Dev Kumar Roy , Bangalore V. Income Tax Officer Ward-3(1)(1), Bangalore

ITA 2350/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3933 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-01-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 09-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Capital asset; Gift; Cost of acquisition; Wholly owned subsidiary; Fair market value; TDS
• Section: 54; 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.2350/BANG/2018 ASSESSMENT YEAR : 2012-13 DEV KUMAR ROY 44, REGENCY MARGOSA, KASTURBA ROAD, BENGALURU-560 001. PAN : ANNPR 8181 R. VS. THE INCOME-TAX- OFFICER, WARD-3(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A RESPONDENT BY : SHRI PRADEEP KUMAR, CIT DATE OF HEARING : 17.01.2019 DATE OF PRONOUNCEMENT : 08.02.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DATED 13/7/2018 OF CIT(A)-11, BENGALURU RELATING TO THE A SST. YEAR 2012-13. 2. IN THIS APPEAL BY THE ASSESSEE THERE ARE 4 ISSUE S WHICH NEED TO BE ADJUDICATED. 3. THE FIRST ISSUE IS AS TO WHETHER THE GAIN ON SAL E OF SHARES OF M/S NEPHROLIFE CARE INDIA PVT. LTD., (NEPHROLIFE) GIVES RISE TO LONG TERM CAPITAL GAINS (LTCG) OR SHORT TERM CAPITAL GAINS (STCG). T HIS ISSUE IS PROJECTED BY THE ASSESSEE IN GROUNDS NO.3 TO 12 RAISED BEFORE THE TRIBUNAL WHICH READS AS FOLLOWS:- ITA NO.2350/BANG/2018 PAGE 2 OF 31 3. UNDER THE FACTS OF THE PRESENT CASE, THE LEARNE D CIT (A) HAS ERRED, IN LAW AND ON FACTS, BY RE-CHARACTER IZING THE LONG-TERM CAPITAL GAINS OF RS 261 909,090, REAL IZED BY THE APPELLANT ON SALE OF SHARES OF NEPHROLIFE, A S SHORT- TERM CAPITAL GAINS WITHOUT APPRECIATING THE DETAILED FACTUAL/ TECHNICAL SUBMISSIONS FURNISHED I N SUPPORT OF THE CLAIM. 4. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACT S, BY ARBITRARILY DISREGARDING THE GIFT OF SHARES MADE BY M!S ROL CAPITAL ADVISORS PVT. LTD (ROL') WITHOUT APPREC IATING THE FACT THAT THERE ARE NO PROVISIONS UNDER THE ACT WHICH PROHIBITS GIFT OF SHARES BY A COMPANY TO ITS SHAREH OLDERS. 5. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACT S, BY STATING THAT THE MEMORANDUM OF ASSOCIATION ('MOA ') OF ROI DOES NOT HAVE ANY CLAUSE FOR GIFTING OF SHAR ES WITHOUT APPRECIATING THE FACT THAT THE RELEVANT CLA USES IN THE MCA COVERS ALL MODES/ MANNER OF DISPOSAL OF SHARES. 6. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACT S, IN ARBITRARILY HOLDING THAT THERE IS A CONSIDERATION R ECEIVED BY ROL IN RETURN FOR GIFT OF SHARES OF NEPHROLIFE. 7. THE LEARNED CIT(A) HAS ERRED IN LAWS AND FACTS, IN HOLDING THAT EVEN IF THE UNSECURED LOAN GRANTED BY THE APPELLANT WAS LATER CONVERTED INTO EQUITY BY ROI, I T IS THE BENEFIT OF INTEREST FREE LOAN THAT IS AVAILABLE TO ROL WHICH IS THE CONSIDERATION RECEIVED FOR GIFTING OF SHARES , WITHOUT APPRECIATING THE FACT THAT GRANT OF INTERES T FREE LOAN BY A DIRECTOR TO A COMPANY IS NOT PROHIBITED U NDER THE COMPANIES ACT, 1956. 8. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT ROI IS A BODY CORPORATE WHICH IS A SEPARATE/ DISTINCT L EGAL ENTITY INDEPENDENT OF ITS MEMBERS/ SHAREHOLDERS, AN D ARBITRARILY HELD THAT THERE IS AN UNDULY INFLUENCE TO GIFT THE SHARES TO THE APPELLANT. 9. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACT S, BY QUESTIONING THE INTENTION OF ROL TO GIFT THE SHA RES TO THE APPELLANT BY ARBITRARILY STATING THAT THIS WAS NOT A ITA NO.2350/BANG/2018 PAGE 3 OF 31 VOLUNTARY ACT, THE ROI COULD HAVE COMPLIED WITH THE RBI REGULATIONS AND THERE WAS NO COMPULSION TO GIFT THE SHARES, WITHOUT APPRECIATING THE LEGALITY/ PRIVITY OF CONTRACT AND BONA-FIDE/ PRUDENT BUSINESS DECISIONS. 10. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FAC TS, BY ARBITRARILY ATTRIBUTING MOTIVES TO THE TRANSACTI ON OF GIFT ON MERE PRESUMPTIONS BY STATING THAT THE APPELLANT CONSIDERED THE TRANSACTION AS A 'GIFT' WITH THE INT ENTION TO AVAIL THE BENEFIT OF SECTION 54F OF THE ACT, WITHOU T APPRECIATING THE CONTEMPORANEOUS DOCUMENTS FILED IN RESPECT OF THE TRANSACTIONS UNDERTAKEN. 11. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FAC TS, BY DISREGARDING THE FACT THAT THE APPELLANT HAS OFF ERED THE GIFT OF SHARES RECEIVED FROM ROL FOR TAXES UNDE R 'INCOME FROM OTHER SOURCES' AT A HIGHEST TAX RATE O F 30% UNDER SECTION 56(2)(VII)(C) OF THE ACT, THUS IGNORI NG THE FACT THAT THE INTENTION WAS NEVER TO EVADE THE TAXE S. 12. NOTWITHSTANDING ABOVE, THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY STATING THAT THE APPELLAN T, BEING 99.99% SHAREHOLDER UNDULY INFLUENCED ROI TO TRANSFER THE SHARES AND REFLECT THE SAME AS GIFT. I F THE ROI AND THE APPELLANT ARE SOUGHT TO BE CONSTRUED AS THE SAME PERSON, THEN THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE PERIOD OF HOLDING IN THE HANDS OF TH E APPELLANT TO BE FROM THE DATE OF INVESTMENT MADE IN NEPHROLIFE SHARES BY ROI. 5. THE SECOND ISSUE TO BE ADJUDICATED IS THAT IF TH E GAIN ON SALE OF SHARES OF NEPHROLIFE IS REGARDED AS GIVING RISE TO LTCG, THEN WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN DENYING THE B ENEFIT OF DEDUCTION U/S 54F OF THE ACT TO THE ASSESSEE. THE GRIEVANCE OF TH E ASSESSE ON ISSUE OF MISC. ASSESSMENT IS BROUGHT FORWARD FROM SL NOS. 13 TO 18 OF THE GROUNDS OF APPEAL, IT READS AS FOLLOWS:- 13. BASED ON THE FACTS AND CIRCUMSTANCES, THE LEAR NED CT(A) HAS ERRED, IN LAW AND ON FACTS, BY DENYING ITA NO.2350/BANG/2018 PAGE 4 OF 31 EXEMPTION OF RS 134,139,988 CLAIMED BY THE APPELLAN T UNDER SECTION 54F OF THE ACT WITHOUT APPRECIATING T HE DETAILED FACTUAL/ TECHNICAL SUBMISSIONS FURNISHED I N SUPPORT OF THE CLAIM. 14. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT AS ON THE DATE OF TRANSFER OF THE SHARES OF NEPHROLIFE, THE APPELLANT CO-OWNED ONLY ONE RESIDEN TIAL HOUSE IN INDIA AND THAT THE CO-OWNED PROPERTY SHOUL D NOT BE CONSTRUED AS ONE HOUSE PROPERTY FOR THE PURP OSE OF CLAIMING BENEFIT UNDER SECTION 54F OF THE ACT. 15. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S, BY STATING THAT EVEN IF SECTION 54F BENEFIT WAS AVA ILABLE, THEN THE SAME WOULD BE RESTRICTED TO RS 27,338,196, BEING THE AMOUNT INCURRED ON THE CONSTRUCTION OF RESIDENTIAL HOUSE AFTER THE DATE OF TRANSFER OF SHA RES, IGNORING ANY EXPENDITURE INCURRED ON SUCH PROPERTY PRIOR TO DATE OF TRANSFER. 16. THE LEARNED CIT(A) HAS ERRED, IN LAW IN NOT APPRECIATING THAT SECTION 54F OF THE ACT DOES NOT STIPULATE NOR INDICATE THAT THE CONSTRUCTION OF THE RESIDENTIAL PROPERTY MUST BEGIN AFTER THE DATE OF S ALE OF THE ORIGINAL ASSET, THE SOLE AND IMPORTANT CONSIDER ATION AS PER THE SECTION IS THAT THE CONSTRUCTION SHOULD BE COMPLETED WITHIN THE SPECIFIED PERIOD. 17. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FAC TS, IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAS PROVIDED DETAILS OF ALL RESIDENTIAL HOUSE PROPERTY 'OWNED' BY HIM AND THE LEARNED CIT(A) HAS INADVERTENTLY CONSIDERED A LEASED PROPERTY OUTSIDE INDIA AS A PRO PERTY OWNED BY THE APPELLANT. 18. NOTWITHSTANDING THE ABOVE, THE LEARNED CIT(A) H AS ERRED IN LAW AND IN FACTS, BY NOT APPRECIATING THAT INCOME FROM RESIDENTIAL HOUSE OTHER THAN THE ONE RESIDENTI AL HOUSE OWNED ON THE DATE OF TRANSFER OF ORIGINAL ASS ET COULD NOT HAVE BEEN SAID TO BE CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. ITA NO.2350/BANG/2018 PAGE 5 OF 31 6. THE THIRD ISSUE TO BE ADJUDICATED IS WITH REGAR D TO SET OFF OF CAPITAL LOSS ON SALE OF PAINTING AGAINST THE LTCG ON SALE OF SHA RES OF NEHPROLIFE. THE ASSESSEE SOLD A PAINTING IN UK AND ON SUCH SALE INC URRED A CAPITAL LOSS OF RS.27,25,693/-. THE ASSESSEE CLAIMED SET OFF OF L OSS ON SALE OF PAINTING (LTCG) AGAINST THE GAIN THAT AROSE ON SALE (NEPHROL IFE SHARE). THIS WAS DENIED BY THE REVENUE AUTHORITIES FOR THE REASON TH AT THE ASSESSEE WAS RESIDENT BUT NOT ORDINARY RESIDENT AND, THEREFO RE, IT IS ONLY INCOME WHICH ACCRUES OR ARISES IN INDIA THAT CAN BE BROUGHT TO T AX. SINCE THE LOSS IN QUESTION DID NOT ACCRUE OR ARISE IN INDIA, THE REVE NUE AUTHORITIES DID NOT ALLOW THE CLAIM OF DEDUCTION ON ACCOUNT OF LTCG LOS S AND CONSEQUENTLY THE PLEA OF SET OFF OF SUCH LOSS AGAINST LTCG ON SALE O F SHARES OF NEHPROLIFE. THE ASSESSEE HAS CHALLENGED THE ACTION OF THE REVEN UE AUTHORITIES IN THIS REGARD AND RAISED GROUND NOS.18 TO 22, WHICH READS AS FOLLOWS:- 18. NOTWITHSTANDING THE ABOVE, THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY NOT APPRECIATING THAT INCOME FROM RESIDENTIAL HOUSE OTHER THAN THE ONE RESIDENTI AL HOUSE OWNED ON THE DATE OF TRANSFER OF ORIGINAL ASS ET COULD NOT HAVE BEEN SAID TO BE CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. DENIAL OF LONG-TERM CAPITAL LOSS OF RS 2,725,693 ON SALE OF A PAINTING 19. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FAC TS, BY DENYING THE CLAIM OF LONG-TERM CAPITAL LOSS ON S ALE OF A PAINTING OF RS 2,725,693 WITHOUT APPRECIATING THE SUBMISSIONS FURNISHED BY APPELLANT IN SUPPORT OF IT S CLAIM. 20. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T THE PAINTING WAS HELD BY THE APPELLANT FOR MORE THAN 36 MONTHS PRIOR TO ITS DATE OF SALE AND THEREFORE IS A LONG- TERM CAPITAL ASSET UNDER THE PROVISIONS OF SECTION 2(29A) READ WITH SECTION 2(42A) OF THE ACT. 21. THE LEARNED CIT(A) HAS ERRED IN FACTS IN STATIN G THAT THE MONEY FROM SALE OF PAINTING HAS BEEN RECEIVED B Y THE ITA NO.2350/BANG/2018 PAGE 6 OF 31 APPELLANT OUTSIDE THROUGH AN AGENT LOCATED OUTSIDE INDIA AND THE CAPITAL GAIN/ LOSS HAS ARISEN OUTSIDE INDIA , DISREGARDING THE FACT THAT THE AMOUNT WAS ACTUALLY RECEIVED IN INDIA BY THE APPELLANT'S SELLING AGENT LOCATED IN INDIA. 22. UNDER THE FACTS AND CIRCUMSTANCES, THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACTS, IN DENYING T HE BENEFIT OF SET-OFF OF THE AFORESAID LONG-TERM CAPIT AL LOSS AGAINST THE LONG-TERM CAPITAL GAINS REALIZED BY HIM ON SALE OF SHARES. 7. THE 4 TH ISSUE THAT ARISE FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN N OT ALLOWING CREDIT FOR TAX DEDUCTED AT SOURCE TO THE EXTENT OF RS.1,62,000/-. 8. AS FAR AS ISSUE NOS.1 AND 2 ARE CONCERNED, BOTH CAN BE DECIDED TOGETHER. THE FACTS RELEVANT FOR ADJUDICATION OF T HE AFORESAID ISSUES ARE THAT THE ASSESSEE IS AN INDIVIDUAL. ON 11/4/2011, THE ASSESSEE RECEIVED 28 LAKHS EQUITY SHARES OF NEPHROLIFE AS GIFT FROM A COMPANY BY NAME M/S ROI CAPITAL ADVISORS PVT. LTD., (ROI). IT IS NOT DISPUTED THAT ROI ACQUIRED THE SHARES IN THE YEAR 2009. THE ASSESSEE SOLD RS. 17,27,508/- EQUITY SHARES OF NEPHROLIFE TO DAVITA KENT. ON SUCH SALE OF SHARES, THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN (LTCG). 9. WE HAVE ALREADY NOTICED THAT THE ASSESSEE RECEIV ED 28 LAKHS EQUITY SHARES FROM NEPHROLIFE AS GIFT FROM ROI. UNDER THE PROVISION OF SEC. 56(2)(VII)(C) OF THE ACT, WHERE AN INDIVIDUAL RECEI VES IN ANY PREVIOUS YEAR, FROM ANY PERSON, ANY PROPERTY OTHER THAN IMMOVABLE PROPERTY, WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKET VALUE W HICH EXCEEDS OF RS.50,000/-, THE WHOLE OF THE AGGREGATE FAIR MARKE T VALUE OF SUCH PROPERTY WILL BE REGARDED AS INCOME IN THE HANDS OF THE INDI VIDUAL RECEIVING THE PROPERTY. THE ASSESSEE IN THE RETURN OF INCOME FIL ED FOR ASST. YEAR 2012-13 ITA NO.2350/BANG/2018 PAGE 7 OF 31 OFFERED TO TAX AGGREGATE FAIR MARKET VALUE OF THE S HARES RECEIVED AS GIFT TO TAX AS INCOME U/S 56(2)(VII)(C) OF THE ACT. A SUM OF RS.1,04,25,518/- WAS OFFERED AS INCOME IN THIS REGARD. 10. THE ASSESSEE SOLD THE SHARES 17,26,508 EQUITY SHARES OF NEPHROLIFE OUT OF THE 28 LAKHS EQUITY SHARES WHICH HE RECEIVED AS GIFT FROM ROI. THE SHARES WERE SOLD BY THE ASSESSEE TO ONE ENTITY BY NAME DA VITA CARE. THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN ON SAL E OF SHARES BY ADOPTING THE COST OF ACQUISITION OF SHARES U/S 49(4 ) OF THE ACT WHICH PROVIDES THAT WHERE THE CAPITAL GAIN ARISES FROM TR ANSFER OF PROPERTY THE VALUE OF WHICH HAS BEEN SUBJECT TO INCOME-TAX U/S 56(2)(VII) OF THE ACT, THE COST OF ACQUISITION OF SUCH PROPERTY SHALL BE DEEME D TO BE THE VALUE WHICH HAS BEEN TAKEN IN TO ACCOUNT FOR THE PURPOSE OF THE SAID PROVISIONS. 