R.P. Tolani, Judicial Member
1. This is revenue appeal and assessee’s cross objection. Sole ground raised by revenue is as under:
“1(a) On the facts and in the circumstances of the case, the Ld. CIT(A) erred both in law and in facts in directing the A.O. to allow full exemption to the assessee Under Section 54 in as much as in the newly acquired house property the assessee deriving capital gains from the transfer of the old property was only a co-owner and not the full owner.
(b) In doing so, the Ld.CIT(A) relied upon facts that were extraneous to the issue under consideration.”
2. Brief facts are the assessee is an individual. She sold a property called Barry Villa for Rs. 11 crores, against which the assessee purchased a flat No. H-132, Maker Towers, for Rs. 6,08,15,750. The assessing officer found that in the conveyance the number of purchasers were three, i.e. assessee, her mother and father. AO was of the view that the word ‘purchase’ is not defined in the I.T. Act and, relying on various observations, held that there were three purchasers of the property. Consequently, the assessee was only 1/3rd purchaser. Benefit of Section 54 was worked out accordingly. The assessee preferred first appeal where the assessee contended that the assessee was the only purchaser of the property. The entire sale consideration was paid out of her bank accounts, evidence whereof was submitted before the AO. The names of mother and father were included for convenience to avoid court litigation on death of any party. The actual owner was the assessee, who was shown as No. 1 as the purchaser. The money received from the sale of the property was deposited in the bank and the entire amount utilised for purchase of new property was spent therefrom. The payment of legal fee, stamp duty, brokerage etc. was also made from the same account by the assessee. Affidavits of father and mother of the assessee were filed deposing that the assessee had utilised all her own funds for purchase of new flat and mother and father had no right, title or interest in the said property. The CIT(Appeals) held that the total payment was made by the assessee out of the funds received on sale of property; no money was paid by mother or father for any purpose. By affidavit, they have deposed that they have no right, title or interest in the new property. Under Transfer of Property Act, the real owner is the person who spends or pays the money for purchase of the property. The only condition prescribed by Section 54 was that the capital gains on sale of a property shall be utilised by the assessee for purchase of a residential house; this condition was fully satisfied. The assessee’s ground was allowed. Aggrieved, the revenue is before us.
3. The learned departmental representative relied on the order of assessing officer.
4. The learned counsel for the assessee reiterated the arguments and contended that merely because the second and third name of mother and father were incorporated for the sake of convenience, will not detract from the fact that the assessee had purchased the property. In common practice, it is so done in movable and immovable properties, more so when a lady is the purchaser for the reason that if the property stands in a single name, the heirs and executors cannot deal with such a property in the absence of probate from the High Court in the event of unfortunate demise of the concerned person. Granting of probate normally takes at least 2 to 3 years besides the complications involved. Therefore the assessee, as a precautionary measure, purchased the property and held it in joint names. The assessee paid all the consideration and expenditure from her bank account, which is not disputed. The mother and father, by a duly sworn affidavit, had made it clear that they had no right, title or interest in the said flat and can never claim any such right. Therefore the only logical conclusion is the fact that the assessee is the purchaser of the property. Reliance was placed on Supreme Court judgment in the case of CIT v. T.N. Aravinda Reddy (120 ITR 46), wherein it has been held as under:
“We find no reason to divorce the ordinary meaning of the word ‘purchase’ as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in Section 54(1). If you sell your house and make a profit, pay Caesar what is due to him. But if you buy or build another subject to the conditions of Section 54(1) you are exempt. The purpose is plain; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism.”
Under these circumstances, it was contended that in the facts of the case assessee is the only purchaser of the property. She has paid the consideration along with all the expenditure. Further reliance was placed on Section 45 of the Transfer of Property Act and the commentary about co-owners’ interest, which is as under:
“45. Joint transfer for consideration.- Where immovable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced.
In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property.
(1) Co-owners’ interests When a transfer for consideration to two or more persons jointly makes them co-owners of the property transferred, their interests are in proportion to the shares of the consideration that they have been advanced. If the consideration is paid out of a common fund their shares would be the same as their interests in that common fund. Although a mortgage is indivisible as between the mortgagor and the mortgagee, yet as between the mortgages inter se their interests in the property would be proportionate to the shares of the mortgage money they had advanced. When four mortgages advanced money in equal shares, and the fourth mortgagee consented to the mortgagor redeeming the other three mortgages, he could only recover one-fourth share of the mortgage money by sale of one-fourth of the property mortgaged. In an Allahabad case [Pertab v. Nihal Singh (1926) 96 IC 134, AIR 1926 All 676], there was a recital in a sale deed that the plaintiff had contributed one half of the consideration for the suit property, but his share was shown as 1/21. It was held that in view of Section 45, his share would be one half. Since the dispute was not between vendor and vendee but between two co-purchasers, Section 92 of the Evidence Act would not come in the way [Mohan Lal v. Board of Revenue, .”] The learned counsel emphasized that Section 45 of T.P. Act clearly spells out that in the absence of contract to contrary the respective owners will be entitled to interest in such property in proportion to the share of money advanced, whereas in this case no monies have been advanced by the mother and father, besides by a sworn affidavit they have solemnly stated that they have no right, title or interest in the property. Consequently, there is no escape from the fact that mother and father cannot be considered as purchasers of the property having any right, title or interest therein. Order of CIT(A) was relied on. Further reliance was placed on Supreme Court judgment in the case of CIT v. Podar Cement Pvt. Ltd., 227 ITR 625 for the proposition that the concept of “constructive ownership” is very well recognized in the income-tax proceedings.
5. We have heard the rival submissions and perused the material available on record. The facts of the case have been elaborately discussed above. The term ‘purchase’ is not defined in the I.T. Act. Therefore the same is to be understood as in common parlance. It is evident that the assessee paid the entire purchase consideration together with all the expenses. The mother and father have deposed that they have no right, title or interest in the impugned fiat and that their names have been added for various legal conveniences mentioned above. Section 45 of the Transfer of Property Act is discussed above, which gives importance to the ratio of payment made by respective owners and refers to any contract to the contrary, which may be in existence. As the facts emerge, it is implicitly clear from the conduct of the parties that there was an agreement in existence that the flat will be the property of the assessee and mother and father will have no right, title or interest therein and the purchase consideration with expenses will be borne by the assessee. Under these circumstances, we are of the view that the assessee can be treated as purchaser of the property in terms of Section 54. Our view is further fortified by the Hon’ble Supreme Court judgment in the case of Podar Cement Pvt. Ltd. cited supra for the proposition that the concept of “constructive ownership” has to be applied to income-tax proceedings. The issue before Hon’ble Supreme Court was of depreciation. Nevertheless, it lays down a general proposition of law that in income-tax proceedings the concept of “constructive ownership” can be applied considering the facts of the case. We are of the view that the facts of the present case conform to be seen from the gloss of the Hon’ble Supreme Court judgment in the case of Podar Cement Pvt. Ltd. (supra), which also helps the case of the assessee. In consideration of all the above facts, observations and case laws, we hold that the assessee is purchaser of the flat and the entire amount spent by her has to be considered towards the purchase price paid by her for the new flat entitled to be computed while allowing deduction Under Section 54.
6. Revenue appeal is dismissed.
7. The assessee’s cross objection raises following grounds:
“(1) The Cross Objector submits that the learned Commissioner of Income-tax (Appeals) erred in confirming that the expenditure of Rs. 40 lakhs, towards repairs effected by the Cross Objector, to put the new flat in a habitable condition, was not allowable Under Section 54.
(2) Having regard to the facts and circumstances of the case and the provisions of law, the Cross Objector submits that the said expenditure of Rs. 40 lakhs also requires to be considered as part of the cost of the new flat, and that deduction Under Section 54 is also required to be allowed in respect of the same while computing the Long-term Capital Gains.”
8. The learned counsel relied on Mumbai ITAT, C-Bench, judgment in the case of Mrs. Gulshanbanoo R. Mukhi v. JCIT, 83 ITD 649, which was authored by one of us (the JM), which has held in this respect as under:
“The words used about the amount spent on purchase of new asset are ‘cost thereto’ and not ‘price thereto’. The cost includes purchase as well. Consequently, the words used signify that the amount of purchase will include other necessary expenditure in this behalf to make a residential house habitable and taken together that will be the cost of the new asset. The Tribunal had perused the items of the report of the architect. The residential house was in a state of general disrepair and was unhabitable. Consequently, the necessary repairs carried out to make the same habitable would constitute part of the cost of new house. The Commissioner (Appeals) was not justified in enhancing the assessment by excluding the amount of Rs. 14,94,359 while working out deduction under Section 54. The enhancement, was, therefore, deleted.”
It was contended that the assessee furnished all the details about the repairs of the new flat before occupation to the lower authorities contending that the flat purchased was not occupied by the previous owner but was let out from time to time, due to which the same was left in a bad condition. The assessee had to carry out extensive repairs, including replacement of flooring, electrical work and carpentry work etc. so that the fiat could be in a proper saleable condition. The bathrooms were leaking, electrical wirings were sub standard and dangerous, painting was slipshod and there were signs of white ants eating into walls and woodwork of the apartment. The amount spent was on extensive repair work, fumigation and white ant treatment. It was explained to the lower authorities that had the flat been in immaculate condition, the assessee would have had to pay a higher price for the same. Therefore it can be inferred that the assessee paid lesser price to the extent of repairs incurred. The lower authorities have rejected the claim of the assessee holding that after total payment to the seller was made, the assessee was a legal owner of the property in 1995 itself, the cost of the purchase is indicated in the conveyance deed. The expenses incurred are subsequent to the ownership, it was contended that Section 54 never prescribed such condition. All it refers to is cost of purchase. This aspect has been elaborately considered by the Tribunal in Gulshanbanoo R. Mukhi’s case. Without paying the consideration to the vendor, the assessee cannot carry out the repairs. Therefore the same cannot be held against the assessee.
9. The leaned DR, on the other hand, relied on the orders of lower authorities.
10. We have heard the rival contentions and perused the material available on record. Lower authorities have not disputed the fact that the repairs etc. undertaken by the assessee were genuine. The assessee would not have been able to carry out necessary repairs unless the conveyance was executed. The same will obviously mention the figure of agreed purchase price between vendor and assessee. Therefore this fact cannot be held against the assessee. This issue has been considered by the Tribunal in Gulshanbanoo R. Mukhi’s case. Following the same, we hold that the assessee is entitled to deduction of Rs. 40 lakhs towards purchase of the flat while working out the chargeable capital gains Under Section 54.
11. Assessee’s cross objection is allowed.