FARIDA A DUNGERPURWALA, MUMBAI V. ITO WD 14(3)-2, MUMBAI

ITA 5169/MUM/2010

• Counselvise Citation: 516919914 RSA 2010
• Duration Of Justice: 4 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJNEESH K ARVIND
• Assessee Lawyers: CHETAN A KARIA
• Keywords: Capital asset
• Section: 54; 54F

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.5169/MUM/2010 ( / ASSESSMENT YEAR :2006-07) FARIDA A DUNGERPURWALA C/O GULF ASIA EXPORTS, 332, SARDAR GRIHA, 198, L T MARG, LOHAR CHAWL, MUMBAI-400002. / VS. INCOME TAX CIRCLE- 14(3)(2), MUMBAI. ( / APPELLANT) .. ( !' / RESPONDENT) ./ $% ./ PAN/GIRNO.: AEAPD8703R & / APPELLANT BY : SHRI CHETAN A KARIA !' ' & /RESPONDENT BY : SHRI RAJNEESH K ARVIND ( ) ' * + / DATE OF HEARING : 26.8.2014 ,- ' * + / DATE OF PRONOUNCEMENT : 12.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29-03- 2010 PASSED BY LD CIT(A)-25, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE REJECTION OF CLAIM FOR DEDUCTION U/S 54 OF THE ACT MADE BY THE ASSESSEE IN HER RETURN OF INCOME. 2. THE ASSESSEE SOLD A RESIDENTIAL FLAT ON 10.10.20 05 FOR A SUM OF RS.28,50,000/-. THE ASSESSEE CLAIMED A SUM OF RS.1 4,33,450/- AS DEDUCTION U/S 54 IN RESPECT OF COST OF A NEW FLAT. THE AO NOTICED THAT THE ASSESSEE HAD BOOKED A FLAT IN A PROJECT AS PER THE SALE AGREEMENT REGIS TERED ON 04.12.2002 FOR A CONSIDERATION OF RS.31,20,000/-. THE ASSESSEE PAID THE ABOVE SAID CONSIDERATION IN INSTALLMENTS. IT IS NOTICED THAT THE FLAT WAS BO OKED IN THE JOINT NAMES OF ASSESSEE AND HER RELATIVE. ACCORDING TO THE ASSESS EE, SHE OBTAINED POSSESSION OF THE NEW FLAT ON 4.12.2004. BEFORE THE AO, THE A SSESSEE SUBMITTED THAT THE I.T.A. NO.5169/MUM/2010 2 NEW FLAT SHOULD BE CONSIDERED AS HAVING PURCHASED O NLY ON 4.12.2004, I.E., ON THE DATE ON WHICH HE OBTAINED POSSESSION. UNDER S EC. 54 OF THE ACT, THE COST OF NEW HOUSE PURCHASED WITHIN ONE YEAR PRIOR TO THE DATE OF SALE OF ORIGI NAL RESIDENTIAL HOUSE IS ALSO ELIGIBLE FOR DEDUCTION. IT APPEARS THAT THE COST OF NEW FLAT WORKED OUT TO ABOUT 34.86 LAKHS AND THE ASSESS EE CLAIMED 50% OF HER SHARE THEREIN AS DEDUCTION U/S 54 OF THE ACT. 3. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE AS SESSEE THAT THE DATE OF POSSESSION OF NEW HOUSE SHOULD BE TAKEN AS THE DATE OF PURCHASE. THE AO PLACED STRONG RELIANCE ON THE DECISION OF JURISDICT IONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. MRS. HILLA J.B.WADIA (216 ITR 376)( BOM) WITH THE FOLLOWING OBSERVATIONS:- AS STATED IN THE AFORESAID PARAGRAPHS THE BOMBAY H IGH COURT IN THE CASE OF CIT VS. MRS. HILLA J.B.WADIA (216 ITR 376)(BOM) HAS HELD THAT, WHAT ONE HAS TO SEE IS WHETHER THE ASSESSEE HAS ACQUIRED A RIGHT TO A SPECIFIC FLAT IN SUCH A BUILDING WHICH IS BEING CONSTRUCTED BY THE SOCIETY AND WHETHER