Case Law Details
IN THE ITAT MUMBAI BENCH ‘A’
Kishore H. Galaiya
V/s.
Income-tax Officer
IT Appeal No. 7326 (Mum.) of 2010
[Assessment Year 2006-07]
JUNE 13, 2012
ORDER
Rajendra Singh, Accountant Member
This appeal by the assessee is directed against the order dated 13.8.2010 of CIT(A) for the assessment year 2006-07.
2. The only dispute raised by the assessee in this appeal is regarding disallowance of claim of exemption u/s 54 of the Income Tax Act, 1961 (the Act) in respect of long term capital gain arising from sale of a residential flat.
3. The facts in brief are that the assessee along with his wife Mrs. Sushila K.Galaiya was joint owner of the property being Flat No.401, Laxmi Sadan, Paranjpe Scheme-A, Road No.2, Subhash Road, Vile Parle (E), Mumbai-400057 which had been purchased by them vide agreement dated 15.4.2002 for a consideration of Rs. 21,00,000/-. The share of the assessee in the said flat was 50% + payment of stamp duty of Rs.12,500. The flat was sold by them vide agreement dated 19.2.2006 for a consideration of Rs. 45,00,000/- in which the share of the assessee was Rs. 22,00,000/-. The assessee claimed that he along with his wife had jointly purchased another flat being Flat No.302 in Wing -A, 3rd Floor in Rajyog Residency, Rajendra Prasad Road, Mulund (W), Mumbai-80 for a total consideration of Rs. 35,00,000/-. The assessee had made total payment of Rs. 13,50,000/- till 26.12.2007 including a registration charges of Rs. 15,000/-. The assessee, therefore, claimed that he was entitled to claim exemption u/s 54 of the Act as the capital gain had been invested in the new residential flat. The assessee computed the long term capital gain from sale of the flat after deducting the indexed cost of acquisition at Rs. 9,98,411/- which was claimed as exempt u/s 54 of the Act as the amount invested in flat was more than capital gain.
3.1 The AO however, observed that under the provisions of section 54, the assessee was required to utilize the amount of capital gain towards purchase of another residential flat within one year before or within two years after the date of transfer of old flat or to construct residential house within a period of three years from the date of transfer of the old flat. In case, the assessee did not utilize the amount of capital gains towards purchase/construction of the house before the due date of the filing of the return of income for the relevant year, the assessee under the provisions of section 54 is required to deposit the balance amount in the account in any of the specified bank and utilize the same in accordance with the scheme framed by the Government. The assessee could not produce evidence regarding taking possession of the said flat and had only submitted evidence to show that the purchase agreement was registered on 29.12.2007. The AO, therefore, held that the assessee was not entitled to claim exemption u/s 54 of the Act. Accordingly, he disallowed the claim.
4. The assessee disputed the decision of the AO and submitted before the CIT(A) that the AO had disallowed the claim on the ground that there was no evidence that the assessee had taken possession of the new flat within the period of two years but the said period of two years was applicable only in case of purchase of flat. In the present case, the assessee had booked a new flat with the builder M/s Rajyog Enterprises was under consideration and therefore, it was a case of construction of building and not purchase of flat. The assessee referred to the circular No.471 dated 15.10.1986 issued by the CBDT in which it has been mentioned that the flat allotted by the Delhi Development Authority (DDA) has to be considered as construction of flat. It was also submitted that CBDT circular vide No.672, dated 16.12.1993 had clarified that circular No.671 would also apply to allotment of flat by Co-operative Societies and other institutions. The assessee also referred to the decision of the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. Smt. Sunder Kaur Sujan Singh Gadh [2005] 3 SOT 206 (Mum.) in which the Tribunal after referring to the Circular No.672 of CBDT held that allotment of flat to the assessee by the builder has to be taken as case of construction of residential flat and not purchase of residential flat. The assessee pointed out that old flat had been sold on 7.3.2006 and hence the time limit of three years expired on 6.3.2009 and, therefore, on the date of assessment order dated 23.12.2008, the time limit of three years had not expired and therefore the AO was not correct in coming to the conclusion that the assessee had not constructed the residential flat within a period of three years. It was also pointed out that the possession of the flat had been delayed primarily due to the delay in completion of construction by the builder for various reasons, and therefore, merely on this ground the claim of exemption u/s 54 could not be allowed. The assessee placed reliance on the judgment of the Hon’ble Bombay High Court in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 and several other judgments in support his claim.
4.1 As regard the deposit of unutilised amount in the capital gain account scheme, it was submitted that the assessee had paid only a sum of Rs. 1,00,000/- as booking amount before the due date of filing of return of income for the assessment year 2006-07 and therefore, the assessee was required to deposit the balance amount in the capital gains account scheme which could not be done due the ignorance of law. However, it was submitted that intention of the assessee from the beginning was that he wanted to purchase a new residential house against the sale of old residential house. The assessee had kept the entire amount of capital gains in the savings bank accounts which had been utilized for construction of new residential house. The assessee referred to the decision of the Jodhpur Bench of the Tribunal in the case of Jagan Nath Singh Lodha v. ITO [2005] 148 Taxman 1 (Mag.), in which it was held that the default of not depositing the capital gain amount in the capital gain the scheme was only a technical default and if he amount had been ultimately invested within the stipulated time, the claim of exemption could not be disallowed. The CIT(A), however, did not accept the contentions raised. It was observed by him that in the cases cited, the possession of new property had been taken before the time limit provided. In the case of the assessee, the capital gain had neither been deposited in the prescribed scheme nor the possession of the new asset had been obtained within the three year period and, therefore, the conditions prescribed u/s 54 were not satisfied. The CIT(A), accordingly, confirmed the disallowance made by the AO aggrieved by which the assessee is in appeal before the Tribunal.
5. Before us, the Ld.AR for the assessee submitted that the assessee had sold the old flat on 7.3.2006 on which the long term capital gains earned was Rs. 9,98,411/-. The assessee booked a new flat with the builder to whom total payments made in installments were Rs. 14,62,500/- till 16.2.2009 and the balance amount of Rs. 2,87,500/-had been paid after the period of three years. It was also submitted that in view of the circular No.471, dated 15.10.86 and circular No.472 dated 16.12.1993 of CBDT, the case of the assessee had to be considered as construction of new residential house and therefore, the time period of three years from the date of transfer of old flat would apply in case of the assessee. The entire capital gain had been invested in the new house within the period of three years. The assessee had therefore obtained the domain over the property in view of the judgment of the Hon’ble High Court of Bombay in the case of Mrs. Hilla J.B. Wadia (supra) and therefore the claim of exemption should not be denied.
5.1 As regards the default pointed out by the authorities below regarding non deposit of unutilized the capital gain amount in the capital gain account scheme, the ld. AR submitted that due date of filing return of income u/s 139(1) has to be construed with respect to the due date of section 139(4) as the sub-section (4) provides the extended period for filing return as an exception to the section 139(1) and considering this, there was no default as the entire capital gain had been invested within the due date u/s 139(4). The reliance for the said proposition was placed on the judgment of the Hon’ble Punjab and Haryana High Court in the case of CIT v. Ms. Jagrity Aggarwal [2011] 339 ITR 610/203 Taxman 203/15 taxmann.com 16. Moreover, it was also submitted that default, if any was only a technical default, and for this reason, claim of exemption could not be denied. Secondly, it was also pointed out that the entire amount of capital gain had been kept in the saving bank account of the assessee and had not been utilized for any other purposes and, therefore, it was urged that the claim of the assessee should not be rejected. Reliance was placed on the decision of the Tribunal in the case of Jagan Nath Singh Lodha (supra). The Ld. AR for the assessee further submitted that the possession of the flat had ultimately been taken by the assessee on 31.8.2009 as per the copy of the letter dated 31.10.2009 of the builder placed at pages 31 and 32 of the paper book.
5.2 The Ld. DR, on the other hand, strongly supported the orders of the authorities below. It was argued that three years time limit for construction of new residential house was absolute and had to be fulfilled for entitlement of exemption u/s 54 of the Act. Secondly, the assessee had also violated the provisions of Act in not depositing the amount in the capital gains account scheme and, therefore, the authorities below were justified in denying the claim of exemption u/s 54 of the Act.
6. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of the claim of exemption u/s 54 of the Ac. Under the provisions of said section, the capital gain arising from transfer of a long term capital asset being a residential house is eligible for exemption u/s 54 in case the assessee has invested the entire amount of the capital gain in purchase of a new residential house within a period of one year before or two years after the date of transfer or has constructed a new residential house within a period of three years from the date of transfer. In case the investment in the new residential house is less than the capital gain, then only the difference is required to be charged to tax. Section also provides that in case, the amount of capital gain is not appropriated towards the purchase of new residential house within one year before the due date on which the transfer took place or which is not utilized by him for purchase or construction of new residential house before the date of furnishing the return of income u/s 139(1)for the relevant year, the amount shall be deposited by the assessee in an account in any bank or institution as may be specified or utilized in accordance with any scheme framed by the Central Government. However, if the amount deposited as per the scheme mentioned above is not utilized wholly or partly for the purchase or construction of a new residential house, the amount not so utilized shall be charged to tax u/s 45 of the Act.
6.1 In the present case, the assessee sold the old residential house on 7.3.2006 and the long term capital gain arising on this account was Rs. 9,98,411/-. The assessee had booked a new residential flat with the builder jointly with is wife for a sum of Rs. 35,00,000/-. The assessee had paid booking amount of Rs. 1,00,000/- to the builder before the due date of filing of the return of income u/s 139(1) for the assessment year 2006-07 and the balance amount had been paid in installments after the said date. The total amount paid by the assessee to the builder was Rs. 14,62,500/- till 16.2.2009. In the back drop of this factual position, it is required to be seen whether the assessee had fulfilled the conditions of section 54 of the Act so as to make him eligible for claim of exemption u/s 54 of the Act. The first condition is that the capital gain should have been invested in the purchase of new residential house within a period of two years from the date of transfer or for construction of new residential house within a period of three years from the date of transfer. In the present case, the assessee had booked the new flat with the builder and as per agreement, the assessee was to make payment in installments and the builder was to handover the possession of the flat after construction. It has therefore to be considered as a case of construction of new residential house and not purchase of flat. This position has been clarified by the CBDT in circular No.472 dated 16.12.1993 in which it has been made clear that the earlier circular No. 471 dated 15.10.1986 in which it was stated that acquisition of flat through allotment by DDA has to be treated as a construction of flat would apply to co-operative societies and other institutions. The builder would fall in the category of other institutions as held by Mumbai Bench of Tribunal in the case Smt. Sunder Kaur Sujan Singh Gadh (supra) and therefore booking of the flat with the builder has to be treated as construction of flat by the assessee. Thus, in the present case, the period of three years would apply for construction of new house from the date of transfer of the old flat.
6.2 The old flat had been sold on 7.3.2006 and therefore the assessee was required to construct a new residential house by 6.3.2009. The purpose of section 54 is to allow exemption to the assessee of long term capital gain arising from sale of residential house if the capital gain is invested in construction of new residential house within a period of three years from the date of transfer and, therefore, in case, the assessee had invested the capital gains in construction of a new residential house within a period of three years, this should be treated as sufficient compliance of the provisions. of the flat It is not necessary that the possession of the flat should also be taken within the period of three years. The taking of the possession may be delayed because of many factors not under the control of the assessee due to default on the part of the builder and therefore merely because the possession had not been taken within the period of three years, the exemption cannot be denied. This aspect had also been considered by the Hon’ble High Court of Bombay in the case of Mrs. Hilla J.B. Wadia (supra) in which the Hon’ble High Court held that in case the assessee entered into an agreement with the society for purchase of flat and paid almost the entire consideration within a period of 2 years, the assessee would be entitled to exemption u/s 54 of the Act. The Hon’ble High Court also held that the material test was the domain over the property and the investment and, therefore, in case, the assessee had made substantial investment within the prescribed period which entitled the assessee to take possession of the flat, the claim of the exemption u/s 54 had to be admitted. In the present case, within the period of three years, the assessee had invested Rs.14,62,500/- which was more than the amount of capital gain in the construction of new residential house within the period of three years and the possession of the house had also been ultimately taken on 31.8.2009. Therefore, in our view, the claim of the exemption in this case cannot be denied on the ground that the possession of the flat had not been taken within the period of three years.
6.3 The other objection raised by the Revenue is that the assessee till the due date of filing of the return of income u/s 139(1) for the relevant year, had paid/utilized only a sum of Rs. 1,00,000/- towards the construction of flat and therefore the balance amount of capital gain was required to be deposited in the capital gain account scheme which had not been done. The case of the assessee is that the default committed by the assessee was due to ignorance of law and intention of the assessee was always to utilize the amount for construction of flat and the assessee had kept the amount in the savings bank account which was utilized towards the construction of flat. In our view, this is only a technical default and on this ground the claim of exemption cannot be denied particularly when the amount had been actually utilized for the construction of residential house and not for any other purpose. The view is supported by the decision of the Jodhpur Bench of the Tribunal in case of Jagan Nath Singh Lodha (supra).
6.4 The assessee has also made a point that the due date of filing of the return of income u/s 139(1) for the purpose of utilization of the amount for purchase/construction of residential house has to be construed with respect to the due date prescribed for filing of the return u/s 139(4) of the Act. The point made by the assessee is supported by the judgment of the Hon’ble Punjab and Haryana High Court in the case of Ms.Jagriti Aggarwal (supra). In the said case, the Hon’ble High Court observed that section 139(4) provides the extended period of limitation as an exception to the period provided u/s 139(1). Therefore, the Hon’ble High Court held that the provision of section 139(4) is not an independent provision but is related to the time contemplated under the provisions of section 139(1) of the Act. Accordingly, the Hon’ble High Court held that sub-section (4) to section 139 had to be read along with sub-section (1) and the due date for furnishing the return of income u/s 139(1) is subject to the extended period provided u/s 139(4) and hence the extended period u/s 139(4) has to be considered for the purposes of utilization of the capital gain amount. In that case, the assessee had sold the old flat on 13.1.2006 and the new residential house was purchased by the assessee on 2.1.2007 which was within the extended time limit till 31.3.2007 u/s 139(4) for assessment year 2006-07 and therefore the claim was allowed even though the amount had not been deposited in the capital gain account. The said judgment has been followed by the Delhi Bench of the Tribunal in the case of Jagtar Singh Chawla v. ACIT [IT Appeal No.4923/Delhi/2010 (AY-2007-08), order dated 30.6.2011], in which case the Tribunal held that since the assessee had invested the whole amount by 23.4.2008 which was within the extended period of filing the return of income u/s 139(4) till 31.3.2009 and therefore, the assessee was entitled to claim exemption u/s 54(F). In the present case, the capital gain earned by the assessee was Rs. 9,98,411/- and the assessee had utilized a sum of Rs. 13.50 lakhs towards the construction of residential house by 5.7.2007 which was within the extended period of filing of the return u/s 139(4) till 31.3.2008 for the assessment year 2006-07. The assessee had thus utilized the amount which was more than capital gain earned towards construction of new residential house within extended period u/s 139 (4) and therefore the there was no default in not depositing the amount under the capital gain account scheme. Therefore, the claim made by assessee cannot be denied following the judgments cited (supra).
7. In view of the forgoing discussions and for the reasons given earlier, we are of the view that the assessee is entitled to exemption u/s 54. We, therefore, set aside the order of the CIT(A) and allow the claim of the assessee.
8. In the result, the appeal of the assessee is allowed.
