This is a supplement to the earlier published Article under the above Title (‘the earlier Article’). Law Vs Case Law Role of A Professional (CA And Lawyer)- Part I
1.The idea of acquiring and holding a ‘Unit’ in a building, with ‘ownership’ rights, – notwithstanding its peculiar characteristics, as distinct from an independent and exclusively owned ‘house property’- came to be given a formal frame work and translated into a Statute, not until, in or about the year 1970. The reference is to the Spl. State legislative enactments, governing (also regulating) construction and sale of Flats/Apartments. For instance, those in force, in Maharashtra, are the two Acts called (for short) MOFA and MAOA; and in Karnataka, KOFA and KAOA.
For an insight, and appreciation in proper light, of the legal implications of these enactments, with particular relevance and applicability to the points of issue under discussion, the related historical developments may have to be closely studied, and the legal position be incisively understood, by dividing for the purpose, –
Pre 1970
Between 1970 and 1988
Post SC Judgment in Podar Cement case
Pre 2014
Between 2014 and 2019
Post 2019
Some of the published Articles that might be of assistance for the above purpose are once again selectively listed/compiled below:
Group I
(2003) 3 MLJ Pg.5 – OWN AN APARTMENT IN CHENNAI?
(2003)(4) KAR. L.J.Pg.1 – BUYING A FLAT/ APARTMENT?
(2005)(3) KAR.L.J. pg.17 – INVESTOR PROTECTION A MYTH?
(2005)(5) KAR.L.J. pg.1 – APARTMENTS – RUGULATIONS OF KARNATAKA
(2005) 2 MLJ Pg.1 – OUR LEGAL SYSTEM – WHAT IS WRONG?
GROUP II
LAW ON INCOME-TAX (TAX) AND LAW ON FLATS/ APARTMENTS (PROPERTY):
- Law Vs Case Law Role of A Professional (CA And Lawyer)- Part I
- Taxation Law (s) – ‘INTENT ‘ vs Explicitness
- Sec 54F- A Brain Teaser !
- Budget 2014 – Does it really not contain retrospective amendments?
- LAW vs Case Law On ‘Flats’
- LAW vs Case Law (A Critique) – A study of SC Judgment on Car Parking
- ITAT Order in re. Shantikumar D Majithia vs. DCIT (ITAT Mumbai)- A CRITIQUE
- SC Judgment in Hill Properties case – Substance seems to have prevailed over Form
Podar Cement case (SC Judgment)
2. According to the narration of the factual matrix therein, that is a case, – so also the other cases consolidated and disposed of, – in which the limited point of issue was, – whether the assessee having income from ‘house property’, being of the kind – Units (Flats / Apartments) in a building, assessable under the head of income from ‘house property ‘as urged by the Revenue, or from ‘other sources’ as claimed by the assessee .
2.1. The governing mandatory provisions of the Maharashtra State special law (MOFA to be rtw MAOA) had not been followed and complied with by the assessee. Even so, the admitted fact was that the assessee was in actual possession and enjoyment of the house property, had let it out, with no hindrance/ external interference whatsoever, and also derived rental income. The question that arose was whether in such a case, the assessee – though not having acquired ‘ownership rights’ in the property as envisaged in the State law, and not having become its lawful owner, – could still be treated as its “deemed owner”, as envisaged in the IT Act (the Act); so that the rent receipts could be rightly charged ‘to income-tax as ‘income from house property’.
2.2. The dispute has been resolved by the court, having regard to, inter alia, the applicable specific provisions of the Income-tax Act (the Act), as then stood lastly amended by the Finance Act 1987 w.e.f. April 1, 2008 (for short, the 1988 Amendments). The amendments so made , as stands to be gathered from certain observations of the court, has not brought about enough clarity, as would have been expected of and wished for, in a foolproof manner and complete in all respects.
Further, the amendments so made have been expressly required to be given effect only prospectively.
Nonetheless, the court has chosen to go, – in the given peculiar but odd facts and circumstances of the case, – by practical wisdom /down-to-earth common-sense based thinking; that is, compulsively, in preference to taking a strict/ rigid opinion or on technical or hyper-technical grounds. And, as amply but unambiguously borne out by the several observations in the Judgment itself, the court thought fit to do so, principally with a view to set at rest, once for all, the then obtaining awesome controversies, – on which there had been numerous inconsistent court decisions, – by deciding to and upholding the stance of the Revenue.
For knowing and understanding all the implications and varying attendant ramifications, in a comprehensive manner, anyone concerned (not barring but especially the professionals in practice) might have to, independently , go through the Text of the SC Judgment ; also, the published Article (critique) analysing the cited SC Judgment.
AMENDMENT of LAW – Prospective Or Retrospective?
3. For some of the related areas, of every relevance in the context herein, – which have always been, and still continue to be, of the most concern to taxpayers and their assisting and / or representing professionals, – it is imperative to go through the several published Articles, besides elsewhere, in the TAXMAN Journal; citation of one of those is –[2008] 169 TAXMAN 14 (ART), titled “MONITORING OF INCOME-TAX LAW AND CURRENT YEAR’S BUDGET”.
4. A Gist of such intriguing areas as covered / brought to focus therein is furnished below:
4.1. Issues often arise, – or non-issues come to be raised, – and are taken in appeals and eventually to courts, mainly because the Assessing Officers (AOs), for reasons known only to them, as a class, do not invariably bother about or are disinclined/reluctant to follow any one or more of the relevant rudimentary norms/principles, which they are duty bound to scrupulously do. That explains the deplorable chaos and despicable confusion obtaining in the field of administration of the Act, in its true sense; and is the proven root cause for the, otherwise avoidable, ever-increasing disputes and mounting court litigation.
4.2. BUDGET 2008 – AMENDMENT OF SECTION 43(6)
Out of the several amendments made, as commended by the then FM, in the Budget 1988, the one, besides the rest, adverse to the assessee, also given retrospective effect, that stood out as a sore thumb and called for a critical scrutiny, has been the amendment of section 43(6) of the Act.
In terms of the erstwhile provision, for computing the income or loss under the head of profits and gains of business for any year, depreciation was allowable on the actual cost as reduced by the depreciation ACTUALLY ALLOWED. The amendment was to insert a new Explanation, retroactively from April 1, 2003. That was made applicable to a person whose income was tax exempt in preceding years but becomes taxable in a particular later year. The effect of the amendment is that, for that year, DEPRECIATION PROVIDED IN THE BOOKS OF ACCOUNT FOR THE PRECEDING YEARS SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED. [EMPHASIS supplied]
4.3. The fundamental rule of /principle for interpretation of the law, – of relevance also herein, – as finally settled by case law and commonly accepted, is as under:
> One should merely look at what is clearly said. There is no room for any intendment. Nothing is to be read in or implied. One can only look fairly at the language used. It is also not permissible to construe a provision by making any assumption or presumption.
To elaborate: The use of the crucial term ‘actually allowed’, earlier in the 1922 Act, had been retained in the 1961 Act as well. The view consistently taken by Courts also lends no scope for construing the term ‘actually allowed’ to mean – ‘whether actually allowed or not’ (?)
By any reason or logic, no such construction is acceptable, even from a common sense point of view. Further, it goes against the very grain of the natural meaning of the term. That it is not but so is fortified by the very fact that has been done by inserting a ‘deeming provision’.
4.4. On the aspect of ‘retrospective amendment’, in several cases where the matter was taken to Courts, the following view has been consistently taken:
> The word ‘deemed’ is not to include the obvious, the uncertain and the impossible. One of the external aids to construction of a statutory provision is the legislative history and background.
> Retrospective legislation may be held to be invalid on the ground that it is unreasonable or not in general public interest, or is beyond the legislative competence.
> An amendment cannot be made retrospectively, only for the purpose of nullifying a Court judgment where there was no lacuna or defect in the extant law. On this point, there is a line of decisions in support.
Apparently, the above referred amendment does not meet or satisfy, even remotely, but is patently contrary to, the aforementioned guidelines or criteria gone by, for settling the correct position in law.
4.5. Further, it brings to strikingly intriguing focus, – a moot but intricate point, – which calls for a clinical analysis, as set out, in details, below:
> The Revenue’s explanation that the- or any such- amendment is to clarify the ‘intent’ or ‘purpose’ of the provision is, by its very nature, based on a purely subjective view / incorrect thinking. In that, it has basically something to do with the perception of the individual(s) originally involved and responsible for the framing of and legislating the provision (s).
> The validity of the point made will be better appreciated if one takes an insightful look at the reality, by lifting, for this limited purpose, the veils of the so called – Government and/ or the Legislature.