SHE HAS MADE A SUBSTANTIAL INVESTMENT WITHI N THE PRESCRIBED PERIOD WHICH WILL ENTITLE HER TO OBTAIN POSSESSION OF THAT FLAT SO CONSTRUCTED. THE BOARD HAS STATED IN THE CIRCULAR THAT WHEN AN ALLOTMENT LETTER IS ISSUED TO AN ALLOTTEE UNDER THIS SCHEME O N PAYMENT OF THE FIRST INSTALLMENT OF THE COST OF CONSTRUCTION, THE ALLOTM ENT IS FINAL UNLESS IT IS CANCELLED. THE ALLOTTEE, THERE UPON, GETS TITLE TO THE PROPERTY ON THE ISSUANCE OF THE ALLOTMENT LETTER AND THE PAYMENT OF INSTALLMENTS IS ONLY A FOLLOW UP ACTION AND TAKING DELIVERY OF POSSESSION IS ONLY A FORMALITY. ACCORDINGLY, THE AO REJECTED THE CLAIM FOR DEDUCTIO N U/S 54 OF THE ACT. 4. THE LD CIT(A) ALSO CONFIRMED THE DECISION O F THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS:- .. THE FACT OF HAVING EXECUTED THE AGREEMENT BY WAY OF REGISTERING THE SAME ON 04-12-2002 IS NOT IN DISPUTE. THE CLAIM OF THE APPELLANT THAT AS PER CLAUSE 14 OF THE AGREEMENT BUILDER CAN TERMINAT E THE AGREEMENT ON NON-PAYMENT OF INSTALLMENTS, IN THE CASE OF APPELLA NT IS NOT FOUND TO BE IMPLEMENTED THOUGH THE APPELLANT IS FOUND HAVING DE FAULTED THE PAYMENT OF INSTALLMENTS ON CERTAIN OCCASIONS. THE RELEVANT AND EFFECTIVE MATERIAL FACTS ARE THAT THE AGREEMENT WAS COMPLETE ON ALL RE SPECTS WHEN IT WAS EXECUTED BY WAY OF REGISTERING THE SAME AND THE APP ELLANT PAID EARNEST MONEY AND AGREED TO MAKE THE PAYMENT OF INSTALLMENT S ON THE DATES AS MENTIONED IN THE AGREEMENT ITSELF. THEREFORE, FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 54 OF THE I.T ACT, THE PURCHASE OF AN OTHER PROPERTY ONE YEAR BEFORE THE SALE OF PROPERTY HAS TO BE CONSTRUED FRO M THE DATE OF EXECUTION OF AGREEMENT THROUGH REGISTRATION AND NOT FROM THE DATE OF POSSESSION AS CLAIMED BY THE APPELLANT. THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE AO IN DISALLOWING EXEMPTION U/S 54 OF THE I.T ACT ON CAPITAL I.T.A. NO.5169/MUM/2010 3 GAINS ON THE SALE OF ANOTHER PROPERTY MADE MUCH BEY OND THE PRESCRIBED PERIOD OF TIME AS PER THE PROVISIONS OF SEC. 54 OF THE I.T ACT. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFOR E US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE LD A.R REITERATED THE CONTENTIONS THAT WERE MADE BEFORE TH E TAX AUTHORITIES, VIZ., THE DATE OF POSSESSION SHOULD BE CONSIDERED AS THE DATE OF P URCHASE OF NEW HOUSE, SINCE THE ASSESSEE OBTAINED A HABITABLE HOUSE ONLY ON THE DATE OF POSSESSION. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ORDERS OF THE TAX AUTHORITIES. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE CAN PURCHASE A NEW HOUSE WITHIN ONE YEAR BEFORE THE DATE OF TRANSFER O F THE ORIGINAL RESIDENTIAL HOUSE IN ORDER TO AVAIL DEDUCTION U/S 54 OF THE ACT. THE SAID DEDUCTION IS ALSO AVAILABLE IF A NEW HOUSE (A) IS PURCHASED WITHIN TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER OF ORIGINAL HOUSE TOOK PLACE OR (B) IS CONSTRUCTED WITHIN A PERIOD OF THREE YEARS A FTER THE DATE ON WHICH THE TRANSFER TOOK PLACE. THUS, IT IS SEEN THAT THE STATUTE HAS PRESCRIBED DI FFERENT TIME LIMITS FOR PURCHASE OF A NEW HOUSE AND FOR CONSTRUCTION OF A NEW HOUS E. THERE SHOULD NOT BE ANY DISPUTE THAT THE EXPRESSIONS PURCHASE AND CO NSTRUCTION DENOTES TWO DIFFERENT KINDS OF ACTIONS. THE DEDUCTION IS AVAIL ABLE ONLY IF A NEW HOUSE IS PURCHASED WITHIN ONE YEAR BEFORE THE DATE OF TRANSF ER OF THE ORIGINAL RESIDENTIAL HOUSE. THUS, IF A NEW HOUSE IS CONSTRUCTED WITHIN ONE YEAR PRIOR TO THE DATE OF TRANSFER OF THE ORIGINAL RESIDENTIAL HOUSE, THE DED UCTION U/S 54 IS NOT AVAILABLE. 6. IN THE INSTANT CASE, THE ASSESSEE ALONG WITH HER RELATIVE HAS ENTERED INTO AN AGREEMENT ON 04.12.2002 WITH A BUILDER. AS PER THE REGISTERED SALE AGREEMENT, THE BUILDER SHALL CONSTRUCT RESIDENTIAL APARTMENTS ON A PIECE OF LAND AND ALLOT A SPECIFIED FLAT TO THE ASSESSEE. AS PER THE AGREEMENT, THE BUILDER CONSTRUCTED THE RESIDENTIAL APARTMENTS AND FINALLY HANDED OVER THE POSSESSION ON 04.12.2004. THE MOOT QUESTION IS WHETHER THE TRANS ACTION OF ENTERING INTO AN AGREEMENT WITH A BUILDER FOR PURCHASE OF A FLAT THA T IS GOING TO BE CONSTRUCTED IS A CASE OF PURCHASE OR CONSTRUCTION. I.T.A. NO.5169/MUM/2010 4 7. IN THIS REGARD, WE MAY GAINFULLY REFER TO TH E DECISION RENDERED BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF MRS. HILLA J.B.WADIA (SUPRA), WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IT IS A CASE O F CONSTRUCTION. FOLLOWING OBSERVATIONS MADE BY THE HIGH COURT ARE RELEVANT HE RE:- .IN THE PRESENT CASE, THE ASSESSEE HAD TRANSFERRE D THE PROPERTY IN WHICH SHE HAD A HALF SHARE AND WHICH WAS BEING USED FOR THE PURPOSE OF HER RESIDENCE TO THE SOCIETY. THE QUESTION IS WHET HER SHE CAN BE SAID TO HAVE CONSTRUCTED A HOUSE PROPERTY FOR THE PURPOSE O F HER RESIDENCE WITHIN A PERIOD OF TWO YEARS FROM THAT DATE. THIS PROVISI ON WILL HAVE TO BE CONSTRUED IN THE CONTEXT OF THE MANNER IN WHICH SUC H RESIDENTIAL PROPERTIES ARE NOW BEING CONSTRUCTED IN A CITY LIKE BOMBAY WHE RE, LOOKING INTO THE COST OF LAND, CO-OPERATIVE HOUSING SOCIETIES ARE BE ING FORMED FOR CONSTRUCTING A BUILDING IN WHICH FLATS ARE ALLOTTED TO THE MEMBERS. THIS MUST ALSO BE VIEWED AS A METHOD OF CONSTRUCTING RES IDENTIAL TENEMENTS. 8. AN IDENTICAL QUESTION, I.E., WHETHER THE BOOKIN G OF FLAT WITH A BUILDER IS TO BE CONSIDERED AS A CASE OF PURCHASE OR CONSTRUCT ION WAS EXAMINED BY THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. SU NDER KAUR SUJAN SINGH (3 SOT 206) AND THE BENCH CAME TO THE CONCLUSION THAT IT WAS A CASE OF CONSTRUCTION. THE RELEVANT OBSERVATIONS ARE EXTR ACTED BELOW:- THE CONDITION LAID DOWN IN THE CASE OF PURCHASE OF THE RESIDENTIAL HOUSE IS THAT THE HOUSE MUST HAVE BEEN PURCHASED ONE YEAR PRIOR TO THE SALE OF THE CAPITAL ASSET OR TWO YEARS SUBSEQUENT THERETO. IN THE CASE OF A RESIDENTIAL HOUSE THE CONDITION LAID DOWN IS THAT T HE RESIDENTIAL HOUSE MUST HAVE BEEN CONSTRUCTED WITHIN THREE YEARS AFTER THE SALE OF THE CAPITAL ASSET. THEREFORE, FOR PROPER APPLICATION OF THIS SE CTION IT HAS TO BE SEEN WHETHER IT IS A PURCHASE OR A CONSTRUCTION IN THE A BOVE CASE. VIDE BOARDS CIRCULAR NO. 471, DT. 15TH OCT., 1986 IT HAS BEEN E XPLAINED THAT TO QUALIFY INVESTMENT FOR CONSTRUCTION UNDER S. 54F THE CRUCIA L DATE IS THE DATE OF ALLOTMENT OF FLAT BY DDA AND PAYMENT OF INSTALLMENT WAS ONLY A FOLLOW-UP ACTION AND TAKING POSSESSION OF THE FLAT IS ONLY A FORMALITY, OF COURSE, INSTALLMENTS HAVE TO BE PAID BY THE ALLOTTEE AS PER THE SCHEDULE FIXED BY THE DDA. AS PER BOARDS CIRCULAR NO. 672, DT. 16TH DEC., 1993 THE BOARD AFTER REFERRING TO THE ABOVEMENTIONED CIRCULAR NO. 471 EXTENDED THE FACILITY OF EXEMPTION UNDER SS. 54 AND 54F IN RESPE CT OF ALLOTMENT OF FLATS/HOUSE BY CO-OPERATIVE SOCIETIES AND OTHER INS TITUTIONS, AND THE ALLOTMENT AND CONSTRUCTION OF THE FLAT BY CO-OPERAT IVE SOCIETIES AND OTHER INSTITUTIONS ARE TO BE CONSIDERED IN SIMILAR MANNER FOR THE PURPOSE OF ALLOWING EXEMPTION UNDER S. 54. THE ABOVE CIRCULARS ARE BINDING ON THE REVENUE AUTHORITIES UNDER S. 119 OF THE ACT. SINCE THE FLAT HAS BEEN ALLOTTED TO THE ASSESSEE BY THE BUILDER WHO WOULD F ALL IN THE CATEGORY OF OTHER INSTITUTIONS MENTIONED IN THE CIRCULARS, I T HAS TO BE TAKEN AS A CASE OF CONSTRUCTION OF THE RESIDENTIAL FLAT AND NOT AS A PURCHASE OF A RESIDENTIAL FLAT . I.T.A. NO.5169/MUM/2010 5 9. ANOTHER MUMBAI BENCH OF TRIBUNAL HAS ALSO CON SIDERED AN IDENTICAL QUESTION IN THE CASE OF KISHORE H GALAIYA VS. ITO ( 137 ITD 229) AND HAS EXPRESSED IDENTICAL VIEW. THE RELEVANT OBSERVATION S ARE EXTRACTED BELOW:- 6.1. IN THE PRESENT CASE, THE ASSESSEE SOLD THE OL D RESIDENTIAL HOUSE ON 7.3.1996 AND THE LONG TERM CAPITAL GAIN ARISING ON THIS ACCOUNT WAS RS.9,98,411/-. THE ASSESSEE HAD BOOKED A NEW RESIDE NTIAL FLAT WITH THE BUILDER JOINTLY WITH HIS WIFE FOR A SUM OF RS.35,00 ,000/-. THE ASSESSEE HAD PAID BOOKING AMOUNT OF RS.1,00,000/- TO THE BUILDER BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME U/S 139(1) FOR THE A SSESSMENT YEAR 2006-07 AND THE BALANCE AMOUNT HAD BEEN PAID IN INSTALLMENT S AFTER THE SAID DATE. THE TOTAL AMOUNT PAID BY THE ASSESSEE TO THE BUILDE R WAS RS.14,62,500/- TILL 16.2.2009. IN THE BACK DROP OF THIS FACTUAL PO SITION, IT IS REQUIRED TO BE SEEN WHETHER THE ASSESSEE HAD FULFILLED THE CONDITI ONS OF SECTION 54 OF THE ACT SO AS TO MAKE HIM ELIGIBLE FOR CLAIM OF EXEMPTI ON U/S 54 OF THE ACT. THE FIRST CONDITION IS THAT THE CAPITAL GAIN SHOULD HAVE BEEN INVESTED IN THE PURCHASE OF NEW RESIDENTIAL HOUSE WITHIN A PERIOD O F TWO YEARS FROM THE DATE OF TRANSFER OR FOR CONSTRUCTION OF NEW RESIDEN TIAL HOUSE WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF TRANSFER. IN THE PRESENT CASE, THE ASSESSEE HAD BOOKED THE NEW FLAT WITH THE BUILDER A ND AS PER AGREEMENT, THE ASSESSEE WAS TO MAKE PAYMENT IN INST ALLMENTS AND THE BUILDER WAS TO HANDOVER THE POSSESSION OF THE F LAT AFTER CONSTRUCTION. IT HAS THEREFORE TO BE CONSIDERED AS A CASE OF CONSTRUCTION OF NEW RESIDENTIAL HOUSE AND NOT PURCH ASE OF FLAT. THIS POSITION HAS BEEN CLARIFIED BY THE CBDT IN CIRCULAR NO.472 DATED 16.12.1993 IN WHICH IT HAS BEEN MADE CLEAR THAT THE EARLIER CIRCULAR NO. 471 DATED 15.10.1986 IN WHICH IT WAS STATED THAT AC QUISITION OF FLAT THROUGH ALLOTMENT BY DDA HAS TO BE TREATED AS A CONSTRUCTIO N OF FLAT WOULD APPLY TO CO-OPERATIVE SOCIETIES AND OTHER INSTITUTIONS. THE BUILDER WOULD FALL IN THE CATEGORY OF OTHER INSTITUTIONS AS HELD BY MUMBAI BE NCH OF TRIBUNAL IN THE CASE SMT. SUNDER KAUR SUJAN SINGH GADH (SUPRA) AND THEREFORE BOOKING OF THE FLAT WITH THE BUILDER HAS TO BE TREATED AS C ONSTRUCTION OF FLAT BY THE ASSESSEE. THUS, IN THE PRESENT CASE, THE PERIOD OF THREE YEARS WOULD APPLY FOR CONSTRUCTION OF NEW HOUSE FROM THE DATE OF TRAN SFER OF THE OLD FLAT. 10. THE RATIO LAID DOWN IN THE ABOVE SAID CASES C LEARLY SHOW THAT THE BOOKING OF A FLAT WHICH IS GOING TO BE CONSTRUCTED BY A BUI LDER HAS TO BE CONSIDERED AS A CASE OF CONSTRUCTION OF FLAT. WE HAVE ALREADY NO TICED THAT THE DEDUCTION U/S 54 IS AVAILABLE ONLY IF THE ASSESSEE CONSTRUCTS A NEW HOUSE WITHIN THREE YEARS AFTER THE DATE OF TRANSFER. IN THE INSTANT CASE, THE ASSESSEE HAS CONSTRUCTED A HOUSE PRIOR TO THE DATE OF TRANSFER OF ORIGINAL HOUSE, IN WHICH CASE, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 54 OF THE ACT IN RE SPECT OF THE COST OF NEW FLAT. I.T.A. NO.5169/MUM/2010 6 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E OF THE VIEW THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS PRESCRIBED U/S 54 OF THE ACT. ACCORDINGLY WE UPHOLD THE DECISION TAKEN BY THE LD CIT(A) ON THE R EASONS DISCUSSED SUPRA. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12TH SEPT, 2014 . ,- ( . /0 1 2 12TH SEPT, 2014 - ' 3) 4 SD S D ( . . / H.L. KARWA ) ( . . , / B.R. BASKARAN) / PRESIDENT / ACCOUNTANT MEMBER / ( ) MUMBAI : 12TH SEPT, 2014 . . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ( 9* ( ) / THE CIT(A)- CONCERNED 4. ( 9* / CIT CONCERNED 5. 6. :; 3 !*< , + < , / ( ) / DR, ITAT, MUMBAI CONCERNED 3 = ) / GUARD FILE. > ( / BY ORDER, TRUE COPY ? $ (ASSTT. REGISTRAR) + < , / ( ) /ITAT, MUMBAI