Case Law Details
P. Chitra Vs ITO (ITAT Chennai)
ITAT Chennai held that for the purpose of computing period of holding, date of allotment should be considered, but not the final sale deed executed for conveying the title and interest in the property.
Facts-
The case of the assessee was selected for scrutiny and during the course of assessment proceedings, the AO observed that the assessee has purchased a property on 06.01.2012 from the agent Shri R. Radhakrishnan for a consideration of Rs. 4,00,000/- and sold the property on 12.04.2012 for a consideration of Rs. 85,41,286/-and thus, the period of holding is less than 36 months and accordingly, profit derived from sale of land is assessable under the head short term capital gains. Therefore, rejected arguments of the assessee that she had purchased the property by way of allotment from M/s. Baskar & Co., on 28.12.1984 and consequently, the same has been conveyed to the assessee by way of sale agreement dated 05.09.2007, and final sale deed on 06.01.2012 is only an afterthought. The AO had also rejected deduction claimed u/s. 54F of the Act on the ground that, the assessee could not complete construction of house property within three years from the date of transfer of original asset.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), however, CIT(A) rejected the same. Being aggrieved, the present appeal is filed.
Conclusion-
If you take sequence of events, it is undoubtedly clear that the assessee has acquired right over the above property in the year 1984 and is enjoying the title and interest. However, legal ownership has been finally came to the assessee through sale deed dated 06.01.2012. If you consider the date of allotment and subsequent documents, it can be clearly held that the assessee has acquired the property in the year 1984 and thus, if you consider said date, the period of holding of asset is more than 36 months and thus, profit from sale of asset is assessable under the head long term capital gains as claimed by the assessee. Therefore, we direct the AO to assess profit from sale of land under the head long term capital gains as claimed by the assessee, because various courts including Hon’ble Delhi High Court in the case of CIT vs Ravindar Kumar Arora (2012) 342 ITR 38 (Delhi), held that for the purpose of computing period of holding, date of allotment should be considered, but not the final sale deed executed for conveying the title and interest in the property. Hence, we direct the AO to compute long term capital gains as claimed by the assessee.
No doubt, the assessee could not complete construction of house within three years from the date of transfer of original asset. However, for any reason which is beyond control of the assessee, construction could not be completed and also assessee has spent entire amount of consideration received for transfer of original asset for acquiring new asset, then there is no reason for the AO to deny deduction u/s. 54F of the Act.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-7, Chennai, dated 05.05.2020 and pertains to assessment year 2013-14.
2. The assessee raised the following grounds of appeal:
1. “The Ld. CIT(CA) has erred in the facts & circumstances of the case.
2. The Ld. CIT(A) has erred by sustaining the addition made by the Ld. AO of Rs.82,40,000/- with regard to sale of Madambakkam Land.
3. The assessment was completed u/s. 143(3) on 31.03.2016 with the following additions:
a. Restriction of interest on loan for house property : Rs. 41,586
b. Sale of Madambakkam land treated as STCG : Rs.82,40,000
Sale of Manavala Nagar Land treated as STCG : Rs.19,32,330
4. The appellant is before Hon’ble Bench for the above addition of Rs.82,40,000/-, which was sustained by CIT(A) in her Order on 21/4/2016.
5.The Ld. AO failed to consider the original allotment of land dated 04/08/1984 & original sale agreement dated 05/12/2003 to arrive at the period of holding.
6. Instead, the Ld. AO considered sale deed in favour of the appellant (ie, purchase- on 6/01/2012 and sale deed executed by the appellant (ie, sale- on 12/04/2012) and hence concluded the same as bought & sold within a year and treated as STCG without considering the para 5 above.
7. Further, the Ld. AO also denied the exemption u/s 54F without considering the investment made by the appellant on purchase of land in Potheri & advances made for the construction.
8. Thus, it is prayed before the Hon’ble Forum to treat the said transaction as Long Term and allow deduction u/s 54F as the said investment in the new asset is ready and put to use.
9. For the above reasons and other reasons that may be adduced at the time of hearing, the addition made by the Ld. AO may kindly be deleted and justice rendered.
10. The appellant craves leave to amend, alter or delete any of the above grounds of appeal.”
3. The brief facts of the case are that the assessee is an individual, had e-filed return of income for the assessment year 2013-14 on 27.11.2013, admitting total income of Rs. 2,26,900/-. During the financial year relevant to assessment year 2013-14, the assessee sold a vacant land at Madambakkam for a consideration of Rs. 86,40,000/-. This land was purchased by the appellant on 06.01.2012 from Shri. R. Radhakrishnan. The assessee had computed long term capital gains from sale of property after deducting cost of acquisition and claimed deduction u/s. 54F of the Income-tax Act, 1961 (hereinafter referred to as “the Act’) for purchase of another residential vacant plot on 18.05.2012 for a consideration of Rs. 38,75,400/-. The assessee claimed that she had paid labour payment of Rs. 20,00,000/- by cheque and also payment to M/s. Raj Constructions for material supplied amounting to Rs. 30,00,000/. Thus, she claimed that Rs. 88,75,400/- has been invested for purchase of new residential house and accordingly, claimed deduction u/s. 54F of the Act.
4. The case was selected for scrutiny and during the course of assessment proceedings, the AO observed that the assessee has purchased a property on 06.01.2012 from the agent Shri R. Radhakrishnan for a consideration of Rs. 4,00,000/- and sold the property on 12.04.2012 for a consideration of Rs. 85,41,286/-and thus, the period of holding is less than 36 months and accordingly, profit derived from sale of land is assessable under the head short term capital gains. Therefore, rejected arguments of the assessee that she had purchased the property by way of allotment from M/s. Baskar & Co., on 28.12.1984 and consequently, the same has been conveyed to the assessee by way of sale agreement dated 05.09.2007, and final sale deed on 06.01.2012 is only an afterthought. The AO had also rejected deduction claimed u/s. 54F of the Act on the ground that, the assessee could not complete construction of house property within three years from the date of transfer of original asset.
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), and contended that if he consider the date of allotment of property in the year 1984, then the period of holding is more than 36 months and subsequently, profit derived from the sale of property is assessable under the head long term capital gains. The assessee had also contested denial of deduction u/s. 54F of the Act. The CIT(A) after considering submissions of the assessee and also taken note of various facts, opined that the land sold by the assessee is short term capital asset, because the assessee has purchased the property on 06.01.2012 and sold the same on 12.04.2012, and the period of holding is less than 36 months. Therefore, the AO has rightly assessed profit under the head short term capital gains. The CIT(A) had also rejected deduction u/s. 54F of the Act, because the deduction is available only in respect of transfer of long term capital asset and not to short term capital asset. The relevant findings of the CIT(A) are as under:
8. Decision :
I have duly considered the assessment order, written submissions and various details filed by the appellant in adjudicating the instant appeal.
From the perusal of grounds of appeal taken by the appellant, there exist three issues which require to be addressed in the instant appeal, which are as follows:
i. Whether the land sold by the appellant on 12.04.2012 is a short term or long term capital asset?
ii.In case, the above land is of long term in nature, whether the appellant is entitled for deduction U/s.54F?
iii.Whether the sale of land situated at Nayapakkam Village is taxable in the hands .of the appellant?
Issue wise adjudication is as follows:
Issue No.1:- Nature of land sold on 12.04.2012 i.e., Short Term or Long Term
On 12.04.2012, vide sale deed document numbering 3032/2012, the appellant sold a vacant land at Madambakkam for a consideration of Rs.86,40,000/-. This land was purchased by the appellant on 06.01.2012 from the agent Shri R Radhakrishnan vide registered document numbering 102/2012. In the return of income filed for the impugned assessment year, the appellant treated the land at Madambakkam as Long Term Capital Asset, whereas the AO treated the same as Short Term Capital Asset since the land was purchased on 06.01.2012 and sold on 12.,04.2012 i.e., the period of holding was less than 36 months. It was the argument of the appeiiant that the impugned land was allotted to the appellant in the year 1984 end accordingly submitted that the nature cf the asset is a Long Term Capital Asset and not Shor. Term Capital Asset. During the course of appellate proceedings, the appellant submitted various documents, from the perusal of which the following observations are made:
i. The impugned land has come into the possession of the appellant only on 06.01.2012 which is evident from the registered sale deed document numbering 102/2012. In the said deed there is no mention about the allotment of the land to the appellant in the year 1984. Moreover, assuming for a moment that the impugned and was allotted to the appellant in the year 1984 itself, there cannot be any reason to purchase the same land from Shri R. Radhakrishnan on 06.01.2012.
ii. There is also no mention in the registered sale deed dated 12.04.2012 regarding the allotment of land to the appellant in the year 1984 itself.
iii, The appellant also relied on the copy of agreement dated 05.09.2007 in support of her contention. This agreement is unsigned and unregistered and accordingly has no relevance. Hence, the same is not considered.
iv.The appellant has not submitted any cogent evidence to prove that the impugned land was purchased in the year 1984 itself.
In view of the above observations, I am of the considered view that the land at Madambakkam sold by the appellant is a Short Term Capital Asset and not Long Term Capital Asset as claimed by the appellant. Therefore, I have no hesitation in upholding the action of the AO in assessing the consideration frorri the sale of said land as Short Term Capital Gains Hence, the ground of the appellant is dismissed.
Issue No.2:- Claim of deduction U/s.54F
Since the land at Madambakkam is a Short Term Capital Asset, the appellant is not entitled for deduction U/s.54F because the deduction is available only in respect of transfer of long term capital assets and not to short term capital assets. Hence, the ground of the appellant is dismissed.
Issue No3: Taxability of sale of land situated at Nayapakkam Village:
On 14.06.2012, vide registered sale deed numbering 3393 of 2012, the appellant’s spouse Shri. V.G> Pannerselvam acting as Power gent on behalf of Smt P.Chitra and Smt Geetha Chandrasekaran had sold a land situated at Nayapakkam Village for a consideration of Rs. 24,96,000/- the appellant’s son-in-law The AO treated the sum of Rs.24.96.000- as taxable income of the appellant under the head “Capital Gains” and after allowing deduction towards cost of Rs.5,63,670/-, the resulting sum of Rs.19,32,330- is assessed in the appellant’s hands. From the perusal of registered sale deed, it is noticed that the transaction of sale was between the appellant’s spouse and her son-in-law, in which the appellant has no role. It is a settled law that recitals of the registered sale deed are final and one cannot go beyond the registered document. In the instant case, it is clearly spelt out in the registered sale deed that the appellant’s spouse is a Vendor and her son-in-law is a Purchaser. Therefore, I am of the considered view that the taxability of capital gains if any should be in the hands of Shri V.G.Pannerselvam and not in the hands of the appellant. Thus, I am of the view that the AO erred in assessing the sum of Rs.19,32,330/- in the appellant’s hands. Accordingly, the AO is directed to delete the same. Hence, the ground of the appellant is allowed.”
6. The Ld. AR for the assessee submitted that the Ld. CIT(A) is erred in not appreciating the fact that the assessee has got possession over the property by way of allotment letter from M/s. Baskar & Co., on 28.12.1984. The AR, further submitted that the land was purchased in the name of Smt. Meenakshi and Shri. Baskar. However, sale deed was executed in favour of Smt. Meenakshi alone. Shri. Baskar is son of Smt. Meenakshi and is engaged in the business of real estate development in the name and style of M/s. Baskar & Co. Further, M/s. Baskar & Co., had developed land purchased in the name of Smt. Meenakshi into flats and has allotted one flat to assessee on 28.12.1984. In the mean time, Smt. Meenakshi had given Power of Attorney (PoA) to one Mr. R. Radhakrishnan, who is also brother of assessee. Mr. R. Radhakrishnan, as a PoA holder executed sale agreement to the assessee on 05.09.2007 and finally conveyed the property in the name of assessee by way of registered sale deed on 06.01.2012. If you consider date of allotment coupled with agreement dated 05.09.2007, the period of holding asset is more than 36 months and consequently, sale of property is rightly assessable under the head long term capital gains. The Ld. Counsel for the assessee, further referring to purchase of another residential house property submitted that the assessee had purchased a residential plot for construction of house on 18.05.2012 for a consideration of Rs. 38,75,400/-. The assessee had entered into an agreement with M/s. Chintu Constructions and M/s. Raj Constructions for construction of house property and paid a sum of Rs. 20,00,000/- and Rs. 30,00,000/-, respectively. The contractors could not complete the construction within the time allowed in the agreement because of various reasons, but finally a settlement was reached with the contractors and construction was completed in the year 2019. However, the assessee has spent substantial amount, not less than the amount of consideration received for sale of property for the purpose of acquiring new asset and therefore, merely for the reason of non-completion of house property within the stipulated period, benefit of deduction u/s. 54F of the Act cannot be denied. In this regard, relied upon the following judgments:
1. CIT v Ravindar Kumar Arora (2012) 342 ITR 38 Delhi
2. CIT v Sardarmal Kothari and another (2008) 302 ITR 286
3. CIT v Sambandan Udayakumar (Karnataka High Court)
4. Nipom Mehotra v ACIT (2008) 110 ITD 520 (Bangalore)
7. The Ld. DR, on the other hand referring to allotment letter from M/s. Baskar & Co., submitted that documents furnished by the assessee are not convincing. Although, assessee claims to have get allotment of flat in the year 1984, but could not explain substantial delay in execution of sale deed i.e., on 06.01.2012. In between there were multiple transactions, right from PoA to one person to sale agreement to the assessee. The assessee could not explain said transactions with original documents.
Therefore, the AO has rightly considered sale deed dated 06.01.2012 and held that profit is short term capital gain. The Ld. DR further submitted that the AO has rightly denied deduction u/s. 54F, because except for land purchase the assessee could not furnish any evidences to prove payment to contractors and delay for completion of construction. It is admitted fact that the assessee could not complete the construction of house within three years from the date of transfer of original asset. As per provisions of section 54F, in case the assessee could not invest sale consideration for acquiring new asset, balance should be deposited in capital gain deposit account scheme on or before furnishing return of income u/s. 139(1) of the Act. In this case, the assessee neither spent consideration for acquisition of new asset nor invested in capital gain deposit account scheme. Therefore, the AO rightly rejected claim of deduction u/s. 54F of the Act.
8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The facts borne out from record indicates that the assessee had sold a property on 12.04.2012 for a consideration of Rs. 86,40,000/- and said property was purchased from the agent Shri. R. Radhakrishan on 06.01.2012. If you go by purchase and sale deed, definitely period of holding of asset is less than 36 months and thus, there cannot be any fault with the AO in computing profit under the head short term capital gains. But fact remains that, it was an argument of the assessee before the AO that the impugned asset was initially acquired from M/s. Baskar & Co., on 28.12.1984. The assessee has filed an allotment letter dated 28.12.1984, where M/s. Baskar & Co. has allotted flat no. 592/4 to the assessee. The assessee further claimed that in between there are circumstances because of this, the registration of property could not completed. Therefore, the seller has executed a PoA in favour of Mr. R. Radhakrishnan, who is brother of assessee. Further, Mr. R. Radhakrishnan had entered into an agreement of sale on 05.09.2007 with assessee and agreed to transfer the impugned property for a consideration of Rs. 4,00,000/- and also paid a sum of Rs. 20,000/- as advance. Finally, the property has been conveyed to the assessee by registered sale deed dated 06.01.2012 by Smt. G. Meenakshi, through PoA holder Mr. R. Radhakrishnan for a consideration of Rs. 4,00,000/-. The assessee has filed right from allotment letter to PoA, sale agreement and registered sale deed. From the documents furnished by the assessee, we find originally the land was purchased by Smt. G. Meenakshi and Shri. Baskar, son of Smt. Meenakshi in the year 1983. Smt. Meenakshi and Shri Baskar developed the land into residential flat in the name of M/s. Baskar & Co. and sold to prospective buyers. Therefore, from the above facts, there is no doubt with regard to allotment letter furnished by the assessee from M/s. Baskar & Co., stating that the impugned property has been allotted to the assessee on 28.12.1984. We further analyzed, documents like PoA between Smt. Meenakshi and Shri. R. Radhakrishnan, subsequent sale agreement and sale deed. From the above documents, one undoubted fact emerged is that the ultimate purchaser of the property is the assessee Smt. P. Chitra, because the allotment letter is in the name of the assessee. Subsequently, PoA was executed in favour of Shri R. Radhakrishnan, brother of assessee. Shri. R. Radhakrishnan, as an agent of the owner entered into a sale agreement with the assessee and finally executed the sale deed. If you take sequence of events, it is undoubtedly clear that the assessee has acquired right over the above property in the year 1984 and is enjoying the title and interest. However, legal ownership has been finally came to the assessee through sale deed dated 06.01.2012. If you consider the date of allotment and subsequent documents, it can be clearly held that the assessee has acquired the property in the year 1984 and thus, if you consider said date, the period of holding of asset is more than 36 months and thus, profit from sale of asset is assessable under the head long term capital gains as claimed by the assessee. Therefore, we direct the AO to assess profit from sale of land under the head long term capital gains as claimed by the assessee, because various courts including Hon’ble Delhi High Court in the case of CIT vs Ravindar Kumar Arora (2012) 342 ITR 38 (Delhi), held that for the purpose of computing period of holding, date of allotment should be considered, but not the final sale deed executed for conveying the title and interest in the property. Hence, we direct the AO to compute long term capital gains as claimed by the assessee.
9. Having said so, let us come back to the deduction claimed u/s. 54F of the Act. There is no dispute with regard to the fact that the assessee has purchased another vacant residential plot for a consideration of Rs. 38,75,400/- vide sale deed dated 18.05.2012. In fact, the AO has accepted in her order at para 6, that the assessee has purchased another vacant residential property at Potheri. Further, the assessee claims to have paid a sum of Rs. 20,00,000/- towards labour payment by cheque to M/s. Chintu Constructions. She had also claimed to have paid a sum of Rs. 30,00,000/- to M/s. Raj Constructions for material supply through cheque. The AO never disputed these facts, however denied exemption only for the reason that the assessee could not file necessary evidences to prove completion of construction within three years from the date of transfer of original asset.
10. We find that the assessee has spent about Rs. 88,75,400/-towards construction of another residential house which includes purchase of land, payment for labour charges and payment to M/s. Raj Constructions for material supply. However, the contractors M/s. Chintu Constructions and M/s. Raj Constructions could not complete construction for various reasons. In the mean time, the assessee went out of India for official work and could not oversee construction work and only after she came back settled dispute with contractors and ultimately completed construction in the year 2009 and obtained necessary electricity connection to prove that the house property has been successfully completed. No doubt, the assessee could not complete construction of house within three years from the date of transfer of original asset. However, for any reason which is beyond control of the assessee, construction could not be completed and also assessee has spent entire amount of consideration received for transfer of original asset for acquiring new asset, then there is no reason for the AO to deny deduction u/s. 54F of the Act. Further, provisions of section 54F should be construed liberally as per various High Court decisions including Hon’ble Madras High Court in the case of CIT vs Sardarmal Kothari and another (2008) 302 ITR 286, and also Hon’ble Delhi High Court in the case of CIT v Ravindar Kumar Arora (2012) 342 ITR 38 (Delhi). A similar view has been taken by Hon’ble Karnataka High Court in the case of CIT v Dilip Raj Sekar (2019) 260 Taxmann 317 Kar, and also ITO vs Saroj Rani Gupta (2019) 104 Taxmann.com 132. Therefore, we are of the considered view that, the AO has erred in denying deduction u/s. 54F of the Act and thus, we direct the AO to allow deduction as claimed by the assessee.
11. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 28th October, 2022 at Chennai.
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