS OF VARIOUS AUTHORITIES. BY READING THE C ONTRACT AS A WHOLE THE HON'BLE HIGH COURT ARRIVED AT A CONCLUSIO N THAT ONE SHOULD NOT GOBY THE DATE OF ACTUAL POSSESSION BUT H AS TO APPRECIATE THE DATE ON WHICH IRREVOCABLE LICENCE WA S GIVEN WHICH WOULD INDICATE PASSING OR TRANSFERRING OF COM PLETE CONTROL OVER THE PROPERTY IN FAVOUR OF THE DEVELOPE R AND SUCH A DATE CAN BE TAKEN AS THE DATE OF TRANSFER. HE THE N STRONGLY SUBMITTED THAT THE AO AS WELL AS THE CIT(A) DID NOT APPRECIATE THE FACTS IN ITS ENTIRETY BEFORE COMING TO THE CONC LUSION THAT THE TRANSFER HAS NOT TAKEN PLACE IN THE YEAR UNDER CONSIDERATION AND AT THE SAME TIME BY ARRIVING AT A FINDING THAT THE INCOME OFFERED TO TAX IS ASSESSABLE IN A.Y . 2006-07 IMPLYING THEREBY THAT THE TRANSFER TOOK PLACE IN TH IS YEAR. 10. ON THE OTHER HAND, THE LEARNED D.R. STRONGLY RE LIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. SHE ADMIT TED THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT THE AO H AS MADE SOME EFFORTS TO MAKE SUBSTANTIVE ASSESSMENT IN A.Y. 2005-06. IT MAY BE NECESSARY TO NOTE THAT THE LEARNED COUNSE L FOR THE ASSESSEE EMPHATICALLY STATED THAT TO THE BEST OF HI S KNOWLEDGE THE ASSESSEE IS NOT IN RECEIPT OF ANY NOTICE REGARD ING UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 10 REOPENING OF ASSESSMENT OF A.Y. 2005-06. THE LEARNE D D.R. SUBMITTED THAT IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) THE DATE OF EFFECTIVE TRA NSFER IS THE DATE ON WHICH THE DEVELOPER IS ENTITLED TO ENTER TH E PREMISES AND IN THE INSTANT CASE ALSO, DESPITE CLAUSE 2(C) O F THE CONTRACT, THE OVERALL CIRCUMSTANCES INDICATE THAT T HE DEVELOPER IS ENTITLED TO HAVE COMPLETE POSSESSION OF THE PROP ERTY FROM THE DATE FIRST PAYMENT IS MADE AND AGREEMENT IS ENT ERED INTO. SHE THUS SUBMITTED THAT THE DATE OF POSSESSION, IN THE INSTANT CASE, SHOULD BE TAKEN AS 16.03.2005 IN WHICH EVENT INVESTMENT MADE IN DECEMBER, 2005 FALLS OUTSIDE THE PERIOD OF SIX MONTHS, FROM THE DATE OF TRANSFER, AND HENCE THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 54EC OF THE ACT. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. AT THE OUTSET IT MAY BE STATED THAT THERE IS DICHOTOMY IN THE APPROACH OF THE TAX AUTHORITIES; O N ONE HAND THE SALE PROCEEDS ARE SOUGHT TO BE TAXED IN A.Y. 20 06-07 IMPLYING THEREBY THAT THE TRANSFER TOOK PLACE IN TH IS YEAR AND NOT ON 16.03.2005 BUT ON THE OTHER HAND, FOR THE LI MITED PURPOSE OF DISALLOWING THE CLAIM OF EXEMPTION UNDER SECTION 54EC OF THE ACT, THE AO AS WELL AS THE CIT(A) PROCE EDED ON THE PRESUMPTION THAT16.03.2005 IS THE DATE OF TRANSFER AND RECKONED FROM THAT DATE THE INVESTMENT IS TO BE MAD E WITHIN SIX MONTHS AND HENCE THE INVESTMENT MADE IN DECEMBE R, 2005 CANNOT BE CONSIDERED FOR THE PURPOSE OF SEEKIN G BENEFIT UNDER SECTION 54EC OF THE ACT. IT IS EQUALLY IMPORT ANT TO NOTICE THAT THE AO SEEKS TO TAX THE INCOME ON SALE OF THE PROPERTY IN THE YEAR UNDER CONSIDERATION ON PROTECTIVE BASIS BY OBSERVING THAT CONSEQUENTLY THE SUBSTANTIVE ADDITION MAY BE MADE IN A.Y. 2005-06 AS PER THE LAW. THE EXPRESSION MAY B E MADE IN ITSELF INDICATES THAT THE AO IS NOT SURE AS TO W HETHER THE TRANSFER TOOK PLACE IN A.Y. 2005-06 OR NOT AND IN F ACT HIS SUBSEQUENT ACTION/INACTION OF NOT INITIATING ANY PR OCEEDING IN UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 11 RESPECT OF A.Y. 2005-06 SPEAKS VOLUMES ABOUT THE CO NDUCT OF THE AO. IN FACT IT IS A MATTER OF SERIOUS CONCERN. 12. ARTICLE 265 OF THE CONSTITUTION OF INDIA POSTUL ATES THAT THERE CANNOT BE LEVY OF TAX WITHOUT AUTHORITY OF LA W. IT IS NOT IN DISPUTE THAT CAPITAL GAINS TAX CAN BE LEVIED ONL Y IN THE YEAR WHEN THE TRANSFER OF IMMOVABLE PROPERTY TAKES PLACE . IF THE AO IS OF THE FIRM VIEW THAT THE TRANSFER HAD TAKEN PLACE ON 16.03.2005, FOR CAPITAL GAINS TAX PURPOSE, THEN IT IS MANDATORY TO BRING TO TAX, THE SAID INCOME, IN A.Y. 2005-06 I N WHICH EVENT HE OUGHT TO HAVE EXCLUDED THE INCOME OFFERED TO TAX IN A.Y. 2006-07, HAVING OBSERVED THAT RECKONED FROM THE DAT E OF TRANSFER THE ASSESSEE HAS NOT INVESTED, WITHIN SIX MONTHS, THE SALE PROCEEDS IN THE LONG TERM SPECIFIED ASSETS. TH E FIRST APPELLATE AUTHORITY, IN PARA 3.5, IMPLIEDLY ACCEPTS THAT IN THE INSTANT CASE THE DATE OF AGREEMENT IS DIFFERENT FRO M THE DATE OF POSSESSION; IN HIS OPINION THE MOOT POINT IS WHE THER THE DATE OF AGREEMENT, I.E. 16.03.2005 OR THE DATE OF P OSSESSION, I.E. 20.09.2005 IS THE RELEVANT DATE FOR COMPUTING CAPITAL GAINS TAX. IT IS WELL SETTLED THAT IN ORDER TO BRIN G THE SALE PROCEEDS TO TAX UNDER THE HEAD CAPITAL GAINS TRAN SFER OF THE PROPERTY HAS TO TAKE PLACE IN THE RELEVANT PREVIOUS YEAR AND IN ORDER TO COME TO THE CONCLUSION THAT THE TRANSFER H AS TAKEN PLACE WITHIN SECTION 2(47)(V) OF INCOME TAX ACT R.W .S. 53A OF TRANSFER OF PROPERTY ACT TWIN CONDITIONS HAVE TO BE SATISFIED, I.E. EXECUTION OF THE AGREEMENT AND HANDING OVER OF POSSESSION. IT IS NOT NECESSARY THAT BOTH CONDITION S SHOULD BE SATISFIED IN ONE YEAR BUT AT THE SAME TIME ONLY UPO N SATISFYING THE SECOND CONDITION ALSO IT WOULD AMOUNT TO TRANSF ER. IN THIS CASE ALSO THERE IS NO DISPUTE THAT THE AGREEMENT IS DATED 16.03.2005 WHEREAS WITH REGARD TO THE DATE OF POSSE SSION THE LEARNED CIT(A) ASSUMED THAT IT TOOK PLACE ON 20.09. 2005, WHICH FALLS IN THE FINANCIAL YEAR RELEVANT TO A.Y. 2006-07. IN THE PECULIAR NATURE OF THIS CASE, IF AT ALL THE PLEA OF THE AO HAS TO BE ACCEPTED, IT WOULD AMOUNT TO HOLDING THAT THE TR ANSFER HAD UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 12 NOT TAKEN PLACE IN THIS YEAR AND CONSEQUENTLY THE S ALE PROCEEDS CANNOT BE ASSESSED IN THIS YEAR, BUT THE A O HAVING NOT INITIATED ANY PROCEEDINGS WITH RESPECT TO A.Y. 2005-06 TILL DATE THE IMPUGNED INCOME WOULD ESCAPE TAXABILITY EV EN IN A.Y. 2005-06 AND IT WOULD REALLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. UNDER THIS PECULIAR CIRCUMSTANCE WE HAVE TO RATIONALLY INTERPRET THE FINDINGS OF THE AO AS WELL AS THE CIT(A) IN THE BACKDROP OF THE CLAUSES IN THE AGREEMENT. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE , THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHATRUBHUJ DWARKADAS KAPADIA (SUPRA) HAS DECIDED THE ISSUE BY READING THE TERMS OF THE CONTRACT AS A WHOLE AND BY SPECIAL LY TAKING NOTE OF THE FACT THAT IN THE GUISE OF AGREEMENT OF SALE A DEVELOPMENT AGREEMENT WAS CONTEMPLATED WHEREBY THE DEVELOPER WAS HELD TO HAVE TAKEN POSSESSION ON ACCO UNT OF THE IRREVOCABLE LICENCE GRANTED TO HIM TO ENTER UPO N THE PROPERTY WHEREAS IN THE INSTANT CASE NO SUCH FINDIN G WAS GIVEN BY THE TAX AUTHORITIES. IN FACT THE LEARNED C IT(A) OPINED THAT THE DATE OF HANDING OVER OF POSSESSION IN THE INSTANT CASE WAS 20.09.2005, AND BASED ON THIS FACTUAL PREMISE I T HAS TO BE HELD THAT THE TRANSFER HAD TAKEN PLACE IN THE PREVI OUS YEAR RELEVANT TO A.Y. 2006-07. RECKONED FROM THE DATE OF POSSESSION, I.E., 20.09.2005, THE ASSESSEE HAVING I NVESTED THE MONEY WITHIN SIX MONTHS IN LONG TERM SPECIFIED ASSE T, THE BENEFIT OF EXEMPTION UNDER SECTION 54EC DESERVES TO BE EXTENDED TO THE ASSESSEE IN THE INSTANT CASE. IN SU BSTANCE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION UND ER SECTION 54EC OF THE ACT IN THE YEAR UNDER CONSIDERATION AND WE DIRECT THE AO ACCORDINGLY. THIS DISPOSES OF GROUND NO. 1, 2 & 3 SET, OUT IN THE REVISED GROUNDS OF APPEAL. 2.2. WE ARE ALSO REPRODUCING HEREUNDER, ANOTHER DECISION OF THE TRIBUNAL WHICH IS ON IDENTICAL FACT IN THE CASE OF V.M. DUJODWALA VS ITO (ITA NO.4554/MUM/1986): (1 991) 036 ITD 130 (MUMBAI TRIBUNAL.):- UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 13 2. THE ASSESSEE IS AN INDIVIDUAL AND FOR THE ASSESS MENT YEAR 1981-82. THE RELEVANT PREVIOUS YEAR ENDS ON DIWALI 1980. THE ASSESSEE WAS THE JOINT OWNER OF FLAT NO. 26 IN MEGHDOOT, MARINE DRIVE, BOMBAY, PURCHASED IN 1952 FOR RS. 38,000. HE SOLD THE SAID FLAT FOR RS. 4,50,000 AS PER AGREEMENT DATED 12-5-80. POSSESSION WAS GIVEN ON 15-5-80 TO THE BUYER. THE INCOME-TAX OFFICER COMPUT ED CAPITAL GAINS FOR THE WHOLE TRANSACTION AT RS. 4,12,800 AND ARRIV ED ASSESSEE';S SHARE THEREIN AT RS. 2,06,000 WHICH WAS TREATED AS THE INCOME UNDER THE HEAD ';LONG TERM CAPITAL GAINS'; AND ALLOWED DE DUCTION UNDER SECTION 80-TTOF THE IT ACT, 1961. THE ASSESSEE SUBM ITTED THAT HE HAS PURCHASED ANOTHER HOUSE PROPERTY BEING FLAT NO. 62, ';RAMBHA'; AT PETIT HALL, BOMBAY, VIDE AGREEMENT DATED 22-10-77 F OR RS. 2,80,000. IN THIS PROPERTY, THE ASSESSEE';S SHARE WAS 70% OR RS. 2,01,950. THE ASSESSEE SUBMITTED HIS TRANSACTIONS IN RELATION TO PURCHASE OF NEW FLAT NO. 62 IN A SERIALISED MANNER AS UNDER: 24-7-72 AGREEMENT OF ORIGINAL PURCHASER K.K. GOPALDAS BOOKING FLAT FROM MALABAR INDS. P. LTD. 22-10-77 AGREEMENT TO PURCHASE FROM K.K. GOPALDAS. 24-10-77 DATE OF PAYMENT OF RS. 42,780 7-12-77 DATE OF PAYMENT OF RS. 2,15,941 29-12-77 LETTER FROM BUILDER AGREEING TO TRANSFER FROM NAME OF K.K. GOPALDAS TO THE NAME OF THE ASSESSEE. 24-3-79 DATE OF PAYMENT OF RS. 20,780. 23-4-79 PATE OF PAYMENT OF LAST INSTALMENT. 16-5-79 MUNICIPAL CONDITIONAL LETTER OF NOC FOR OCCUPATION. UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 14 24-11-79 DATE OF OFFER FOR POSSESSION. 9-4-80 LETTER FROM BUILDER FOR READINESS FOR COMPLETION CERTIFICATE. 13-5-80 DATE OF POSSESSION. 3. BEFORE THE ITO, THE ASSESSEE CONTENDED THAT THOU GH AGREEMENT FOR PURCHASE OF A FLAT WAS ENTERED ON 22-10-77 AND PAYM ENT WAS ALSO MADE EARLIER, ONLY THE DATE WHEN THE NEW FLAT IS RE ADY FOR OCCUPATION SHOULD BE TAKEN AS DATE OF PURCHASE BY T HE ASSESSEE. THE ITO REJECTED THE ABOVE CONTENTION WITH THE FOLLOWIN G OBSERVATION IN PARA 5 OF HIS ORDER: I HAVE CONSIDERED THE ASSESSEE';S CONTENTION THE AG REEMENT FOR PURCHASE OF A NEW FLAT WAS ENTERED INTO IN 1977, PA YMENTS WERE MADE IN 1977, AND EVEN THE LAST INSTALMENT WAS MADE ON 3-4-79 WHILE THE OLD FLAT WAS SOLD ON 15-5-80 I.E. MORE TH AN ONE YEAR AFTER THAT. THE ASSESSEE HAS ALREADY ACQUIRED A RIGHT IN THE NEW FLAT MORE THAN 12 MONTHS BEFORE THE DATE OF SALE OF THE OLD F LAT THOUGH HE MIGHT HAVE TAKEN POSSESSION OF THE SAME MUCH LATE O N AND THIS AMOUNTS TO PURCHASE OF A FLAT, SINCE THIS WAS DONE MORE THAN 12 MONTHS BEFORE THE SALE OF THE OLD FLAT SECTION 54 E XEMPTION IS NOT AVAILABLE TO THE ASSESSEE. HIS CLAIM IS THEREFORE R EJECTED.' THE COMMISSIONER OF INCOME-TAX (APPEALS) ALSO CONFI RMED THE ORDER OF THE ITO. 4. WE HAVE HEARD THE COUNSELS ON BOTH SIDE. THE DEP ARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED THAT THE EXEMPTION UNDER SECTION 54 IS NOT APPLICABLE TO THE ASSESSEE AS HE FAILED T O BUY ANY RESIDENTIAL HOUSE PROPERTY WITHIN A PERIOD OF ONE Y EAR BEFORE/AFTER THE DATE OF SALE OF THE FIRST HOUSE PROPERTY. HE SU BMITTED THE REASONS GIVEN BY THE ITO AND THE CIT(A) IN THEIR ORDERS IN SUPPORT OF HIS PLEA. HE RELIED ON THE SUPREME COURT DECISION IN CIT V. T .N. ARAVINDA REDDY (1979) 120 ITR 46 , AND THE DECISION OF THE TRIBUNAL IN SRI RAJARAM V. ITO (1986) 119 ITR 141 (HYD.). 5. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT THE AGREEMENT FOR PURCHASE OF PROPERTY ON 22-10-1977 ON WHICH THE RELIANCE IS PLACED BY THE DEPARTMENT AS THE RELEVAN T DATE OF PURCHASE WAS IN RESPECT OF PROPERTY UNDER CONSTRUCT ION. THE FLAT UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 15 INTENDED TO BE PURCHASED BY THE ASSESSEE WAS NOT AT ALL CONSTRUCTED ON THAT DATE. HE PLACED RELIANCE IN SUPPORT OF HIS CONTENTION, TO THE SOURCE OF ARTICLES OF AGREEMENT DATED 22-10-77 WHIC H CLEARLY SPELLS OUT IN THE RECITAL THAT THE AGREEMENT WAS ONE IN RE SPECT OF A BUILDING STILL UNDER CONSTRUCTION. SO HE CLAIMED TH AT THE REVENUE';S INTERPRETATION THAT THE BUILDING WAS PURCHASED ON 2 2-10-77 IS NOT A REASONABLE FINDING, WHAT THE ASSESSEE MUST HAVE PUR CHASED IS JUST A RIGHT FOR PURCHASE OF A FLAT IN A PROPOSED CONSTRUC TION. HE SUBMITTED THAT THE BUILDER BEING OUT OF FUND AND FOR SUCH OTHER REASON, WENT ON DELAYING THE CONSTRUCTION. JUST TO HELP THE BUILDER TO FASTEN THE CONSTRUCTION, THE PAYMENTS WERE MADE IN INSTALMENTS MUCH EARLIER TO THE ACTUAL POSSESSION OF THE PROPER TY. THIS IS VERY COMMON IN TRANSACTION IN FLATS. THE CONSTRUCTION WA S COMPLETED AT A LATER DATE AND ON 24-11-79, THE BUILDER EXPRESSED HIS DESIRE TO OFFER THE POSSESSION OF THE FLAT. THAT IS THE FIRST DATE WHEN THE PROPERTY, AT BEST, CAN BE SAID TO BE A PURCHASE OF RESIDENTIAL PROPERTY. HE STRESSED THAT EVEN AFTER CONSTRUCTION OF THE BUILDING, THE FLAT IS NOT IMMEDIATELY AVAILABLE FOR RESIDENCE TO THE ASSESSEE UNLESS IT IS CLEARED BY THE MUNICIPAL/CORPORATION A UTHORITIES. THEREFORE, HE SUBMITTED THAT ONLY WHEN THE FLAT CON STRUCTION WAS COMPLETED AND AVAILABLE FOR RESIDENCE AND WAS ACTUA LLY ALLOTTED BY THE BUILDER TO THE BUYER IN COMPLIANCE WITH THE AGR EEMENT OF SALE ENTERED UPON BY THE BUILDER EARLIER, IT COULD BE TA KEN AS READY FOR OCCUPATION AND THAT WAS THE DATE MATERIAL FOR THE P URPOSE OF COUNTING PERIOD OF ONE YEAR WITHIN THE MEANING OF S ECTION 54 OF THE IT ACT, 1961. HE FINALLY SUBMITTED THAT 9-4-1980, O N WHICH DATE THE BUILDER AGREED TO GIVE POSSESSION OF THE FLAT WOULD BE TAKEN AS THE DATE ON WHICH THE ASSESSEE HAS PURCHASED THE PROPER TY FOR THE PURPOSE OF RESIDENCE WITHIN THE MEANING OF SECTION 54 OF THE IT ACT, 1961. TILL SUCH TIME, HE HAD ONLY THE RIGHT TO PURC HASE HOUSE PROPERTY, HE ADDED. HE RELIED ON THE FOLLOWING DECI SIONS: (1) CWT V. K.B. PRADHAN (1981) 130 ITR 393 (ORI.) (2) K.P. VARGHESE V. ITO (1981) 131 ITR 597 (SC) (3) CIT V. MRS. SHAHZADA BEGUM (1988)173 ITR 397/38 TAXMAN 31 (AP) (4) PURUSHOTTAM GOVIND BHAT V. FIRST ITO (1985) 13 ITD 939 (BOM.) (5) DAMODAR RAHEJA V. EIGHTH ITO (1984) 10 ITD 75 (MAD.). 6. WE HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE AND THE RIVAL CONTENTIONS. THE QUESTION BEFORE US, THOUGH IT IS S IMPLE, RAISES PROBLEMS OF IMPORTANCE IN METROPOLITAN CITIES WHERE THERE EXISTS LOT UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 16 OF PROBLEMS FOR MEETING BASIS HUMAN NEEDS ';HOUSE'; . JUST TO ENCOURAGE ASSESSEE, SECTION 54 IS ENACTED TO GIVE R ELIEF OF EXEMPTION FROM CAPITAL GAINS IN THE CASE OF ASSESSEES SELLING EXISTING RESIDENTIAL UNITS AND ACQUIRING ANY OTHER RESIDENTIAL UNIT. THI S HAS TO BE DONE WITHIN A PERIOD OF ONE YEAR EITHER BEFORE OR AFTER THE DATE OF SALE OF THE FIRST HOUSE PROPERTY. IF THAT IS DONE SO, CAPIT AL GAINS ARISING ON TRANSFER OF THE FIRST HOUSE PROPERTY WILL BE EXEMPT TO THE EXTENT OF INVESTMENT IN THE SECOND HOUSE PROPERTY AS STIPULAT ED IN SECTION 54. THE FLAT IN CITIES IS THE MOST COMMON AND A PECULIA R FEATURE. THE BUILDER HAS TO TAKE PLANS OF CONSTRUCTION IN HIS OW N NAME AND SOMETIMES IN THE NAMES OF HIS VENDORS AND START CON STRUCTION. HE INVITES PROSPECTIVE CUSTOMERS, ENTERS INTO AGREEMEN T FOR SALE OF FLATS PROPOSED TO BE CONSTRUCTED BY HIM AND AT TIMES, DEM ANDS THE PAYMENT OF PRICE IN ONE OR MORE INSTALMENT. HE MAY SOMETIMES TO FINANCE HIS OWN CONSTRUCTION ACTIVITY, GIVES DISCOU NTS AND ACCEPTS LESSER PAYMENT. THE PRICE PAID BEFORE CONSTRUCTION IS COMPLETE, WILL BE DIFFERENT FROM THE