11. WE HAVE ALREADY SEEN THAT THE INCOME DECLARED B Y THE ASSESSEE ON RECEIPT OF GIFT WAS AT A SUM OF RS.1,04,25,518/- WH ICH IS IN RESPECT OF RECEIPT OF GIFT OF 28 LAKHS EQUITY SHARES, THE ASSE SSEE SOLD ONLY 17,27,508 EQUITY SHARES AND, THEREFORE, THE ASSESSEE ADOPTED THE COST OF ACQUISITION OF SHARES SOLD PROPORTIONATELY AND COMPUTED THE COS T OF ACQUISITION AT RS.64,32,202/- AND COMPUTED LTCG AS FOLLOWS:- ITA NO.2350/BANG/2018 PAGE 8 OF 31 12. THE ASSESSEE CLAIMED THAT THE GAIN ON SALE OF N EPHROLIFE SHARES GAVE RISE TO LONG TERM CAPITAL GAIN BECAUSE AS PER THE PROVISION OF EXPLANATION 1(B) OF SEC. 2(42A) OF THE ACT WHICH DE FINES SHORT TERM CAPITAL BASED ON THE PERIOD FOR WHICH THE CAPITAL ASSET HEL D BY THE ASSESSEE. IF THE CAPITAL ASSET BECOMES THE PROPERTY OF THE ASSESSEE BY WAY OF GIFT AS MENTIONED IN SEC.49(1) OF THE ACT, THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER SHOULD ALSO BE INCLUDED. SIN CE THE SHARES WERE ACQUIRED BY ROI IN 2009, THE ASSESSEE CLAIMED THAT THE PERIOD OF HOLDINGS BY THE ASSESSEE SHOULD BE CONSIDERED FROM THE YEAR 2009 WHEN THE SHARES WERE ACQUIRED BY ROI. THUS, THE ASSESSEE MADE A CL AIM THAT AGAIN ON SALE OF SHARE WAS A LONG TERM CAPITAL GAIN AND THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 54F OF THE ACT. 13. THE AO HOWEVER, NOTICED THAT THE ASSESSEE WAS 9 9.9% SHARE HOLDER AND DIRECTOR OF ROI. THE AO ALSO NOTICED THAT THE BUSINESS ACTIVITY OF ROI WAS TO ACT AS ANGEL INVESTOR AND FINANCIAL ADVISOR, BUT DID NOT DO ANY BUSINESS ACTIVITY. THE AO ALSO NOTICED THAT SHARES IN QUESTION WERE ACQUIRED BY ROI FROM INTEREST FREE LOAN GIVEN BY TH E ASSESSEE. THE FIRST OBSERVATION OF THE AO WAS THAT ROI, A CORPORATE ENT ITY, WAS A TOOL AND IT WAS BEING EMPLOYED BY THE ASSESSEE TO MANAGE ITS OWN INVESTMENTS . THE AO WAS OF THE VIEW THAT A COMPANY IS AN ARTIFIC IAL PERSON AND IT IS GOVERNED BY THE ARTICLE OF ASSOCIATION. IN THE ART ICLE OF ASSOCIATION OF ROI THERE WAS NO CLAUSE TO MAKE GIFTS. THE SECOND OBSE RVATIONS OF THE AO WAS THAT AN INTEREST FREE LOAN OF RS.5.58 CRORES WAS GI VEN BY THE ASSESSEE TO ROI AND THOSE FUNDS WERE USED FOR ACQUIRING THE SHA RE OF NEPHROLIFE BY ROI. THEREFORE, IN EFFECT THE SO CALLED GIFT OF SH ARES BY ROI TO THE ASSESEE HAS TO BE REGARDED AS SALE OF SHARES BY ROI TO THE ASSESEE AND, THEREFORE, PERIOD OF HOLDING OF THE ASSESSEE HAS TO BE RECKON ED FROM 11/4/2011 WHEN THE SHARES WERE TRANSFERRED FROM ROI TO THE ASSESSE E AS A GIFT WHICH IN ITA NO.2350/BANG/2018 PAGE 9 OF 31 THE OPINION TO AO WAS NOT A GIFT BUT A SALE. THE T HIRD OBSERVATIONS OF THE AO WAS THAT FOR A GIFT TO BE VALID IT SHOULD BE VOL UNTARY AND SINCE THE ASSESSEE HELD 99.99% OF THE SHARES OF THE ROI, THE GIFT BY ROI TO THE ASSESSEE CANNOT BE SAID TO BE VOLUNTARY. THE FOURT H OBSERVATION OF THE AO WAS THAT A COMPANY IS AN ARTIFICIAL PERSON AND CANN OT MAKE A GIFT OUT OF LOVE AND AFFECTION. THE LAST OBSERVATION OF THE AO WAS THAT THE INTENTION OF MAKING THE GIFT WAS NOTHING BUT A TAX PLANNING DEVI SE. IN THIS REGARD THE AO OBSERVED AS FOLLOWS:- 5. INTENTION: INTENTION TO GIFT IS AN A IMPORTANT COMPONENT OF THE ACT OF GIFTING. MERELY GIVING SOMETHING ARID CLAIMING THE TRANSFER TO BE A GIFT DOES NOT MAKE IT A GIFT. THE GIFT GIVER (DONOR) MUST UNDERSTAND THE NATURE OF THE ACT AND HAVE A VOLUNTARY INTENT TO MAKE A GIFT, CALLED DONA TIVE INTENT IN THE PRESENT CASE, THERE IS NO VOLUNTARY E LEMENT TO THE GIFT AS DISCUSSED ABOVE. THE INTENT TO GIFT IS ALSO ABSENT. RATHER THERE IS AN INTENT OF TAX PLANNING; AN INTENT TO COLOUR THE TRANSFER AS GIFT SO AS TO SAVE TAXES. FOREIGN COMPANY DAVITA CARE PTE LTD WAS IN TALKS WITH VARIO US STAKEHOLDERS FOR ACQUISITION OF NEPHROLIFE. FRESH S HARES WERE ISSUED BY NEPHROLIFE TO DAVITA CARE PTE LTD AT HIGH PREMIUM IN 2011. LATER IN DECEMBER 2011 DAVITA CARE PTE LTD PURCHASED OFF THE SHARES OF ALL MAJOR SHARE HOLDERS AT A HIGH PREMIUM. ASSESSEE ALSO SOLD HIS SHARES. (THE SHARES WHICH IT HAD RECEIVED FROM ROL. CAPITAL) TO: DAVITA CARE PTE LTD IN DCMBER 2011. ON .NALYSIS OF TH SEQUENCE OF EVEN TS IT IS CLEAR THAT ASSESSEE FORMED A STRATEGY TO MINIMIZ E HIS TAX LIABILITY ARISING FROM THE DAVITA TRANSACTION. HE DID NOT HAVE SIGNIFICANT SHARES OF NEPHROLIFE BUT HIS COMPA NY ROI CAPITAL HAD. ASSESSEE HAD A PROPERTY USING WHICH HE COULD CLAIM EXEMPTION U/S 54F SO HE TRANSFERRED THE SHARES OF NEPHROLLFE FROM ROE CAPITAL TO HIS PERSON AL HEAD, TERMED IT 'GIFT', AND CLAIMED EXEMPTION ON IT . A CLEAR INTENTION TO MINIMIZE TAX LIABILITY FROM DAVITA DEA L IS SEEN HERE. INTENTION TO GIFT IS ANYWAYS ABSENT AS ASSESS EE IS 99.99% OWNER OF ROI CAPITAL. HE CANNOT HAVE ANY INTENTION (OF LOVE OR AFFECTION) TO GIFT THESE SHAR ES TO HIMSELF. ITA NO.2350/BANG/2018 PAGE 10 OF 31 14. WHEN THE ASSESSEE WAS CONFRONTED WITH THE ABOVE CONCLUSIONS OF THE AO AND WHEN THE ASSESSEE WAS ASKED TO EXPLAIN A S TO WHY ROI MADE GIFT OF SHARES TO THE ASSESEE. THE ASSESSEE IN ITS REPLY TO THE AO SUBMITTED THAT ROI WAS SET UP TO HOLD SHARES AND GI VE FINANCIAL ADVICE TO OTHER COMPANIES. HOWEVER, WITH THE NUMEROUS RBI CIR CULARS REGARDING CORE INVESTMENT COMPANIES IN 2011 AND CULMINATING I N CIRCULAR R131/2,1011-12/31 DNBS (PD) CC NO. 237/03.02.001/ 2 01112 THERE WERE PROFESSIONAL ADVICES GIVEN TO ROI TO WIND DOWN THE HOLDINGS IN ROL AS THE REGULATORY BURDEN WAS EXPECTED TO BE VERY ONEROUS. THE GIFT AND THE REGISTRATION OF THE SHARES WAS DONE AT THE SAME TIM E. THE ASSESSEE POINTED OUT THAT ROL WAS AN ONGOING CONCERN THAT IN TENDED TO GIVE FINANCIAL AND STARTUP ADVICE ONCE THE ASSESSEE ESTABLISHES AN OTHER VENTURE BY NAME FITKIDS. BASED ON PROFESSIONAL ADVICE ( COPY OF WHICH WAS GIVEN ALONG WITH ASSESSEES REPLY) IN LIGHT OF THE NEW GUIDELINES ON CORE INVESTMENT COMPANIES ISSUED BY THE RESERVE BANK OF INDIA (RBI), IT WAS DECIDED TO DIVEST THE SHARES HELD IN NEPHROLIFE TO AVOID BEING CLASSIFIED AS A CORE INVESTMENT COMPANY OR SUCH OTHER CLASSIFICAT IONS REQUIRING ANY REGULATORY COMPLIANCES AND EFFORT. HOWEVER, IT WAS NOTICED THAT NEPHROLIFE WAS A PARTY TO A SHAREHOLDERS AGREEMENT DATED 19.0 6.2009 WITH OTHER SHAREHOLDERS OF NEPHROLIFE, ACCORDING TO WHICH THE OTHER SHAREHOLDERS WERE KEEN THAT EITHER THE COMPANY I.E. ROI OR DEV KUMAR ROY ,WHO WAS PARTY TO THE SHARE HOLDERS AGREEMENT IN HIS INDIVIDUAL CAPAC ITY, HOLD SHARES OF NEPHROLIFE SO AS TO AVOID ANY MAJOR RE-NEGOTIATIONS /AMENDMENTS TO THE EXISTING SHAREHOLDERS AGREEMENT. SINCE THE INVEST MENT IN M/S. NEPHROLIFE WAS A DOWNSTREAM INVESTMENT BY M/S ROL CAPITAL ADVI SORS PRIVATE LIMITED IT BECAME IMPORTANT TO DIVEST THIS INVESTMENT AS GE TTING INVESTOR TO M/S NEPHROLIFE WOULD HAVE BEEN MORE CUMBERSOME DUE TO R EGULATORY RESTRICTIONS REGARDING DOWNSTREAM INVESTMENT. IN T HE CIRCUMSTANCES IT WAS ITA NO.2350/BANG/2018 PAGE 11 OF 31 DECIDED BY ROI THAT IT WAS IN THE BEST INTEREST OF NEPHROLIFE, THE SHAREHOLDERS OF ROI AS WELL AS SHAREHOLDERS OF NEPH ROLIFE, THAT ROI TRANSFERS BY WAY OF GIFT, THE SHARES HELD IN NEPHRO LIFE TO AND IN FAVOUR OF DEV KUMAR ROY, WHO WAS THE 99% SHAREHOLDER IN ROI A ND TO AVOID FALLING INTO CORE INVESTMENT COMPANY CLASSIFICATION OR SUCH OTHER CLASSIFICATION REQUIRING SIGNIFICANT REGULATORY COMPLIANCES AND EF FORT. 15. THE ASSESSEE FURTHER EXPLAINED THAT THE GIFT O F SHARES WAS DONE IN APRIL 2011 AND SUBSEQUENTLY DAVITA A FORTUNE 200 CO MPANY FROM THE US AND A FINANCIAL INVESTOR NEA INVESTED INTO NEPHROLI FE IN JUNE 2011. THE REASON WAS THAT DAVITA THE SECOND LARGEST DIALYSIS PROVIDER IN THE US MARKET HAD TRIED TO ENTER THE INDIAN MARKET WITH NO SUCCESS AND SAW NEPHROLIFE AS A YOUNG AND DYNAMIC COMPANY THAT COUL D SHOW THEM THE WAY IN INDIA. SUBSEQUENTLY ONLY IN AUGUST 2011, IN FACT THE EXACT DATE IS 13TH OF AUGUST THE CEO OF DAVITA FLEW INTO INDIA AN D ASKED NEPHROLIFE IF THEY WOULD BE ALLOWED TO GET TO 51 % SHAREHOLDING I N NEPHROLIFE, AS THEY HAD LARGER PLANS FOR INDIA EARLIER THAN ENVISAGED A S THEY HIRED AN ASIA PACIFIC HEAD A MONTH EARLIER AND THEY WANTED TO MAK E A LARGE PUSH IN ASIA AND INDIA IN PARTICULAR. THIS DEAL WAS CONSUMMATED IN DECEMBER OF 2011 AND NEW SHARE HOLDERS AGREEMENT (SHA) WAS SIGNED AT THAT POINT. IN THIS BACKGROUND, THE ASSESSEE SUBMITTED THAT THERE IS NO WAY THAT HE COULD HAVE KNOWN THE OUTCOMES OF RECEIPT OF SHARES AS GIF T AND THEIR SUBSEQUENT SALE IN APRIL 2011, AND THE EVENTS THAT TOOK PLACE IN DECEMBER 2011. THE FOLLOWING LIST OF DATES AND EVENTS WERE GIVEN BY TH E ASSESSEE: ITA NO.2350/BANG/2018 PAGE 12 OF 31 ITA NO.2350/BANG/2018 PAGE 13 OF 31 16. ON THE QUESTION OF THE VOLUNTARY NATURE OF THE GIFTS, THE ASSESSEE SUBMITTED THAT THE TERM 'VOLUNTARY', IN ITS ORDINAR Y/ POPULAR SENSE, DENOTES AN ACTION DRIVEN BY ONE'S OWN FREE WILL. THE ASSESS EE SUBMITTED THAT BECAUSE OF THE LEGAL/ REGULATORY AND OTHER REASONS ROL HAD VOLUNTARILY (I.E., OUT OF ITS OWN FREE WILL) AGREED TO GIFT THE SHARES TO THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THAT THE REVENUE CANNOT CHA LLENGE VALIDITY OF GIFT ON GROUNDS NOT GERMANE TO THE INGREDIENTS OF A GIFT . 17. THE AO WAS NOT CONVINCED WITH THE AFORESAID REA SONS GIVEN BY THE ASSESSEE. HE HELD THAT THERE WAS NO VALID GIFT BY ROI TO THE ASSESSE AND, THEREFORE, THE PERIOD OF HOLDING BY THE ASSESSEE HA S TO BE RECKONED FROM 11/4/2011 WHEN THE ALLEGED GIFT OF SHARES WERE MADE BY ROI TO THE ITA NO.2350/BANG/2018 PAGE 14 OF 31 ASSESEE. SINCE THE SHARES WERE SOLD ON 16/12/2011 WITHIN A PERIOD OF LESS THAN 12 MONTHS FROM THE DATE ON WHICH IT ACQUIRED, THE AO HELD THAT GAIN OF SHARE WAS SHORT TERM CAPITAL GAIN AND, THEREFORE , LIABLE TO BE TAXED AT 30% AND NOT ELIGIBLE FOR DEDUCTION U/S 54F OF THE A CT. 18. SINCE THE GAIN IN QUESTION WAS REGARDED AS SHOR T TERM CAPITAL GAIN, THE AO WITHOUT PREJUDICE TO THE ABOVE STAND ALSO EX AMINED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 54F OF THE ACT. AS FAR A S DEDUCTION U/S 54F OF THE ACT IS CONCERNED, THE FACTS ARE THAT THE ASSESS EE PURCHASED THE PROPERTY IN HIS NAME AND IN THE NAME OF HIS WIFE. THE ASSESSEE OWNED A PROPERTY BEING 4 TH FLOOR BEARING PLOT NO.4B IN NO.31, KASTURABHA ROA D, BANGALORE-1. THIS PROPERTY WAS PURCHASED ON 4/6/ 2007 IN JOINT NAMES OF THE ASSESSEE AND ASSEESSEES WIFE MRS. NEELANJANA M OHAN RAO. THE ASSESSEE INVESTED IN PURCHASE OF ANOTHER PROPERTY O N 5/4/2013 FOR RS.4.54 CRORES FOR UNDIVIDED SHARE OF LAND AND CONSTRUCTI ON OF AN APARTMENT AT A COST OF RS.6,84,84,000/- AS PER THE FOLLOWING SHARE S. ITA NO.2350/BANG/2018 PAGE 15 OF 31 17. THIS PROPERTY WAS ALSO PURCHASED AND AGREED TO BE CONSTRUCTED IN THE JOINT NAMES OF THE ASSESSEE AND HIS WIFE. APAR T FROM THE ABOVE, THE ASSESSEE HAS PROPERTY WHICH IS LEASE HOLD PROPERTY FOR OVER 12 YEARS PERIOD WHICH IS SITUATED AT LONDON U.K. UNDER THE PROVISIONS OF SEC. 54F OF THE ACT, TO CLAIM DEDUCTION U/S 54F OF THE ACT, THE ASSESSEE SHOULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE, OTHER THAN THE NEW ASSET AND THE INCOME FROM SUCH RESIDENTIAL HOUSE SHOULD NOT BE CHARGEABL E TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE STATUTORY P ROVISION READS AS FOLLOWS:- SECTION: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, N OT BEING A RESIDENTIAL HOUSE (HEREAFTER IN THIS SECTION REFERR ED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS, WITHIN A PER IOD OF ONE ITA NO.2350/BANG/2018 PAGE 16 OF 31 YEAR BEFORE 1TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASED, OR HAS WITHIN A PERIOD OF THR EE YEARS AFTER THAT DATE CONSTRUCTED, A RESIDENTIAL HOUSE (H EREAFTER IN THIS SECTION REFERRED TO AS THE NEW ASSET), THE CAP ITAL 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 T HE NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTIO N 45: (B) IF THE COST OF THE NEW ASSET IS LESS THAN THE N ET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, SO MUCH OF THE CAPITAL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL G AIN THE SAME PROPORTION AS THE COST OF THE NEW ASSET BEARS TO THE NET CONSIDERATION, SHALL NOT BE CHARGED UNDER SECTI ON 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 ORIGI NAL ASSET ; OR (II) PURCHASES ANY RESIDENTIAL HOUSE, OTHER THAN TH E NEW ASSET, WITHIN A PERIOD OF ONE YEAR AFTER THE DATE O F TRANSFER OF THE ORIGINAL ASSET ; OR (III) CONSTRUCTS ANY RESIDENTIAL HOUSE, OTHER THAN THE NEW ASSET, WITHIN A PERIOD OF THREE YEARS AFTER THE DAT E 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 TRAN SFER OF THE ORIGINAL ASSET, IS CHARGEABLE UNDER THE HEAD ''INCOME FROM HOUSE PROPERTY''. ITA NO.2350/BANG/2018 PAGE 17 OF 31 BOTH THE ABOVE CONDITIONS MENTIONED IN PROVISO (A) (I) AND (B) TO SECTION 54F(1) OF THE ACT HAVE TO BE CUMULATIVELY SATISFIED . 18. ACCORDING TO THE AO SINCE THE ASSESSEE OWNED MO RE THAN ONE RESIDENTIAL HOUSE, A FLAT AT KASTURABA NAGAR, BENGA LURU AND PROPERTY AT UK AND THE NEW HOUSE (YET TO BE CONSTRUCTED) WAS 3 RD HOUSE PROPERTY, THEREFORE, DEDUCTION U/S 54F OF THE ACT WILL NOT BE ALLOWED. THE ASSESSEE HAS CONTENDED THAT THE HOUSE PROPERTY IN UK SHOULD NOT BE CONSIDERED BECAUSE HE WAS RESIDENT BUT NOT ORDINARILY RESID ENT AND, THEREFORE, PROPERTY AT UK AND INCOME FROM THAT PROPERTY DOES N OT ACCRUE OR ARISE IN INDIA AND, THEREFORE, INCOME FROM SUCH PROPERTY IS NOT CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE A SSESSEE POINTED OUT THAT THE INCOME FROM PROPERTY ALREADY OWNED BY THE ASSESSEE ACCORDING TO PROVISO (B) TO SEC.54F(1) OF THE ACT SHOULD BE CHAR GEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SINCE THE INCOM E FROM THE PROPERTY HELD IN UK IS NOT CHARGEABLE TO TAX IN INDIA MUCH L ESS UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE SAID PROPERTY SHO ULD BE IGNORED FOR THE PURPOSE OF APPLYING THE PROVISO TO SEC.54F(1) OF TH E ACT. THE AO HOWEVER, HELD THAT IT DOES NOT MATTER AS TO WHETHER THE PROPERTIES ARE HELD IN INDIA OR ABROAD FOR THE PURPOSE OF DEDUCTION U/S 54F OF THE