PCIT Vs C. A. Badrinath (HUF) (Karnataka High Court)
Summary : The Karnataka High Court, in Pr. Commissioner of Income Tax v. C. A. Badrinath (HUF), dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, and upheld the Income Tax Appellate Tribunal’s decision concerning capital gains exemption arising from transactions involving 23 residential units. The principal controversy concerned whether the dates of sale agreements and delivery of possession could be considered for determining the relevant transfer dates, notwithstanding subsequent execution of registered sale deeds. The Revenue questioned the availability of exemption under Section 54F, while the judgment also repeatedly referred to Section 54.
The assessee, a Hindu Undivided Family, entered into agreements for the sale of 23 flats between January 2014 and October 2014. Possession was handed over between April 2014 and November 2014, whereas the registered sale deeds were executed between July 2014 and July 2015. The assessee had purchased another property on 10 January 2014 and offered capital gains for assessment year 2015-16. The Assessing Officer disallowed the exemption by order dated 29 December 2017. However, the Commissioner of Income Tax (Appeals), by order dated 28 September 2018, allowed the appeal and directed the Assessing Officer to examine the capital gains and exemption for assessment years 2014-15 and 2015-16. The Tribunal subsequently rejected the Revenue’s appeal, relying on the Supreme Court’s decision in Sanjeev Lal v. Commissioner of Income Tax, Chandigarh.
Before the High Court, the Revenue argued that the Tribunal had incorrectly applied Sanjeev Lal, since that decision arose from peculiar circumstances involving litigation and delayed execution of a sale deed. The Revenue also relied on Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company to contend that exemption provisions must be applied subject to strict compliance with statutory conditions. The assessee submitted that the sale agreements, coupled with delivery of possession, were material for determining the transfer of the capital assets. Reliance was placed on Section 2(47), the Gujarat High Court’s decision in Kishorbhai Harjibhai Patel v. Income Tax Officer, and the Karnataka High Court’s decision in Shri Lahar Singh Siroya v. Assistant Commissioner of Income Tax.
The High Court observed that the dates of agreements, delivery of possession and subsequent registration were not disputed. It was equally undisputed that the assessee had acquired the new property on 10 January 2014 and that the Revenue had accepted the capital gains offered for assessment year 2015-16. In these circumstances, the Court held that the Revenue could not accept the capital gains for that assessment year while denying the corresponding exemption under Section 54. The Court also relied on Shri Lahar Singh Siroya, which had treated the relevant capital gains relief provisions as beneficial legislation requiring liberal interpretation in favour of eligible assessees.
Following the principles discussed in Sanjeev Lal, Kishorbhai Harjibhai Patel and Shri Lahar Singh Siroya, the High Court found no error or perversity in the Tribunal’s order confirming the CIT(A)’s decision. Both substantial questions of law were answered against the Revenue and in favour of the assessee, and the appeal was dismissed. The decision reinforces the relevance of sale agreements and delivery of possession when determining the timing of property transfers for capital gains exemption, particularly where the Revenue has already accepted the corresponding capital gains. The judgment, however, contains references to both Sections 54 and 54F; these statutory references must be read in their original context rather than treated as interchangeable.
Cases Discussed
1. Sanjeev Lal Vs Commissioner of Income Tax, Chandigarh — Supreme Court; [2014] 46 taxmann.com 300 (SC). The Tribunal relied upon this decision to treat the agreement-to-sell date as relevant for determining the transfer. The Revenue sought to distinguish the judgment on its particular facts, but the High Court found the present circumstances comparable.
2. Commissioner of Customs (Import), Mumbai Vs M/s Dilip Kumar and Company & Ors. — Supreme Court; Civil Appeal No. 3327 of 2007; 30/07/2018; (2018) 9 SCC 1. Cited by the Revenue to support strict compliance with the conditions governing tax exemptions.
3. Kishorbhai Harjibhai Patel Vs Income Tax Officer, Ward 1(2)(4) — Gujarat High Court; [2019] 107 taxmann.com 295 (Gujarat). Relied upon by the assessee and followed by the High Court concerning the relevance of the agreement-to-sell date in determining the transfer of a capital asset.
4. Shri Lahar Singh Siroya Vs Assistant Commissioner of Income Tax — Karnataka High Court; ITA No. 169 of 2010; 15/12/2015. The Court relied upon this coordinate Bench decision concerning beneficial interpretation of capital gains relief and its application of Sanjeev Lal.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The above appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961, is directed against the order dated 29.01.2020 in ITA No.3362/BANG/2018 for the assessment year 2015-16 passed by the Income Tax Appellate Tribunal ‘C’ Bench, Bengaluru.
2. The above appeal was admitted on 12.08.2021 to examine the following two substantial questions of law:
1. “Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding the assessee is entitled for section 54F benefit by holding that the right to the built up area was acquired on the date of entering Joint Development Agreement which is more than 36 months and as such it is transfer of capital asset without observing that by entering into JDA, assessee was conferred a right in super built up area and it did not get a right which the assessee could transact in but only recognized share of assessee in project, it was only vide the sharing agreement dated 12/12/2012, that the assessee was allotted 23 Flats, vilaments and row houses which gives title to assessee to transact with other parties”?
2. “Whether on the facts and in the circumstances of the case and in law, the Tribunal and CIT’s orders can be said as perverse in holding that assessee entitled for benefit under section 54F of the Act ignoring that assessee acquired a new asset on 10/1/2014 whereas assessee original asset was sold after 16/1/2015, therefore assessee was not entitled for benefit under section 54F of the Act on 9.6 crores”?
3. Heard learned counsel Sri.E.I.Sanmathi for the appellants-Revenue and learned Senior Counsel Sri.A.Shankar for learned counsel Sri.Anamalai.S for respondent- Assessee.
4. It is seen that the respondent-Assessee is a HUF. The respondent-Assessee entered into Agreement of Sale in respect of 23 flats on various dates i.e., January-2014 to October-2014 and possession of those flats was handed over between April-2014 to November-2014. The Sale Deeds were executed subsequently between July-2014 to July-2015. It is stated that the respondent-Assessee offered the income for assessment for the Assessment year 2015-16, claiming benefit under Section 54 of the Act. However, the Assessment Officer (AO) disallowed the claim of the respondent-Assessee under Section 54 of the Act by order dated 29.12.2017 (Annexure-C). The respondent-Assessee filed appeal before the CIT Appeals and the CIT Appeals by order dated 28.09.2018 (Annexure-B) allowed the appeal and directed the AO to assess the capital gains and examine the applicability of exemption claimed under Section 54 of the Act for the assessment year 2014-2015 and assessment year 2015-16. The appellants-Revenue approached the ITAT against the appellate order of the CIT (Appeals). The ITAT placing reliance on the decision of the Hon’ble Apex Court in SANJEEV LAL VS. COMMISSIONER OF INCOME TAX, CHANDIGARH reported in [2014] 46 Taxmann.Com 300 (SC) rejected the Revenues’ appeal holding that the date of Sale Agreement has to be considered as date of sale. Questioning the said order of the ITAT, the Revenue is before this Court in this appeal.
5. Learned counsel Sri.Sanmathi.E.I mainly contends that the Tribunal could not have blindly followed the decision in Sanjeev La! and confirmed the order of the CIT (Appeals). Learned counsel Sri.Sanmathi.E.I made an effort to distinguish the said decision by contending that the Sanjeev La!’s case was decided in a peculiar facts of the said case and moreover, he submits that it involved litigation and therefore, the Sale Deed was executed subsequently. Learned counsel Sri.E.I.Sanmati would further submit that the benefit under Section 54 would be available with the precondition, strictly complying with the conditions therein, placing reliance on the decision of the Hon’ble Apex Court in COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI V. M/S.DILIP KUMAR AND COMPANY AND ORS.
6. Learned Senior Counsel Sri.A.Shankar would submit that in the instant case, the CIT (Appeals) as well as the ITAT has rightly granted the benefit of Section 54 exemption referring to the Agreement of Sale entered into between the respondent and the purchasers and also referring to the fact that possession has been delivered immediately on entering into the Sale Agreement. Learned Senior Counsel refers to the definition of ‘Sale’ under Subsection 47 of Section 2 of the Act and submits that the transfer in relation to a capital asset includes any transaction involving the allowing of a possession of any immovable property to be taken. Learned counsel would further submit that the decision of Division Bench of Gujarat High Court in KISHORBHAI HARJIBHAI PATEL V. INCOME TAX OFFICER, WARD 1(2)(4)* in [2019] 107 TAXMANN.COM 295 (GUJARAT) as well as decision of Coordinate Bench of this Court in SHRI LAHAR SINGH SIROYA vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX (ITA No.169/2010 dated 15.12.2015) following the decision in Sanjeev Lal, have held in identical fact situation that the Assessee would be entitled for benefit under Section 54 of the Act. Further, learned Senior Counsel would submit that the AO accepted the taxability of the capital gain for the assessment year 2015-16 and when the taxability for the assessment year 2015-16 is accepted, they could not deny the benefit under Section 54F of the Act. Thus, he would pray for dismissal of the appeal.
7. Having heard the learned counsel for the parties and on perusal of the entire material on record including the decisions cited by the learned counsels for the parties, we are of the considered opinion that the Substantial Questions of Law raised by the appellants-Revenue is to be answered against the appellants-Revenue and in favour of the respondent-Assessee.
8. The transaction entered into between the respondent-Assessee and purchasers as noted by the CIT Appeals at paragraph 5.1 of the order is not in dispute. The agreements are entered into by the respondent and purchasers as stated above between January-2014 and November-2014. Possession of those flats are delivered to the purchasers between April-2014 to November-2014 whereas the Sale Deeds are executed between July-2014 and July-2015. It is also not in dispute that the assessee purchased new property on 10.1.2014. The income offered by the respondent-Assessee for taxability for the assessment year 2015-16 is accepted by the Revenue. When the appellants-Revenue has accepted the capital gains offered for the Assessment Year 2015-2016, the appellants-Revenue could not have denied the benefit under Section 54 of the Act to the respondent-Assessee.
9. Be that as it may, this Court in Shri Lahar Singh Siroya supra has made it clear that providing for short-term and long-term capital gains is a beneficial piece of legislation, whereby certain benefits in taxation is given to the Assessee on fulfilment of certain conditions. Further, it observed that every such legislation is to be construed liberally in favour of the Assessee, as it is for the benefit of the Assessee. This Court in the said case while allowing the benefit of Section 54 of the Act places reliance on the decision of the Hon’ble Apex Court in Sanjeev Lal, though the decision of the Hon’ble Apex Court indicates that the decision was arrived at the peculiar facts of the said case. The facts of the present case are also identical to the facts involved in Sanjeev Lal.
10. Thus, we do not find any error or perversity in the order passed by the ITAT in confirming the order passed by the CIT (Appeals). Moreover, the Division Bench of Gujarat High Court in Kishorbhai Harjibhai Patel Supra in an identical fact situation following the decision of the Hon’ble Apex Court in Sanjeev Lal supra as well as the decision of Co-ordinate Bench of this Court in Shri Lahar Singh Siroya supra held that CIT (Appeals) therein was not right in denying the deduction under Section 54 of the Act.
Thus, for the reasons recorded above, we are of the considered opinion that there is no merit in the appeal and accordingly, the Substantial Questions of Law are answered against the appellants-Revenue and in favour of the respondent-Assessee.
