Shri Bhatkal Ramarao Prakash Vs ITO (ITAT Bangalore)
Conclusion: Assessee was entitled to the benefit of deduction u/s.54F to the whole extent of investment in purchase of new asset, even though property had been purchased in the joint names of assessee, his wife and son.
Held: The issue was whether deduction u/s. 54F had to be restricted to only 1/3rd of the cost of acquisition of the new asset for the reason that assessee purchased the property along with the name of his wife and son shown as purchaser in the document under which the property was purchased. Revenue claimed that the purchase of new asset should be only in the name of the transferor i.e., the Assessee. and to the extent the capital gain was invested in the joint name of the assessee’s wife and son, the deduction could not be allowed. It was held in the case of DIT (Intl.) Vs. Mrs. Jennifer Bhide (2011) 15 com82 (Karn.), the entire consideration had flow from assessee and no consideration had flown from her husband. Merely because the husband’s name was also mentioned in the purchase document, assessee could not be denied the benefit of deduction. The law is well settled that where two views are possible on an issue, the view favourable to assessee should be followed. Following the above decision, it was concluded that assessee should be entitled to the benefit of deduction u/s.54F to the whole extent of investment in purchase of new asset, even though the property had been purchased in the joint names of assessee, his wife and son.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is against the order dated 24.08.2018 of the CIT(Appeals)-V, Bengaluru, relating to assessment year 2015-16.
2. There are basically 3 issues that arise for consideration in this appeal. The first issue is with regard to the computation of capital gain on sale of a property viz., Site No.513 (PII), R.R. Nagar, Bangalore by the assessee [hereinafter referred to as the RR property]. It is not in dispute that the assessee acquired the RR property from Ideal Homes Co-op. Building Society Ltd., Bangalore, under a lease-cum-sale agreement dated 22.3.2001. As per the terms of lease-cum-sale agreement, the assessee paid a sum of Rs.60,000 towards the value of site on the date of agreement for lease-cum-sale. As per the further terms of this agreement, the assessee has to construct the building on the site within two years from the date of agreement. The assessee should not alienate the site for a period of 10 years. The assessee took possession of the property and constructed a building. As per the agreement, for 10 years the assessee has to pay annual lease charges and at the end of 10 years period, the property will be conveyed to the assessee. It is not in dispute that the assessee complied with the aforesaid terms of lease-cum-sale agreement and was in possession of the property and put up construction on the site on the date of agreement and subsequently.
3. The society by registered sale deed dated 31.08.2014 conveyed the property to the assessee. The fact that the assessee was allotted the site as per the terms of lease-cum-sale agreement dated 22.3.2001 and the fact that assessee complied with all the conditions in the said lease-cum-sale agreement have been acknowledged in the sale deed.
4. The assessee sold the site as well as the building constructed thereon under a Sale Deed dated 03.12.2014. The assessee computed long term capital gain on the sale of this property by taking the date of lease-cum-sale agreement viz., 22.03.2001 as the date of acquisition of the property. Since the property was held by the assessee for more than 3 years, the assessee claimed that the capital gain arising on transfer was a long term capital gain.
5. The AO, however, construed the date of acquisition of property by the assessee as 31.08.2014, the date on which the society made an absolute conveyance to the assessee. Since the assessee sold the property on 03.12.2014, the AO treated the date of acquisition of property as 31.08.2014 and the date of sale being less than 36 months, the AO construed the capital gain on sale of property as a short term capital gain. The assessee had claimed deduction u/s. 54F of the Act by investing the capital gain in acquisition of another property. Since the gain in question was construed as a short term capital gain, the deduction claimed u/s. 54F of the Act was not allowed by the AO.
6. On appeal by the assessee, the CIT(Appeals) confirmed the order of AO.
7. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal and the relevant grounds of appeal raised by the assessee in this regard are contained in ground Nos.1 to 4.
8. e have heard the rival submissions. The dispute between the Assessee and the Revenue is as to whether the gain on sale of the RR Property which was obtained originally on 22.03.2001 on lease from the society which was subsequently conveyed absolutely by the society to the Assessee by a registered sale deed dated 31.08.2014 can be said to be a LTCG.
9. Sec.2(29B) of the Act defines Long term capital gain as follows:-
“long-term capital gain” means capital gain arising from the transfer of a long-term capital asset;
Sec.2(29A) of the Act defines Long term Capital asset as follows:-
“long-term capital asset” means a capital asset which is not a short-term capital asset ;
Sec.2(42A) of the Act defines Short Term Capital asset as follows:-
“(42A) “short-term capital asset” means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer :
Sec.2(42B) of the Act defines Short term capital gain as follows:-
“(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset;”
10. We have to look at the definition of the term “Short term capital gain” because what is not short term capital gain is Long term capital gain and that is the way Long term capital gain has been defined in the Act. Short term capital gain means capital gain arising from the transfer of a short term capital asset. Short term capital asset has been quite exhaustively defined, covering several situations. For the present appeal the portion of the definition which says short term capital asset means “a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer” alone is relevant.
11. It is not in dispute that the Assessee paid cost of the site as early as 22.3.2001 and was in possession of the property as lessee cum Agreement holder with right to obtain conveyance of absolute interest over the land that was leased. The expression “held by the Assessee” in the context of Sec.2(42A) of the Act, is rather ambiguous, in the sense that it does not speak of the date of vesting of legal title to the property. Even the provisions of sec.2(47)(v) & (vi) of the Act which defines what is “transfer” for the purpose of the Act, considers possessory rights as akin to legal title. It is therefore necessary to look into the policy and object of the provisions giving exemption from levy of tax on capital gain. In the present case, as we have already seen, the Assessee had paid the entire consideration for the site originally allotted as early as in the year 2001. The Assessee had performed its part of the contract with the society. Therefore the claim of the Assessee that it held the property from 22.3.2001 has to be accepted, keeping in mind the policy and object of the provisions giving exemption from levy of tax on capital gain.
12. The Hon’ble Karnataka High Court in the case of CIT Vs. Dr.Shakuntala ITA No.117 of 2006 judgment dated 19.9.2007 had to deal with a case where the Assessee got a site allotted in her favour by the Bangalore Development Authority (BDA) under a lease-cum-sale agreement dated 28.2.1981 and was put in possession of the site allotted. She got absolute sale deed from BDA only on 19.9.1996. She sold the property on 25.3.1997. The question before the Hon’ble Karnataka High Court was as to whether the capital gain can be regarded as LTCG or STCG. The case of the revenue was that the period of holding had to be reckoned from 19.9.1996 and the capital gain had to be regarded as STCG. The plea of the Assessee was that the holding period had to be reckoned from 18.2.1981 the date on which the Assessee got possession of the property under lease-cum-sale agreement was accepted by the Hon’ble Karnataka High Court. Similar decisions were rendered by the Hon’ble Allahabad High Court in the case of Rama Rani Kalia 358 ITR 499 (All) & Amar Nath Agarwal 371 ITR 183 (All).
13. We also find support for the aforesaid conclusions from another decision of the Hon’ble Karnataka High Court in the case of CIT vs A Suresh Rao 223 Taxmann 228 (Kar) wherein similar issue was considered and wherein the significance of the expression ‘held’ used by the legislature has been analysed and explained at length. Hon’ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various situations and also circulars issued by the CBDT on this issue. Relevant portion of the observation wherein the issue before us has been properly analysed is reproduced hereunder:-
“The definition as contained in Section 2 (42A) of the Act, though uses the words, “a capital asset held an assessee for not more than thirty-six months immediately preceding the date of its transfer”, for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of ‘short-term capital gain’. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multistoried constructions in big cities. The aforesaid new sub-clauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.4 71 goes to the extent of clarifying that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in installments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal vs CIT 156 ITR 497 wherein it is held as under:-
“Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered Courts should, whenever possible unless prevented by the express language by any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country.”
Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain.”
14. In the light of the aforesaid decisions, we are of the view that the capital gain in question in the present case has to be treated as LTCG as claimed by the Assessee. Ground Nos.3 to 5 are accordingly allowed.
15. The next dispute is with regard to computation of capital gain and deduction u/s. 54F of the Act in respect of another property sold by the assessee during the relevant previous year. The assessee during the previous year sold a site bearing No.689, HSR Layout, Bangalore by a Sale Deed dated 05.06.2014. It is not in dispute that the capital gain on sale of this house site was a sum of Rs.1,33,89,451. The assessee claimed exemption u/s. 54F of the Act. The assessee purchased property at N.R. Colony for a consideration of Rs.3,60,00,000. The items of property that was purchased by assessee under registered sale deed dated 20.06.2014 are as follows:-
“SCHEDULE
ITEM # 1
All that piece and parcel of immovable property being residential house (Ground floor) bearing Bruhat Bangalore Mahanagara Palike Khatha # 37, PID #’51-14-37, (previously # 2), situated at 1st Main Road, N R Colony, Bangalore, the residential house having total built up area of 1260 sft., built with RCC roof, red-oxide flooring, teak wood doors and windows.
ITEM # 2
All that piece and parcel of immovable property being residential house (First floor) bearing Bruhat Bangalore Mahanagara Palike Khatha # 37/1, PID # 51-14-37/1, situated at 1st Main Road, N R Colony, Bangalore, the residential house having total built up area of 1180 sft., built above property # 37, PID # 51-14-37, built with RCC roof, red-oxide flooring, teak wood doors and windows, the ITEM # 1 & 2 of
SCHEDULE PROPERTY, built on site measuring East to West 60 ft., and North to South 40 ft., measuring in all 2400 sft., and bounded on:
EAST BY : 1ST MAIN ROAD
WEST BY : PRIVATE PROPERTY
NORTH BY : 3RD CROSS ROAD
SOUTH BY : PRIVATE PROPERTY
IN WITNESS WHEREOF THE VENDORS AND THE PURCHASERS HAVE AFFIXED THEIR SIGNATURES TO THIS DEED OF ABSOLUTE SALE ON THE DATE MENTIONED ABOVE AT BANGALORE.”
16. Another aspect which is to be noted is that the assessee purchased property in the name of himself, his wife – Smt. Geeta Prakash and his son – Shri Amit Prakash.
17. The AO was of the view that to claim deduction u/s. 54F of the Act, the assessee should not own more than one house, other than the new asset. Since as per the description of the property purchased by the assessee given above consisted of two door nos., the AO was of the view that the assessee purchased two house properties and therefore cannot claim deduction u/s. 54F of the Act as he owned more than one house property, other than the property that was transferred. Another objection of the AO was that to claim exemption u/s. 54F of the Act, the property had to be purchased only by the assessee in his name and since the assessee’s wife and children were also added as purchasers, the assessee can claim deduction u/s. 54F of the Act only to the extent of 1/3rd of sale consideration invested in acquiring the new property. In that view of the matter, the AO computed the disallowance u/s. 54F of the Act as follows:-
“7.0 From the above, it can be seen that the assessee has declared purchase investment for the purpose of claiming deduction u/s. 54F of the Income Tax Act, 1961 at Rs. 1,40,00,000/- and Rs. 1,02,50,000/-respectively. On perusal of the purchase deed dated 28/06/2014, it is found that the aggregate consideration for the residential property mentioned at ITEM #1 has been paid at Rs. 2,16,00,000/- and for the residential property mentioned at ITEM #2 has been paid at Rs. 1,44,00,000/-. Further the registration charges Rs. 20,16,000/- and stamp duty Rs. 3,60,000/- has also been paid. Accordingly, the cost of acquisition and share of assessee in the investment are worked out as under;