ACT. THE AO MADE AN ADDITION OF RS.13,41,39,988/- CLAIMED BY TH E ASSESSE AS DEDUCTION U/S 54F OF THE ACT. 19. AGGRIEVED BY THE AFORESAID ADDITION MADE BY THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) WHO CONFIRMED TH E ORDER OF THE AO. 20. ON THE QUESTION WHETHER THE GAIN IN QUESTION WA S STCG/LTCG, THE CIT(A) HELD AS FOLLOWS:- ITA NO.2350/BANG/2018 PAGE 18 OF 31 4.5 TO DETERMINE THE NATURE OF TRANSFER IT IS PER TINENT TO LOOK INTO FOLLOWING ISSUES: WHETHER THE TRANSFER IS VOLUNTARY I.E. WHETHER TH E TRANSFER WAS WITHOUT ANY PARTICULAR CAUSE, WITHOUT UNDUE INFLUEN CE AND WITHOUT CONSIDERATION? WHETHER THERE WAS ANY INTENTION OF THE DONOR TO M AKE THE GIFT? WHETHER A COMPANY COULD MAKE A GIFT WITHOUT THERE BEING A SPECIFIC PROVISION IN ITS MOA OR AOA? 4.6 A PERUSAL OF THE MATERIAL AVAILABLE ON RECORD S HOWS THAT LEGALLY THERE WAS NO COMPULSION ON ROI CAPITAL TO TRANSFER THE SHARES AS IT COULD HAVE VERY WELL MET THE RBI REGULATIONS BY TAK ING NECESSARY STEPS TO MEET THE REQUISITE CONDITIONS. THUS THE RO L CAPITAL HAD THE OPTION TO RETAIN THE SHARES BUT THEN IT WAS REQUIRE D TO COMPLY WITH VARIOUS RBI REGULATIONS RELATED TO NBFCS. THE PURPO SE OF ROI CAPITAL WAS ALSO SERVED BY MERE TRANSFER OF SHARES TO THE APPELLANT. HOWEVER THE APPELLANT BEING THE 99.99% SHAREHOLDER UNDULY INFLUENCED THE COMPANY TO TRANSFER SHARES TO IT AND REFLECT THE SAME AS GIFT IN THE MINUTES OF BOARD MEETING TO SERVE HI S OWN PURPOSE. 4.7 THE PURPOSE OF TRANSFERRING SHARES FROM ROL CAP ITAL TO THE APPELLANT WAS TO EVADE TAX BY SHOWING THE TRANSACTI ON AS A GIFT AND THEN CLAIM BENEFITS WHICH ARE AVAILABLE ON LTCG TO AN INDIVIDUAL AND NOT TO A COMPANY AS AND WHEN THE SHARES WERE SOLD. 4.8 IN THE CASE UNDER CONSIDERATION, THE APPELLANT HAS SUBMITTED THAT THE TRANSFER OF SHARES BY ROI TO THE APPELLANT WAS A COMPULSION DUE TO THE RBI REGULATIONS. THE APPELLANT HAS SUBMITTED THAT THE TRANSFER WAS ON ACCOUNT OF CERTAIN LEGAL/REGULATORY AND COMM ERCIAL REASONS. THUS EVEN IF IT IS ACCEPTED AS SUCH. ROI CAPITAL WO ULD NEVER HAD TRANSFERRED THE SHARES TO THE APPELLANT IF IT WAS N OT REQUIRED TO MEET THE RBI REGULATIONS. SO THE PRESENCE OF SUCH REASON S ITSELF SHOWS THAT THE TRANSFER WAS NOT MADE VOLUNTARILY. 4.9 THIS IS ALSO AN ADMITTED FACT THAT ROI CAPITAL WAS OBLIGED TO TRANSFER THE SHARES TO THE APPELLANT DUE TO EXISTIN G SHAREHOLDER AGREEMENT WITH OTHER SHAREHOLDERS OF NEPHROLIFE WHO WERE KEEN THAT EITHER ROL OR THE APPELLANT SHOULD ONLY HOLD THE SH ARES OF NEPHROLIFE SO AS TO PROVIDE MAJOR NEGOTIATIONS/AMENDMENTS TO T HE EXISTING SHAREHOLDERS AGREEMENTS. SO AS SUCH THERE WAS NO IN TENTION ON THE PART OF ROL CAPITAL TO DONATE THE SHARES TO THE APP ELLANT. HOWEVER SINCE THE APPELLANT HIMSELF WAS 99.99% SHAREHOLDER IN THE COMPANY, ITA NO.2350/BANG/2018 PAGE 19 OF 31 THE SAME INFLUENCED RO1 TO TRANSFER SHARES IN HIS N AME RATHER THAN TO A THIRD PARTY. THE APPELLANT HAS ARGUED THAT THE DECISION OF THE BOARD OF 1(01 CAPITAL AND APPROVAL OF BOARD OF NEPH ROIIFE WAS A VALID ONE AND AS SUCH THE TRANSACTION NEEDS TO BE CONSIDE RED AS A GIFT. HOWEVER THIS ARGUMENT OF THE APPELLANT IS WITHOUT A NY MERIT AS DECISION OF BOARD OF ROL CAPITAL CANNOT CHANGE THE TRUE CHARACTER OF A TRANSACTION. 4.10 IN VIEW OF ABOVE, THE TRANSFER MADE BY ROI CAP ITAL TO THE APPELLANT IS NOT A GIFT. WITHOUT PREJUDICE TO ABOVE THERE IS NOTHING IN MOA OF ROL CAPITAL WHICH ALLOWS IT TO MAKE A GIFT. SO THE DECISIONS RELIED UPON BY THE APPELLANT DO NOT HELP HIM. FURTH ER EVEN IF THE CLAIM OF THE APPELLANT THAT THE UNSECURED LOAN WAS LATER CONVERTED INTO EQUITY IS ACCEPTED, THE BENEFIT OF INTEREST FREE LO AN AVAILABLE TO ROI CAPITAL CAN BE CONSIDERED AS A CONSIDERATION FOR TR ANSFER. SUCH A BENEFIT PRECEDED THE TRANSFER AND AS SUCH THE SAME HAS DIRECT LINK WITH THE SAME. 4.11 IN VIEW OF ABOVE, THE NATURE OF CAPITAL GAINS IN THE HANDS OF THE APPELLANT WOULD BE STCG AND THE APPELLANT WILL NOT BE ELIGIBLE FOR THE BENEFIT OF SECTION 54F OF THE ACT ON THE SAME. 4.12 CONSIDERING ABOVE THE RELATED GROUNDS OF APPEA L OF THE APPELLANT ARE DISMISSED. 21. ON THE QUESTION OF DEDUCTION U/S 54F OF THE ACT , THE CIT(A) HELD THAT THE ASSESSEE WAS CO-OWNER OF THE HOUSE AT KASTURBA NAGAR, BANGALORE AND HOUSE AND UK AND ALSO THE NEW ASSET. SINCE THE ASSESSEE OWNED MORE THAN ONE HOUSE OTHER THAN THE NEW ASSET, THE C IT(A) HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S.54F OF T HE ACT. HE HELD THAT CO- OWNERSHIP OF THE HOUSE AT KASTURBA NAGAR, BANGALORE WAS ALSO TO BE REGARDED AS HOUSE OWNED BY THE ASSESSEE. IN COMIN G TO THE AFORESAID CONCLUSION, THE CIT(A) RELIED ON DECISION OF ITAT H YDERABAD IN THE CASE OF ITO VS. APSARA BHAVANA SAI (2013) 40 TAXMANN.COM 52 8 (HYDERABAD- TRIB), WHEREIN THE ITAT HELD THAT THE ASSESSEE WOUL D NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 54F OF THE ACT EVEN IF OTHE R RESIDENTIAL HOUSE IS OWNED BY ASSESSEE WHOLLY OR PARTIALLY. THE CIT(A) ALSO RELIED ON DECISION ITA NO.2350/BANG/2018 PAGE 20 OF 31 OF KARNATAKA HIGH COURT HIGH COURT IN THE CASE OF C OMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, BANGALORE V. MJ SIWANI [2014] 46 TAXMANN.COM 170 (KARNATAKA) LAYING DOWN IDENTICAL PROPOSITION. 22. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED GROUNDS 3 TO 18 BEFORE THE TRIBUNAL WHICH WE HAVE A LREADY SET OUT IN THE EARLIER PARA OF THIS ORDER. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ARGUME NTS OF THE LEARNED COUNSEL FOR THE ASSESSEE WERE IDENTICAL TO THE GROU NDS RAISED BEFORE THE TRIBUNAL AND THE SUBMISSIONS MADE BEFORE THE REVENU E AUTHORITIES. THE LEARNED DR RELIED ON THE ORDER OF THE REVENUE AUTHO RITIES. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON THE QUESTION WHETHER THE GIFT BY ROI TO ASSESSEE CAN BE CONSIDERED AS GI FT OR SALE, IDENTICAL ISSUE AS IS RAISED IN THIS APPEAL AS TO WHETHER A C OMPANY MAKE GIFT OF SHARES, HAD COME UP FOR CONSIDERATION BEFORE THE HO NBLE ITAT, CHENNAI BENCH IN THE CASE OF REDINGTON (INDIA) LTD., VS. J CIT (2014) 49 TAXMNN.COM 146. THE CHENNAI BENCH HELD AS FOLLOWS:- 71. MIS. RGF GULF IS THE WHOLLY OWNED SUBSIDIARY O F THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS TRANSFERRED ITS SHARES IN M/S. RGF GULF TO M/S. RIH L CAYMAN, WHICH IS A STEP DOWN SUBSIDIARY. IT IS A FA CT THAT THE TRANSFER OF SHARES WAS MADE WITHOUT CONSIDERATI ON. IT IS FOR THIS REASON THAT THE ASSESSEE COMPANY CONTEN DS THAT THE TRANSFER IS A GIFT. AS IT IS A GIFT, IT IS THE CASE OF THE ASSESSEE, THAT IF AT ALL IT IS TREATED AS A TRA NSFER OF CAPITAL ASSET FOR THE PURPOSE OF CAPITAL GAINS TAXA TION, IT IS EXEMPT UNDER SEC.47(III) OF THE IT ACT, 1961. TH E CASE OF THE REVENUE IS THAT A COMPANY CANNOT MAKE A GIFT AND ALSO SEEN IF IT IS TREATED AS A GIFT, IT IS NOT ELIGIBLE FOR EXEMPTION PROVIDED UNDER SEC.47(III), AS CORRECT PROVISION OF LAW APPLIES TO THE CASE OF THE ASSESSE E IS ITA NO.2350/BANG/2018 PAGE 21 OF 31 SEC.47(IV) OF WHICH THE CONDITION HAS NOT BEEN SATI SFIED BY THE ASSESSEE COMPANY. 72. GIFT IS DEFINITELY A TRANSFER OF PROPERTY. THE MOTHER LAW GOVERNING THE SUBJECT MATTER OF TRANSFER OF PRO PERTY IS TRANSFER OF PROPERTY ACT, 1882. SEC.5 OF THE TRA NSFER OF PROPERTY ACT, 1882, DEFINES THE TERM TRANSFER OF PROPERTY', AS AN ACT BY WHICH A LIVING PERSON CONVE YS PROPERTY, IN PRESENT OR IN FUTURE, TO ONE OR MORE O THER LIVING PERSONS, OR TO HIMSELF, OR TO HIMSELF AND ON E OR MORE OTHER LIVING PERSONS; AND 'TO TRANSFER PROPERT Y' IS TO PERFORM SUCH ACT. THIS IS THE MASTER DEFINITION OF 'TRANSFER OF PROPERTY'. OTHER FORMS OF TRANSFERS LI KE GIFT ARE SUBJECT TO THIS MASTER PROVISION. THE LAW PROVI DES IN THE SAME SEC.5 OF THE TP ACT.. 1882 THAT 'LIVING PE RSON' INCLUDES A COMPANY OR ASSOCIATION OR BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT. THUS, TP ACT, 1 882 CONSIDERS A COMPANY NOT ONLY AS A PERSON BUT LITERALLY SPEAKING AS A LIVING PERSON'; A PERSON WI TH LIFE. THE SAME EXPRESSION 'PERSON' PROVIDED IN SEC.5 IS TRANSPLANTED IN SEC. 122 OF THE TP ACT, WHICH DEFIN ES A 'GIFT'. 'GIFT' IS THE TRANSFER OF CERTAIN EXISTING MOVABLE OR IMMOVABLE PROPERTY MADE VOLUNTARILY AND WITHOUT CONSIDERATION BY ONE PERSON, CALLED THE DONOR, TO ANOTHER, CALLED THE DONEE AND ACCEPTED BY OR ON BEH ALF OF THE DONEE. WHEN THE PROVISIONS OF LAW CONTAINED IN SECTIONS 5 & 122 OF THE TP ACT READ TOGETHER, IT EM ERGES THAT A COMPANY BEING A LIVING PERSON CAN TRANSFER PROPERTY BY WAY OF GIFT. 73. AS PER SEC. 122 OF THE TP ACT, 1882 THE FOLLOWI NG ARE THE INGREDIENTS OF A GIFT VALID IN LAW: TRANSFER OF EXISTING MOVABLE OR IMMOVABLE PROPERTY TRANSFER MADE VOLUNTARILY WITHOUT CONSIDERATION BY DONOR TO THE DONEE ACCEPTED BY THE DONEE. 74. THE ESSENTIAL INGREDIENTS OF A VALID GIFT ARE T HE EXISTENCE OF THE PROPERTY, VOLUNTARY NATURE OF THE TRANSFER AND ABSENCE OF CONSIDERATION. AS A PRE-CONDITION FO R ITA NO.2350/BANG/2018 PAGE 22 OF 31 MAKING A VALID GIFT, THE LAW DOES NOT PRESCRIBE ANY ATTRIBUTES LIKE 'LOVE AND AFFECTION'. 75. TRANSFER OF PROPERTY AS THE GENERAL LAW CONTEMP LATES IS THE TRANSFER OF BOTH EXISTING PROPERTY AND FUTUR E PROPERTY. BUT IN A GIFT, THE TRANSFER MUST BE OF AN EXISTING PROPERTY. THE MEANING GIVEN TO THE EXPRESSION 'GIFT ' IN THE ERSTWHILE GIFT TAX ACT, 1958 IS THE SAME. A GIF T IS DEFINED IN THE SAID ACT IN SEC.2(XII), AS THE TRANS FER BY ONE PERSON TO ANOTHER PERSON OF ANY EXISTING MOVABL E OR IMMOVABLE PROPERTY MADE VOLUNTARILY AND WITHOUT CONSIDERATION IN MONEY OR MONEY'S WORTH. THE 'GIFT' FOR THE PURPOSE OF GIFT TAX ACT, 1958, IS FURTHER QUALI FIED, AS A PROPERTY IN MONEY OR MONIES WORTH. SEC.2(XVIII) O F THE GIFT TAX ACT, 1958 DEFINES A PERSON WHICH INCLUDES A COMPANY, AS WELL. IN THE GIFT TAX ACT ALSO, THERE I S NO ATTRIBUTES LIKE 'LOVE AND AFFECTION'. 76. IN THE LIGHT OF THE LAW EXPLAINED ABOVE, THERE IS NOTHING AGAINST A COMPANY MAKING GIFT OF ITS PROPERTY TO ANOTHER COMPANY. A TRANSFER WITHOUT CONSIDERATION WHEN CLAIMED AS A GIFT IS ALWAYS A GI FT. IT IS NOT POSSIBLE TO GIVE ANY OTHER COLOUR. THERE IS NOTHING ANYWHERE IN LAW, WHICH PRESCRIBES THAT ONLY NATURAL PERSONS CAN MAKE GIFT ON THE GROUND OF 'LOVE AND AFFECTION'. THEREFORE, WE FIND THAT THE LOWER AUTHORITIES HAVE ERRED IN LAW IN CONCLUDING THAT THE ASSESSEE BEING A CORPORATE BODY CANNOT MAKE A GIFT. 77. TRADITIONALLY, IN MAJORITY OF THE GIFT DEEDS, I T IS A COMMON RECITAL USUALLY FOUND THAT A PERSON IS MAKIN G THE GIFT 'OUT OF LOVE AND AFFECTION'. THEREFORE, TH E LOWER AUTHORITIES IN THEIR CAPACITY AS ASSESSING OFFICERS WHILE DEALING WITH A NUMBER OF CASES FALLING UNDER THE GI FT TAX ACT, 1958 MIGHT HAVE GONE THROUGH A NUMBER OF SUCH DOCUMENTS, AND THEY DEVELOPED AN INHERENT IMPRESSIO N THAT THE GIFT IS TO BE MADE ONLY BY NATURAL PERSONS AND THAT TOO, OUT OF LOVE AND AFFECTION. THIS LONG LAST ING IMPRESSION MIGHT HAVE INFLUENCED THE LOWER AUTHORIT IES TO COME TO THEIR CONCLUSION. ITA NO.2350/BANG/2018 PAGE 23 OF 31 78. THE ITAT, MUMBAI IN THE CASE OF DP WORLD (P.) L TD. V. DY. CIT [2013] 140 LTD 694/[2012] 26 TAXMANN.COM 163 HAD CONSIDERED A SIMILAR ISSUE. THE TRIBUNAL HE LD THAT CORPORATE BODY CAN MAKE A GIFT. THERE IS NO REQUIREMENT IN THE TP ACT, 1882, THAT A GIFT CAN BE MADE ONLY BETWEEN NATURAL PERSONS OUT OF LOVE AND AFFECT ION. THE TRIBUNAL HELD THAT AS LONG AS THE DONOR COMPANY PERMITS BY ITS ARTICLES OF ASSOCIATION, IT CAN DO S O UNDER SEC.82 OF THE COMPANIES ACT, 1956. THE TRIBUNAL HEL D THAT GIFT OF SHARES OF AN INDIAN COMPANY TO A FOREI GN COMPANY WITHOUT CONSIDERATION HAS TO BE TREATED AS GIFT WITHIN THE MEANING OF SEC.47(III) OF THE IT ACT. TH E HON'BLE SUPREME COURT IN THE CASE OF KU. SONIA BHAT IA V. STATE OF UP [1981] 2 SCC 585 HAS HELD THAT ONE SHOULD NOT TRY TO CONFUSE THE PURPOSE OF MAKING A G IFT WITH CONSIDERATION. LOVE, AFFECTION, SPIRITUAL BENE FITS AND MANY OTHER FACTORS MAY BE THE INTENTION OF THE DONO R TO MAKE A GIFT. BUT, THESE FILIAL CONSIDERATIONS CANNO T BE CALLED OR HELD TO BE LEGAL CONSIDERATIONS, AS UNDER STOOD BY LAW. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF VODAFONE ESSAR LTD., IN RE [2011 107 SCL 51, HAS HE LD THAT THERE IS NO LEGAL IMPEDIMENT TO A COMPANY TRANSFERRING PROPERTY TO ANOTHER COMPANY, BY GIFT. THE HON'BLE AAR IN RULINGS GIVEN IN THE CASE OF DEERE & CO. (SUPRA) HAVE HELD THAT 'LOVE AND AFFECTION' ARE NOT REQUIRED TO MAKE A GIFT. THEY HELD THAT A CORPORATE BODY CONSTRUED AS NOT HAVING NATURAL LOVE AND AFFECTION CAN ALSO MAKE A VALID GIFT. 79. THE LEARNED SENIOR COUNSEL, APPEARING FOR THE ASSESSEE HAS ALSO REFERRED TO VARIOUS OTHER ENACTME NTS IN WHICH CONTEXTUAL REFERENCE HAS BEEN MADE TO SHOW THAT A COMPANY CAN MAKE GIFT TO ANOTHER PERSON. HE HAS REFERRED TO SEC.115(WB)(2)(0) OF THE IT ACT, PERTAI NING TO FRINGE BENEFITS TAX AND SEC.540 OF THE COMPANIES AC T, 1956. WE ARE NOT GOING DEEP INTO THOSE INCIDENTAL PROVISIONS AVAILABLE IN OTHER ENACTMENTS. THE TERM 'GIFT' IS NOT DEFINED IN THE INCOME-TAX ACT, 1961. THEREFO RE, THE NEAREST ENACTMENTS, THAT MAY BE RELIED ON FOR T HE PURPOSE OF DECIDING THE ISSUE UNDER THE INCOME-TAX ACT, IS THE TRANSFER OF PROPERTY ACT, 1882 AND THE ERSTW HILE GIFT TAX ACT, 1958. AS REFLECTED IN THE DISCUSSIONS ALREADY MADE, IT IS CLEAR THAT A COMPANY IS A PERSO N BOTH ITA NO.2350/BANG/2018 PAGE 24 OF 31 FOR THE PURPOSE OF TP ACT, 1882 AND GT ACT, 1958 AN D A COMPANY CAN MAKE A GIFT TO ANOTHER COMPANY, WHICH I S VALID IN LAW. ACCORDINGLY, WE ACCEPT THE LEGAL CAPA CITY OF THE ASSESSEE COMPANY TO GIFT ITS SHARES IN RGF GULF TO RH-IL CAYMAN. 24. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. NADATUR HOLDINGS AND INVESTMENTS PVT. LTD., (2012) 26 TAXMA NN.COM 224 (KAR) TOOK THE VIEW THAT THERE IS NO BAR ON GIFT OF EQUITY SHA RES TO A COMPANY. SIMILARLY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DP WORLD PVT. LTD., VS. DCIT 140 ITD 694 (BOM) HELD THAT COMPANY CAN GI FT SHARES AS SUCH GIFTS ARE NOT TREATED AS BENAMI TRANSACTIONS. 25. WE FIND THAT THE ARTICLES OF ASSOCIATION OF ROI PROVIDES THAT THE COMPANY CAN ACQUIRE, HOLD, DISPOSE OF SHARES FOR AN Y OBJECTS MENTIONED IN THE MOA AND ALSO SELL, IMPROVE OR OTHERWISE DEAL WI TH ANY PART OF THE PROPERTY BOTH MOVABLE AND IMMOVABLE. THE EXPRESSIO N TO HOLD WILL INCLUDE POWER TO ALIENATE IN ANY MANNER WHATSOEVER. SO ALSO THE EXPRESSION OTHERWISE DEAL WITH ANY PART OF THE PRO PERTY WILL EMPOWER ROI TO ALIENATE ITS PROPERTIES MOVABLE AND IMMOVABLE IN ANY MANNER IT DEEMS FIT. THEREFORE THE POWER OF ROI TO MAKE GIFT OF SH ARES IS ENSHRINED IN THE ARTICLES OF ASSOCIATION OF ROI. WE ARE ALSO OF THE VIEW THAT THERE HAVE BEEN VALID REASONS FOR ROI TO MAKE GIFT TO THE ASSESSEE WHICH HAS BEEN EXPLAINED AS OWING TO THE RBI CIRCULARS, THOUGH IT MAY NOT BE NECESSARY THAT THERE SHOULD EXIST REASONS FOR MAKING A GIFT. 26. CONSIDERING THE LEGAL POSITION AS EXPLAINED IN THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT THE REVENUE AUTH ORITIES WERE NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THERE WAS NO VALID GIFT ON EQUITY SHARE OF ITA NO.2350/BANG/2018 PAGE 25 OF 31 ROI TO THE ASSESSEE. IN THIS REGARD, WE ALSO NOTIC E THAT THE REVENUE AUTHORITIES ACCEPTED THE VALIDITY OF THE GIFT BY RO I TO THE ASSESSEE BY TAKING FAIR MARKET AS INCOME OF THE ASSESSEE U/S 56(2)(VII )(C) OF THE ACT. ANOTHER REASON GIVEN BY THE REVENUE AUTHORITIES WAS THAT RO I USED FUNDS GIVEN BY ASSESSEE AS UNSECURED LOAN TO ACQUIRE SHARES OF NEP HROLIFE AND, THEREFORE, THE ASSESSEE HAD PAID CONSIDERATION FOR ACQUIRING T HE SHARES WHICH CANNOT BE TREATED AS GIFT. IN OUR VIEW THIS CONCLUSION OF THE AO/CIT(A) IS ALSO ERRONEOUS BECAUSE THE LOAN GIVEN BY THE ASSESSEE TO ROI IS SHOWN AS OUTSTANDING LIABILITY BY ROI IN ITS BOOKS AND ALSO AS RECEIVABLE BY THE ASSESSEE. IN OTHER WORDS THERE WAS NO SQUARING OFF OF THE LOAN GIVEN BY THE ASSESSEE CONSEQUENT TO GIFT OF SHARES BY ROI TO THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ASSUMPTION OF THE REVENUE AUTHORITIES CANNOT BE HELD TO BE CORRECT. SINCE THE SHARES IN QUESTION W ERE ACQUIRED BY ROI IN THE YEAR 2009 AND THE ASSESSEE GOT SHARES AS GIFT, THE PERIOD OF HOLDING BY THE PREVIOUS NEW OWNER TO BE REGARDED IN THE LIGHT OF THE PROVISIONS OF EXPLANATION I (B) TO SEC.42A R.W.S 49(1)(B) OF THE ACT. CONSEQUENTLY, THE GAIN IN QUESTION ON SALE OF SHARE RECEIVED AS GIFT HAS TO BE REGARDED AS LONG TERM CAPITAL GAIN. WE HOLD ACCORDINGLY. 27. WITH REGARD TO THE DEDUCTION U/S 54F OF THE AC T AS CONTENDED BY THE LD COUNSEL FOR THE ASSESSEE, THE ASSESSEE WAS RESIDEN T BUT NOT ORDINARY RESIDENT AND, THEREFORE, INCOME WHICH ACCURSE AND ARISE IN INDIA ALONE CAN BE BROUGHT TO TAX. ADMITTEDLY THE PROPERTY IN UK W AS LEASE HOLD PROPERTY AND INCOME FROM SUCH PROPERTY CANNOT BE BROUGHT TO TAX IN INDIA, AS SUCH INCOME CANNOT BE SAID TO HAVE ACCRUED OR ARISEN IN INDIA. CONSEQUENTLY, THE AFORESAID PROPERTY CANNOT BE CONSIDERED AS ANY OTHER PROPERTY OWNED BY THE ASSESSEE FOR THE PURPOSE OF PROVISO TO SEC. 54F (1) OF THE ACT. WE HAVE ALREADY DISCUSSED THAT UNDER PROVISO (B) TO SE C. 54F(I) ONE OF THE CONDITION IS THAT THE PROPERTY SHOULD BE ASSESSABLE TO TAX UNDER THE HEAD ITA NO.2350/BANG/2018 PAGE 26 OF 31 INCOME FROM HOUSE PROPERTY. SINCE THE UK PROPERT Y IS NOT ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN INDIA IN THE HANDS OF THE ASSESSEE, THE SAME CANNOT BE REGARDED AS HOUSE PROPERTY HELD BY THE ASSESEE. IF THE UK PROPERTY IS EXCLUDED THEN THE A SSESSEE WOULD OWN ONE HOUSE PROPERTY AT KASTURBA NAGAR, BANGALORE (OTHER THAN THE UK PROPERTY) AND THE PROPERTY WHICH HE ACQUIRED BY INVESTING TH E CAPITAL GAIN. 28. ANOTHER ASPECT CONSIDERED BY THE CIT(A) IS THA T THE ASSESSEE HAD CLAIMED DEDUCTION U/S 54F OF THE ACT FOR RS.13,41,3 9,988/-. SHARES IN QUESTION WHICH GAVE RISE TO LTCG WERE TRANSFERRED O N 16/12/2011. OUT OF RS.13,41,39,988/-, RS.10,6,01,792/- WERE INVESTED I N ACQUIRING THE NEW ASSET PRIOR TO THE DATE OF SALE OF SHARES. THEREFO RE, THE CIT(A) WAS OF THE VIEW EVEN IF SEC. 54F IS ALLOWED IT CANNOT BE IN RE SPECT OF THE INVESTMENTS MADE PRIOR TO THE TRANSFER OF THE CAPITAL ASSET. O N THIS ISSUE THERE IS A DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. J.R. SUBRAMANYA BHAT, 165 ITR 571 (KAR) . THE HONBLE HIGH COURT IN THE AFORESAID JUDGMENT AFTER REFERRING TO THE CONDITION S FOR GRANT OF DEDUCTION U/S. 54 OF THE ACT, ALLOWED THE CLAIM OF ASSESSEE F OR DEDUCTION BY OBSERVING AS FOLLOWS:- 4. THE TRIBUNAL HAS HELD THAT THE GROUND OR LAND APPURTENANT TO THE BUILDING WAS IN THE OCCUPATION O F THE ASSESSEE. IT HAS FURTHER HELD THAT THOUGH THE COMME NCEMENT OF THE NEW BUILDING WAS EARLIER TO THE SALE OF THE OLD BUILDING, THE NEW BUILDING WAS COMPLETED IN MARCH, 1977, WHICH WA S WITHIN THE TWO-YEAR PERIOD CONTEMPLATED BY SECTION 54. SO STATING, THE TRIBUNAL ALLOWED THE RELIEF CLAIMED BY THE ASSESSEE . ITA NO.2350/BANG/2018 PAGE 27 OF 31 5. THERE IS NO DISPUTE THAT THE BUILDING HAS BEEN CONSTRUCTED WITHIN TWO YEARS FROM THE DATE OF SALE OF THE OLD BUILDING. THE OLD BUILDING WAS SOLD IN FEBRUARY, 19 77. THE NEW BUILDING WAS COMPLETED IN MARCH, 1977, THE CONSTRUC TION OF WHICH HAD COMMENCED IN 1976. SECTION 54 OF THE INCO ME-TAX ACT SO FAR AS IT IS RELEVANT PROVIDES : 'WHERE A CAPITAL GAIN ARISES FROM THE TRANSFER OF A CAPITAL ASSET TO WHICH THE PROVISIONS OF SECTION 53 ARE NOT APPLICABLE, BEING BUILDINGS OR LANDS APPURTENANT TH ERETO THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', WHICH IN THE TWO YEAR S IMMEDIATELY PRECEDING THE DATE ON WHICH THE TRANSFE R TOOK PLACE, WAS BEING USED BY THE ASSESSEE OR A PARENT O F HIS MAINLY FOR THE PURPOSES OF HIS OWN OR THE PARENT'S OWN RESIDENCE, AND THE ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR AFTER THAT DATE PURCHASED, OR HAS WI THIN A PERIOD OF TWO YEARS AFTER THAT DATE CONSTRUCTED, A HOUSE PROPERTY FOR THE PURPOSES OF HIS OWN RESIDENCE, THE N, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME -TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH TH E FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y,.......' UNDER THIS SECTION, IF THE ASSESSEE HAS WITHIN A PE RIOD OF ONE YEAR AFTER THE DATE ON WHICH THE TRANSFER TOOK PLAC E PURCHASED OR HAS WITHIN A PERIOD OF TWO YEARS AFTER THAT DATE CONSTRUCTED A RESIDENTIAL HOUSE, THEN, INSTEAD OF THE CAPITAL GAI N BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEAR IN WHI CH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCO RDANCE WITH THE OTHER PROVISIONS SET OUT IN THE SAID SECTION. THE T RIBUNAL ON AN APPRECIATION OF THE EVIDENCE HAS FIRSTLY FOUND THAT THE BUILDING WAS USED BY THE ASSESSEE MAINLY FOR HIS RESIDENTIAL PURPOSE. TAKING INTO CONSIDERATION THE AREA OF THE BUILDING UNDER THE OCCUPATION OF THE ASSESSEE, IT HAS STATED THAT THE GROUND FLOOR OCCUPIED BY THE ASSESSEE INCLUDING THE GARAGE WAS 1 , 330 SQ. FT. THE LAND APPURTENANT TO THE GROUND FLOOR EXCLUD ING THE LAND OCCUPIED BY THE HOUSE WAS 4,795 SQ. FT. THAT WAS AL SO HELD TO BE UNDER THE OCCUPATION OF THE ASSESSEE. THIS BUILDING WITH THE LAND HAS BEEN SOLD. IT WAS ONLY THE FIRST FLOOR THA T WAS LET OUT. THE TRIBUNAL TOOK INTO CONSIDERATION THE EXTENT OF THE BUILDING USED MAINLY FOR THE RESIDENTIAL PURPOSE OF THE ASSE SSEE AND FOUND THAT THE MAJOR PORTION OF THE BUILDING WAS UN DER THE ITA NO.2350/BANG/2018 PAGE 28 OF 31 OCCUPATION OF THE ASSESSEE. THE TRIBUNAL, THEREFORE , CONCLUDED THAT THE FIRST CONDITION PRESCRIBED UNDER SECTION 5 4 WAS SATISFIED. THIS FINDING, IT MAY BE SEEN, HAS BEEN ARRIVED AT B Y THE TRIBUNAL UPON APPRECIATION OF THE EVIDENCE AND THE FACTUAL A SPECTS OF THE CASE. 6. SO TOO WAS THE NEXT CONCLUSION REACHED BY THE T RIBUNAL. THE DATE OF THE SALE OF THE OLD BUILDING WAS FEBRUA RY 9, 1977. THE COMPLETION OF THE CONSTRUCTION OF THE NEW BUILD ING WAS IN MARCH, 1977, ALTHOUGH THE COMMENCEMENT OF THE CONSTRUCTION STARTED IN 1976. IT IS IMMATERIAL, AS THE TRIBUNAL, IN OUR OPINION, HAS RIGHTLY OBSERVED, ABO UT THE DATE OF COMMENCEMENT OF THE CONSTRUCTION OF THE NEW BUILDING. SINCE THE ASSESSEE HAS CONSTRUCTED THE BU ILDING WITHIN TWO YEARS FROM THE DATE OF SALE OF THE OLD B UILDING, HE WAS ENTITLED TO RELIEF UNDER SECTION 54 OF THE ACT. 7. BOTH THE CONCLUSIONS REACHED BY THE TRIBUNAL AR E ON AN APPRAISAL OF THE EVIDENCE ON RECORD AND THEY ARE NO T SHOWN TO BE UNREASONABLE OR PERVERSE. 8. WE, THEREFORE, ANSWER THE QUESTION IN THE AFFIR MATIVE AND AGAINST THE REVENUE. IN THE CIRCUMSTANCES OF THE CA SE, WE MAKE NO ORDER TO COSTS. 29. PROVISIONS OF SEC.54 OF THE ACT AND 54F OF THE ACT ARE IDENTICAL AND THERE IS NO DISPUTE ON THIS ASPECT. AS WE HAVE ALR EADY SEEN, DEDUCTION U/S. 54F OF THE ACT IS ALLOWED IF A PROPERTY BEING RESID ENTIAL HOUSE IS TRANSFERRED AND LONG TERM CAPITAL GAIN IS DERIVED BY THE ASSESS EE. IF THE ASSESSEE, ONE YEAR BEFORE THE TRANSFER OF OLD ASSET OR ONE YEAR T HEREAFTER PURCHASED A NEW ASSET, HE IS ENTITLED TO DEDUCTION U/S.54 OF TH E ACT. IF THE ASSESSEE CONSTRUCTS A NEW HOUSE, THEN THE CONSTRUCTION SHOUL D BE COMPLETED WITHIN A PERIOD OF TWO YEARS AFTER THE TRANSFER OF OLD ASS ET. IN THE PRESENT CASE, THE EXPENSES FOR CONSTRUCTING THE NEW RESIDENTIAL H OUSE, IS PARTLY INCURRED ONE YEAR BEFORE THE TRANSFER AND WITHIN TWO YEARS A FTER THE TRANSFER OF THE ITA NO.2350/BANG/2018 PAGE 29 OF 31 OLD ASSET. IT IS NOT DISPUTED THAT THE CONSTRUCTIO N HAS BEEN COMPLETED WITHIN A PERIOD OF TWO YEARS AFTER THE DATE OF TRAN SFER. IN SUCH CIRCUMSTANCES, THE ASSESSEE IS ENTITLED TO DEDUCTIO N U/S. 54F OF THE ACT FOR THE ENTIRE SUM INVESTED IN PURCHASE OF FLAT BY GETT ING IT CONSTRUCTED THROUGH THE BUILDER. THE FACTS ARE IDENTICAL TO THE FACTS OF THE CASE OF THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF J.R. SUBRAMANYA BHAT (SUPRA) . WE ARE THEREFORE OF THE VIEW THAT THE ASSESSEE I S ENTITLED TO DEDUCTION ON THE SUM INVESTED PRIOR TO SALE OF THE CAPITAL ASSET GIVING RAISE TO CAPITAL GAIN, U/S. 54F OF THE ACT. WE DIRECT TH E AO TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE. 30. IN THE LIGHT OF THE DISCUSSION ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 54F OF THE AC T AS CLAIMED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 31. THE THIRD ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS WITH REGARD TO THE DEDUCTION ON ACCOUNT OF LOSS ON SALE OF PAINTING. AS FAR AS THIS ISSUE OF SALE OF PAINTING IS CONCERNED, WE NOT ICED THAT THE SALE OF PAINTING IN QUESTION AND THE CONSEQUENT LOSS IS SHO WS IN UK AND NOT IN INDIA. THE SEC.5(1)(C) OF THE ACT PROVIDES THAT I N THE CASE OF RESIDENT BUT NOT ORDINARY RESIDENT INCOME WHICH ACCRUES OR ARI SE TO HIM OUTSIDE INDIA SHALL NOT BE INCLUDED IN THE TOTAL INCOME. LOSS IN QUESTION ACCRUED OR AROSE TO THE ASSESSEE OUTSIDE INDIA THEREFORE SUCH LOSS SHOULD ALSO BE IGNORED. IN OTHER WORDS WHAT IS APPLICABLE TO INCOME IS EQUA LLY APPLICABLE TO LOSS. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE REVENUE A UTHORITIES WERE FULLY JUSTIFIED IN NOT ALLOWING LONG TERM CAPITAL LOSS ON SALE OF PAINTING. ITA NO.2350/BANG/2018 PAGE 30 OF 31 32. THE LAST ISSUE IS WITH REGARD TO THE CREDIT FOR TDS GAIN. ON THIS ASPECT WE ARE OF THE VIEW THAT THERE IS A CLASH BET WEEN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THAT FOLLOW ED BY THE PERSON MAKING PAYMENT TO THE ASSESSEE. WE ARE OF THE VI EW THAT IN THE LIGHT OF THE PROVISO TO SEC. 199 OF THE ACT, THE CREDIT SHOU LD BE ALLOWED ON INCOME WHICH IS OFFERED TO TAX. IT WOULD MEET ENDS OF JUS TICE IF DIRECTION IS GIVEN TO AO TO ALLOW TAX CREDIT IN ACCORDANCE WITH SEC. 199 OF THE ACT, WE HOLD ACCORDINGLY. 33. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8 TH FEBRUARY, 2019 . SD/- SD/- ( JASON P BOAZ ) ( N.V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, 8 TH FEBRUARY , 2019 . / VMS / COPY TO : 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA NO.2350/BANG/2018 PAGE 31 OF 31 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..