IN THE ITAT JAIPUR BENCH ‘A’
Om Prakash Goyal
IT APPEAL NO. 647 (JP) OF 2011
[ASSESSMENT YEAR 2008-09]
FEBRUARY 2, 2012
R.K. Gupta, Judicial Member
This is an appeal by department against the order of ld. CIT(A) relating to assessment year 2008-09.
2. The department is objecting in allowing benefit of section 54F of the Act amounting to Rs. 1,20,50,000/- incurred for purchase of agriculture land. It is also mentioned in the grounds of appeal that no evidence in respect of construction of residential house was on record. Therefore, the ld. CIT(A) was not justified in allowing the benefit. The department has also taken a ground that assessee has not constructed any house property within 3 years from the date of agreement i.e. 19.11.2007. They have also stated that assessee has not furnished any evidence of construction of house property till the date of assessment i.e. 06.12.2010. The department has also taken a ground that allowing the benefit under section 54F in view of CBDT Circular No. 667 dated 18.10.93 which is not applicable on the facts of the case.
3. The brief facts of the case are that return declaring total income of Rs. 12,19,721/-was filed by assessee. During the year the assessee declared long term capital gain and claimed exemption under section 54F, which was disallowed by AO with the following observations :-
“During the course of assessment proceedings it was found that assessee has declared Income from long term capital gain amounting to 9,66,3857 by claiming exemption u/s 54. During the year under consideration for claiming exemption u/s 54 the assessee has invested 12050000/- for purchase of land toward Deepak Nagar Yogna property. For claiming exemption assessee has purchased property from Sh. Ram Rishpal Agarwal and Sh. Beni Gopal Agarwal S/o Sh. Madan Gopal Agarwal R/s Ganeri Wala Bhawan Naya Bazar, Ajmer. The assessee has made agreement for purchase of the property from the above two parties the details of properties as per agreement is as under:-
In view of the detail mentioned above it is seen that as per agreement the assessee has purchased agriculture land for claiming exemption u/s 54 of the IT Act. It is pertinent to mention here that the assessee has made agreement for purchase of above land and paid advance of Rs. 20,00,000/- i.e. Rs. 10 Lacs each to the above two parties. The property has still not been transferred in the name of the assessee. However, on going through the details furnished, the assessee has made all the payment through bank account and the said amount has also been credited to the seller’s respective accounts. But it has not been confirmed by the seller that the purpose against which the money has been transferred to their accounts. Also the property has not been registered and transferred in the name of the assessee. Though the assessee has made investment in property within 6 month for claiming exemption u/s 54 of I.T. Act. It is also seen that the investment made by the assessee is in agricultural land as per details of agreement and agricultural land is not a capital asset as per sec. 2(14) of I.T. Act.
It is further mentioned here that for claiming exemption assessee can claim exemption for investment as claim in sec. 54F. Sec. 54F stipulated as under Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-tern capital asset, not being a residential house has within a period of one year before or (two years) after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house.
In view of the above provision of sec. 54 F assessee is not entitled for deduction of exemption from long-term capital gain u/s 54F also. Therefore, the difference of capital gain as offered by assessee and as calculated after disallowance of exemption is added to the total income of the assessee.”
4. Assessee preferred appeal before ld. CIT(A). Detailed submissions were filed before ld. CIT(A) which are tabulated in his order in para 3.2 at pages 2 to 4 as under :-
“That assessee has sold out of property at Jaipur and claimed exemption u/s 54 of IT Act of Rs. 1,20,50,000/- and ld AO has disallowed the claim on the plea that land purchased for construction of residential house was agricultural and was not registered.
That assessee has purchased land in Deepak Nagar Yojna and agreement was executed for the purchase of property and was submitted before ld. A.O. There was some dispute and matter was sub judice but possession was taken immediately.
That it is nowhere necessary that invested for construction house is to be made in non-agriculture land as per section 54 of the I.T. Act. Even farm house is considered as residential house.
Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (here after in this section referred to as the original asset), and the assessee has within a period of one year before (two years) after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house.
It was held in the matter of Additional Commissioner of Income-tax v. Narendra Mohan Uniyal  34 SOT 152 (Delhi) that the exemption under s. 54F is allowable in respect of the amount invested in the construction of a residential house-There is no rider that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed when the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby that there is no denial of exemption on investment in a part of the land which is appurtenant to the building and on which no construction is made only because construction was made on the first plot of land, the exemption claimed in respect of investment made in adjacent plot of land cannot be declined when all the order conditions as stipulated under sec. 54F are being satisfied. Thus, the cost of vacant land appurtenant to and forming part of the residential unit is to be considered for claim of exemption under s. 54F even if no construction has been done on the appurtenant land.
It was held in the matter of Commissioner of Income-tax v. Vishnu Trading & Investment Co.  176 CTR (Raj.) 169 :  259 JTR 724 (Raj.)  that for taxing the capital gain, registration of the sale deed is not necessary. Tribunal has not given any decision on the issue whether the consideration passed was more than that shown in the deed-Assessee given liberty to move a miscellaneous, application for consideration of that issue. CIT v. Poddar Cement (P.) Ltd & Ors  141 CTR (SC) 67 :  226 JTR 625 (SC) : TCS4Q.3564 followed.
Similar views regarding registration of property was expressed in Balraj v. Commissioner of Income-tax  173 CTR (Delhi) 452 :  254 ITR 22 (Delhi)  and held that assessee purchased a property within one year of sale of his residential house later transaction not evidenced by registration thereof as provided under s. 17 of Registration Act. For claiming exemption under the provisions of s. 54, it is not necessary that the assessee should become the owner of the property purchased by him hence, registration of document is not imperative Assessee entitled to exemption under s. 54 CIT v. TN. Aravindra Reddy  12 CTR (SC) 423 :  120 JTR 46 (SC) TC 22R 251 followed, CIT v. Podar Cement (P.) Ltd  14 CTR (SC) 67 :  226 JTR 625 (SC) : (TC) 40.3564 Mysore Minerals Ltd. v. CIT  156 CTR (SC) 1 :  239 JTR 775 (SC) and CIT PR.L. Sood (201) 165 CTR (Delhi) 458  245 JTR 727 (Delhi) relied on.
It was also held in Commissioner of Income-tax v. Smt Kanta Devi Saraf  172 CTR (Cal.) 322 :  254 JTR 317 (Cal.) that exemption under Section 54F Purchase of house property vis-a-vis utilization of sale proceeds. Before insertion of sub. (4) in 54F, the requirement for claiming the benefit of exemption was that the assessee should purchase a residential house within a period of two years, from the date of sale of the original asset or Construct a residential house within 3 years from the said date. There was no further requirement that the sale proceeds should be utilized by the assessee within the stipulated period. Assessee sold shares for Rs. 30,32,500 and purchased a residential house on the next day for Rs. 25 lakhs by paying Rs. 5 Lakhs to the sellers remaining amount was payable subsequently stamp paper for Rs. 5 lakhs also purchased for execution of sale deed. Total investment for purchase of residential house thus came to Rs. 30 Lakhs – Tribunal was therefore right in allowing the benefit of s. 54F.
Similar views were expressed in the matter of Mysoke Minerals Ltd. v. Commissioner of Income-tax  456 CTR (SC) :  239 ITR 775 (SC) and held that ownership. Building not registered in the name of assessee-provision of s. 32 Should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by legislature – Team ‘owned’ occurring in s. 32(1) must be assigned a wider meaning-anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property in his own right would be the owner of building for the purpose of s. 32(2) though a formal deed of title may not have been executed and having paid part of the price, has been placed in possession of the houses as an owner and is using the building for the purpose of its business-denial of depreciation not justified.
Further Board has clarified by circular No 607 dated 18.10.1993  204 JTR (St) 103 that the case of house-hold include the cost of plot as well.
Section 54F of the IT Act. Specifies the following conditions.
1. Exemption can be granted by Individual HUF only.
2. Asset transferred should be long term capital asset other than residential house.
3. Residential house should be purchased within one year before or with two years from the date of transfer of original assets.
4. Construction should be completed within three years from the date of transfer of original assets.
The requirement of section 54F is that property should be a residential house. The use of the property is not the relevant criterion to consider the eligibility for benefit of section 54Fof the IT Act.
Mahavir Prasad Gupta v. CIT  5 SOT 355 (Delhi). Even a farmhouse can be a residential house and investment is eligible for benefit of section 54F of the IT Act.
Shyam Sunder Makhija v. ITO  38 ITD 125 (JPR) Purchases though unregistered would still be eligible for reinvestment benefit.
CIT v. Mrs. Shahzada Begwn  173 ITR 397(AP)
It is, therefore, requested that looking to these facts appeal may kindly be allowed.”
Thereafter, the ld. CIT(A) after considering the submissions, order of the AO and various decisions i.e. in case of CIT v. Vishnu Trading & Investment Co.  259 ITR 724 and in case of Addl. CIT v. Narendra Mohan Uniyal  34 SOT 152 (Delhi) and in case of Shyam Sunder Mukhija v. ITO  38 ITD 125 (JP) held that assessee is eligible for exemption under section 54F. The finding of ld. CIT(A) have been recorded in para 3.7 are as under :-
“3.7 When the present case is examined in view of this legal position, it is found that AO disallowed exemption u/s 54F on the ground that land purchased by appellant was Agricultural land and moreover the property was not registered in his name. However in view of above-mentioned decisions, I hold that deduction u/s 54F cannot be disallowed on the ground that Land purchased is Agricultural and not Registered in the name of buyer. The only conditions for claiming exemptions u/s 54F are as follows:
a. The asset transferred is long term capital asset, not being a residential house.
b. Residential house is purchased within one year before or two years after the date of transfer of the original asset.
c. Construction is completed within three years from the date of transfer.
Thus there is no prohibition regarding construction of a residential house on agriculture land. CBDT Cir. No. 667 dt. 18.10.1993 (204 ITR (St) 103) has clarified that for the purpose of computing exemption u/s. 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. Therefore, AO is not justified to disallow deduction u/s 54F. AO is directed to allow exemption of Rs. 1,20,50,000 u/s 54F as claimed by appellant. Ground No. 1 is thus allowed.”
5. Now the department is in appeal here before the Tribunal.
6. The ld. D/R placed reliance on the order of AO. It was further argued that in fact the assessee has purchased a plot of agricultural land and, therefore, exemption under section 54F cannot be allowed. However, if the house is constructed within 3 years, then of course, the exemption can be allowed under section 54F. The proof of construction was not filed before the AO till the date of assessment. However, it is seen that same was filed before ld. CIT(A) who has allowed the appeal of the assessee. Therefore, the matter should be sent back to the file of AO for ascertaining the factual aspects and then pass a fresh order.
7. On the other hand, the ld. Counsel of the assessee strongly objected the contention of ld. D/R in sending the matter back to the file of AO. It was further submitted that though AO has not mentioned in the assessment, however, he got inspected the house through his Inspector. The assessee was not asked to file the valuation report of the house. Therefore, he has not filed. All these details were filed before ld. CIT(A) who after examining the facts, who is a senior authority has allowed the issue in favour of the assessee as per provisions of law and as per various decisions of Hon’ble Jurisdictional High Court and other Benches of Tribunal. Accordingly, the order of ld. CIT(A) does not suffer from any infirmity.
8. We have heard rival submissions and considered them carefully. After considering the material on record, we find that there is no infirmity in the order of ld. CIT(A). The AO has examined the agreement of purchase of plot. The assessee has sold a property for a consideration of Rs. 5,60,00,000/- and assessee has purchased a property from Shri Ram Richpal Agarwal and Shri Beni Gopal Agarwal at Deepak Nagar Yodna property. This land was purchased consisting of 3300 sq. yards which is a part of agricultural land. The rate of land was Rs. 4550/- per sq. yard. Rs. 10,00,000/- was given in advance on 19.11.2007. An agreement was entered, copy of the same was filed before the AO. The remaining amount was paid on a later stage. The assessee claimed exemption under section 54F stating that the amount in question has been invested for purchase of land for constructing the house. However, AO did not accept the contention of the assessee on two grounds i.e. firstly, the land in question purchased through an agreement and the agreement has not been registered; secondly, it was opined by AO that the plot in question is an agricultural land and on purchase of agricultural land, deduction under section 54F cannot be allowed. However, the ld. CIT(A) considered the fact that there is no bar to purchase agricultural land on which house was to be constructed. The fact is that subject to provisions of sub-section (4) of section 54F, where, in the case of an assessee being an individual or a Hindu Undivided Family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or (two years) after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, found that assessee has purchased a plot of land and has constructed a house on the same, then taking into consideration the case of Narendra Mohan Uniyal (supra) and taking into consideration the decision of Hon’ble Rajasthan High Court in case of Vishnu Trading & Investment Co. (supra) and also the decision in case of Shyam Sunder Mukhija (supra) found that assessee is eligible for exemption under section 54F. The AO’s contention was that land purchased by assessee was agricultural land and, moreover, the property was not registered in his name. However, after taking into consideration the provisions of section 54F, the ld. CIT(A) found that the only condition for claiming exemption under section 54F is that the asset transferred is long term capital asset, not being a residential house. The assessee has not transferred a residential house but a long term capital asset. This is an undisputed fact and the AO has not doubted this fact. Second condition is that residential house is purchased within one year before or two years after the date of transfer of original asset. This condition is not applicable on the assessee as assessee has not purchased any new house either one year before or two years after the transaction. Third condition is construction of the house should be completed within 3 years from the date of transfer and this condition was satisfied as explained by ld. CIT(A). The Board Circular No. 667 dated 18.10.93 was also taken into consideration by ld. CIT(A) whereby it was clarified that for the purpose of computing exemption under section 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. These conditions were found satisfied by the ld. CIT(A) and, therefore, he has allowed the exemption to the assessee. We have seen a copy of valuation report which was obtained on 17.3.2011 and it is found that as per this report the house was constructed by assessee and the valuation of the construction is Rs. 16,29,600/-. It means, the exemption claimed by assessee which was at Rs. 1,20,50,000/- only. This consideration was paid for the purchase of plot and Rs. 16,29,600/- was also invested in construction of house of which the assessee has not claimed any deduction for the reason known to him. However, it is seen that house was constructed and, therefore, ld. CIT(A) has allowed the exemption to the assessee to the tune of Rs. 1,20,50,000/-. Since all the conditions for claiming exemption under section 54F have been found satisfied, therefore, in our view, it will be futile exercise if the matter is sent back to the file of AO. All the details are placed on record from which it is established that assessee purchased a plot of land and then constructed the house on it. The house constructed on agricultural land or on other land does not matter, but the fact that house should be constructed and from the report it is very much clear that a residential house was constructed as this fact has been mentioned by valuer in para 14 of his valuation report. In view of these facts and circumstances, we hold that ld. CIT(A) was justified in allowing the claim of the house. Accordingly, we confirm the order of ld. CIT(A).
9. In the result, appeal of the department is dismissed.