DCIT, CHENNAI V. S.Ravichandran, CHENNAI

ITA 574/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81290 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: R VISWANATHAN
• Keywords: Capital asset; Source of fund
• Section: 54F; 27; 54

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 574/MDS/2014 ( / ASSESSMENT YEAR: 2008-09) THE DEPUTY COMMISSIONER OF INCOME TAX, SALARY CIRCLE-V, ROOM NO.508, 121, N.H.ROAD, CHENNAI-34. VS MR. S.RAVICHANDRAN 9, GOPALAKRISHNAN STREET, T.NAGAR, CHENNAI-600 017. PAN: AALPS4403Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. N.MADHAVAN, JCIT /RESPONDENT BY : MR. R.VISWANATHAN, C.A / DATE OF HEARING : 2 ND DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 5 TH DECEMBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, CHEN NAI DATED 01.11.2013 FOR THE ASSESSMENT YEAR 2008-09. THE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THA T COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE OF EXEMPTION UNDER SECTION 54 OF T HE ACT ON LONG TERM CAPITAL GAINS FOR THE PROPERTY PURCHAS ED WITH BORROWED FUNDS. 2 ITA NO.574/MDS/2014 2. BRIEF FACTS ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CONSTRUCTED HOUSE PROPERTY AT A COST OF 1,60,84,800/- OUT OF WHICH ` 1,44,00,000/- WAS MET OUT FROM LOAN BORROWED FROM HOUSING DEVELOPMENT FINANCE CORPORATION LTD. THE ASSESSING OFFICER ALSO NOTICE D THAT ASSESSEE CLAIMED EXEMPTION UNDER SECTION 54 OF THE ACT FOR AN AMOUNT OF ` 37,40,020/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE IS ENTITLED TO CLAIM EXEMPTI ON ONLY FOR THE AMOUNT OF ` 16,84,800/- I.E. THE DIFFERENCE BETWEEN THE COST OF CONSTRUCTION AND THE AMOUNT OF LOAN ME T BY THE ASSESSEE ONLY ON THE GROUND THAT ASSESSEE HAS NOT U TILIZED THE ENTIRE SALE PROCEEDS IN CONSTRUCTION OF HOUSE P ROPERTY. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALL OWED THE CLAIM OF THE ASSESSEE. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTIN G THE ORDER OF THE ASSESSING OFFICER SUBMITS THAT ASS ESSEE IS NOT ENTITLED FOR THE ENTIRE EXEMPTION AS CLAIMED SI NCE THE ASSESSEE HAS NOT UTILIZED THE ENTIRE SALE PROCEEDS IN CONSTRUCTION. THEREFORE ASSESSING OFFICER WAS RIGH T IN 3 ITA NO.574/MDS/2014 RESTRICTING THE DISALLOWANCE TO THE EXTENT OF SALE PROCEEDS UTILIZED IN CONSTRUCTION. 4. AUTHORIZED REPRESENTATIVE SUPPORTS THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). HE FURTHER SU BMITS THAT ON A SIMILAR CIRCUMSTANCES, THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. K.C. GOPALAN (162 CTR 566), A COPY OF WHICH IS PLACED BEFORE US, HELD THAT IN O RDER TO GET BENEFIT OF SECTION 54 THERE WAS NO CONDITION THAT A SSESSEE SHOULD UTILIZE THE SALE CONSIDERATION ITSELF FOR T HE PURPOSE OF ACQUISITION OF A NEW PROPERTY. HE ALSO PLACES RELIA NCE ON THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN TH E CASE OF MRS. PREMA P.SHAH VS. ITO (100 ITD 60) IN SUPPORT O F HIS CONTENTIONS THAT THE SALE PROCEED ITSELF NEED NOT BE UTILIZED FOR CONSTRUCTION OF PROPERTY. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE CASE LAWS RELIED ON. THE ASSESSING OFFICER DENIED A PORTION OF THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 54 OF THE ACT ON THE GROUND THAT ASSESSEE CONSTRUCTED HOUSE PROPERTY WITH BORROWED FUNDS AND UTILIZED ONLY A PART OF SALE CONSIDERATION. SO, HE RESTRICTE D THE 4 ITA NO.574/MDS/2014 DEDUCTION ONLY TO THE EXTENT OF SALE CONSIDERATION UTILIZED BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPE ALS) ALLOWED EXEMPTION AS CLAIMED BY THE ASSESSEE. AFTER ANALYZING THE FACTS AND CASE LAWS RELIED ON BY THE ASSESSE, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED A S UNDER:- 4. I HAVE GONE THROUGH THE WRITTEN SUBMISSION ALONG WITH CASE LAWS SUBMITTED BY THE AR OF THE APPELLAN T AS WELL AS ASSESSMENT ORDER . THE ONLY ISSUE AS STATED BY THE APPELLAN T IS RELATED TO THE DENIAL OF EXEMPTION CLAIMED U/S 54 OF IT ACT ON THE GROUND THAT THE EXEMPTION U/S 54 WAS AVAILED WITH BORROWED FUNDS. T HE AR OF THE APPELLANT IN HIS SUBMISSIONS OBJECTED TO THE DENIAL OF EXEMPTION CLAIMED U/S 54 BY THE ASSESSING OFFICER ON THE GROUND THAT THE INVESTMENT WAS MADE WITH BORROWED FUNDS. THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING THE EXEMPTION AS THERE IS NO PROHIBITION IN THE SECTION 54 OF THE IT ACT, THAT BO R ROWED FUNDS SHOULD NOT BE USED FOR CLAIMING THE DEDUCTION UNDER THE ABOVE SAID SECTION . F URTHER THE RELIANCE PLACED BY THE ASSESSING OFFICER IN DENYING THE EXEMPTION CLAIMED BY THE APPELLANT U/S 54 IN THE CASE OF MILAN SHARAD RUPAREL VS. ACIT REPORTED IN 27 SO T 61 DOES NOT APPLY TO THE APPELLANT ' S CASE AS THE SAME CASE LAW HAS NOT OVER RULED THE CASE LAWS MENTIONED BY THE APPELLANT WHICH ARE IN FAVOUR OF THE APPELLA NT . THE ASSESSING OFFICER M I STOOK THE EXEMPTION CLAIMED FOR U/S 54F AS THE ASSESSING OFFICER'S CITED CASE L AW IS RELATED TO THE EXEMPTION CLAIMED U/S 54F WHEREAS IN THE CASE OF THE APPELLANT THE EXEMPTION CLAIMED U/S 54 OF THE IT ACT WHICH DOES NOT PROHIBIT THE APPELLANT TO INVEST IN . THE ACQUIRED ASSET WITH THE BORROWED FUNDS AND CLAIMING THE EXEMPTION IS WITHIN THE PERMISSIBL E LAW . 4 . 1 THE AR OF THE APPELLANT PLACED HIS RELIANCE IN THE - CASE OF MRS. PREMA P . SHAH VS . ITO (2006) 100 ITR 60 (MUM) WHEREIN IT WAS HELD THAT 'THERE IS NO REQUIREMENT FOR CLAIMING EXEMPTION U/S 54 THAT THE SAME AMOUNT OF SALE CONSIDERATION ' SHOULD BE UTILIZED 5 ITA NO.574/MDS/2014 FOR ACQUISITION OF PROPERTY, EVEN THE BORROWED FUNDS CAN BE UTILIZED FOR THAT PURPOSE . SIMILARLY, IN THE CASE OF CIT VS . H . K . KAPOOR (1998) 234 ITR 753 (ALL) WHEREIN IT WAS HELD THAT SEC .5 4 DOES NOT LAY DOWN THAT THE CONSTRUCTION