Alexande Zachariah, CHENNAI V. DCIT, CHENNAI

ITA 805/CHNY/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7315 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-04-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Set aside
• Section: 54F; 54

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , , $ % BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.805/CHNY/2017 ( / ASSESSMENT YEAR: 2012-13) SHRI ALEXANDER ZACHARIAH, ADVIKA, 2 ND FLOOR, NO.7, SUBBARAO AVENUE, NUNGAMBAKKAM, CHENNAI 600 034. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI PAN: AADPA0897J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT /DATE OF HEARING : 10.07.2019 /DATE OF PRONOUNCEMENT : 24.07.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI IN ITA NO.106/2015-16/CIT(A)-3 DATED 31.01.2017 FOR THE AS SESSMENT YEAR 2012-13. 2. SHRI ALEXANDER ZACHARIAH, THE ASSESSEE, SOLD A R ESIDENTIAL PROPERTY FOR RS.2,48,00,000/- ON 24.12.2011. HOWEVE R, ON 2 ITA NO.805/CHNY/2017 14.08.2010 ITSELF, HE ENTERED INTO AN AGREEMENT FOR ACQUIRING A FLAT AT NUNGAMBAKKAM BY PAYING RS.1,08,36,000/- ON 14.08.20 10 & 17.08.2010 AND ACQUIRED UNDIVIDED SHARE (UDS) IN TH E LAND BY A SALE DEED DATED 06.10.2010 BY PAYING RS.1,74,71,600 /-. SUBSEQUENTLY, HE INCURRED REGISTRATION AND STAMP DU TY CHARGES OF RS.15,72,400/-. THUS, THE TOTAL SALE CONSIDERATION FOR THE NEW PROPERTY WAS RS.2,98,80,000/-. THE ASSESSEE CLAIME D DEDUCTION U/S.54 OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) ON THE CAPITAL GAINS ARISING ON THE SALE OF RESIDENTIAL PROPERTY. THE ASSESSMENT WAS SUBJECT MATTER OF A REFERENCE U/S.144A OF THE A CT. SUBSEQUENTLY, THE AO DENIED THE CLAIM OF EXEMPTION U/S.54 OF THE ACT, FOR THE REASONS THAT A) THE NEW PROPERTY HAD BEEN ACQUIRED ON 06.10.2010 , MUCH PRIOR TO ONE YEAR FROM THE DATE OF SALE OF HIS RESIDENTIA L PROPERTY I.E., ON 24.12.2011 B) PRIOR PERIOD BENEFIT U/S.54OF THE ACT, CANNOT BE AVAILED IN CASE OF CONSTRUCTION I.E., AVAILABLE ONLY IN THE CASE OF PURCHASE. HE FURTHER RELIED ON THE DECISIONS OF THE MUMBAI IT AT IN THE CASES OF ACIT VS. SUNDER KAUR SUJAN SINGH IN [2005] 3 SOT 20 6 & FARIDA A. DUNDERPURWALA VS. ITO [2015] 67 SOT 208. AGGRIEVED , THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD.CIT(A) DI SMISSED THE 3 ITA NO.805/CHNY/2017 APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE IS ON APPEAL BEFORE THIS TRIBUNAL. 3. THE LD.AR SUBMITTED THAT THE ASSESSEE FELT THAT INSTEAD OF SELLING THE RESIDENTIAL HOUSE WHEREIN HE WAS RESIDI NG AND THEN SEARCHING FOR A NEW RESIDENTIAL HOUSE, HE THOUGHT T HAT IT IS BETTER TO PURCHASE A HOUSE AND SELL THE EXISTING ONE. SO, HE AVAILED BANK LOAN FROM HDFC WHICH WAS REPAID FROM THE SALE CONSIDERAT ION AND ACQUIRED THE NEW FLAT. THOUGH HE ENTERED INTO AN A GREEMENT AND GOT UDS IN THE LAND AS ON 14.08.2010 AND 06.10.2010, TH E NEW HOUSE WAS ULTIMATELY READY FOR OCCUPATION ONLY ON 07.02.2 011 AND IT BECAME HABITABLE ONLY IN FEBRUARY, 2011.RELYING ON THE JURISDICTIOAL OF HIGH COURT OF MADRAS DECISION IN THE CASE OF C.A RYAMA SUNDARAM VS. CIT-3, [2018] 97 TAXMANN.COM 74, WHEREIN IT WAS HELD AS NOT ONLY COST OF CONSTRUCTION OF NEW PROPERTY INCURRED AFTER SALE OF OLD PROPERTY WOULD BE ELIGIBLE FOR EXEMPTION UNDER SECT ION 54(1), BUT ALSO COST OF LAND ON WHICH NEW PROPERTY WAS CONSTRUCTION , EVEN IF SUCH LAND HAD BEEN PURCHASED THREE YEARS PRIOR TO SALE O F OLD PROPERTY, THE LD.AR SUBMITTED THAT THE ASSESSEE IS ELIGIBLE F OR EXEMPTION U/S.54(1) OF THE ACT AND FURTHER HE RELIED ON THE I TAT DECISION WHICH APPLIED THE JURISDICTIONAL OF HIGH COURT DECISION, SUPRA, IN THE CASE OF 4 ITA NO.805/CHNY/2017 SHRI M.B. VENKATESH IN ITA NO.688/CHNY/2018 DATED 2 0.11.2018. PER CONTRA, THE LD.DR SUPPORTED THE ORDERS OF THE L OWER AUTHORITIES AND RELIED ON THE STATUTE. 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE UNDISPUTED FACT IS THAT THE ASSESSEE ENTERED INTO AN AGREEMENT FOR ACQUIRING A FLAT ON 14.08.201 0 AND PAID RS.16,25,400/- BUT THAT AGREEMENT WAS SIGNED ON 17 .08.2010 WITH A FURTHER PAYMENT OF RS.9,21,0600/-. THEREAFTER, HE E XECUTED A SALE DEED ON 06.10.2010 AND PAID RS.1,74,71,600/-. IN A DDITION, HE HAD ALSO PAID REGISTRATION AND STAMP DUTY CHARGES AT RS .15,72,400/-, TOTALLY RS.2,98,80,000/-. ALTHOUGH, HE SOLD HIS RE SIDENTIAL PROPERTY ON 24.12.2011, SUBSTANTIAL CONSIDERATION FOR THE ACQUI SITION OF NEW PROPERTY WAS MADE ON 06.10.2010 ITSELF I.E., 444 DA YS PRIOR FROM THE DATE OF TRANSFER. THEREFORE THE AO REFUSED THE CLA IM OF DEDUCTION. SIMILAR ISSUE AROSE IN THE CASE OF SHRI M.B. VENKAT ESH, IN ITA NO.668/CHNY/2018 DATED 20.11.2018, FOR THE ASSESSME NT YEAR 2010- 11, WHEREIN THIS TRIBUNAL FOLLOWING THE JURISDICTIO NAL HIGH COURT DECISION DECIDED AS UNDER:- 6. THE QUESTION NOW ARISES FOR CONSIDERATION IS WHE N THE ASSESSEE INVESTED HIS FUNDS IN PURCHASING LAND AND CONSTRUCT ING RESIDENTIAL PREMISES BEFORE THE DATE OF TRANSFER OF CAPITAL ASS ET, WHETHER HE IS 5 ITA NO.805/CHNY/2017 ELIGIBLE FOR EXEMPTION UNDER SECTION 54F OF THE ACT ? WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 54F OF THE A CT AND ALSO THE JUDGMENT OF MADRAS HIGH COURT IN C. ARYAMA SUNDARAM (SUPRA). IN THE CASE BEFORE THE MADRAS HIGH COURT, THE ASSESSEE SOL D A RESIDENTIAL HOUSE AT NEW DELHI ON 15.01.2010. THE ASSESSEE PURCHASED THE PROPERTY WITH SUPERSTRUCTURE ON 14.05.2007. AFTER DEMOLISHING THE EXISTING SUPERSTRUCTURE, THE ASSESSEE CONSTRUCTED A RESIDENT IAL HOUSE AND CLAIMED THE CAPITAL GAIN AS EXEMPTION FROM TAXATION UNDER S ECTION 54F OF THE ACT. THE ASSESSING OFFICER FOUND THAT A PART OF EXPENDIT URE INCURRED ON CONSTRUCTION AFTER THE SALE OF ORIGINAL ASSET WOULD BE ELIGIBLE FOR EXEMPTION UNDER SECTION 54F OF THE ACT. HOWEVER, TH E COST OF CONSTRUCTION INCURRED BEFORE THE SALE OF ORIGINAL A SSET WAS FOUND TO BE NOT ELIGIBLE. IN THOSE FACTUAL CIRCUMSTANCES, THE M ADRAS HIGH COURT FOUND THAT IT IS NOT A REQUISITE OF SECTION 54F OF THE ACT THAT CONSTRUCTION COULD NOT HAVE COMMENCED PRIOR TO THE DATE OF TRANS FER OF ASSET RESULTING IN CAPITAL GAIN. IN FACT, THE MADRAS HIGH COURT OBS ERVED AS FOLLOWS AT PARAGRAPHS 19 TO 13:- 19. THE CONDITIONS PRECEDENT FOR EXEMPTION OF CAPI TAL GAIN FROM BEING CHARGED TO INCOME TAX ARE: (I)THE ASSESSEE SH OULD HAVE PURCHASED A RESIDENTIAL HOUSE IN INDIA EITHER ONE Y EAR BEFORE OR TWO YEARS AFTER THE DATE OF TRANSFER OF THE RESIDEN TIAL HOUSE WHICH RESULTED IN CAPITAL GAIN OR ALTERNATIVELY CONSTRUCT ED A NEW RESIDENTIAL HOUSE IN INDIA WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF THE TRANSFER OF THE RESIDENTIAL PROPERTY WH ICH RESULTED IN THE CAPITAL GAIN. (II)IF THE AMOUNT OF CAPITAL GAIN IS GREATER THAN THE COST OF THE RESIDENTIAL HOUSE SO PURCHASED OR CONST RUCTED, THE DIFFERENCE BETWEEN THE AMOUNT OF THE CAPITAL GAIN A ND THE COST OF THE NEW ASSET IS TO BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR. (III)IF THE AMOUNT OF THE CAPITA L GAIN IS EQUAL TO OR LESS THAN THE COST OF THE NEW RESIDENTIAL HOUSE, THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45. 20. WHAT HAS TO BE ADJUSTED AND/OR SET OFF AGAINST THE CAPITAL GAIN IS, THE COST OF THE RESIDENTIAL HOUSE THAT IS PURCH ASED OR CONSTRUCTED. SECTION 54(1) OF THE SAID ACT IS SPECI FIC AND CLEAR. IT IS THE COST OF THE NEW RESIDENTIAL HOUSE AND NOT JU ST THE COST OF CONSTRUCTION OF THE NEW RESIDENTIAL HOUSE, WHICH IS TO BE ADJUSTED. 6 ITA NO.805/CHNY/2017 THE COST OF THE NEW RESIDENTIAL HOUSE WOULD NECESSA RILY INCLUDE THE COST OF THE LAND, THE COST OF MATERIALS USED IN THE CONSTRUCTION, THE COST OF LABOUR AND ANY OTHER COST RELATABLE TO THE ACQUISITION AND/OR CONSTRUCTION OF THE RESIDENTIAL HOUSE. 21. A READING OF SECTION 54(1) MAKES IT AMPLY CLEAR THAT CAPITAL GAIN IS TO BE ADJUSTED AGAINST THE COST OF NEW RESI DENTIAL HOUSE. THE CONDITION PRECEDENT FOR SUCH ADJUSTMENT IS THAT THE NEW RESIDENTIAL HOUSE SHOULD HAVE BEEN PURCHASED WITHIN ONE YEAR BEFORE OR TWO YEARS AFTER THE TRANSFER OF THE RESID ENTIAL HOUSE, WHICH RESULTED IN THE CAPITAL GAIN OR ALTERNATIVELY , A NEW RESIDENTIAL HOUSE HAS BEEN CONSTRUCTED IN INDIA, WI THIN THREE YEARS FROM THE DATE OF THE TRANSFER, WHICH RESULTED IN TH E CAPITAL GAIN. THE SAID SECTION DOES NOT EXCLUDE THE COST OF LAND FROM THE COST OF RESIDENTIAL HOUSE. 22. IT IS AXIOMATIC THAT SECTION 54(1) OF THE SAID ACT DOES NOT CONTEMPLATE THAT THE SAME MONEY RECEIVED FROM THE S ALE OF A RESIDENTIAL HOUSE SHOULD BE USED IN THE ACQUISITION OF NEW RESIDENTIAL HOUSE. HAD IT BEEN THE INTENTION OF THE LEGISLATURE THAT THE VERY SAME MONEY THAT HAD BEEN RECEIVED AS CONSI DERATION FOR TRANSFER OF A RESIDENTIAL HOUSE SHOULD BE USED FOR ACQUISITION OF THE NEW ASSET, SECTION 54(1) WOULD NOT HAVE ALLOWED ADJ USTMENT AND/OR EXEMPTION IN RESPECT OF PROPERTY PURCHASED O NE YEAR PRIOR TO THE TRANSFER, WHICH GAVE RISE TO THE CAPITAL GAI N OR MAY BE IN THE ALTERNATIVE HAVE EXPRESSLY MADE THE EXEMPTION IN CA SE OF PRIOR PURCHASE, SUBJECT TO PURCHASE FROM ANY ADVANCE THAT MIGHT HAVE BEEN RECEIVED FOR THE TRANSFER OF THE RESIDENTIAL H OUSE WHICH RESULTED IN THE CAPITAL GAIN. 23. AT THE COST OF REPETITION, IT IT REITERATED THA T EXEMPTION OF CAPITAL GAIN FROM BEING CHARGED TO INCOME TAX AS IN COME OF THE PREVIOUS YEAR IS ATTRACTED WHEN ANOTHER RESIDENTIAL HOUSE HAS BEEN PURCHASED WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE OF TRANSFER OR HAS BEEN CONSTRUCTED WITHIN A P ERIOD OF THREE YEARS AFTER THE DATE OF TRANSFER OF THE RESIDENTIAL HOUSE. IT IS NOT IN DISPUTE THAT THE NEW RESIDENTIAL HOUSE HAS BEEN CON STRUCTED WITHIN THE TIME STIPULATED IN SECTION 54(1) OF THE SAID AC T. IT IS NOT A 7 ITA NO.805/CHNY/2017 REQUISITE OF SECTION 54 THAT CONSTRUCTION COULD NOT HAVE COMMENCED PRIOR TO THE DATE OF TRANSFER OF THE ASSE T RESULTING IN CAPITAL GAIN. IF THE AMOUNT OF CAPITAL GAIN IS GREA TER THAN THE COST OF THE NEW HOUSE, THE DIFFERENCE BETWEEN THE AMOUNT OF CAPITAL GAIN AND THE COST OF THE NEW ASSET IS TO BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR. IF THE AMOUN T OF CAPITAL GAIN IS EQUAL TO OR LESS THAN THE COST OF THE NEW R ESIDENTIAL HOUSE, INCLUDING THE LAND ON WHICH THE RESIDENTIAL HOUSE I S CONSTRUCTED, THE CAPITAL GAIN IS NOT TO BE CHARGED UNDER SECTION 45 OF THE SAID ACT. 7. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE FACTUAL ASPECT ARISES FOR CONSIDERATION BEFORE THE MADRAS H IGH COURT IS IDENTICAL AS IT ARISES FOR CONSIDERATION BEFORE THI S TRIBUNAL. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDG MENT OF MADRAS HIGH COURT IS BINDING ON ALL THE AUTHORITIES IN THE STAT E OF TAMIL NADU AND UNION TERRITORY OF PUDUCHERRY INCLUDING THIS TRIBUN AL. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF G UJARAT HIGH COURT IN THE CASE OF USHABENJAYANTILALSODHAN (SUPRA). IN ALMOST SIMILAR CIRCUMSTANCES, THE GUJARAT HIGH COURT HAS TAKEN A C ONTRARY VIEW AND HELD THAT THE EXPENDITURE INCURRED BEFORE THE DATE OF TRANSFER IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 54F OF THE ACT . THE GUJARAT HIGH COURT IS NOT A JURISDICTIONAL HIGH COURT. HOWEVER, THE FINDINGS RECORDED BY GUJARAT HIGH COURT HAVE PERSUASIVE VALUE TO DECI DE THE CASE BEFORE THIS TRIBUNAL, WHEREAS, THE JUDGMENT OF MADRAS HIGH COURT, WHICH IS A JURISDICTIONAL HIGH COURT, IS BINDING ON THIS TRIBU NAL. THEREFORE, THIS TRIBUNAL IS EXPECTED TO FOLLOW THE BINDING JUDGMENT OF MADRAS HIGH COURT RATHER THAN THE JUDGMENT OF GUJARAT HIGH COUR T WHICH HAS PERSUASIVE VALUE. 9. IN VIEW OF THE ABOVE, BY RESPECTFULLY FOLLOWING THE JUDGMENT OF MADRAS HIGH COURT IN C. ARYAMASUNDARAM (SUPRA), THIS TRIBU NAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ELIGIBLE FO R EXEMPTION UNDER SECTION 54F OF THE ACT EVEN THOUGH THE CONSTRUCTION OF THE BUILDING COMMENCED AND COMPLETED BEFORE THE DATE OF TRANSFER OF CAPITAL ASSET. IN VIEW OF THIS, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW A RE SET ASIDE AND THE 8 ITA NO.805/CHNY/2017 ASSESSING OFFICER IS DIRECTED TO GRANT EXEMPTION UN DER SECTION 54F OF THE ACT. FOLLOWING THE CO-ORDINATE BENCH DECISION, SUPRA , THE ASSESSEES APPEAL IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THE 24 TH JULY, 2019 AT CHENNAI. SD/- SD/- $ /CHENNAI, % /DATED 24 TH JULY, 2019 RSR () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( ) /CIT(A) 4. - /CIT 5. ) 0 /DR 6. /GF ( ) (DUVVURU R.L REDDY) /JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER