HARISHCHANDRA G. KATHPAL, MUMBAI V. ADDL CIT 14(1), MUMBAI

ITA 6264/MUM/2010

• Counselvise Citation: 626419914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHATRI
• Assessee Lawyers: D C JAIN
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6264/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) HARISHCHANDRA G. KATHPAL 17, SHYAMSETH STREET DHOBLIWALA BUILDING MUMBAI 400 002 PAN AADPK0645G .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE-14(1), EARNEST HOUSE NARIMAN POINT, MUMBAI 400 021 .... RESPONDENT ASSESSEE BY : MR. D.C. JAIN REVENUE BY : MR. V.V. SHATRI DATE OF HEARING 12.10.2011 DATE OF ORDER 21.10.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 16 TH JUNE 2010, PASSED BY THE COMMISSIONER (APPEALS)-XXV, MUMBAI, FOR ASSESSMENT YEAR 2007-08. SOLE GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS:- UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), ERRED IN CONFIRMING THE DISALLOWANCES OF THE EXEMPTION OF ` 25 LAKHS UNDER SECTION 54EC OF THE ACT. HARISHCHANDRA G. KATHPAL ITA NO. 6264/MUM./2010 2 2. THE FACTS OF THE CASE ARE BROUGHT OUT AT PARA-4 AND 4.1 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER, ON THE GRO UND THAT THE ASSESSEE HAS INVESTED ` 25,00,000 FROM CASH CREDIT FACILITIES GRANTED BY T HE BANK AND NOT DIRECTLY FROM THE SALE CONSIDERATION OR THE CAP ITAL GAINS RECEIVED FROM THE ASSESSEE, HAS HELD THAT EXEMPTION UNDER SECTION 54E C IS NOT ALLOWABLE TO THE EXTENT OF ` 25,00,000. 3. ON APPEAL, THE COMMISSIONER (APPEALS) CONFIRMED THE ADDITION. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE LEARNED COUNSEL, MR. D.C. JAIN, O N BEHALF OF THE ASSESSEE AND LEARNED DEPARTMENTAL REPRESENTATIVE, M R. V.V. SHASTRI, ON BEHALF OF THE REVENUE. ON A CAREFUL CONSIDERATION O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, WE HOLD AS FOLLOWS:- 5. THE ASSESSEE, IN THIS CASE, HAS DEPOSITED THE NET C APITAL GAIN IN A BANK TO THE EXTENT OF ` 1,74,00,000 ON 13 TH MARCH 2007, FOR SIXTY DAYS. ON 31 ST MARCH 2007, THE ASSESSEE AVAILED AN AMOUNT OF ` 25,00,000 AS LOAN FROM THE BANK AGAINST THE FIXED DEPOSIT OF ` 1,74,00,000, AND MADE INVESTMENT IN REC BONDS. ON THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT RELIEF UNDER SECTION 54EC OF THE ACT IS WRONGLY DENIED TO THE AS SESSEE. THE ASSESSEE HAS INVESTED A PART OF THE CAPITAL GAINS IN THE LONG TE RM SPECIFIED ASSETS. THE MUMBAI C BENCH OF THE TRIBUNAL IN BOMBAY HOUSING CORPORATION V/S ACIT, [2002] 081 ITD 0545 (MUM.), HELD AS FOLLOWS:- 9. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENT IONS, WE ARE OF THE VIEW THAT THE BETTER OR MORE REASONABLE INTERPRETAT ION WOULD BE THAT PLACED ON THE SECTION BY MR. DASTUR. HIS CONTENTION THAT THE SECTION SHOULD BE SO INTERPRETED AS TO APPLY EQUALLY TO ALL CASES OF TRANSFERS COVERED BY THE STATUTORY PROVISIONS IS, WITH RESPEC T, UNEXCEPTIONABLE. WHATEVER MAY BE THE POSITION WITH REGARD TO A CASE OF 'EXCHANGE', SO FAR AS AN ASSESSEE IN WHOSE CASE THE CONSIDERATION HAS NOT BEEN RECEIVED BUT HAS MERELY BEEN PROMISED OR HAS MERELY ACCRUED IN HIS FAVOUR IS CONCERNED, HE WOULD NOT BE IN A POSITION TO MEET THE DEADLINE OF 6 MONTHS FROM THE DATE OF THE SALE FOR MAKING TH E INVESTMENT IN THE SPECIFIED ASSET. IF FOR SOME REASON, THE VENDEE DEF AULTS AND DELAYS THE PAYMENT OF THE CONSIDERATION BEYOND 6 MONTHS, THE T RANSFEROR- ASSESSEE SHOULD NOT SUFFER. HE SHOULD ALSO BE ABLE TO AVAIL OF THE HARISHCHANDRA G. KATHPAL ITA NO. 6264/MUM./2010 3 EXEMPTION AND THE ONLY WAY HE CAN DO IS TO INTERPRE T THE SECTION IN SUCH A MANNER AS TO PERMIT HIM TO BORROW MONIES EQU AL TO THE CONSIDERATION AND INVEST THE SAME IN THE SPECIFIED ASSETS. IF THIS CAN BE PERMITTED IN THE CASE OF ACCRUAL, THERE IS NO RE ASON WHY IT SHOULD NOT BE PERMITTED EVEN IN A CASE WHERE THE CONSIDERA TION IS ACTUALLY RECEIVED BUT FOR SOME REASON OR THE OTHER, IS TIED UP AND COULD NOT BE RELEASED IN TIME FOR MAKING THE INVESTMENT. THERE C AN BE NUMEROUS INSTANCES WHERE AN ASSESSEE FINDS HIMSELF IN SUCH A SITUATION. THE PRESENT CASE IS A CASE IN POINT. WHAT THE SECTION R EQUIRES, AS WE UNDERSTAND IT, IS THAT IT IS NECESSARY FOR THE ASSE SSEE ONLY TO INVEST AN AMOUNT WHICH IS ARITHMETICALLY EQUAL TO THE NET CON SIDERATION IN THE SPECIFIED ASSETS. IT CANNOT BE THE INTENTION OF THE SECTION THAT THE OTHER NORMAL TRANSACTIONS OR ACTIVITIES OF AN ASSES SEE SHOULD BE CURTAILED OR THAT THE SALE PRICE SHOULD BE IMMOBILI SED. ONE EXAMPLE WHICH IMMEDIATELY COMES TO OUR MIND IS AS TO WHAT W OULD HAPPEN IF THE SALE PRICE IS LOST BY THEFT AND THE DEADLINE OF 6 MONTHS IS ABOUT TO BE CROSSED. IN SUCH A CASE, THE ASSESSEE SHOULD NOT BE DENIED THE EXEMPTION IF HE, IN A DESPERATE ATTEMPT TO AVAIL OF THE EXEMPTION, RESORTS TO BORROWING AND UTILISES THE BORROWED AMOU NT FOR INVESTMENT. NO DISTINCTION CAN BE MADE BETWEEN AN ASSESSEE WHO IS FORCED TO BORROW FOR THE PURPOSE OF MAKING THE INVESTMENT AND ANOTHER ASSESSEE WHO EFFECTS THE BORROWING NOT BECAUSE OF F ORCED CIRCUMSTANCES, BUT BECAUSE HE CONSCIOUSLY OR DELIBE RATELY USED THE SALE CONSIDERATION FOR A DIFFERENT PURPOSE. AS WE H AVE ALREADY SEEN THE OBJECT OF THE PROVISION IS THAT FUNDS SHOULD BE CHE NNELLISED INTO CERTAIN SECTORS AND THIS OBJECT IS ACHIEVED IN BOTH THE CAS ES. WE ARE OF THE VIEW THAT IN GIVING EFFECT TO THE OBJECT, WE SHOULD SHUN A WOODEN APPROACH. 10. WE SUPPOSE THAT THE REQUIREMENT OF THE SECTION WOULD HAVE BEEN MET IF THE ASSESSEE HAD FIRST PAID OVER THE AM OUNT OF RS. 1.42 CRORES BORROWED FROM VASWANI TRUST TO ITS PARTNERS AND THEREAFTER TAKEN OUT AN EQUAL AMOUNT FROM THE PARTNERS' ACCOUN TS FOR BEING INVESTED IN THE BONDS. IN THAT CASE, IT WOULD NOT H AVE BEEN POSSIBLE TO SAY THAT THE BONDS WERE PURCHASED OUT OF BORROWED M ONIES. THE AMOUNT INVESTED WOULD HAVE BEEN TRACEABLE TO THE SA LE PROCEEDS ADVANCED TO THE PARTNERS. THE FACT THAT INSTEAD OF DOING THAT, THE BORROWED AMOUNT WAS DIRECTLY INVESTED IN THE BONDS SHOULD NOT, IN OUR VIEW, MAKE ANY DIFFERENCE TO THE PRINCIPLE. 11. THE ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNA L CITED SUPRA IS DIRECTLY IN POINT AND HAS ADOPTED THE PURPOSIVE INT ERPRETATION TO GIVE THE BENEFIT TO THE ASSESSEE UNDER SECTION 54E UNDER IDENTICAL CIRCUMSTANCES. THE JUDGMENT OF THE SUPREME COURT IN ROSHAN JAHANGIR GANDHI'S CASE (SUPRA) IS FULLY IN SUPPORT OF MR. DASTUR'S CONTENTION. THAT CASE AROSE UNDER THE ESTATE DUTY A CT. THE ACCOUNTABLE PERSON WAS ENTITLED TO REDUCE THE ESTAT E DUTY PROPORTIONATE TO THE AMOUNT OF CAPITAL GAINS TAX PA ID ON ASSETS TRANSFERRED WITHIN TWO YEARS OF THEFT UNDER SECTION 50B OF THE ESTATE DUTY ACT. THAT SECTION GAVE RELIEF IN RESPECT OF ES TATE DUTY BY A SUM WHICH BEARS TO THE TOTAL AMOUNT OF TAX SO PAID 'THE SAME PROPORTION AS THE AMOUNT PAID TOWARDS ESTATE DUTY OUT OF THE PROC EEDS OF TRANSFER BEARS TO THE GROSS PROCEEDS OF SUCH TRANSFER'. NOTE THAT THE RELIEF WAS GIVEN IN RESPECT OF THE AMOUNT PAID AS ESTATE DUTY OUT OF THE PROCEEDS HARISHCHANDRA G. KATHPAL ITA NO. 6264/MUM./2010 4 OF THE TRANSFER. THE ACCOUNTABLE PERSON HAD BORROWE D MONIES FOR PAYMENT OF PROVISIONAL ESTATE DUTY. SHE SOLD SHARES TO THE PERSON FROM WHOM SHE HAD BORROWED MONIES AND PAID CAPITAL GAINS TAX. SHE CLAIMED REBATE FROM THE ESTATE DUTY PROPORTIONATE T O THE CAPITAL GAINS PAID UNDER SECTION 50B. THE CLAIM WAS REFUSED BY TH E AUTHORITIES ON THE GROUND THAT THE DUTY WAS NOT PAID 'OUT OF THE P ROCEEDS' OF THE TRANSFER. THE ACCOUNTABLE PERSON'S CLAIM WAS HOWEVE R ACCEPTED BY THE HIGH COURT AS WELL AS THE SUPREME COURT. AT PAGE 43 2 OF THE REPORT, IT WAS HELD BY THE SUPREME COURT THAT A STRICT CONSTRU CTION CANNOT BE ADOPTED WITH REGARD TO A PROVISION DEALING WITH OR RELATING TO A TAX AND SUCH A CONSTRUCTION SHOULD BE LIMITED TO A PROVISIO N IMPOSING A TAX. IT HELD FURTHER THAT THE INTERPRETATION PLACED BY THE HIGH COURT ON SECTION 50B IS AN EMINENTLY ARGUABLE ONE, THOUGH ANOTHER VI EW MAY ALSO BE POSSIBLE AND THAT IF TWO VIEWS ARE POSSIBLE. IT IS THE VIEW WHICH ADVANCES THE CAUSE OF JUSTICE THAT SHOULD BE PREFER RED. IT MAY BE SEEN THAT IN THE CASE BEFORE THE SC ALSO, THE ESTATE DUT Y WAS PAID OUT OF THE BORROWINGS AND NOT OUT OF THE PROCEEDS OF THE T RANSFER OF SHARES. BUT STILL, ADOPTING A PURPOSIVE INTERPRETATION OR A N INTERPRETATION THAT WOULD ADVANCE THE CAUSE OF JUSTICE, THE SUPREME COU RT HELD THAT IT MUST BE CONSIDERED TO BE A PAYMENT OF DUTY OUT OF T HE PAYMENT OF THE PROCEEDS OF THE TRANSFER OF SHARES AND THE REBATE S HOULD BE ALLOWED. THE FACTS OF THE PRESENT CASE BEAR CLOSE SIMILARITY . 12. THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT I N THE CASE OF S. GOPAL REDDY (SUPRA) HAS BEEN HEAVILY RELIED UPON BY THE INCOME- TAX AUTHORITIES AND ALSO BY THE LEARNED SR. DR BEFO RE US. BUT IN THE LIGHT OF THE JUDGMENT OF THE SUPREME COURT IN THE C ASE OF ROSHAN JAHANGIR GANDHI (SUPRA), WE ARE UNABLE TO GIVE EFFE CT TO THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT. EVEN OTHERWISE, T HE ANDHRA PRADESH HIGH COURT HAS ADOPTED THE PRINCIPLE OF INT ERPRETATION WHICH WOULD ADVANCE THE CAUSE OF JUSTICE BY SAYING THAT I N A CASE OF COMPULSORY ACQUISITION OF LAND WHERE ADDITIONAL COM PENSATION IS AWARDED AFTER COURT PROCEEDINGS, THE TIME LIMIT OF 6 MONTHS FROM THE DATE OF TRANSFER FOR INVESTMENT IN SPECIFIED ASSETS , LAID DOWN IN SECTION 54E, SHOULD BE RECKONED ONLY FROM THE DATE ON WHICH THE ADDITIONAL COMPENSATION IS RECEIVED BY THE ASSESSEE. IT IS THE SAME PURPOSIVE INTERPRETATION OR THE INTERPRETATION THAT WOULD ADV ANCE THE CAUSE OF JUSTICE THAT REQUIRES THAT IN THE PRESENT CASE ALSO THE ASSESSEE SHOULD BE HELD ENTITLED TO THE DEDUCTION. WE DIRECT ACCORD INGLY AND ALLOW THESE GROUNDS. 6. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S DR . P.S. PASRICHA, (UNREPORTED), VIDE JUDGMENT DATED 7 TH OCTOBER 2009, HAS HELD AS FOLLOWS:- 2. HAVING SEEN THE FINDING OF FACT RECORDED BY THE TRIBUNAL IN PARAGRAPH NO.9, THAT THE ASSESSEE HAD INITIALLY UTI LIZED THE SALE PROCEEDS OF SALE OF HIS RESIDENTIAL FLAT FOR PURCHA SE OF COMMERCIAL PROPERTIES AND LATER ON HE PURCHASED TWO RESIDENTIA L FLATS WITHIN A PERIOD SPECIFIED IN SUB SECTION (2) OF SECTION 54 O F THE ACT. IN THIS VIEW OF THE MATTEI, THE VIEW TAKEN BY THE TRIBUNAL CANNO T BE FAULTED. THE APPEAL IS WITHOUT ANY SUBSTANCE. HENCE, THE SAME ST ANDS DISMISSED IN LIMINE WITH NO ORDER AS TO COSTS. HARISHCHANDRA G. KATHPAL ITA NO. 6264/MUM./2010 5 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELYING ON THE JUDGMENT OF HONBLE KERALA HIGH COURT IN SMT. P. G. BHANUMATHY, BHAVI BOOKS V/S CIT, [2007] 292 ITR 0247 (KER.) UPHELD THE DISALLOWNACE MADE BY THE ASSESSING OFFICER. IN OUR CONSIDERED OPINION, THIS CASE LAW I S NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD DEPOSITED THE SAID ` 25,00,000 FROM THE NET CONSIDERATION WITHIN THE ST IPULATED TIME IN ELIGIBLE INVESTMENT I.E., REC BONDS. 8. APPLYING THE PROPOSITIONS LAID DOWN IN BOMBAY HOUSI NG CORPORATION (SUPRA) AND IN DR. P.S. PASRICHA (SUPRA), TO THE FA CTS OF THE PRESENT CASE, WE HOLD THAT THE PHRASE INVESTED THE WHOLE OR PART OF THE CAPITAL GAINS IS SATISFIED IN THIS CASE AS THE ASSESSEE HAS DEPOSITE D THE CAPITAL GAIN IN A BANK AND THE INVESTMENT IS MADE BY DRAWING MONEY FROM TH E BANK AGAINST THIS FIXED DEPOSIT. THE DISALLOWANCE, IN OUR OPINION, HA S BEEN MADE ON A HYPER TECHNICAL CONSIDERATION. HENCE, WE AGREE WITH THE A RGUMENTS OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM MADE BY THE ASSESSEE. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER 2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 21 ST OCTOBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI