Sri. Ved Prakash Rakhra, Bangalore V. ACIT, Bangalore

ITA 573/BANG/2012

• Counselvise Citation: 57321114 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN JT
• Keywords: Capital asset; Benefit of exemption
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.573/BANG/2012 ASSESSMENT YEAR : 2008-09 SRI VED PRAKASH RAKHRA, # 4412, 2 ND MAIN, VYALIKAVAL, BANGALORE 560 003. PAN : AALPR 9766P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NARENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI A. SUNDARARAJAN, JT. CIT(DR) DATE OF HEARING : 14.08.2013 DATE OF PRONOUNCEMENT : 23.08.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 03.02.2012 OF THE CIT(APPEALS)-III, BANGALORE RELATING TO ASSE SSMENT YEAR 2008-09. ITA NO.573/BANG/2012 PAGE 2 OF 15 2. THE ONLY ISSUE THAT REQUIRES CONSIDERATION BY TH E TRIBUNAL IN THIS APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WER E JUSTIFIED IN DENYING THE BENEFIT OF EXEMPTION TO THE ASSESSEE U/S. 54 OF THE ACT. THE FACTS GIVING RISE TO THE PRESENT APPEAL ARE AS FOLLOWS. 3. THE ASSESSEE IS AN INDIVIDUAL. ON 07.05.07 THE ASSESSEE SOLD RESIDENTIAL FLAT SITUATED AT EMBASSY CROWN, AGA ABB AS ALI ROAD, BANGALORE FOR A SALE CONSIDERATION OF RS.2,65,00,000. THERE WAS A LONG TERM CAPITAL GAIN OF RS.2,34,59,601 ON SUCH SALE. THE ASSESSEE CLAIMED EXEMPTION OF A SUM OF RS.1,22,00,000 U/S. 54 OF THE ACT. UNDER SECTION 54 OF THE ACT, IF AN ASSESSEE WHO IS AN INDIVIDUAL, DERIVES LONG TERM CAPITAL GAIN FROM TRANSFER OF A LONG TERM CAPITAL ASSET, BEING A RESI DENTIAL HOUSE AND THE ASSESSEE, (A) WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE CAPITAL ASSET TAKES PLACE PURCHASES OR (B) WITHIN A PERIOD OF THREE YEARS AFTER THE DATE ON WHICH THE TRANSFER TA KES PLACE CONSTRUCTS A RESIDENTIAL HOUSE, THEN TO THE EXTENT THE CAPITAL G AIN IS USED AS AFORESAID, THE SAME WILL NOT BE CHARGEABLE TO TAX. 4. THE ASSESSEE CLAIMED EXEMPTION U/S. 54 OF THE AC T OF A SUM OF RS.1.22 CRORES AND OFFERED TO TAX THE REMAINING CAP ITAL GAIN OF RS.1,12,59,601. THE QUESTION BEFORE THE ASSESSING O FFICER WAS AS TO WHETHER THE ASSESSEE WAS ENTITLED TO THE DEDUCTION AS AFORESAID. 5. THE AO DID NOT DISPUTE THE FACT THAT THE ASSESSE E ENTERED INTO AN AGREEMENT FOR PURCHASE OF A FLAT ON 12.09.2007 WITH M/S. CENTURY CHIMES, ITA NO.573/BANG/2012 PAGE 3 OF 15 A PARTNERSHIP FIRM AND PAID A SUM OF RS.40 LAKHS AS ADVANCE. UNDER SECTION 54(2) OF THE ACT, IF THE CAPITAL GAIN IS NO T UTILIZED IN THE MANNER SET OUT U/S. 54(1) OF THE ACT WITHIN THE DUE DATE FOR F ILING THE RETURN OF INCOME U/S. 139 OF THE ACT, THEN THE CAPITAL GAIN NOT SO U TILIZED SHOULD BE DEPOSITED IN A BANK ACCOUNT THAT MAY BE SPECIFIED IN THIS BEH ALF. IT IS NOT IN DISPUTE THAT THE COST OF THE NEW PROPERTY PROPOSED TO BE AC QUIRED BY THE ASSESSEE WAS A SUM OF RS.1.22 CRORES AND THAT A SUM OF RS.40 LAKHS HAD ALREADY BEEN PAID BY THE ASSESSEE BEFORE THE PERIOD REFERRE D TO IN SECTION 54(2) OF THE ACT AND A SUM OF RS.82 LAKHS HAD BEEN DEPOSITED BY THE ASSESSEE IN A CAPITAL GAINS SCHEME ACCOUNT SPECIFIED U/S. 54(2) O F THE ACT. 6. THE ASSESSEE IN RESPECT OF ITS CLAIM FOR EXEMPTI ON U/S. 54 OF THE ACT, FILED A COPY OF THE AGREEMENT FOR SALE DATED 12.09. 2007 ENTERED INTO BETWEEN THE ASSESSEE AND M/S. CENTURY CHIMES FOR AC QUISITION OF A RESIDENTIAL FLAT, WHICH WAS BEING CONSTRUCTED BY TH E DEVELOPER AT 34, 3 RD FLOOR, KODIGEHALLI, YELHANKA HOBLI, BANGALORE. THE ASSESSEE ALSO PRODUCED A COPY OF THE ABSOLUTE SALE DEED DATED 04. 05.2010 EXECUTED BY M/S. CENTURY CHIMES DULY REGISTERED. 7. ON A PERUSAL OF THE SALE DEED, THE AO WAS OF THE VIEW THAT THERE ARE TWO MODES OF ACQUIRING PROPERTY TO CLAIM THE BENEFI T OF EXEMPTION U/S. 54(1) OF THE ACT. THE FIRST MODE IS BY PURCHASE OF A RES IDENTIAL HOUSE. AS FAR AS THIS MODE IS CONCERNED, THE PERIOD WITHIN WHICH THE RESIDENTIAL HOUSE HAS TO BE PURCHASED FOR CLAIMING EXEMPTION U/S. 54(1) O F THE ACT WAS THAT THE ITA NO.573/BANG/2012 PAGE 4 OF 15 PURCHASE SHOULD BE WITHIN A PERIOD OF ONE YEAR BEFO RE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER OF THE CAPITAL ASSET WHICH GIVES RISE TO THE CAPITAL GAIN HAS TAKEN PLACE. THE SECOND MODE OF A CQUISITION SPECIFIED IN SECTION 54(1) OF THE ACT IS CONSTRUCTION OF A RESID ENTIAL HOUSE AND THE PERIOD WITHIN WHICH THE CONSTRUCTION OF RESIDENTIAL HOUSE HAS TO BE DONE BY THE ASSESSEE IS WITHIN A PERIOD OF THREE YEARS AFTER TH E TRANSFER OF THE CAPITAL ASSET WHICH GIVES RISE TO CAPITAL GAINS TAKES PLACE . ACCORDING TO THE AO, THE SALE DEED DATED 4.5.2010 WAS THE DOCUMENT EVIDE NCING PURCHASE OF THE PROPERTY AND SINCE THE PURCHASE OF THE PROPERTY HAD TAKEN PLACE TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER OF THE C APITAL ASSET GIVING RISE TO CAPITAL GAINS HAD TAKEN PLACE, THE AO DENIED THE BE NEFIT OF EXEMPTION U/S. 54 OF THE ACT TO THE ASSESSEE. IN OTHER WORDS THE AO HELD THAT THE MODE IN WHICH THE ASSESSEE CLAIMED EXEMPTION U/S.54 OF THE ACT WAS PURCHASE OF A RESIDENTIAL HOUSE AND NOT CONSTRUCTION OF A RESIDEN TIAL HOUSE. 8. THE ASSESSEE HAD PLACED RELIANCE ON BOARD CIRCUL AR NO.471 DATED 15.10.1996 AND CIRCULAR NO.672 DATED 16.12.1993. T HE ASSESSEE ALSO SUBMITTED THAT AS PER THE AGREEMENT DATED 12.09.200 7 ENTERED INTO BY THE ASSESSEE WITH M/S. CENTURY CHIMES FOR ACQUIRING THE NEW ASSET, THE DEVELOPER HAD TO CONSTRUCT AND HAND OVER POSSESSION OF THE PROPERTY WITHIN TWO YEARS, BUT IT HAD FAILED TO DO SO AND THEREFORE THE ASSESSEE SHOULD NOT BE DENIED THE BENEFIT U/S. 54 OF THE ACT. 9. ON THE ABOVE SUBMISSION, THE AO MADE THE FOLLOWI NG OBSERVATIONS:- ITA NO.573/BANG/2012 PAGE 5 OF 15 3.7 IN THE CASE LAWS RELIED ON BY THE ASSESSEE, T HEY ARE REFERRING TO THE BOARDS CIRCULAR NO.471. AS PER BO ARDS CIRCULAR NO.47L THE CLARIFICATION WAS WITH REGARD TO THE ACQ UISITION OF A FLAT BY AN ALLOTTEE UNDER THE SELF FINANCE SCHEME OF THE DELHI DEVELOPMENT AUTHORITY. THE BOARD CLARIFIED THAT IN THE CASES OF ALLOTMENT OF FLATS UNDER SELF FINANCE SCHEME OF THE DDA, IT SHALL BE TREATED AS CASES OF CONSTRUCTION FOR THE PURPOSE OF CAPITAL GAINS. CIRCULAR NO.672 ALSO REFERS TO THE SCHEME O F ALLOTMENT AND CONSTRUCTION OF THE FLAT BY THE CO-OPERATIVE SO CIETY OR OTHER INSTITUTION AND IN SUCH CASES, THE PURCHASES CAN BE TREATED AS CASES OF CONSTRUCTION FOR THE PURPOSE OF SECTION 54 . THUS, THESE CIRCULARS REFERS TO THE SCHEME OF ALLOTMENT. IN THE INSTANT CASE, THE ASSESSEE WAS PURCHASING A FLAT FROM A PRIVATE BUILD ER. THE CIRCULARS AND THE CASE LAWS RELIED ON BY THE ASSESS EE ARE NOT APPLICABLE TO THE ASSESSEES CASE. 3.8. THE ASSESSEE FAILED TO PURCHASE THE PROPERTY W ITHIN TWO YEARS FROM THE DATE OF THE SALE OF THE ORIGINAL ASS ET. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 54 OF T HE I.T.ACT. IN VIEW OF THIS, AN AMOUNT OF RS.1,22,00,000/- IS NOT ALLOWED AS DEDUCTION AND THE SAME IS ASSESSED TO TAX. 10. FOR THE ABOVE REASONS, THE AO DENIED THE BENEFI T OF DEDUCTION U/S. 54 OF THE ACT TO THE ASSESSEE. 11. BEFORE THE CIT(APPEALS), THE ASSESSEE POINTED O UT THAT THE AO HAD WRONGLY CONSIDERED THE MANNER OF ACQUISITION OF THE PROPERTY TO CLAIM THE BENEFIT OF SECTION 54(1) OF THE ACT AS PURCHASE OF PROPERTY BY THE ASSESSEE AND CONSIDERED TWO YEARS FROM THE DATE OF TRANSFER AS A PERIOD WITHIN WHICH THE NEW ASSET IS TO BE ACQUIRED. THE ASSESSEE POIN TED OUT THAT AS PER THE AGREEMENT FOR SALE DATED 12.09.2007 WITH M/S. CENTU RY CHIMES, HE WANTED TO ACQUIRE THE PROPERTY WHICH WAS UNDER DEVELOPMENT BY THE DEVELOPER. THE ASSESSEE POINTED OUT THAT THE DEVELOPER HAD OBT AINED SANCTIONED PLAN ITA NO.573/BANG/2012 PAGE 6 OF 15 FOR CONSTRUCTION OF THE APARTMENT ON 06.01.2007 AND IT HAD A RIGHT TO SELL THE UNDIVIDED SHARE OF LAND OF THE PROPERTY OVER WHICH THE APARTMENT COMPLEX WAS BEING DEVELOPED BY THE DEVELOPER. THE ASSESSEE ALSO POINTED OUT THAT AS PER THE TERMS OF THE AGREEMENT BETWEEN THE ASSES SEE AND THE DEVELOPER, THE DEVELOPER AGREED TO CONSTRUCT A FLAT TO THE ASSESSEE WHICH IS DESCRIBED IN SCHEDULE-C OF THE AGREEMENT MEASURING ABOUT 2522 SQ.FT. IN THE 3 RD FLOOR. THE ASSESSEE DREW ATTENTION TO THE FOLLOWI NG CLAUSES IN THE AGREEMENT FOR SALE:- 4. DELIVERY OF APARTMENT (I) THE VENDOR AGREES TO CONSTRUCT AND DELIVER THE SCHEDULE C PROPERTY TO THE PURCHASER AS PER THE SPECIFICATIONS CONTAINED IN SCHEDULE E HEREUNDER AND EXECUTE THE SALE DEED CONV EYING THE SCHEDULE B PROPERTY AND THE SCHEDULE C PROPERTY TO THE PURCHASER ON OR BEFORE JUNE 2008, UPON THE PURCHASE R PERFORMING ALL THE TERMS AND CONDITIONS OF THE AGREEMENT AND P AYING THE TOTAL SALE CONSIDERATION AFORESAID TO THE VENDOR. (II) THE VENDOR HEREBY AGREES TO COMPLETE THE CONST RUCTION OF THE RESIDENTIAL APARTMENT BUILDING AND TO HAND OVER POS SESSION OF THE SCHEDULE C PROPERTY WITHIN THE PERIOD MENTIONED ABO VE UNDER NORMAL CONDITIONS AND SUBJECT TO FORCE MAJEURE, AVA ILABILITY OF CEMENT, STEEL AND OTHER ESSENTIAL ITEMS FOR THE CON STRUCTION AND ALSO SUBJECT TO UNFORESEEN EVENTS LIKE ACTS OF GOD, EARTH QUAKES, FLOODS, WAR OR OTHER LOCAL DISTURBANCES, CHANGES IN LAWS OF THE STATE OR OF THE MUNICIPAL CORPORATION OR ANY OTHER CAUSES OR EVENTS BEYOND THE CONTROL OF THE VENDOR AND ALSO SUBJECT T O THE RECEIPT OF COMPLETION CERTIFICATE/OCCUPANCY CERTIFICATE FRO M THE MUNICIPAL COUNCIL AND ELECTRICITY, WATER AND SANITA RY CONNECTIONS FROM THE RESPECTIVE DEPARTMENTS. (III) IN THE EVENT OF THE VENDOR BEING UNABLE TO CO MPLETE THE CONSTRUCTION UNDER NORMAL CONDITIONS AND HAND OVER POSSESSION OF THE SCHEDULE C PROPERTY BY THE AFORESAID DATE, T HE VENDOR AGREES TO REFUND TO THE PURCHASER AT THE OPTION OF THE PURCHASER ITA NO.573/BANG/2012 PAGE 7 OF 15 THE AMOUNT PAID TO THE VENDOR BY THE PURCHASER TILL SUCH DATE, WITHIN 60 DAYS FROM THE AFORESAID DATE OR PAY A PEN ALTY OF RS.2 PER SQUARE FEET FOR EACH MONTH OF DELAY STARTING FR OM JULY 2008. 12. THE ASSESSEE THUS POINTED OUT THAT BY ENTERING INTO THE AGREEMENT FOR PURCHASE OF THE FLAT DATED 12.09.2007, THE ASSE SSEE WAS IN FACT CONSTRUCTING A RESIDENTIAL HOUSE AND THEREFORE THE ASSESSEE WILL HAVE THE BENEFIT OF A PERIOD OF THREE YEARS AFTER THE DATE O F TRANSFER TO CONSTRUCT THE RESIDENTIAL HOUSE. THE ASSESSEE POINTED OUT THAT TH E ASSESSEE GOT POSSESSION OF THE FLAT AFTER CONSTRUCTION BY THE DE VELOPER ON 04.05.2010. THE ASSESSEE THUS HAS CONSTRUCTED A RESIDENTIAL HOU SE WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF TRANSFER OF THE CAPITA L ASSET VIZ., 07.05.2007. THE ASSESSEE ALSO POINTED OUT THAT THE FACT THAT IN THE REGISTERED SALE DEED DATED 04.05.2010, THE FLAT WAS ALSO MENTIONED AS AN ITEM WHICH IS SOLD TO THE ASSESSEE CANNOT BE THE BASIS TO HOLD THAT THE A SSESSEE PURCHASED A RESIDENTIAL HOUSE AND HAS NOT CONSTRUCTED A RESIDEN TIAL HOUSE. 13. THE ASSESSEE FURTHER POINTED OUT THAT THE DEVEL OPER IN ITS LETTER DATED 04.05.2010 POINTED OUT THAT IT WAS BOUND TO D ELIVER THE APARTMENT BY 30.06.2008, BUT DUE TO UNAVOIDABLE REASONS THE FLAT COULD BE DELIVERED TO THE ASSESSEE ONLY ON 04.05.2010. THE ASSESSEE THUS SUBMITTED THAT IT HAD COMPLIED WITH ALL THE CONDITIONS MENTIONED IN SECTI ON 54(1) OF THE ACT AND THEREFORE THE ASSESSEE SHOULD BE ALLOWED THE BENEFI T OF SECTION 54 OF THE ACT. ITA NO.573/BANG/2012 PAGE 8 OF 15 14. THE CIT(APPEALS), HOWEVER, DID NOT AGREE WITH T HE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT(A):- 5,1. THE BASIC ISSUE IN THIS APPEAL THEREFORE COM ES DOWN TO WHETHER THE ACQUISITION OF A FLAT AMOUNTS TO CONST RUCTION OR PURCHASE FOR THE PURPOSE OF SECTION 54. 5.2. FROM A PERUSAL OF THE AGREEMENT OF SALE ENTER ED INTO WITH THE BUILDER, IT IS SEEN THAT THE FLAT WAS PURCHASED ON INSTALLMENTS. IN TERMS OF THE AGREEMENT (PARA 4) THE BUILDER COMM ITTED TO EXECUTE THE SALE DEED FOR THE PROPERTY BEFORE 30 JU NE 2008, AND ALSO AGREED TO PAY A SPECIFIED PENALTY IN CASE OF D ELAY IN HANDING OVER THE FLAT TO THE BUYER. THE SCHEDULE OF INSTALL MENTS ATTACHED TO THE AGREEMENT ALSO MENTIONED 30 JUNE 2008 AS THE DATE FOR THE PAYMENT OF THE LAST INSTALLMENT, FOLLOWING WHICH ON LY A NON- REFUNDABLE C POSIT WOULD REMAIN PAYABLE. FROM THE A GREEMENT AS FOUND ABOVE, IT IS ABUNDANTLY CLEAR THAT THE FULL P URCHASE CONSIDERATION OF THE FLAT WAS TO HAVE BEEN CLEARED BY 30TH OF JUNE 2008. YET, THE AO HAS CLEARLY BROUGHT OUT IN THE OR DER THAT THE LARGER AMOUNT OF RS. 65 LAKHS WAS PAID IN THREE INS TALLMENTS STARTING MARCH 2010. THERE WAS THUS A GAP OF A FULL TWO YEARS FROM MARCH 2008 TO MARCH 2010 WHEN NO PAYMENT WAS M ADE BY THE APPELLANT. THE AGREEMENT ITSELF WAS SIGNED IN S EPTEMBER 2007, BY WHICH TIME AN ADVANCE AMOUNT OF RS. 1 LAKH HAD ALREADY BEEN PAID. THE APPELLANT ENTERED INTO THE T RANSACTION WITH THE BUILDER WITH THE FULL KNOWLEDGE THAT HE WOULD H AVE TO PAY THE FULL CONSIDERATION FOR THE FLAT BY 30 JUNE 2008. S INCE THE ORIGINAL SALE TOOK PLACE IN MAY, 2007, THIS ARRANGEMENT WOUL D HAVE WELL MET THE STIPULATIONS OF SECTION 54 TOWARDS TIME-LIM ITATION FOR PURCHASE OF THE NEW ASSET. AS PER THE WRITTEN SUBMI SSIONS MADE IN COURSE OF THE APPELLATE PROCEEDINGS, THE APPELLA NT STATES THAT THE PAYMENT OF RS. 65 LAKHS WAS DELAYED SINCE THE B UILDER HAD DEFAULTED ON THE TIMELINE, HOWEVER, THERE IS NO EXP LANATION PROVIDED AS TO WHY THE PAYMENT AS REQUIRED UNDER SE CTION 54 WAS NOT MADE WITHIN THE SPECIFIED PERIOD OF TWO YEARS W HEN THE AGREEMENT ITSELF GAVE THE APPELLANT ONLY ABOUT A YE AR TO MAKE ALL. THE PAYMENTS IN FULL, KNOWING VERY WELL HIS LIABILI TY TOWARDS CAPITAL GAINS, AND BEING WELL-AWARE OF THE EXEMPTIO NS TO BE CLAIMED BY HIM, THE APPELLANT IN MY VIEW NEGLECTED TO AFFECT THE ITA NO.573/BANG/2012 PAGE 9 OF 15 INVESTMENT IN TIME AS REQUIRED BY THE LAW. THE AGR EEMENT FOR SALE CONTAINS PROVISIONS TO COVER DELAY FROM THE BU ILDERS SIDE, AND THE APPELLANT WAS NOT RESTRICTED FROM RAISING T HESE CLAIMS AND ASSERTING HIS RIGHTS UPON THE BUILDER. FOR REASO NS BEST KNOWN TO HIM, THE APPELLANT INSTEAD CHOSE NOT TO MAKE THE PA YMENTS FOR THE FLAT WITHIN THE TIME SPECIFIED UNDER SECTION 54, AN D THUS EXPOSED HIMSELF TO THE DEFAULT THAT HE FACED IN THE ASSESSM ENT PROCEEDING. I AM OF THE VIEW THAT HAVING HELD THE FUNDS FOR A P ERIOD OF TWO YEARS, WHEN THE APPELLANT FINALLY BEGAN TO MAKE THE INSTALLMENT PAYMENTS AGAIN IN MARCH, 2010, HE THEN APPEARS TO H AVE DEVISED THE SCHEME OF BEING ALLOWED A THREE-YEAR WINDOW UND ER SECTION 54 ON THE GROUND THAT HE HAD CONSTRUCTED THE FLAT A ND NOT PURCHASED IT. THIS IS CLEARLY AN AFTERTHOUGHT AND A RATHER DESPERATE ARGUMENT MEANT TO TIDE HIM OVER THE DEFAU LT WHICH OCCURRED DUE TO DELAY IN PAYMENT BEYOND THE SPECIFI ED TIME UNDER THE LAW. THE APPELLANTS ATTEMPT TO SHIFT TH E ONUS OF THE DELAY SOLELY UPON THE BUILDER DOES NOT DO JUSTICE T O HIS LEGAL OBLIGATION TO EITHER MAKE THE PAYMENT IN TIME, OR I NVEST THE AMOUNT IN A CAPITAL GAINS DEPOSIT SCHEME. SECTION 5 4 BENEFITS THE BUYER, WHO IS EXPECTED TO EXERCISE CAUTION, PERSUAS ION AND ALERTNESS TO MEET ITS REQUIREMENTS, RATHER THAN SHI FT BLAME UPON THE BUILDER WHO IS NOT BURDENED DIRECTLY WITH AN OB LIGATION TOWARDS SECTION AT ALL. 5.3 HENCE, I AM NOT INCLINED TO AGREE WITH THE APP ELLANTS CONTENTION THAT HE SHOULD BE DEEMED TO BE A CONSTRU CTOR OF THE FLAT RATHER THAN ITS PURCHASER, THUS CLAIMING THE B ENEFIT OF A THREE- YEAR PERIOD FOR THE INVESTMENT. I FIND THAT THE AO HAS BEEN WITHIN HIS RIGHTS TO DENY THE BENEFITS OF SECTION 5 4 TO THE APPELLANT. IN VIEW OF THIS, THESE THREE GROUNDS OF APPEAL DO NOT SUCCEED AND THEY ARE ACCORDINGLY DISMISSED. 15. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), TH E ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. C OUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS AS WERE PUT FOR TH BEFORE THE CIT(A). OUR ATTENTION WAS DRAWN TO THE FOLLOWING DECISIONS: - ITA NO.573/BANG/2012 PAGE 10 OF 15 CIT VS. SMT BHARTI C KOTHARI [2000] 244 ITR 352 (CA L) ACIT, CIRCLE 25(3) VS. SMT. SUNDER KAUR SUJAN SINGH GADH [2005] 3 SOT 206 (MUM) KISHORE H GALAIYA VS. ITO, WARD 8(2)(3) [2012] 24 TAXMANN.COM 11 (MUM) CIT & ANR. VS. SAMBANDAM UDAYKUMAR [2012] 345 ITR 3 89 (KAR) CIT VS. SARDARMAL KOTHARI & ANR. [2008] 302. ITR 28 6 (MAD) CIT VS. AJITSINGH KHAJANCHI [2008] 297 ITR 95 (MP) NARASIMHA RAJU RUDRA RAJU VS. ACIT [2013] 35 TAXMAN N.COM 90 (HYD. TRIB) CIRCULAR NO.471 DT. 15 OCTOBER 1986 [1986] 162 ITR (ST) 41 CIRCULAR NO.672 DT. 16 DECEMBER 1993 [1994] 205 ITR (ST) 47 17. IN THE AFORESAID DECISIONS, COURTS HAVE TAKEN THE VIEW THAT ACQUIRING A NEW FLAT IS AS GOOD AS CONSTRUCTION OF A RESIDENT IAL HOUSE AND THEREFORE BENEFIT OF SECTION 54 OF THE ACT HAS TO BE ALLOWED. 18. THE LD. DR RELIED ON THE ORDER OF THE CIT(APPEA LS). 19. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE A LSO GONE THROUGH THE SEVERAL DOCUMENTS FILED BY THE ASSESSEE IN SUPP ORTS OF ITS CASE. IT IS SEEN THAT THE ASSESSEE SOLD THE FLAT AT AGA ABBAS A LI ROAD, BANGALORE ON 07.05.2007. THERE IS NO DISPUTE THAT THE LONG TERM CAPITAL GAIN CHARGEABLE TO TAX ON THE SALE OF PROPERTY BY THE ASSESSEE WAS RS.2,34,59,601. THE ASSESSEE ENTERED INTO AGREEMENT DATED 12.09.07 FOR ACQUIRING A FLAT BEARING NO.34 IN 3 RD FLOOR AT KODIGEHALLI, YELHANKA, BANGALORE, WHICH W AS ITA NO.573/BANG/2012 PAGE 11 OF 15 BEING DEVELOPED BY A DEVELOPER BY NAME CENTURY CHIM ES. THE ASSESSEE PAID ADVANCE OF RS.40 LAKHS TO THE DEVELOPER AND DE POSITED A SUM OF RS.82 LAKHS IN CAPITAL GAINS ACCOUNT SCHEME AS REQU IRED UNDER PROVISIONS OF SECTION 54(2) OF THE ACT. LATER ON, THIS SUM OF RS.82 LAKHS WAS ALSO PAID TO THE DEVELOPER AND IN ALL A SUM OF RS.1.22 CRORES WAS PAID IN RESPECT OF THE PROPERTY ACQUIRED BY THE ASSESSEE. A PERUSAL O F THE AGREEMENT FOR PURCHASE DATED 12.09.2007 ENTERED INTO BY THE ASSES SEE WITH CENTURY CHIMES CLEARLY SHOWS THAT DEVELOPER HAD A RIGHT TO DEVELOP THE PROPERTY BY VIRTUE OF AN AGREEMENT WITH THE OWNER OF THE LAND O VER WHICH APARTMENTS WERE SOUGHT TO BE PUT UP BY THE DEVELOPER. THE DEV ELOPER OBTAINED SANCTIONED PLAN FROM THE MUNICIPAL COUNCIL FOR CONS TRUCTING APARTMENTS. THE ASSESSEE BARGAINED TO BUY ONE APARTMENT IN THE 3 RD FLOOR BEARING APARTMENT NO.34 FOR A CONSIDERATION OF RS.1.22 CROR ES. 20. AS WE HAVE ALREADY SEEN, CLAUSE (4) OF THE AGRE EMENT DATED 12.09.2007 CLEARLY ENVISAGES DEVELOPER AGREEING TO CONSTRUCT AND DEVELOP THE FLAT TO THE ASSESSEE AS PER CERTAIN SPECIFICATI ONS. THE DEVELOPER HAD AGREED TO DELIVER POSSESSION OF THE FLAT TO THE ASS ESSEE ON OR BEFORE 30.06.2008. ULTIMATELY THE DEVELOPER COMPLETED THE CONSTRUCTION ONLY IN THE MONTH OF MAY, 2010 AND CONVEYED THE UNDIVIDED S HARE OF THE LAND AND THE FLAT TO THE ASSESSEE BY REGISTERED SALE DEED DA TED 04.05.2010. IT IS CLEAR FROM THE DOCUMENTS THAT MODE OF ACQUISITION A PPLICABLE IN THE PRESENT CASE IS CONSTRUCTION OF A RESIDENTIAL HOUSE WITHIN A PERIOD OF THREE YEARS AFTER THE DATE OF TRANSFER OF CAPITAL ASSET GIVING RISE TO CAPITAL GAINS. THE ITA NO.573/BANG/2012 PAGE 12 OF 15 DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE CLEARLY SUPPORT THE PLEA RAISED ON BEHALF OF THE ASSESSEE. THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF SMT. BHARTI C. KOTHARI (SUPRA) TOOK THE VIEW THAT WHEN AN AGREEMENT FOR PURCHASE OF A NEW FLAT IS ENT ERED INTO AND THE AMOUNTS ARE PAID IN INSTALMENTS TO THE DEVELOPER AN D WHERE THE ENTIRE PURCHASE PRICE IS PAID WITHIN THREE YEARS FROM THE DATE OF TRANSFER OF CAPITAL ASSET GIVING RISE TO CAPITAL GAINS, THEN IT IS TO B E HELD THAT THE CAPITAL GAIN HAS BEEN INVESTED IN CONSTRUCTION OF A HOUSE AND TH E BENEFIT OF EXEMPTION U/S. 54 OF THE ACT HAS TO BE ALLOWED. THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF SMT. SUNDER KAUR SUJAN SINGH GADH (SUPRA) HAS TAKEN THE FOLLOWING VIEW:- SECTION 54(1) IS TO BE APPLIED IN TWO SITUATIONS V IZ., PURCHASE OF RESIDENTIAL HOUSE, AND CONSTRUCTION OF A RESIDENTIA L HOUSE. THE CONDITION LAID DOWN IN THE CASE OF PURCHASE OF THE RESIDENTIAL HOUSE IS THAT THE HOUSE MUST HAVE BEEN PURCHASED ON E YEAR PRIOR TO THE SALE OF THE CAPITAL ASSET OR TWO YEARS SUBSE QUENT THERETO. IN THE CASE OF A RESIDENTIAL HOUSE, THE CONDITION LAID DOWN IS THAT THE RESIDENTIAL HOUSE MUST HAVE BEEN CONSTRUCTED WITHIN THREE YEARS AFTER THE SALE OF THE CAPITAL ASSET. THEREFORE, FOR PROPER APPLICATION OF SECTION 54(1), IT HAS TO BE SEEN WHE THER IT IS A CASE OF PURCHASE OR CONSTRUCTION. IN VIEW OF THE BOARDS CIRCULARS NO. 471, DATED 15-1-1986 AND NO. 672, DATED 16-12-1993, THE INSTANT CASE HAD TO BE TAKEN AS A CASE OF CONSTRUCTION OF T HE RESIDENTIAL FLAT AND NOT AS A PURCHASE OF A RESIDENTIAL FIAT. I T WAS TO BE SEEN IF THE ASSESSEE FULFILLED THE CONDITIONS LAID DOWN UND ER SECTION 54(1). THE ASSESSEE WAS ALLOTTED FLAT NO. B-62 AND IT WAS CHANGED TO C-32 VIDE LETTER DATED 19-11-1999 AND BY LETTER DATED 4.1.2000, THE POSSESSION OF THE FLAT WAS ALREADY GIVEN TO THE ASSESSEE. THEREFORE, THE ASSESSEE WAS IN TOTAL ENJOYMENT OF T HE PROPERTY BY 4-1-2000, I.E., WITHIN 3 YEARS OF THE SALE OF HER F LAT IN MUMBAI ON 13-1-1997. THEREFORE, THE ASSESSEE HAD FULFILLED TH E CONDITIONS PRESCRIBED IN SECTION 54(1) FOR CLAIMING EXEMPTION. [PARA 10] ITA NO.573/BANG/2012 PAGE 13 OF 15 THEREFORE, THE ORDER OF THE COMMISSIONER (APPEALS) WAS IN CONSONANCE WITH THE PROVISIONS OF THE ACT AND IT DE SERVED TO BE UPHELD. [PARA 11]. 21. THE MUMBAI BENCH OF THE ITAT IN THE CASE OF KISHORE H. GALAIYA (SUPRA) HAS ALSO EXPRESSED SIMILAR VIEW AS FOLLOWS:- 6.1. IN THE PRESENT CASE, THE ASSESSEE SOLD THE O LD RESIDENTIAL HOUSE ON 7.3.1996 AND THE LONG TERM CAPITAL GAIN AR ISING ON THIS ACCOUNT WAS RS.9,98,411/-. THE ASSESSEE HAD BOOKED A NEW RESIDENTIAL FLAT WITH THE BUILDER JOINTLY WITH HIS WIFE FOR A SUM OF RS.35,00,000/-. THE ASSESSEE HAD PAID BOOKING AMOUN T 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 ASSESSMENT YEAR 2006-07 AND THE BALANCE AMOUNT HAD BEEN PAID IN INSTALLMENTS AF TER THE SAID DATE. THE TOTAL AMOUNT PAID BY THE ASSESSEE TO THE BUILDER WAS RS.14,62,500/- TILL 16.2.2009. IN THE BACK DROP OF THIS FACTUAL POSITION, IT IS REQUIRED TO BE SEEN WHETHER THE ASS ESSEE HAD FULFILLED THE CONDITIONS OF SECTION 54 OF THE ACT S O AS TO MAKE HIM ELIGIBLE FOR CLAIM OF EXEMPTION 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 NE W RESIDENTIAL HOUSE WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF TRANSFER. IN THE PRESENT CASE, THE ASSESSEE HAD BOOKED THE NEW F LAT WITH THE BUILDER AND AS PER AGREEMENT, THE ASSESSEE WAS TO MAKE PAYMENT IN INSTALLMENTS AND THE BUILDER WAS TO HAND OVER THE POSSESSION OF THE FLAT AFTER CONSTRUCTION. IT HAS T HEREFORE TO BE CONSIDERED AS A CASE OF CONSTRUCTION OF NEW RESIDEN TIAL HOUSE AND NOT PURCHASE OF FLAT. THIS POSITION HAS BEEN CL ARIFIED BY THE CBDT IN CIRCULAR NO.472 DATED 16.12.1993 IN WHI CH IT HAS BEEN MADE CLEAR THAT THE EARLIER CIRCULAR NO. 471 D ATED 15.10.1986 IN WHICH IT WAS STATED THAT ACQUISITION OF FLAT THROUGH ALLOTMENT BY DDA HAS TO BE TREATED AS A CON STRUCTION OF FLAT WOULD APPLY TO CO-OPERATIVE SOCIETIES AND O THER INSTITUTIONS. THE BUILDER WOULD FALL IN THE CATEGOR Y OF OTHER INSTITUTIONS AS HELD BY MUMBAI BENCH OF TRIBUNAL IN THE CASE SMT. SUNDER KAUR SUJAN SINGH GADH (SUPRA) AND THERE FORE BOOKING OF THE FLAT WITH THE BUILDER HAS TO BE TREA TED AS ITA NO.573/BANG/2012 PAGE 14 OF 15 CONSTRUCTION OF FLAT BY THE ASSESSEE. THUS, IN THE PRESENT CASE, THE PERIOD OF THREE YEARS WOULD APPLY FOR CONSTRUCT ION OF NEW HOUSE FROM THE DATE OF TRANSFER OF THE OLD FLAT. ( EMPHASIS SUPPLIED) 22. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMBANDAM UDAYKUMAR (SUPRA) HAD TO DEAL WITH A CASE OF EXEMPTION U/S. 54F OF THE ACT. UNDER SECTION 54F OF THE ACT, THE SAME CONDIT IONS AS ARE ENVISAGED U/S. 54(1) OF THE ACT ARE REQUIRED TO BE MET FOR CL AIMING EXEMPTION FROM TAX ON CAPITAL GAIN ON TRANSFER OF A CERTAIN CAPITAL AS SET. THE ASSESSEE ON SALE OF SHARES, DERIVED CAPITAL GAIN AND PAID PART OF TH E CONSIDERATION TO THE DEVELOPER FOR CONSTRUCTION OF RESIDENTIAL HOUSE. T HE CONSTRUCTION COULD NOT BE COMPLETED WITHIN A PERIOD OF THREE YEARS. THE H ONBLE COURT TOOK THE VIEW THAT THE ASSESSEE HAD MADE ENTIRE PAYMENT, BUT DID NOT GET A REGISTERED SALE DEED AND THE FACT THAT THE CONSTRUC TION WAS NOT FULLY COMPLETED IN ALL RESPECTS CANNOT BE A GROUND TO DEN Y THE BENEFIT OF EXEMPTION U/S. 54F OF THE ACT. 23. IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE PRECEDENTS ON THE ISSUE, WE ARE OF THE VIEW THA T THE ASSESSEE WAS ENTITLED TO BENEFIT OF EXEMPTION US. 54(1) OF THE A CT AS CLAIMED BY THE ASSESSEE. 24. WITH REGARD TO THE OBSERVATIONS OF THE CIT(APPE ALS) IN PARA 5.2 OF HIS ORDER, WHICH IS TO THE EFFECT THAT THE ASSESSEE ORIGINALLY CLAIMED THAT HE ITA NO.573/BANG/2012 PAGE 15 OF 15 HAD PURCHASED A RESIDENTIAL HOUSE AND LATER ON CHAN GED HIS STAND TO THAT OF CONSTRUCTING A RESIDENTIAL HOUSE; WE ARE OF THE VI EW THAT THE ASPECT THAT NEEDS TO BE SEEN IS WITH REGARD TO THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. IN TAXATION MATTERS, THERE CANNOT BE ANY ESTOPPEL. IF THE ASSESSEE SHOWS THE FACTS WHICH JUSTIFY ALLOWING THE CLAIM OF EXEMPTION UNDER ANY PROVISION OF THE ACT, THE ASSESSEE SHOULD NOT BE DENIED THAT BENEFIT FOR THE SIMPLE REASON THAT SUCH A CLAIM HAD NOT BEEN ORIGINALLY MADE BY THE ASSESSEE. 25. FOR THE ABOVE REASONS, WE ALLOW THE APPEAL OF T HE ASSESSEE. 26. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 23 RD AUGUST, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.