OF ANY HOUSE MUST BE GIN AFTER THE SALE OF OLD RESIDENTIAL HOUSE AND THAT TH E SALE PROCEEDS OF THE OLD RESIDENTIAL HOUSE MUST BE USED FOR T H E NEW RESIDENTIAL HOUSE . THE AR OF THE APPELLANT FURTHER PLACED HIS RELIANCE IN THE CA SE OF K . C. GOPALAN VS . ITO 107 TAXMAN 591 (KER) WHEREIN IT WAS HELD THAT IT IS NOT NECESSARY THAT CONSIDERATIO N RECEIVED ON SALE OF PROPERTY AS SUCH SHOULD UTILIZE FOR CONSTRUCTIO N OF NEW BUILDING. THE AR OF THE APPELLANT FURTHER SUBMITTED THAT THE DEDUCTION U/S 54/54F CAN BE CLAIMED WITH BORROWED FUNDS AS WAS HELD IN THE CASE OF J . V . KRISHNA RAO VS. DCIT ' A ' BENCH ITAT , HYD ., R. SRINIVASAN VS. CIT (2010) 36 (1)ITCL 601 (MAD-HC) AND DR. P.S.PARICHA VS. CIT (MUM) WHEREIN IT WAS HELD THAT THE CONDITION OF SECTION 54 OF BUYING A NEW PROPERTY HAS TO BE FULFILLED AND THE SOURCE OF FUND IS IMMATERIAL. 4.2 KEEPING IN VIEW OF THE VARIOUS CASE LAWS MENT IONED SUPRA AS WELL AS THE RATIOS HELD IN THE ABOVE CASE LAWS WHICH ARE SQUARELY APPLICABLE TO THE CASE OF THE AP PELLANT, I DO NOT FIND ANY RATIONALE IN DENYING THE EXEMPTIO N CLAIMED BY THE APPELLANT ON THE LONG TERM CAPITAL G AIN AT ` 20,55,220/- THEREFORE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE. THE APPELLANT SUCCEEDS ON THIS GROUND OF APPEAL. 6. ON READING OF THE ABOVE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 54 IN TOTO. 6 ITA NO.574/MDS/2014 7. ON READING OF THE DECISION OF THE MUMBAI BENCH O F THIS TRIBUNAL IN THE CASE OF SMT. PREMA P.SHAH VS. ITO (SUPRA), WE FIND THAT THE TRIBUNAL HELD THAT THERE IS NO REQ UIREMENT FOR CLAIMING EXEMPTION UNDER SECTION 54 THAT THE SAME AMOUNT OF SALE CONSIDERATION SHOULD BE UTILIZED FOR ACQUIS ITION OF PROPERTY. IT WAS HELD THAT EVEN BORROWED FUNDS CAN BE UTILIZED FOR THAT PURPOSE. THIS VIEW OF THE MUMBAI BENCH OF THIS TRIBUNAL IS SUPPORTED BY THE DECISION OF HONBLE KE RALA HIGH COURT IN THE CASE OF ITO VS. K.C.GOPALAN (107 TAXMA N 591) WHEREIN THE HONBLE COURT HELD AS UNDER:- 5. THE LEARNED STANDING COUNSEL FOR THE REVENUE CONTENDED BEFORE US THAT SO LONG AS THE ASSESSEE HA S NO CASE THAT THE SALE CONSIDERATION RECEIVED BY HIM WH ILE DISPOSING OF HIS PROPERTY ON 28-10-1983 WAS UTILISE D FOR THE PURPOSE OF ACQUIRING THE HOUSE PROPERTY AT CALI CUT, THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF SECTION 54. THE LEARNED COUNSEL SOUGHT TO PLACE RELIANCE ON THREE DECISIONS, NAMELY, STANES MOTORS (SOUTH INDIA) LTD. V. CIT [1975] 100 ITR 341 (MAD.), CIT V. SAMNUGGER JUTE FACTORY CO. LTD. [1953] 24 TTR 265 (CAL), AND BASANT KUMAR ADITYA VIKRAM BIRLA V. CIT [1968] 70 TTR 657 (CAL), IN SUPPORT OF HIS CONTENTION. WE DO NOT FIND ANY ME RIT IN THE ABOVE CONTENTION RAISED BY THE REVENUE. A MERE READING OF SECTION 54 WOULD MAKE IT CLEAR THAT THE STATUTE HAS NOR LAID OUT A CONDITION FOR THE ASSESSEE TO GE T THE BENEFIT UNDER SECTION 54 THAT HE SHOULD UTILISE THE SALE CONSIDERATION FOR THE PURPOSE OF ACQUISITION OF PRO PERTY . SECTION 54 READS AS FOLLOWS: 'PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE.- WHERE A CAPITAL GAIN ARISES FROM THE TRANSFER OF A CAPITAL ASSET TO WHICH THE PROVISIONS OF SECTION 53 ARE NOT APPLICABLE, 7 ITA NO.574/MDS/2014 BEING BUILDING; OR LANDS APPURTENANT THERETO THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', WHICH IN THE TWO YEARS IMMEDIATELY PRECEDING THE DATE ON WHICH THE TRANSFER TOOK PLACE, WAS BEING USED BY THE ASSESSEE OR A PARENT OF 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 DATE PURCHASED, OR HAS WITHIN A PERIOD OF TWO YEARS AFTER THAT DATE CONSTRUCTED, A HOUSE PROPERTY FOR THE PURPOSES OF HIS OWN RESIDENCE, THEN, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME- TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SAY- (I) IF THE AMOUNT OF THE CAPITAL GAIN IS GREATER THAN THE COST OF THE NEW ASSET, THE DIFFERENCE BETWEEN THE AMOUNT OF THE CAPITAL GAIN AND THE COST OF THE NEW ASSET SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR; AND [OR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY BE, THE COST SHALL BE NIL; OR (II) IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO OR LESS THAN THE COST OF THE NEW ASSET, THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY BE, THE COST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN.' THE ASSESSEE HAS TO CONSTRUCT OR PURCHASE A HOUSE PROPERTY FOR HIS OWN RESIDENCE IN ORDER TO GET THE BENEFIT OF SECTION 54. THE WORDING OF THE SECTION ITSELF WOULD MAKE IT CLEAR THAT THE LAW DOES NOT INSIST THAT THE SALE CONSIDERATION OBTAINED BY THE ASSESSEE ITSELF SHOUL D BE UTILISED FOR THE PURCHASE OF HOUSE PROPERTY. THE MA IN PART OF SECTION 54 PROVIDES THAT THE ASSESSEE HAS TO PUR CHASE A HOUSE PROPERTY FOR THE PURPOSE OF HIS OWN RESIDEN CE WITHIN A PERIOD OF ONE YEAR BEFORE OR AFTER THE DAT E ON 8 ITA NO.574/MDS/2014 WHICH THE TRANSFER OF HIS PROPERTY TOOK PLACE OR HE SHOULD HAVE CONSTRUCTED A HOUSE PROPERTY WITHIN A PERIOD O F TWO YEARS AFTER THE DATE OF TRANSFER. CLAUSES (I) AND (II) OF SECTION 54 WOULD ALSO MAKE IT CLEAR THAT NO PROVISION IS MA DE BY THE STATUTE THAT THE ASSESSEE SHOULD UTILISE THE AM OUNT WHICH HE OBTAINED BY WAY OF SALE CONSIDERATION FOR THE PURPOSE OF MEETING THE COST OF THE NEW ASSET. 8. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE UP HOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N ALLOWING EXEMPTION CLAIMED BY THE ASSESSEE UNDER SE CTION 54 OF THE ACT. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 5 TH DAY OF DECEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGEND RA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED, 5 TH DECEMBER, 2014 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .