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Per: Saktijit Dey:
This appeal of the assessee is directed against the order of the Commissioner of Income-tax(Appeals), Hyderabad dated 24.08.2011 for the assessment year 2007-08.
2. Grounds No.1 and 9 are general in nature. Hence they are not required to be adjudicated upon.
3. Grounds No.2 and 3 relate to disallowance of exemption claimed under S.54 of the Act, amounting to Rs.69,61,500, being invested in purchase of land for constructing a house.
4. Briefly, the facts relating to the issue in dispute are- The assessee is an individual. On 17.2.1981, the assessee alongwith another person, namely, Smt.Sashikala Tibrewala, jointly acquired certain property for a consideration of Rs.1,95,430.00. Later, Smt.Sashikala Tibrewala relinquished her rights over the said property on 23.3.1985. Thereafter the assessee entered into a development agreement with M/s Tibrewala Builders for construction of flats over the said property on 50:50 sharing basis. Accordingly, five flats fell to the share of the assessee, which were claimed to have been sold by her during the year under consideration for a total consideration of Rs.1,79,00,000. For the assessment year under appeal, the assessee filed her return of income declaring total income of Rs.58,839. In the return of income, the assessee while computing long term capital gains claimed exemption under S.54 of the Act towards purchase of plot and construction of house besides deposit in capital gains account scheme. In the course of assessment proceedings, the Assessing Officer, while examining the assessee’s claim of exemption u/s. 54 of the Act noted that the assessee has purchased a house bearing No.6-3-1111/14 at Somajiguda, Hyderabad on 8.1.2007 for a cost of Rs.69,61,500 inclusive of registration charges. In response to the query raised by the Assessing Officer, the assessee stated that the property purchased is an open land with old structure, which the assessee intended to dismantle and construct a new house. The Assessing Officer noted that exemption u/s. 54 is available only where the assessee purchases a residential house within a period of one year, after the date of transfer or sale of original asset. The Assessing Officer held that as the assessee purchased only an open plot for construction of a house over it and not a residential house, she is not entitled to claim exemption of the amount of Rs.69,61,500/- under S.54 of the Act. The Assessing Officer, however, allowed exemption u/s. 54, on an amount of Rs.64,05,000 deposited in capital gains account scheme.
5. The part disallowance of exemption claimed u/s. 54 of the Act was challenged by the assessee in appeal filed before the CIT(A). In the course of hearing before the CIT(A), it was contended by the assessee that investment in purchase of land for construction of residential house is also in compliance to the provisions contained u/s. 54 of the Act and hence, the assessee is entitled to claim exemption u/s.54 of the Act. In support of such contention, the assessee relied upon Board’s circular No.667 dated 18.10.1993. On examining the information and details submitted by the assessee, the CIT(A) noted that the amount of Rs.63,00,000 paid by the assessee towards purchase of the plot was actually paid on her behalf by M/s. Jagadamba Builders vide cheque No.837507 dated 3.1.2007 drawn on Agrasen Co-op. Urban Bank Ltd., out of her balance with them. On he basis of the above facts, the CIT(A) came to a conclusion that since the assessee has made payment for purchase of the plot from a different source and has no actually utilised the sale consideration received from transfer of the original asset, no deduction u/s. 54 can be allowed to the assessee. In this context, the CIT(A) relied upon the decision of ITAT, Nagpur Bench in the case of Smt.Sashikala Rajkuimar Kabra V/.s. ITO(64 TTJ 754)(SMC) and the decision of the Cochin Bench of the Tribunal in the case of K.A.Abdul Salam V/s. ITO(2 SOT 375).
6. Aggrieved by the above order of the CIT(A), assessee is in second appeal before us.
7. The learned Authorised Representative submitted that the CIT(A) has totally misconceived and misconstrued the provisions contained us/. 54 of the Act, while coming to the conclusion that the assessee is not entitled to exemption, as it has not utilsied the consideration received on transfer of the flats in the purchase of the plot. He submitted that S.54 of the Act cannot be interpreted in a manner to suggest that the investment in the new asset should only be out of the sale consideration received from transfer of the old original assets. In support of such contention, the learned Authorised Representative relied upon the following decisions of the coordinate Bench of the Tribunal-
(a) Muneer Khan V/s. ITO (41 SOT 504)
(b) J.V.Krishna Rao V/s. DCIT(54 SOT 44)
The learned Authorised Representative continuing his arguments submitted that the only requirement u/s. 54 is the assessee must purchase a residential house within two years or construct a residential house within three years of the transfer of the original asset. It was submitted that the assessee has invested an amount of Rs.69,61,500 in purchasing a plot for constructing a residential house and has deposited an amount of Rs.64,05,000, in a capital gains account scheme. It was submitted that investment in purchase of plot for constructing a residential house is sufficient compliance for the provision contained u/s. 54 of the Act and in case construction of the residential house is not made within three years, then such income can be charged to capital gains tax only in the assessment year, in which the period of three years expires. In support of such contention, the learned Authorised Representative drew support from the Board Circular No.667 dated 18.10.1983.
8. The learned Departmental Representative submitted that for claiming exemption under S.54 of the Act, the consideration received from sale of original asset has to be utilsied in purchase or construction of the new residential house; and otherwise, the intent and purpose of the provision will be defeated. It was further submitted that the assessee has only purchased the plot and has not constructed the house within three years. Hence, no exemption can be given under S.54 of the Act.
9. The learned Authorised Representative in rejoinder submitted that the assessee in fact has constructed the residential house within the period of three years and complied with the statutory provision by completing the construction of the house in the year 2008. It was submitted that the entire deposits made in capital gains account scheme was withdrawn and utilised in construction of the house. It was further submitted that all these details were also submitted before the Assessing Officer. The learned Authorised Representative also submitted the bank account statement and the letters submitted before the Assessing Officer.
10. We have heard rival submissions and perused the materials on record. We have also carefully applied our mind to the decisions cited before us. On a perusal of the orders of the Revenue authorities and other materials on record, the undisputed facts which emerge are the assessee received an amount of Rs.1,79,00,000 from sale of five flats. The assessee, though admitted long term capital gains, however, claimed exemption in respect of the same under S.54 of the Act, in respect of an amount of Rs.69,57,5000 towards purchases of plot for construction of residential house and an amount of Rs.64,05,000 being deposited in capital gains account scheme. So far as the amount of Rs.64,05,000 deposited in capital gains account scheme is concerned, the Assessing Officer allowed the claim of exemption. However, in respect of the amount of Rs.69,51,500 utilised for purchase of plot, while the Assessing Officer disallowed it on the ground that the assessee has not purchased a residential house within one year, the CIT(A) has disallowed the claim of exemption by holding that the assessee has purchased the plot by utilising fund from a different source and not out of the sale consideration received from the sale of flats. According to the CIT(A), for claiming exemption us. 54 of the Act, the assessee should have utilsied the sale consideration received from sale of flats towards purchase of the plot. On going through the provisions contained in S.54 of the Act, we could not locate any such precondition/restriction. The only condition imposed under sub-section (1) and (2)of S.54 are- (a) the assessee should within a period of two years from the date of transfer, purchase a residential house or within a period of three years from the date of transfer, construct a residential house, and (b) the amount of capital gains not so utilized shall be kept in a scheme of the Central Government made in that behalf.
11. It is not in dispute that the assessee has purchased a plot of land for Rs.69,51,500 and deposited an amount of Rs.64,05,000 in capital gains account scheme. The coordinate bench of this Tribunal, while dealing with an identical issue of utilisation of money from a source other than the sale consideration received from capital asset in the case of J.V.Krishana Rao V/s. DCIT (supra), following an earlier decision of the same bench in the case of Muneer Khan V/s. ITO (supra) held in the following manner-
“9. We heard both the parties and perused the orders of the lower authorities. We have also perused the case-law relied upon by the learned counsel for the assessee. The point in dispute before us is when the assessee undisputedly earned capital gains and when the deposited equivalent amount in the bank under Capital Gains Accounts Schemes, whether the assessing officer is justified in denying benefit of S.54F on the ground that part of such deposit has source in borrowal of funds and part of such gains is diverted elsewhere for other purposes. On this, we find that this issue is covered by the decision of the Hyderabad Bench of Shri Muneer Khan (supra), wherein it has been held that money has no colour and all that is required to be eligible for relief under S.54F of the Act is compliance with the condition of investment within the specified time. We also find support for this view from the decision of the Delhi Bench of the Tribunal in the case of Sita Jain & Others V/s. ACIT, wherein it was held that one to one correlation between the sale proceeds of agricultural lands and utilisation of such proceeds for purchase of land is not necessary. In the case of Bombay Housing Corporation (supra), the Mumbai Bench of the Tribunal held that even if an assessee borrows required funds and satisfied conditions relating to investment in specified assets, he is entitled to exemption. The later decision of the Mumbai Bench of the Tribunal in the case of Mrs. Prema P.Shah (supra) is also to the same effect, and it in fact followed the earlier decision of the Mumbai bench in the case of Bombay Housing Corporation (supra). We have perused the decision of the Hon’ble Kerala High Court in the case of V.R.Desai (197 Taxman 52), relied upon by the learned CIT(A), and find that it is distinguishable on facts in as much as in that case the assessee has failed to make investment in eligible asset within the specified period, and therefore, in our opinion, the CIT(A) erred in following that decision in the impugned order.
10. In the light of the above discussion, following the Hyderabad Bench of the Tribunal in the case of Muneer Khan (supra) and also the other decisions of the Tribunal relied upon by the learned counsel for the assessees before us, we hold that the capital gains earned by the assessee can be utilised for other purposes, and as long as the assessee fulfils the condition of investment of the equivalent amount in the scheme specified or in the asset qualifying for relief under S.54F, by securing the money spent out of the capital gains or from other sources available to it either by borrowal or otherwise, and the assessees are eligible for relief under S.54F of the Act in respect of the entire amount of capital gains so deposited. In the circumstances, we find merit in the contentions of the assessees that inasmuch as they have made deposits of the amounts equivalent to the capital gains realized in the Capital Gains Investments Accounts, even though part of those capital gains have been utilized for other purposes, borrowing amounts equivalent to such utilised funds from Shri J.V.Laxman Rao. The assessees are entitled to relief under S.54F of the Act, as ultimately the assessees deposited the requisite amounts in the Capital Gains Accounts Schemes for exemption under S.54F of the Act within the time stipulated by the statute. We accordingly, set aside the orders of the lower authorities on this issue, and direct the assessing officer to delete the disallowance made by the assessing officer in this regard. Grounds of the assessees in these appeals are consequently allowed.”
12. The ratio laid down by the coordinate bench as above squarely applies to the facts of the present case as provision contained u/s. 54 of the Act is pari materia with S.54F of the Act. Therefore, following the aforesaid ratio laid down by the coordinate bench, we hold that exemption claimed by the assessee under S.54 of the Act cannot be denied on the ground that the assessee has not utilised the sale consideration received from the sale of flats itself, in purchasing the plot. Law is well settled by the judicial precedents that investment in purchase of pot for construction of house would entitle an assessee to claim exemption u/s.54 or 54F of the Act. Board’s circular No.667 dated 18.10.1993 also says so.
13. So far as the issue of whether the assessee has constructed the residential house within a period of three years as stipulated in S.54 is concerned, neither the Assessing Officer nor the CIT(A) has dealt this fact. While the CIT(A) has disallowed the claim of the assessee on the ground that the sale consideration received on transfer of assets has not been utilized in purchasing the plot, the Assessing Officer has disallowed it by observing that the assessee has not purchased a residential house within one year. Be that as it may, it is categorical submission of the learned Authorised Representative that the assessee has constructed the residential house within the stipulated period of three years as per S.54 of the Act, and necessary information and evidences were also produced before the Assessing Officer. In this regard, copy of the bank account and letters submitted before the Assessing Officer have been produced before us. In the absence of any material to the contrary brought on record by the Revenue, we are inclined to accept the assessee’s claim that the construction was completed within the stipulated period of three years as per Section 54 of the Act and necessary information and evidence were also produced before the Assessing Officer, as seen from the copies thereof furnished before us as well. As such, the assessee is entitled to the relief under S.54 of the Act, as claimed by her.
14. Even assuming that the construction was not completed within the period of three years, which, of course, is not the case in the present appeal, if at all any disallowance has to be made, then, it has to be made in the year in which the period of three years expires and not in the impugned assessment year, in which the department is obliged in the first place to grant deduction under S.54 of the Act. Considering the totality of facts and circumstances of the case, we are of the view that the assessee is eligible to claim exemption of the amount of Rs.69,61,500 invested in purchase of land under S.54 of the Act. Accordingly, we direct the Assessing Officer to allow the same to the assessee. The grounds raised by the assessee on this aspect, viz. grounds No.2 and 3, are allowed.
15. In ground Nos 4, 5 and 6, the assessee has challenged the method of computation of long term capital gains adopted by the Assessing Officer, and specifically disputed the restriction of the cost of construction and cost of improvement to Rs.3 lakhs as against Rs.6 lakhs claimed by the assessee.
16. We have heard submissions of the parties on the issue and perused the orders of the Revenue authorities. It is evident from the orders of the revenue authorities that the assessee has not produced enough supporting evidence to prove that she has in fact incurred expenditure of Rs.6 lakhs towards cost of construction and cost of improvement. In such a view of the matter, the allowance of 50% of cost of construction at Rs.3 lakhs is reasonable, and no interference is called for. We accordingly reject the grounds raised by the assessee on this aspect.
17. In ground No.7, the assessee has challenged the disallowance of expenditure incurred towards digging of borewell while computing the cost of acquisition. Considering the fact that the assessee has failed to produce any evidence in this regard, her claim was not accepted by the Revenue authorities. In the absence of any evidence in support of her claim in this behalf even before us, we find no infirmity in the action of the revenue authorities in rejecting the claim of the assessee. This ground of the assessee is accordingly rejected.
18. In ground No.8, the assessee has disputed the action of the revenue authorities, in not allowing the amount of Rs.3,00,000 being the cost of boundary wall as part of construction cost of the new property.
19. The Assessing Officer while examining the assessee’s claim for exemption under S.54 of the Act noted that assessee claimed an amount of Rs.3,00,000 towards construction of boundary wall over the plot purchased by her. The Assessing Officer rejected the claim by holding that the exemption under S.54 is available where assessee purchases a residential house within a period of one year after the date of transfer of original asset. The CIT(A) confirmed the disallowance of the amount of Rs.3 lakhs by observing that the expenditure incurred on construction of boundary wall on the plot was not out of the actual sale proceeds received by the assessee from sale of the flats.
20. We heard both sides. On a careful consideration of the matter in the light of the orders of the CIT(A) and the Assessing Officer, it is quite evident that they have not disputed the fact that the assessee has incurred the expenditure of Rs.3-lakhs in the construction of the boundary wall. The CIT(A) has rejected the assessee’s claim only on the ground that the construction made was not out of sale proceeds of the flats. In paras 10 to 12 of our order hereinabove, we have held that for claiming exemption under S.54 of the Act, it is not necessary that the investment in new asset should be out of the sale consideration received from transfer of the original asset only. In the aforesaid view of the matter, we hold that the assessee is entitled for deduction of Rs.3 lakhs, being expenditure incurred on construction of compound wall. This ground raised by the assessee is allowed.
21. In the result, appeal of the assessee is partly allowed.
(Order pronounced in the court on 22.3.2013)