The Act embodying the law on income-tax is, same way as any other law, a man –made- law, which is unquestionably distinct in its characteristics from the sublime/supreme ‘Law of Nature’, in its profoundest sense. The Government, as such, has neither a body to be kicked nor a soul to be condemned. In a democracy like ours, it is formed by the elected representatives of a political party constituting the majority at a given point in time.
The Legislature, in turn, is similarly a body constituted by such elected representatives of one or more political parties forming the Government.
Technically, in the eyes of law, the Government and the Legislature are to be regarded, based on the ‘First principles, as bodies distinct from their constituent individuals or a group of them. However, as mentioned hereinabove, for the limited purpose of examining the highlighted point, especially because what has been questioned or brought under scrutiny is ‘intention’- a ‘state of mind’, it is not but only fair, rather sensible, to relate it to the individuals and / or the group constituting the Government or the Legislature.
4.6. Keeping in full view the basic attendant realities brought out as above, it requires to be appreciated that the subject amendment, assigning a new meaning, – a ‘deemed’ one at that – to the term ‘actually allowed’, offends, in a manner of forthright speaking, the very intellect or wisdom of the individuals / the group; who, as part of the Government, and of the Legislature, have had a hand/an active role to play in framing or legislating the law originally.
4.7. Besides, of course, it offends also the intellect and competence of the several authorities, including courts, themselves. For, those are the ones who had thus far subscribed, and been an active party to the consistently accepted opinion on the meaning of the subject term. Further, such an amendment of the enactment stems from what, in the perception of the individuals/group in power/on the scene, is considered, in retrospect, to be the ‘intention’ or ‘the purpose’ of the provision(s).
4.8. No doubt true that it is the sole responsibility of the Government and its Executive authorities to be vigilant and keep monitoring the proper implementation and enforcement of the Act. But that is not to say that it is within the powers of the Government to commend and of the Legislature to keep making changes in the Act, all the time, especially retroactively, – that too so often as one would keep changing his mind or perception or outfit.
4.9. The primary objective of monitoring must ideally be to ensure that the administration of the Act is strictly on a as is basis; that is, what is actually provided in the Act. Not on the basis of what, in the individual perception for the nonce, is thought or taken to be the ‘intention’ behind, or the purpose of any statutory provision.
ASIDE: Pausing here, it calls for a concerted noting that, in so far as the issues on sec 54 / sec 54 F under discussion are concerned, the lowly AO has not departed , a wee-bit, from the traditional approach. Except that, the view taken only with the primary focus on advantage to the Revenue, but having been based, rightly so, on a straight forward and simple reading and understanding of the language in which the provisions are couched, that has , by default, turned out to be the right or better view, acceptable by any thinking.
5. There are two other crucial aspects of every relevance to the objective / purpose of the discussion herein, hence needs to be made a pointed mention of:
1) The 2008 Amendments of the related provisions of the law have been dealt with in the SC Judgment in Podar Case. But, instead of having those amendments made with retrospective effect, – as might have been called for and justified, – came to be inserted with prospective effect. One cannot help wondering, – has there not been a surrounding conundrum or fallacy!
2) Now, left to one’s own view, adverting to the 2014 Amendments of relevance herein, it needs to be underlined that, had the said amendments been made and given effect retrospectively, as would have been justified and warranted, the piquant situation now the Revenue has been obliged to face could have been easily obviated / avoided.
6. For a critical study and in-depth examination of the above mentioned aspects, suggest going through the published Article @ (2014) 226 TAXMAN 143 (Mag) (cited in the earlier Article itself).
In that Article, in paragraph 2.1-2, another amendment made, of sub-section (1) of section 54 EC, by insertion of a Proviso, has also been covered. In own perspective, it could be urged to have been, likewise, of a curative nature. As implied – rather gravely doubted by self, – in own observations therein, the said amendment has been made effective, again prospectively, obviously not after having done enough home work. Be that as it may, in one’s own conviction/ firm view, however, if that were critically analysed, also that amendment could have been made, for better reasons and sound logic, to take effect retrospectively; to the obvious advantage of the Revenue.
To Dilate:
It is believed, quite possibly the above referred provision, -pre- and / or post- amendment, – might have given rise to numerous disputes, and are still pending in several appeals and court proceedings.
Premised so, the need for having had the provision given a retrospective effect, – though failed to have been done- assumes a serious consideration. Justification to do so is, in own perception, not far to seek.
Briefly stated: The maximum of ‘50 lakh rupees’, for claim of exemption on rollover investment as envisaged therein, has reference, and is, in terms, applicable to the chargeable capital gains. The original related tax event is, indisputably, the ‘transfer of long term capital asset’ giving rise to taxation. As such, what is really of relevance for the above said purpose is the previous year in which the transfer has been made. To be precise, the fact that assessee has been given ‘a period of six months after the date of such transfer’, for making the roll over investment in ‘the long term specified asset’, – spilling over to the next previous year, – should make no difference.
In short, logically, the legislative intent was / could never have been to apply the limit for such investment, except once- not twice; that is, only in reference to the previous year of relevance, being the year of the ‘transfer’ of the ‘old asset’.
7. Refer yet another write-up displayed @ Investment in multiple houses for exemption under section 54/54F; in which, its writer, has cited also a few other decided cases, on the same topic under discussion.
To restate in order to reinforce own viewpoints:
The judgment in the last of the case law, as mentioned in the earlier Article, has been delivered by the HC in disposing of the appeal filed under section 260A of the IT Act, 1961, arising out of the itat order dated 29.03.2011 for the assessment year 2006-07.
The grounds of the decision may be found to have been set out in the operative portion of the judgment- vide paragraphs 11 and 12.
The assessee has been held to be entitled to the benefit of exemption under Section 54F(1) of the Act, on the stated ground that “ TWO APARTMENTS of 500 square feet IN SAME BUILDING has to be treated as ONE RESIDENTIAL UNIT “.
In doing so, the view taken by the Delhi High Court in the case of Geeta Duggal to the same effect has been agreed and followed. It is further stated, – the appeal against the aforesaid decision was dismissed by the Supreme Court by an Order reported in (2014) 52 taxmann.com 246 (SC). (Para 11)
12. “For the aforementioned reasons, the SUBSTANTIAL QUESTIONS OF LAW are answered in favour of the assessee and against the revenue” (Para12)
(FONT supplied for spl. focus)
As personally read and independently understood, so also inferred:
So far as seen from the TEXT of the Judgment, the implications of the amendment of the law as made by the Finance (No. 2) Act of 2014 have not been addressed; hence not been gone into by the HC. May be, the reason or the thinking behind is that the date of coming into effect of the said amendments has been specified to be April 1, 2015.
For an analytical study of the said amendment, however, if so care to and minded, suggest, as earlier urged, going through the Article – (2014) 226 TAXMAN pg. 143 (cited herein also earlier)
In an attempt to dilate / add, at the painful cost of repetition:
1) As per the discussion therein, in own firm conviction, the implications of the said amendment, though, in terms, made prospectively, would be worthwhile a study in-depth, based on THE FIRST PRINCIPLES of the governing State legislative enactments; instead of, mainly / entirely relying on the mutually contradicting court and itat decisions, which the legislature seems to have had wholly in mind for amending the law.
2) Several related points of dispute (ISSUES or NON-ISSUES) taken on and relentlessly but mindlessly pursued up to the highest court of the land could have been nipped in the bud, at the earliest stage of ITAT itself, had attention been duly drawn to, forcefully addressed and sufficiently stressed before the adjudicating authority (ies); in order to successfully driving home the most crucial / clinching aspect of all- that is, why such issues could not but only be effectively and conclusively decided- not de hors but having due regard to the statutes specially governing / to be applied to the legal concept of ‘ÚNIT’ (FLAT/APARTMENT).
3) For serving the very objective behind the 2014 amendment of the law, from all angles, should not that be construed and be given effect to ‘retrospectively'(X prospectively) – as has been repeatedly urged?
For more, recommend to go through the comments posted/ viewpoints shared, wrt the following write-ups:
8. Sec. 54F.(1) reads:
“Subject to the provisions of sub-section (4), where, in the case of an assessee being AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, the capital gain arises from the transfer of any long-term capital asset, not being a residential house ……”
As borne out by the highlighted WORDS, ‘AN ‘and ‘Á’ prefixed are ‘vowels’ as considered appropriate so as to accord with and meet the nuances of the English Grammar.
As such, that itself goes to falsify the view taken that wherever the letter ‘a’ (vowel) is used, there is an ambiguity and is, therefore, amenable to being subjected to the process of ‘interpretation’.
By any thinking, there could conceivably be scope for ‘interpretation’ of only any ‘term’/ ‘word’; not of a ‘letter’/ ‘Vowel’- which ‘a’ really is.
To be precise, and to highlight the fallacy and faulty logic, in the pleading addressed to court in Navin Jolly and similar other cases, being patently misconceived, the only question to be asked is this: – Does not the term used, ‘an individual’ ‘or á huf’ clearly bears on its sleeves, with no ambiguity, that the legislative intent is to refer to ‘one’ individual or huf; not to two or more!?
In this view of the matter, the question of taking any such point to court as involving a ‘question of law’ or a ‘substantial question of law’, seeking judicial adjudication, as has been done, seems to be devoid of any merit, in order to be judiciously pursued any longer/ anymore, in any of the cases pending as of now, before any of the ITAT benches or elsewhere. – Agree or not!!!
To put it in a lighter vein, what has been taken on and pursued up to the level of court for adjudication, by assessees is, at best, a question of English Grammar ; which is, by no means, a question or substantial question of law as impudently urged ?!
2014 Amendment
9.1. Through the 2014 amendment , the legislative intention, – even granting but stoutly denying suffered from any ambiguity – must be taken to have been made more than adequately clear, so as to lend no further scope for any contrarian view,- with inherent potency to lead to litigation,- whatsoever .
As such, in one’s perspective, there is more than one way to prevent/nip in the bud, any further speculative or stimulated litigation. That is, as suggested in the earlier Article, to have ‘all the issues’, directly or otherwise inter- connected, taken straight away to the apex court for a conclusively binding adjudication ; following the self-same steps as taken in the landmark/ classical case of Podar Cement.
9.2. The other two possible courses of action, worthwhile exploring by the Revenue, are as indicated below: –
A) Promulgation of an ORDINANCE, by the President, in exercise of his extra ordinary powers vested under the Constitution.
B) To think of and have suitable amendments made in the IT Act, so as to make it amply clear that for all its purposes, a property in the form of/ of the kind- UNIT in a BUILDING, comprising units for residential or commercial purpose, should be construed to mean ‘one house property’.
10. Indirect Tax (VAT and GST)
There are, if analysed, three concepts bundled into and denoted by the expression –”A HOUSE PROPERTY”. The language, if critically analysed, brooks no room for any two opinions, so as to give rise to any controversy or contrarian view, not only in relation to issues in the income-tax regime but also in the indirect tax regime.
The issue(s) involved, -it is commonly believed, not without merits, – have only been rendered far more complicated, with an added dose of indirect tax–levy, firstly, of VAT, and after migration to, levy of GST.
For the purposes of the IT Act, what attracts a charge is INCOME accruing or arising a) from or b) on transfer of a ‘a house property’, possessed and owned by a ‘person’, within the special meaning of the terms as per the Act.
On the contrary, for VAT and GST, a prospective purchaser, even before he becomes entitled to any right to, or possession, occupation and ownership, of the property, VAT and/or GST has been made leviable; been done so, on prima facie a logically faulty premise that, – even while a building is under construction, but before its completion in all respects and be ready for sale, that could be rightly regarded as a taxable event so as to attract and be made liable for levy of indirect tax.
EPILOGUE
The ongoing controversies, neck-deep disputes and brain- teasing litigation, in relation to, and targeting Flats/Apartments, for long now, are not confined to the Direct Tax regime; but have been and remained extended, over the past 3 decades or so, to also the Indirect Tax regime.
For related FEED-Input, suggest looking through, among others, the following material available on this website, besides elsewhere in public domain:
Levy of SERVICE TAX and GST on REALTOR
> Deeming” – ‘A Legal Fiction’ !- Service Tax – A Case Study(1)
> A Legal Fiction’- Service Tax – A Case Study- Part II(2)
Levy of INCOME TAX and GST on ‘Housing Association’
> Mutuality’ – Doctrine of- A Critical Study(3)
> HOUSING ASSOCIATION -Mutuality Principle- Supplement I(4)
> Housing Association & ‘’Mutuality”- (Supplement II)(5)
No need to add that these materials, for ostensible reasons, are inevitably required to be subjected to an intimate study, if were to serve the avowed purpose of accomplishing THE COMMON GOOD!
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