PRICE DEMANDED BY THE VENDORS AFTER THE FLAT IS CONSTRUCTED. THE BUYERS EVEN AFTER HAVING THE AGREE MENT FOR PURCHASE OF THE FLAT CANNOT EXERCISE ANY RIGHT OF O WNERSHIP OR THEIR RIGHT CANNOT BE TRACED TO ANY PART OF THE CONSTRUCT ION TILL SUCH TIME THE BUILDER ACTUALLY GIVES THE POSSESSION OF A PART ICULAR FLAT TO THE BUYER. AFTER THE COMPLETION OF STRUCTURE, IT HAS TO BE INSPECTED AND CLEARED BY THE MUNICIPAL AUTHORITIES. THEN THE FLAT IS READY FOR OCCUPATION WHICH THE BUILDER NORMALLY INTIMATES TO THE BUYER. THE BUYER WILL THEN TAKE POSSESSION AND ACTUALLY ENJOY THE HOUSE PROPERTY TO THE EXCLUSION OF OTHERS. IN THIS FLAT B USINESS, AT TIMES, THE BUILDER GOES FINANCIALLY BAD AND DELAYS THE CONSTRU CTION. AGAINST THIS BACKGROUND OF FLAT TRANSACTION, WE ARE NOW FAC ED WITH THE PROVISIONS OF SECTION 54 FOR GRANTING EXEMPTION TO THE ASSESSEE, WHO AT ONE TIME, ENTERS INTO PURCHASE AND AT OTHER TIME S, TAKES POSSESSION AND STARTS ACTUAL ENJOYMENT OF THE FLAT. AT WHAT POINT OF TIME HE BECAME OWNER OF THE HOUSE PROPERTY WILL DEC IDE THE FATE OF HIS EXEMPTION. 7. IN IDENTICAL ISSUE IN PURUSHOTTAM GOVIND BHAT';S CASE (SUPRA) THE TRIBUNAL HELD AS UNDER: THE RIGHT THE ASSESSEE HAS GOT IS A PECULIAR TYPE OF RIGHT WHICH CERTAINLY CANNOT BE CLASSIFIED AS OWNERSHIP. TO SAY, THEREFORE, THAT THE ASSESSEE. HAS PURCHASED TH E PROPERTY WOULD IN LAW BE ERRONEOUS. ON THE CONTRARY, THAT THE ASSE SSEE HAS AN INTEREST IN THIS FLAT AS MUCH AS THAT OF A FULL OWN ER CANNOT BE DENIED. THE PURPOSE OF THE ASSESSEE GETTING THE FLAT ALLOTT ED WAS TO HAVE THE BENEFIT OF RESIDENTIAL ACCOMMODATION ENTIRELY IN HI S CONTROL AS IF HE WAS THE FULL OWNER. EXCEPT, THEREFORE, FOR A FEW TE CHNICAL REQUIREMENTS, THE ASSESSEE CAN BE SAID TO BE THE FU LL OWNER OF THE PROPERTY. AS A MATTER OF FACT, IF NOT IN LAW, THERE FORE, IT WOULD BE UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 17 CORRECT TO SAY THAT THE ASSESSEE HAS PURCHASED A RE SIDENTIAL PROPERTY. IF THE MEANING OF THE WORD ';PURCHASE'; IS PUSHED T O ITS TECHNICAL SENSE, PERHAPS, THE OWNER OF A FLAT AS ABOVE WOULD NOT GET THE BENEFIT OF SECTION 54. EVEN SO, IT WOULD BE AGAINST THE VERY OBJECT AND PURPOSE OF SECTION 54 IF SUCH A FLAT OWNER IS DENIE D THE BENEFIT. PRACTICALLY IN EVERY BIG TOWN IN THIS COUNTRY, THE OWNERSHIP FLATS ARE IN FASHION. IN APPLYING THE PROVISIONS OF SECTION 5 4 TO SUCH A CONTINGENCY, IT WOULD NOT BE, AS CLAIMED BY THE LEA RNED COUNSEL FOR THE DEPARTMENT, PROPER TO DENY THE ASSESSEE THE BEN EFIT OF SECTION 54. WITH THE INCREASE IN THE COST OF BUILDINGS IF T HE TECHNICAL POLICY OF DENYING THE BENEFITS OF SECTION 54 CLAIMED BY TH E LEARNED DEPARTMENTAL COUNSEL IS ACCEPTED, SECTION 54 WOULD ALMOST BE AN UNUSED SECTION. CERTAINLY THAT CANNOT BE THE PURPOS E OF THE LEGISLATION ESPECIALLY WHEN THIS COVERS A LARGE NUM BER OF ASSESSEES, IN A PECULIAR TRANSACTION LIKE FLATS. A RECONCILIAT ION, THEREFORE, BETWEEN THE PROVISIONS OF SECTION 54 AND THE PECULI AR LAW RELATING TO THE OWNERSHIP