Estate Of Late Dr. S. Zakaulla Masood, Bengaluru V. Income Tax Officer, Ward-1(3)(4), Bengaluru

ITA 775/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4971 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN SHRI M P G
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A K GARODIA , ACCOUNTANT MEMBER IT A NO. 775/BANG/2018 ASSESSMENT YEAR: 2010 - 11 ESTATE OF LATE DR. S. ZAKAULLA MASOOD, L/R BY MR. MOHAMMED AATIF MASOOD, # 30, 15 TH CROSS, 4 TH PHASE, J P NAGAR RING ROAD, BENGALURU 560 078. PAN: AAEPZ 1224H VS. THE INCOME TAX OFFICER, WARD 1[3][4], BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, ADVOCATE RESPONDENT BY : SHRI M.P. GURUPRASAD, JT. D IT DATE OF HEARING : 12.10 .2020 DATE OF PRONOUNCEMENT : 14 . 1 0.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 11.01.2018 OF THE CIT(APPEALS)-3, BENGALURU RELATING TO ASSESS MENT YEAR 2010-11. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO, WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN DENYING T HE BENEFIT OF DEDUCTION TO ASSESSEE U/S. 54 OF THE INCOME TAX ACT, 1961 (A CT). UNDER SECTION 54 OF THE ACT, IF CAPITAL GAIN ARISES FROM THE TRANSFE R OF A LONG-TERM CAPITAL ASSET, BEING BUILDINGS OR LAND APPURTENANT THERETO, AND BEING A RESIDENTIAL HOUSE, THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM ITA NO.775/BANG/2018 PAGE 2 OF 7 HOUSE PROPERTY' (REFERRED TO IN SEC.54 OF THE ACT A S THE ORIGINAL ASSET), AND THE ASSESSEE HAS (I) WITHIN A PERIOD OF ONE YEAR BEFORE, OR (II) TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE (A) PURCHASED, OR (B) HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED, A RESIDENTIAL HOUSE, THEN, CAPITAL GAIN WILL BE ALLOWED AS DEDUCTION TO THE EXTENT OF LONG-TERM CAPITAL GAINS OR TO THE EXTENT OF AMOUNT INVESTED IN THE PURCHASE OR CONSTRUCTION OF THE NEW RESIDENTIAL HOUSE. WHICHEVE R IS LESS. 3. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WAS A CO-OWNER OF RESIDENTIAL HOUSE. BY A SALE DEED DATED 30.10.2009 , THE AFORESAID PROPERTY WAS SOLD BY THE ASSESSEE. THE ASSESSEES SHARE OF SALE CONSIDERATION WAS A SUM OF RS.40 LAKHS. IN THE RET URN OF INCOME FILED FOR AY 2010-11, THE ASSESSEE DECLARED LONG TERM CAPITAL GAIN(LTCG) ON SALE OF PROPERTY AT NIL AND THE FOLLOWING WAS THE COMPUT ATION LTCG :- APPELLANT'S SHARE 40,00,000 INDEXED COST OF ACQUISITION = 3,54,500 X 632/100 22,40,440 CAPITAL GAINS 17,59,560 LESS : INVESTMENT IN PURCHA SE OF PROPERTY 39,41,170 TAXABLE CAPITAL GAINS RS. NIL 4. THE ASSESSEES CLAIM FOR DEDUCTION U/S.54 OF THE ACT WAS ON THE BASIS THAT THE ASSESSEE HAS WITHIN A PERIOD OF 3 YE ARS FROM THE DATE OF TRANSFER OF THE ORIGINAL ASSET, CONSTRUCTED A RESID ENTIAL HOUSE. THE ASSESSEE CLAIMED THAT IT HAD PURCHASED A RESIDENTIA L SITE AT ANJANAPURA LAYOUT, BANGALORE ON 2.1.2020 FOR A SALE CONSIDERAT ION OF RS.39,41,170 INCLUDING STAMP DUTY. THE ASSESSEE ALSO FILED EVID ENCE TO SHOW THAT HE HAD CONSTRUCTED A RESIDENTIAL HOUSE ON THE VACANT S ITE PURCHASED FROM HIM VIZ., COPY OF SANCTIONED BUILDING PLAN, COPY OF PRO PERTY TAX RECEIPTS, BDA ITA NO.775/BANG/2018 PAGE 3 OF 7 KHATHA CERTIFICATE, COPY OF TAX INVOICE DATED 11.7. 2012 FOR PURCHASE OF SINGLE PHASE ENERGY METER AND EVIDENCE OF ELECTRICI TY USAGE FOR THE PERIOD FROM SEPT. 2012 TO FEB. 2013. THE ASSESSEE SOLD TH E PROPERTY ON 30.10.2009 AND TO CLAIM DEDUCTION U/S. 54 OF THE AC T, THE ASSESSEE OUGHT TO HAVE COMPLETED THE CONSTRUCTION WITHIN A PERIOD OF 3 YEARS FROM THE DATE OF TRANSFER OF THE ORIGINAL ASSET, I.E., ON OR BEFO RE 29.10.2012. 5. THE AO, HOWEVER, RECOMPUTED THE INCOME FROM LONG TERM CAPITAL GAINS AT RS. 25,59,560/- BY VARYING THE ASSESSEE S HARE OF CONSIDERATION TO RS.48,00,000/- AS AGAINST RS.40,00,000/- REPORTED B Y THE ASSESSEE. THUS, THE AO COMPUTED THE LONG TERM CAPITAL GAINS BEFORE DEDUCTION U/S.54 OF THE ACT AT RS.25,59,560/- AS AGAINST THE SUM OF RS.17,5 9,560/- REPORTED BY THE ASSESSEE. 6. THE AO THEREAFTER NOTICED THAT THE ASSESSEE HAD PURCHASED A RESIDENTIAL PROPERTY FOR RS.39,41,120/- AND COMPARE D THIS FIGURE WITH THE CAPITAL GAINS OF RS.25,59,560/- ARRIVED AT BY HIM. HE THEN MADE AN ADDITION OF RS.13,81,560/- UNDER THE HEAD 'INCOME FROM OTHER SOURCES' BEING THE DIFFERENCE BETWEEN THE INVESTMENT IN THE NEW HOUSE AND THE CAPITAL GAINS COMPUTED BY HIM. THE AO DID NOT DENY DEDUCTION U/S. 54 OF THE ACT AS CLAIMED, BUT HAD BROUGHT TO TAX THE DIFFERENCE IN T HE INVESTMENT MADE AS COMPARED TO THE CAPITAL GAINS AS INCOME FROM OTHER SOURCES. 7. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) COMP UTED LONG TERM CAPITAL GAIN AT RS.18,93,860 AS AGAINST RS.17,59,56 0 COMPUTED BY ASSESSEE. HE, HOWEVER, WENT ON TO HOLD THAT THE ASS ESSEE WOULD NOT BE ENTITLED TO DEDUCTION U/S. 54 OF THE ACT. HE ACCEP TED THAT THE ADDITION MADE BY THE AO UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT BE SUSTAINED AND DELETED THE ADDITION. AS ALREADY STATED, THE CI T(A) HOWEVER HELD THAT THE ASSESSEE WILL NOT BE ENTITLED TO DEDUCTION U/S. 54 OF THE ACT. ITA NO.775/BANG/2018 PAGE 4 OF 7 8. THE ASSESSEE HAD FILED A PHOTOGRAPH OF THE PROPE RTY TO SUBSTANTIATE THE CLAIM OF ASSESSEE THAT IT CONSTRUCTED A RESIDEN TIAL HOUSE. THE ASSESSEE HAD ALSO FILED A COPY OF LETTER ISSUED BY EXECUTIVE ENGINEER, BDA, SOUTH DIVISION, BSK II STAGE, BANGALORE IN WHI CH HE HAD STATED THAT PERMISSION WAS GIVEN FOR CONSTRUCTING A RESIDENTIAL HOUSE W.E.F. 3.2.2012 TO 3.2.2014. THE CIT(APPEALS) GAVE THE FOLLOWING FIND INGS:- 4.11 THE SUBMISSIONS OF THE APPELLANT HAVE DULY BE EN CONSIDERED. THE ABOVE PHOTOGRAPH CANNOT BE CONSIDER ED AS APPROPRIATE EVIDENCE IN THIS CASE FOR FOLLOWING REA SONS: THE PHOTOGRAPH DOES NOT REVEAL THE DATE ON WHICH IT WAS TAKEN. THE PHOTOGRAPH DOES NO REVEAL THE EXACT LOCATION OF THE PLACE AS PLOT NO.704 CAN BE WRITTEN ANYWHERE AND PHOTOGRA PH OF THE SAME CAN BE TAKEN BY STANDING BESIDE THAT. THE STRUCTURE SHOWN IN THE PHOTOGRAPH APPEARS TO BE JUST A TEMPORARY STORAGE SHED WHICH IS NORMALLY MADE FOR T HE STORAGE OF CONSTRUCTION MATERIAL BEFORE STARTING CONSTRUCTI ON. THUS THE PHOTOGRAPH DOES NOT REVEAL THAT THE STRUCTURE MADE ON THE PROPERTY CAN BE CONSIDERED AS A RESIDENTIAL HOUSE. THE APPELLANT HAS NOT GIVEN ANY OCCUPATION CERTIFIC ATE IF ANY RESIDENTIAL HOUSE WAS CONSTRUCTED BY HIM. 4.12 THUS THE DETAILS PRODUCED BY THE APPELLANT DO NOT SHOW THAT AN RESIDENTIAL HOUSE WAS CONSTRUCTED ON THE PLOT OF LAND BY 29.10.2012. IT CAN ONLY BE CONCLUDED THAT THE APPEL LANT HAD APPLIED FOR PERMISSION FOR CONSTRUCTION ON 21.02.20 12 AND THE SAME WAS GRANTED BY BDA ON 03.03.2012. HOWEVER NO R ESIDENTIAL HOUSE CAME INTO EXISTENCE ON THE PLOT TILL 29.10.20 12. SO THE CLAIM OF THE APPELLANT THAT CONSTRUCTION OF THE RES IDENTIAL HOUSE WAS COMPLETED BY 29.10.2012 CANNOT BE ACCEPTED. IN VIEW OF ABOVE, THE APPELLANT IS NOT FOUND TO BE ELIGIBLE FO R CLAIMING DEDUCTION UNDER SECTION 54 OF THE ACT AND THE CAPIT AL NEEDS TO BE CHARGED TO TAX. ITA NO.775/BANG/2018 PAGE 5 OF 7 4.13 ALTHOUGH THE CAPITAL GAIN CHARGEABLE TO TAX IN CASE OF APPELLANT WORKS OUT TO BE RS 18,93,860/-. HOWEVER S INCE THE AO HAS ALREADY MADE AN ADDITION OF RS 13,81,560/-, THE SAID ADDITION IS CONFIRMED ALTHOUGH FOR REASONS AS DISCUSSED ABOV E AND DIFFERENT THAN THAT STATED BY THE AO. FURTHER THE I NCOME OF THE APPELLANT IS ENHANCED BY THE BALANCE AMOUNT OF RS.5 .12.300. 4.14 CONSIDERING ABOVE THE GROUNDS OF APPEAL OF THE APPELLANT ARE DISMISSED AND INCOME IS ENHANCED. 9. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS PER TH E REQUIREMENT OF SECTION 54 OF THE ACT, THE LONG TERM CAPITAL GAIN H AS TO BE INVESTED IN CONSTRUCTION OF A RESIDENTIAL HOUSE WITHIN 3 YEARS FROM THE DATE OF TRANSFER. THE ASSESSEE SOLD THE PROPERTY ON 30.10.2009 AND CL AIMED THE BENEFIT OF DEDUCTION U/S. 54 OF THE ACT. HE OUGHT TO HAVE COM PLETED THE CONSTRUCTION ON OR BEFORE 29.10.2012. THE EVIDENCE ON RECORD GO ES TO SHOW THAT THERE WAS A STRUCTURE THAT HAD COME UP OVER THE PROPERTY. THE SANCTIONED PLAN, USAGE OF ELECTRICITY, PAYMENT OF PROPERTY TAX, USAG E OF ELECTRICITY FOR THE PERIOD FROM SEPT. 2012 TO FEB. 2013, ALL GO TO SHOW THAT THE PROPERTY EXISTED OVER THE SITE PURCHASED BY THE ASSESSEE. A LL THESE EVIDENCE GO TO SHOW THAT ASSESSEE HAD PUT UP STRUCTURE OVER THE SI TE PURCHASED BY HIM. THE CIT(A) HAS COME TO A CONCLUSION THAT THE ASSESS EE DID NOT CONSTRUCT A RESIDENTIAL HOUSE WITHIN A PERIOD OF 3 YEARS FROM T HE DATE OF TRANSFER OF THE ORIGINAL ASSET, ON THE BASIS THAT THE PHOTOGRAPH FI LED AS EVIDENCE DOES NOT REVEAL THAT THE CONSTRUCTION OF THE HOUSE WAS ON TH E PLOT OF LAND PURCHASED BY THE ASSESSEE AND THAT THERE WAS NO COMPLETION CE RTIFICATE PRODUCED TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE REGARDING CO MPLETION OF CONSTRUCTION OF A RESIDENTIAL HOUSE. IN OUR VIEW, THE CIT(A) HAS IGNORED THE OTHER EVIDENCE ON RECORD WHICH PROVE CONSTRUCTION A ND COMPLETION OF CONSTRUCTION OF A RESIDENTIAL HOUSE. ON THE QUESTI ON WHETHER ABSENCE OF ITA NO.775/BANG/2018 PAGE 6 OF 7 COMPLETION CERTIFICATE CAN BE A GROUND TO REJECT CL AIM FOR DEDUCTION U/S.54 OF THE ACT, THE LD. COUNSEL FOR THE ASSESSEE HAS DR AWN OUR ATTENTION TO THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF SAMBANDAM UDAYAKUMAR, 354 ITR 389 [KARN] WHEREIN IT WAS HELD THAT THE NON COMPLETION OF CONSTRUCTION WITHIN A PERIOD OF 3 YEA RS CANNOT BE A GROUND TO DENY DEDUCTION U/S.54F OF THE ACT, WHICH PROVISIONS ARE PARI MATERIA THE SAME AS SEC.54 OF THE ACT ON THIS ASPECT. IN THAT CASE, THE ASSESSEE SOLD SHARES FOR RS. 4.18 CRORES AND, WITHIN 12 MONTHS, I NVESTED RS. 2.16 CRORES THEREOF TO CONSTRUCT A HOUSE PROPERTY AND CLAIMED E XEMPTION U/S 54F. HOWEVER, AS EVEN AFTER THE EXPIRY OF 3 YEARS OF THE DATE OF TRA NSFER, THE CONSTRUCTION OF THE HOUSE WAS NOT COMPLETE AND SALE DEED NOT EXECUTED , THE AO & CIT (A) DENIED RELIEF U/S 54F THOUGH THE T RIBUNAL GRANTED IT. ON APPEAL BY THE DEPARTMENT TO THE HIGH COURT, IT WAS HELD THAT SEC . 54F IS A BENEFICIAL PROVISION FOR PROMOTING THE CONSTRUCTION OF RESIDENTIAL HOUSE & REQUIRES TO BE CONSTRUED LIBERALLY FOR ACHIEVING THAT PURPOSE. THE INTENTION OF THE LEGISLATURE WAS TO ENCOURAGE INVESTMENTS IN THE ACQUISITION OF A RESIDENTIAL HOUSE AND COMPLETION OF CONSTRUCTION OR OCCUPATION IS NOT THE REQUIREMENT OF LAW . THE WORDS USED IN THE SECTION ARE PURCHASED OR CONSTRUCTED. THE CONDITION PRECEDENT FOR CLAIMING BENEFIT U/S 54F IS THAT THE CAPITAL GAIN SHOULD BE PARTED BY THE ASSESSEE A ND INVESTED EITHER IN PURCHASING A RESIDENTIAL HOUSE OR IN CONSTRUCTING A RESIDENTIAL HOUSE. MERELY BECAUSE THE SALE DEED HAD NOT BEEN EXECUTED OR THAT CONSTRUCTION IS NOT COMPLETE AND IT IS NOT IN A FIT CONDITION TO BE OCCUPIED DO ES NOT DISENTITLE THE ASSESSEE TO CLAIM S. 54F RELIEF. THE HONBLE KARNATAKA HIGH COURT FOLLOWED SIMILAR DECISION RENDERED BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF SARDARMAL KOTHARI 302 ITR 286 (MAD). WE ARE THEREFORE OF THE VIEW THAT EVEN ON THE BASIS OF NON-COMPLETION O F CONSTRUCTION OF THE NEW ASSET WITHIN THE PERIOD OF 3 YEARS, THE DEDUCTI ON U/S.54 OF THE ACT CANNOT BE DENIED TO THE ASSESSEE. ITA NO.775/BANG/2018 PAGE 7 OF 7 11. IN THE PRESENT CASE, WE ARE SATISFIED ON THE BA SIS OF EVIDENCE PRODUCED BY THE ASSESSEE THAT A BUILDING HAD COME U P OVER THE SITE PURCHASED BY ASSESSEE AND THE PURCHASE OF SITE AND COST OF CONSTRUCTION WAS MUCH MORE THAN THE CAPITAL GAIN ARRIVED AT BY T HE ASSESSEE ON SALE OF ANCESTRAL HOUSE. THE CIT(APPEALS) HAS GONE BY THE FACT THAT THERE WAS ABSENCE OF OCCUPATION CERTIFICATE. IN OUR OPINION, THIS WILL NOT BE A GROUND TO DENY THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 54 OF THE ACT, AS OTHER EVIDENCE FILED BY THE ASSESSEE SUFFICIENTLY DEMONST RATES THAT ASSESSEE HAS CONSTRUCTED A RESIDENTIAL HOUSE WITHIN THE PERIOD O F STIPULATED BY LAW. THE FINDINGS OF THE CIT(APPEALS) IN THIS REGARD ARE VER Y VAGUE AND CANNOT BE THE BASIS TO DENY THE CLAIM OF ASSESSEE FOR DEDUCTI ON U/S. 54 OF THE ACT. WE THEREFORE HOLD THAT ASSESSEE IS ENTITLED TO DEDU CTION U/S. 54 OF THE ACT AND CONSEQUENTLY NO LONG TERM CAPITAL GAIN IS ELIGI BLE TO TAX. THE ADDITION IS DELETED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AC CORDINGLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF OCTOBER, 2020. SD/- SD/- ( A K GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 14 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.