PCIT Vs C. Gopalaswamy (Karnataka High Court)
The Revenue appealed before the Karnataka High Court against the Tribunal’s decision allowing the assessee exemption under Section 54F of the Income Tax Act. The substantial question concerned whether exemption could be allowed where the assessee had reinvested the capital gains by making full payment to the builder, but possession of the residential property was not handed over within the prescribed period and the construction agreement specified completion beyond the period contemplated under Section 54F. The assessee and his son had sold certain equity shares, resulting in long-term capital gain of Rs. 13,55,84,748, with the son’s share being Rs. 4,20,283. Each deposited Rs. 50,00,000 in REC Bonds and claimed exemption under Section 54F, while the balance was invested in a residential house. The Assessing Authority disallowed the claim of exemption of Rs. 5.23 crore on the ground that construction of the villas had not been completed within the stipulated period. The CIT(A) dismissed the assessee’s appeal, after which the matter was carried before the Tribunal in ITA 933(BNG)/2012.
The Tribunal noted that the builder had issued an allotment letter on 28-07-2008 stating that Rs. 7.70 Crores for villa No. 75 had been paid by the assessee. It observed that although the construction agreement specified an outer date beyond the three-year period under Section 54F, the assessee had paid the entire price and there was no dispute that construction had commenced. The Tribunal held that the change in unit numbers and the construction completion period did not disentitle the assessee from claiming Section 54F benefit. It relied upon the decision in Sri Sambandam Udaykumar, which held that Section 54F is a beneficial provision and that investment of capital gains in purchasing or constructing a residential house is material, while completion of construction or occupation is not a requirement for the benefit where the investment has been made.
Before the High Court, the Revenue contended that the word “constructed” required completion of construction and relied upon the Supreme Court decision in Giritihar Yadalarn vs. Commissioner of Wealth Tax. The High Court rejected this contention, holding that the decision relied upon by the Revenue concerned the interpretation of “constructed” in the context of wealth tax and involved materially different statutory language. The Court also held that the earlier decision of the Karnataka High Court in CIT vs. Sambandham Udayakumar, reported in 345 ITR 389, remained binding and that the fact that the earlier matter had not been carried to the Supreme Court because of the lower tax amount did not affect its efficacy as a binding precedent. The Court concluded that the issue was already covered by the coordinate Bench decision and that no substantial question of law arose for consideration. Accordingly, the Revenue’s appeal was dismissed.
Cases Discussed
- Giritihar Yadalarn vs. Commissioner of Wealth Tax (Supreme Court), (2016) 65 Taxman .corm 148(SC)
- CIT vs. Sambandham Udayakumar (Karnataka High Court), 345 ITR 389
Five Alternative SEO Titles
HC Upholds Section 54F Exemption Despite Delayed Property Construction
HC Dismisses Revenue Appeal on Section 54F Construction Requirement
HC Upholds Section 54F Benefit Despite Non-Completion of Residential House
HC Rejects Revenue Challenge to Section 54F Capital Gains Exemption
HC Dismisses Section 54F Appeal, Follows Sambandham Udayakumar Ruling
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The appellant revenue has preferred the appeal on the following substantial question of law:
“Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that assesee is entitled for exemption under section 54F just because the assessee has re-invested entire capital gains by making payment in full to the builder and builder has not handed over the possession within the time limit prescribed under section 54F notwithstanding the fact that section being treated as beneficial provision, the exemption claimed by the assessee is disallowed since the initial agreement of construction itself spoke completion time being 31/12 /2011 against available time of construction by 1/8/2010 and assessee had failed to satisfy the specific condition to get exemption”? Tax effect 1.61 crore.
2. We have heard Mr.E.I.Sanmathi, learned Advocate appearing for the appellant-Revenue. As appears from the record that the assessee along with his son had effected sale of certain equity shares which resulted in long term capital gain of Rs.13,55,84,748/- and the son Sri Navin Kumar had the share of Rs.4,20,283/-.
3. Out of this capital gains, Rs.50,00,000/-each were deposited by the respective assessee in REC Bond and claimed exemption under Section 54-F of the Income Tax Act. As per the assessee, the balance amount was invested in the residential house. The assessing authority in the course of assessment order, dis-allowed the claim_ cf exemption of Rs.5.23 crore under Section 54-F of the Income Tax Act (hereinafter referred to as ‘the Act’) on the ground that the construction of villas was not completed within the stipulated time allowed under Section 54-F of the Act.
4. Being aggrieved by the said order, the assessee preferred an appeal before the CIT(A) which came to be dismissed. The assessee carried the matter before the Tribunal in ITA 933(BNG)/2012 and the Tribunal after considering the submissions of the revenue observed at para-8 as under:
“8. We have perused the orders and heard the rival contentions. There is no dispute that on 28-07-2008, the builder gave an allotment letter to the assessee which clearly mentions that Rs.7.70 Crores for villa no.75 stood paid by the assesses. The sale of shares giving rise to the capital gains was on 20-072007. May be it is true that the agreement for construction entered by assessee with builder gave an outer date, which went beyond the three year period from the date of sale of the shares. However, assesses had done what all it could do for acquiring the villa by paying the whole of the price on 28-07.2007 itself. There is no case for the revenue that the construction itself was not started. Only grievance of the revenue is that the unit numbers have changed and the outer limit for completing the construction went beyond three years limit mentioned in Section 54F of the Act. In our opinion, none of these would disentitle the assessee from claiming the benefit u/s 54F of the Act. Their Lordship’s in the case of Sri Sambandam Udaykumar (Supra) had held as under:
“A reading of Section 54F of the Act, 1961, makes it very clear that if a capital gain arises from the transfer of any long term capital asset, not being a residential; house and the assessee has within the period of one year before or two years after the date on which transfer took place purchased or has within a period of three years after that date constructed a residential house, if the cost of the new asset is not less than the net consideration on respect of the original asset the whole of such capital gain shall not be charged under section 45 of the Act. However, if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain the same proportion as the cost of the new asset bears to the net consideration shall not be charged under section 45 of the Act. Section 54F of the Act is a beneficial provision of promoting the construction of residential house. Therefore, the provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are “purchased” or “constructed”. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming the benefit under the provision is that capita3 gains realized from sale of capital asset should have been invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in fit condition to be occupied within the period under section 54F of the Act. The essence of the provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or i:a construction of a residential house even though the transactions are not complete in all respects are required under the law, that would not disentitle the assessee from benefit,”
The wordings in Section 54 86 54F with regard to period with in which an assessee has to acquire or construct a residential house are pari-materia. Asses; eye in any case would have been eligible for the claim under section 54, if not under section 54F of the Act. We are therefore, of the opinion that assessee’s could not be denied the deduction claimed by them.”
3. Consequently, the Tribunal allowed the appeal. Under the circumstances, the present appeal before this Court.
4. We have heard the learned counsel for the parties and perused the record.
5. If the reasons recorded by the Tribunal as considered as it is, the issue is already covered by the decision of this Court in case of CIT vs. Sambandham Udayakumar reported in .345 ITR 389. If the Tribunal has followed the said decision of this Court, no substantial question of law would arise for consideration in the present appeal.
6. However, learned counsel for the appellant raised two contentions:
i. One was that the since the earlier decision of this Court in case of Sambandham Udayakumar (supra), the tax amount was less, the matter was not carried before the Apex Court and therefore, the said decision may not be holding the field.
ii. The learned counsel in furtherance of his submission contended that as the word used is “constructed” completion of construction is sine. qua requirement and in absence thereof, the deduction cannot be claimed and therefore, the Tribunal has committed. error. He also relied upon the decision of the Apex Court in case of Giritihar Yadalarn vs. Commissioner of Wealth Tax reported (2016) 65 Taxman .corm 148(SC) and contended that, similar word was interpreted by the Apex Court and was found that the construction ought to have been completed.
7. In his submission, since the construction was not completed in the present case, the Tribunal ought not to have allowed the appeal and the matter may deserve consideration.
8. In the first aspects, we are not impressed by the submission that, since tax amount was less and the matter having been riot carried before the Apex Court, the efficacy of the decision of this Court in Sambandham Liciayakumar case referred supra would be lost so far as applying principles a binding precedent is concerned. When a co-ordinate Bench of this Court has already taken a view in normal circumstances, the departure therefrom is not permissible unless there are strong and valid reasons or the Apex Court has taken a different view.
9. Attempt to rely upon the decision of the Apex Court in case of Giridhar G.Yadalam is ill founded because in the said case before the Apex Court, the question arose for making distinction between the land and building for the purpose of wealth tax and for the purpose of exemption.
Further, the language in the section is “Construction is done with the approval of the authority”. Further, in clause (b) language was “Such a building has been constructed”. As per clause (a), the requirement was “the land is occupied” by any building. It is on account of said languages, meaning of the word. ‘constructed” came up for consideration before the Apex Court. Whereas, in the present case, the relevant aspect is that, utilization of the capital gain in construction of a residential house. Such being the basic difference, we do not find that the said decision in case of Ciridhar G.Yadalam referred supra would be of any help to the learned counsel for the Revenue.
10. The resultant situation would be that, issue stands covered by the decision of a coordinate Bench of this Court in case of Sambandham Udayakumar (supra). When the issue is already covered by the decision of this Court, we do not find that any substantial question of law would arise for consideration as sought to be canvassed in the present appeal.
11. Under the circumstances, the present appeal is dismissed.
