Smt. Sabita Devi Agarwal Vs ITO (ITAT Kolkata)
In the present case, assessee who was owner of 1/4th share in a residential house, had transferred the asset by way of registering a general power of attorney in favour of purchaser. The registration of the sale of said property had not taken place. AO invoked the decision in the case of Suraj Lamp & Industries Ltd. vs. State of Haryana; 340 ITR 1 (SC), and held that registration of general power of attorney could not convey the title nor did it tantamount to a valid mode of transfer of immovable property. AO denied the claim of exemption u/s 54F as at the time of exemption assessee was already in possession of two residential properties i.e., a house in Gurgaon and a penthouse. Tribunal held that the judgment of the Supreme Court was prospective and did not affect transactions that have already taken place. Even otherwise, section 2(47) laid down that transfer would include a transaction allowing possession of an immovable property in part performance of a contract of a nature referred to in Section 53A of the transfer of Property Act. In the case on hand, part performance of a contract had taken place and possession had been handed over. Thus, the claim of exemption was to be accepted as assessee had only one house property as on the date of sale of the plots of land giving rise to long-term capital gain.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee directed against the order of the Learned Commissioner of Income Tax (Appeals) – Siliguri, (ld. CIT(A)) passed u/s. 250 of the Income Tax Act, 1961, (the ‘Act’), dt. 11/04/2016, for the Assessment Year 2012-13.
2. The assessee is an individual and derives income from business, capital gains and other sources. During the year, the assessee sold two plots of land at P.S. Maligore, Dist. Darjeeling, bearing deed no. 12646, measuring 19 kathas for Rs.95,00,000/- and another plot of land bearing deed no. 12464, measuring 1 katha, for Rs.5,00,000/-. The total sale consideration received on sale of these two plots was Rs.1,00,00,000/- (Rs.One Crore Only). The assessee claimed that there was a typographical error in the computation of income, inasmuch as, the purchase of a plot of land was wrongly reflected as purchase of flat. The Assessing Officer disbelieved him on the ground that the alleged mistake that was sought to be rectified was after issual of notice. The said plot of land was purchased for Rs.32,40,000/-. Enquiries made by the Assessing Officer through the inspector revealed that the plot of land is vacant. After considering the replies of the assessee along with evidence that she had entered into an agreement with M/s. Hill View Builders on 20/06/2014, for construction of phase one of her residential house on this plot in Darjeeling and that she had already paid Rs.20,01,000/- to the said developer M/s. Hill View Builders, the Assessing Officer came to a conclusion that this agreement and payments cannot be believed for the reasons given in his order. He rejected the claim for deduction u/s 54F of the Act, for Rs.52,40,000/- made by the assessee.
He further held that the assessee’s claim of exemption u/s 54F of the Act of Rs.20,00,000/-, for the deposit made by her in the Capital Gains Account Scheme (CGAS), the Assessing Officer held that the amount deposited was not by utilizing the sale consideration of the land sold and the said deposit was from borrowed funds. He found defects in the bank account opening forms with Canara Bank. He held that the specific purpose of withdrawal was not given and the assessee herself has withdrawn an amount of Rs.21 Lakhs/- on 16/06/20 14. The assessee submitted that this amount so withdrawn which included interest of Rs.1Lakh/- was utilised for purchasing a residential flat at HIG Residency Uttorayon, Matigara, Siliguri. He found fault that the assessee had not invested an amount of Rs.20,00,000/-, for construction of houses on the plot of land in Darjeeling, instead she utilised this fund for purchase of another residential flat at Siliguri, for a total cost of Rs.60,00,000/- in the month of July, 2014. The Assessing Officer further held that the assessee was in possession of two residential house as on the date of transfer. The contention of the assessee that the residential flat owned by her at Flat MA 2-1-B, Building No.1, Garden Estates, Gurgaon, of which she had only 1/4th share was transferred long back on 09/09/2 003, by way of a Registered General Power of Attorney and possession certificate and has only one house on date, was rejected. The Assessing Officer relied on the judgment of the Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. Versus State of Haryana & Another [2012] 340 ITR 1, wherein it is held that by simply by giving a power of attorney, an asset does not stand transferred.
Further the Assessing Officer found that Section 50C of the Act, applies to this case and that the value as per the Registration Authority, stamp value is to be taken as the full value of consideration. He held that the deduction u/ 54F of the Act, cannot be worked out without applying Section 50C of the Act. He took the full value of consideration at Rs.1,20,87,661/-, u/s 50C of the Act, as against Rs.1 Crore/-, actually received by the assessee and computed the LTCG at Rs.68,71,421/-. Aggrieved the assessee carried the matter in appeal without success. The ld. CIT(A) for the reasons given in his order confirmed the order of the Assessing Officer.
3. Further aggrieved the assessee is before us.
4. Before us, the ld. Counsel for the assessee submitted that
a) Investment in the plot is evidenced by registered documents and has to be considered as good evidence and cannot be rejected as an afterthought.
b) Evidence of the assessee having entered into a development agreement for construction of a house and of having paid the builder/developer Rs.20 Lakhs/-, cannot be rejected without investigation or collection of contrary evidence.
c) Borrowed money can be used for deposit in Capital Gain Account Scheme.
d) Value as per Section 50C of the Act, cannot be applied for computing deduction u/s 54F of the Act.
He relied on a number of case-law in support of each of the above contentions. Written submissions were also filed.
4.1. The ld. D/R, on the other hand, controverted the arguments of the ld. Counsel for the assessee. He relied on the order of the Assessing Officer as well as of the ld. CIT(A). The case law relied upon by the ld. CIT(A) as well as the assessment order were relied upon and were explained by the ld. D/R and he prayed that the order of the ld. CIT(A) be upheld.
5. After hearing both sides, considering the facts on record and perusing the orders of the authorities below as well as case law cited we hold as follows:-
6. The first issue that arises for our consideration is whether for the purpose of computation of deduction u/s 54F of the Act, the actual sale consideration has to be taken or the value adopted by the Stamp Valuation Authority (SVA) for the purpose of levy of stamp duty for registration as per Section 50C of the Act has to be taken.
We find thatissue is covered in favour of the assessee by the decision of the Visakhapatnam Bench of the ITAT in the case of DCIT, Circle-2(1), Vijayawada Vs. Dr. Chalasani Mallikarjuna Rao; I.T.A.No.206/Vizag/2013; Assessment Year 2007-08; order dt. 21/10/2016, wherein it has been held as follows:-
“12. The question is whether the assessee needs to invest the net sale consideration as a result of transfer or the full value of consideration as defined u/s 50C of the Act. The full value of consideration as defined u/s 50C of the Act is a deeming consideration which is applicable for the purpose of computation of capital gain under the provisions of section 48 of the Act. The net sale consideration as a result of transfer of capital asset is a consideration received or accrued as a result of transfer. There is difference between net sale consideration and full value consideration. In our considered view, if the assessee invests net sale consideration for the purpose of purchase/construction of new residential house property, then he is eligible for exemption u/s 54 of the Act, even though the full value of consideration is more than the net sale consideration as a result of transfer. Deeming fiction as provided u/s 50C of the Act in respect of the words full value of consideration is to be applied only to section 48 of the Act and therefore meaning of full value of consideration as referred to in explanation to section 54F(1) of the Act is not governed by the meaning of the words full value of consideration as mentioned in section 50C of the Act as held by the coordinate bench of ITAT Jaipur in the case of Gyan Chand Batra Vs. ITO (2010) 6 ITR 147. The relevant portion of the order is extracted below:
From sub-s. (1) of s. 50C, it is clear that in case the consideration received is less than the value adopted by stamp valuation authority then the value so adopted is to be taken as full value of the consideration for the purposes of 5. 48. Sec. 50C provides a deeming provision for considering the full value of consideration as the value adopted for stamp duty. In modern statutes, the expression ‘deem’ is used a great deal and for many purposes. It is at times used to introduce artificial conceptions which are intended to go beyond legal principles or to give an artificial construction of a word for phrase, Thus the artificial meaning of full value of the consideration has been given in s. 50C for the purpose of s, 48. One is entitled to ascertain the purpose for creating a statutory fiction. After ascertaining the purpose, full effect must be to the statutory fiction and it should be carried to its logical conclusion and to that end, it be proper and even necessary to assume all those facts on which alone fiction can operate legislature in its wisdom has referred to s. 48 in s. 50C for adopting the same value market value. Hence, the deeming fiction as provided in s. 50C in respect of the word value of consideration’ is to be applied only for s. 48. The words ‘full value of consideration mentioned in other provisions of the Act are not governed by the meaning of full value consideration as contained in s. 50C. The natural meaning of full value of consideration refers to consideration specified in the sale deed. Hence, for the meaning of full value of consideration mentioned in different provisions of the Act except in s. 48, one will have to consider the value of consideration as specified in sale deed. —CIT vs. Smt. Nilofer I.
Singh (2009) 22 (Del) 277: (2008) 14 DTR (Del) 108: (2009) 309 ITR 233 (Del) relied on.
(Para 7.1)
In Explanation to s. 54F(1), it is mentioned that net consideration means the full value a consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The meaning of full value of consideration in Explanation to s. 54F(1) will not be governed by meaning o words ‘full value of consideration’ as mentioned in s. 50C. The value adopted for stamp duty is to be considered as full value of consideration for the purpose of computing the capital gains under s. 48. Sec. 54F(1) says that capital gains is to be dealt with in accordance with the provisions of sub-cls. (a) and (b) of s. 54F(1). In the instant case, the cost of new asset is not less than the net consideration thus the whole of the capital gains will not be charged even if the capital gains has been computed by adopting the value adopted by stamp registration authority. It is clearly mentioned in s. 54F(4) also that net consideration which is not appropriated towards the purchase of new asset the same is to be taxed in case such net consideration not appropriated is not deposited in the capital gain account. It is not necessary that the new asset should be got registered before filing of the return. The requirement of law is that net consideration is required to be appropriated towards the purchase of the new asset. Thus deduction under s. 54F is clearly applicable. Deeming provisions as mentioned in s. 5OC will not be applicable to s. 54F so far as the meaning of full value of consideration is concerned as deeming provision mentioned in s. 50C is for specific asset and for the purpose of s. 48. Hence the assessee is entitled for deduction under s. 54F.—CIT vs. Ace Builders (P) Ltd. (2005) 195 CTR (Born) 1 . (2006) 281 ITR 210 (Born) and CIT vs. Assam Petroleum Industries (P) Ltd. (2003) 185 CTR (Gau) 71 : (2003) 262 ITR 587 (Gau) applied.
(Paras 7.3 to 7.5)
13. Considering the facts and circumstances of the case and also applying the ratio of the case laws discussed above, we are of the view that the assessee is eligible for exemption u/s 54 of the Act, if the net sale consideration is invested in construction or purchase of new residential house. In the present case on hand, the assessee has invested net sale consideration for construction of new residential house property. Though, the full value of consideration as defined u/s 50C of the Act is more than the net sale consideration as referred in section 54F(1) of the Act, once the net sale consideration has been fully applied under the provisions of section 54 of the Act, then the deeming consideration as defined u/s 50C of the Act cannot be brought into the assessee is eligible for exemption u/s 54 of the Act, therefore, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value as per the provision of section 50C of the Act. Therefore, we direct the A.O. to allow the exemption u/s 54 of the Act.”
6.1. The ld. D/R, relied on the decision of the Bangalore Bench of the ITAT in the case of Shri Gouli Mahadevappa v. Income-tax Officer, Ward-2, Hospet [2011] 128 ITD 503 (Bang.).
6.2. The Jaipur Bench of the Tribunal in the case of Prakash Karnawat v. Income-tax Officer, Ward 6(2), Jaipur; [2011] 16 taxmann.com 357 (Jaipur), adjudicate the issue in favour of the assessee. It considered the judgment of the Bangalore Bench of the Tribunal and at para 8 held as follows:-
“8. We find similar facts are involved in the present case. Assessee has received sale consideration of Rs. 40,00,000/- which has been invested in the Bonds in view of provisions of section 54EC. Therefore, assessee is entitled for deduction under section 54F. The provisions of section 50C are applicable for the purposes of section 48 and for the purpose of section 54F as held by the Tribunal in case of Gyan Chand Batra (supra). Findings of Tribunal have been reproduced somewhere above in this order which were taken in ITA No. 9/JP/201 0 for assessment year 2006-07. Similar view has been expressed by the Bangalore Bench of the Tribunal in case of Gouli Mahadevappa (supra). Since entire amount of sale consideration has been invested in Bonds, therefore, in our view provisions of section 50C are not applicable as held by Jaipur Bench and Bangalore Bench. Respectfully following the decisions of the Tribunal, we hold that AO and ld. CIT (A) were not justified in invoking provisions of section 50C and alternatively the capital gain shown by assessee. Accordingly the addition made and sustained by the lower authorities is deleted.”
In the case of ITO vs. Raj Kumar Parashar [2017] 86 taxmann.com 78 (Jaipur-Trib), the Jaipur Bench of the Tribunal, under similar circumstances, held as follows:-
“11. On perusal of the above provisions, it is clear that the where the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45. What is therefore relevant is the investment of the net consideration in respect of the original asset which has been transferred and where the net consideration is fully invested in the new asset, the whole of the capital gains shall not be charged under section 45 of the Act. The net consideration for the purposes of section 54F has been defined as the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. In other words, the consideration which is actually received or accrued as a result of transfer has to be invested in the new asset. In the instant case, undisputedly, the consideration which has accrued to the assessee as per the sale deed is Rs 24,60,000 and the whole of the said consideration has been invested in the capital gains accounts scheme for purchase of the new house property which is again not been disputed by the Revenue. The consideration as determined under section 50C based on the stamp duty authority valuation is not a consideration which has been received by or has accrued to the assessee. Rather, it is a value which has been deemed as full value of consideration for the limited purposes of determining the income chargeable as capital gains under section 48 of the Act. Therefore, in the instant case, the provisions of section 54F(1)(a) are complied with by the assessee and the assessee shall be eligible for deduction in respect of the whole of the capital gains so computed under section 45 read with section 48 and section 50C of the Act. The decisions of the Coordinate Benches as referred supra support the case of the assessee. The subject issue was not for consideration before the Hon ‘ble Karnataka High Court and hence, the same doesn’t support the case of the revenue. We are therefore of the considered view that the provision of section 50C(1) of the Act are not applicable to section 54F for the purpose of determining the meaning of full value of consideration.”
6.3. After perusing all these orders of different Benches of the Tribunal, we are of the considered view that the view taken, on this issue that the deeming fiction provided u/s 5 0C of the Act, in respect of the term “full value of consideration” is to be applied only to Section 48 of the Act. The meaning of “net consideration” as regards Section 54F(1) of the Act, is not governed by the meaning of “full value of consideration” as mentioned in Section 50C of the Act. Similar view was taken by the Mumbai ‘B’ Bench of the Tribunal in the case of Raj Babbar v. Income-tax Officer – 11(1)(3), Mumbai [2013] 29 taxmann.com 11 (Mumbai – Trib.).
6.4 In the result, we direct the Assessing Officer not to adopt the deemed consideration arrived at u/s 50C of the Act, while computing the deduction of the assessee for the purpose of Section 54F of the Act and take into account only “net consideration” as held by different benches of the ITAT.
7. The second issue that arises for consideration is whether the revenue authorities were right in denying the claim of the assessee u/s 54F of the Act, on the ground that what was purchased was a plot of land and not a residential house.
7.1. The assessee purchased a residential plot and thereafter entered into an agreement dt. 20/06/2014 with M/s Hill View Developers for construction of phase I of the residential house at contract value of Rs.25,01,000/- . The assessee had also paid an amount of Rs.22,01,000/-, to the developer on various dates which are listed below:-