FLATS IN BIG CITIES WHERE NO ORDINARY PERSON CAN PURCHASE A HOUSE HIMSELF HAS TO BE MADE. IN T.N. ARAVINDA REDDY';S CASE (SUPRA), ON WHICH RE LIANCE HAS BEEN PLACED BY THE REVENUE, IS IN RESPECT OF DIVISION OF THE HUF PROPERTY WHETHER THE RELEASE BY THE OTHER COPARCENERS COULD BE TAKEN AS ';PURCHASE'; FOR THE PURPOSE OF GRANTING RELIEF UND ER SECTION 54(1) OF THE ACT TO THAT COPARCENER IN WHOSE FAVOUR THE RELE ASE IS EFFECTED. THE SUPREME COURT ANSWERED THIS QUESTION IN FAVOUR OF THE ASSESSEE IN EXTENDING THE BENEFIT OF SECTION 54. IN THE CASE OF SRI RAJARAM (SUPRA), THE QUESTION FO R DETERMINATION WAS WHETHER THE PAYMENT OF CONSIDERATION IS RELEVAN T FOR THE PURPOSE OF SECTION 54, WHICH THE TRIBUNAL RIGHTLY H ELD THAT IT IS NOT SO, CONSIDERING THE PROVISIONS OF SECTION 54. THEREFORE, THE TWO CASES CITED ABOVE ARE NOT CLEARL Y APPLICABLE TO THE FACTS IN THE PRESENT CASE. 8. LEFT WITH THE RELEVANT DATE TO DECIDE IN THE FAC TS OF THE CASE, THE DECISION OF THE TRIBUNAL IN PURUSHOTTAM GOVIND BHAT ';S CASE (SUPRA) REALLY COMES TO FAVOUR THE ASSESSEE. IN THE SAID CA SE, THE ASSESSEE JOINED THE SOCIETY IN 1977. HE WAS ALLOTTED A FLAT AND OCCUPIED THE SAME ON L-L-1980. THE TRIBUNAL HELD, JOINING THE SO CIETY AND PAYING THE AMOUNTS CANNOT REALLY AMOUNT TO PURCHASE OF A H OUSE. ON THE CONTRARY, ALLOTMENT OF THE FLAT WOULD CERTAINLY GIV E THE ASSESSEE CERTAIN SPECIFIC OBLIGATIONS AND RIGHTS. THE MANNER IN WHICH THE AMOUNTS ARE PAID AND THE PERIOD OVER WHICH THEY ARE PAID MAY NOT UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 18 BE OF MUCH RELEVANCE. CONSIDERING THE PECULIAR CIRC UMSTANCES OF THAT CASE, IT WAS HELD THAT THE BENEFIT OF SECTION 54 SHOULD BE EXTENDED BY TAKING THE DATE OF ALLOTMENT AND OCCUPA TION AS THE RELEVANT DATE OF PURCHASE. FOLLOWING THE SAID DECIS ION, WE ARE INCLINED TO HOLD THAT IN THIS CASE ALSO, THE ASSESS EE HAS, THOUGH, ENTERED INTO AGREEMENT FOR PURCHASE OF FLAT ON 22-1 0-77, PAID THE MONEY DURING 1977 TO 1979, BUT THE RELEVANT DATE TO BE TAKEN FOR THE PURPOSE OF APPLYING OF SECTION 54 SHOULD BE THE DATE ON WHICH THE FLAT WAS READY FOR OCCUPATION BY THE ASSESSEE. TAKING THAT DATE AS THE DATE OF PURCHASE, IS WITHIN THE PERIOD OF ON E YEAR AND THEREFORE THE CAPITAL GAINS ARE CLEARLY EXEMPT FROM TAX APPLYING THE PROVISIONS OF SECTION 54. 9. IN VIEW OF THE ABOVE FACTS, WE ALLOW THE ASSESSE E'S APPEAL. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL AND T HE CONCLUSION DRAWN BY THE TRIBUNAL (SUPRA), IF KEPT I N JUXTAPOSITION AND ANALYZED, THE FACTS, IN BRIEF, AR E THAT THE ASSESSEE IS A SALARIED PERSON, MADE INVESTMENT OF L ONG TERM CAPITAL GAINS FROM SALE OF RESIDENTIAL FLAT IN ANOT HER RESIDENTIAL FLAT AND CLAIMED EXEMPTION U/S 54 OF THE ACT. BEFOR E COMING TO ANY CONCLUSION, THERE ARE CERTAIN RELEVANT DATES WH ICH NEED TO BE MENTIONED. THE ASSESSEE PURCHASED THE RESIDENTI AL FLAT VIDE AGREEMENT DATED 26/02/2007 AND TOOK THE POSSES SION ON 15/06/2007. THE ASSESSEE SOLD ANOTHER FLAT FOR A CONSIDERATION OF RS.32 LAKH VIDE AGREEMENT DATED 02 /05/2008 AND POSSESSION WAS ON 12/06/2008. THE ASSESSEE PURC HASED THIS FLAT ON 02/03/2000 ON A CONSIDERATION OF RS.8 ,57,440/-, THUS, THE INDEXED COST OF ACQUISITION IS RS.12,82,8 54/-. THE LONG TERM CAPITAL GAIN WAS CALCULATED AT RS.19,17,1 46/-. THE UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 19 ASSESSEE, IN VIEW OF THE PROVISION OF SECTION 54 OF THE ACT I.E. ONE YEAR BEFORE OR TWO YEARS AFTER ACCRUAL OF LONG TERM CAPITAL GAIN, THE ASSESSEE INVESTED THE ACCRUED AMOUNT IN A NOTHER RESIDENTIAL FLAT ON A CONSIDERATION OF RS.47,72,320 /-. THE ASSESSEE TOOK THE POSSESSION OF THE NEW FLAT ON 15 TH JUNE, 2007. THE COPY OF THE POSSESSION LETTER, ISSUED BY THE BUILDER, WAS PRODUCED BY THE ASSESSEE DURING ASSESSMENT PROC EEDINGS. BEFORE US, THE CRUX OF ARGUMENT IS THAT THE DATE OF POSSESSION IS FALLING WITHIN THE PROVISION OF SECTION 54 OF TH E ACT AS THE ASSESSEE HAS FULFILLED THE CONDITIONS. THE ONLY ISS UE TO BE ADJUDICATED BY US IS WHETHER THE ASSESSEE IS ENTITL ED TO EXEMPTION U/S 54 OF THE ACT. IN SUCH A SITUATION, T HE RATIO LAID DOWN BY THE TRIBUNAL IN THE AFORESAID ORDER DATED 26/04/2013 FAVOURS THE ASSESSEE, MORE SPECIFICALLY , WHEN THE BENCH DULY CONSIDERED THE DECISION FROM HONBLE JUR ISDICTIONAL HIGH COURT, IN THE CASE OF CHATRUBHUJ DWARKADAS KAP ADIA VS CIT 260 ITR 491 (BOM.), WHEREIN THE HONBLE HIGH CO URT OBSERVED THAT ANY TRANSACTION INVOLVING POSSESSION TO BE TAKEN OVER OR RETAINED IN PART PERFORMANCE OF A CONTRACT WOULD COME WITHIN THE AMBIT OF SECTION 2(47)(V) OF THE ACT. TH E HONBLE ANDHRA PRADESH HIGH COURT IN CIT VS MS. SHAHZADA BE GUM (173 ITR 397) (SUPRA) HELD THAT DATE OF TAKING OVER POSSESSION OF THE PROPERTY PURCHASED AND NOT THE DATE OF REGIS TRATION OF THE SALE IN FAVOUR OF THE ASSESSEE IS RELEVANT FOR COMPUTING THE PRESCRIBED TIME LIMIT. THE TRIBUNAL IN THE CASE OF SHRI V.M. DUJODWALA VS ITO (REPRODUCED HEREINABOVE) HELD THAT BENEFIT OF SECTION 54 OF THE ACT SHOULD BE EXTENDED BY TAKI NG THE DATE OF ALLOTMENT AND OCCUPATION AS THE RELEVANT DATE OF PURCHASE. UDAY KASHINATH SATHE ITA NO.2343/MUM/2014 20 NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY T HE REVENUE, THEREFORE, RESPECTFULLY, FOLLOWING THE RAT IO LAID DOWN BY THE CO-ORDINATE BENCH IN WHICH DECISION FROM HON BLE JURISDICTIONAL HIGH COURT WAS CONSIDERED AND FURTHE R THE DECISION FROM HONBLE ANDHRA PRADESH HIGH COURT (SU PRA), WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD . COMMISSIONER OF INCOME TAX (APPEALS). THE APPEAL O F THE REVENUE IS DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 30/09/2015. SD/ - (RAMIT KOCHAR) SD/ - (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; ) DATED : 21/10/2015 F{X~{T? P.S/. .. !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 2# ( +, ) / THE CIT, MUMBAI. 4. 1 1 2# / CIT(A)- , MUMBAI 5. 45 /# , 1 +,'+ 6 , / DR, ITAT, MUMBAI 6. 7! / GUARD FILE. ! / BY ORDER, 04,#/# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI