Kishorbhai Harjibhai Patel Vs ITO (Gujarat High Court)
In section 54F date of agreement to sell should be considered as date of transfer for computation of prescribed time limit
Conclusion:
Once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished. Therefore, the agreement to sell which had been executed on 13th August 2010 was considered as the date on which the property, i.e. the agricultural land, had been transferred instead of 3rd July 2012 on which the sale-deed came to be executed and assessee was entitled to claim the benefit of section 54F as it had invested in purchase of residential house on 22nd April 2010 which was within the prescribed time limit.
Held:
Revenue authorities held that the transfer of the land took place on 3rd July 2012, and in such circumstances, the residential house should have been purchased by the assessee within the preceding one year, i.e. on or after 4th July 2011. Assessee had purchased the residential house on 22nd April 2010, i.e. beyond the time period as stipulated under Section 54F of the Act. In such circumstances, the claim of assessee for exemption under Section 54F came to be disallowed. It was noted in the case of Sanjeevlal Supreme Court held that when an agreement to sell in respect of immovable property is executed, a right in personam is created in favour of the vendee and when such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee gets a legitimate right to enforce a specific performance of the agreement. The Supreme Court, while considering the provisions of Section 2(47) (ii) of the Act held that if a right in respect of any capital asset is extinguished and that right is transferred to someone else, it would amount to transfer of a capital asset. The Supreme Court held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished. In the instant case, the new residential house was purchased by assessee on 22nd April 2010, whereas the agreement to sell the agricultural land at Rs.4 crore was entered into on 13th August 2010. An amount of Rs.10 lakh towards the earnest money was received by assessee as part of the agreement. On 15th October 2011, the possession of the land was handed over by assessee to the purchasers of the land. On 3rd July 2012, the sale-deed came to be executed by assessee in favour of the purchaser of the land. The date on which assessee decided to sell the land, i.e. 13th August 2010, was considered as the date of transfer or sale thus, assessee was entitled to the benefit under the provisions of Section 54F because long term capital gain earned had been used for purchase of new asset on 22nd April 2010.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’), is at the instance of the assessee and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad ‘A’ Bench, Ahmedabad, dated 18th June 2018 in the ITA No.587/AHD/2017 for the Assessment Year 2013-14.
2. This Tax Appeal came to be admitted on the following two substantial questions of law :
“1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the order of the CIT(A) denying deduction of Rs.40,74,793/- u/s 54F of the Act by holding that the land in question was not transferred in a period stipulated under the Income Tax Act?
2. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the order of the CIT(A) denying deduction of 26,74,283/- u/s 54B of the Act by holding that the land in question was non-agricultural land and exemption under the section was only available to agricultural land?”
3. We proceed to consider the first question as regards the deduction of Rs.40,74,793/- under Section 54F of the Act.
4. The Assessing Officer, while disallowing the exemption claimed by the assessee under Section 54F of the Act, observed as under :
“The reply furnished by the assessee has been considered.
The same is not acceptable. As stated hereinabove that for claiming exemption u/s.54F, the assessee has to purchase within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer [or from the date of receipt of compensation in the case of compulsory acquisition], one residential house. In the case of the assessee, the transfer of the land took place on 03/07/2012 and as such the residential house should have been purchased within preceding one year i.e. on or after 04/07/2011. However, the assessee has purchased the residential house on 22/04/2010 i.e. beyond the time allowed as per the provisions of section 54F of the Act. As such the exemption claimed by the assessee u/s 54 of the Act at Rs.40,74,793/-is not allowable. It was the contention of the assessee that the section 54F of the Act is a beneficial provision for promoting the construction of residential house and requires to be construed liberally for achieving that purpose. Even the assessee’s contention is accepted then any assessee can claim exemption u/s.54F of the Act out of the capital gain arisen from the transfer of any long term capital asset [not being a residential house], if the assessee purchased any residential house in any time preceding the date of transfer of the capital asset. This was not the intention of the legislature. Further. the Circular No. 359 dated 10/05/1983 is not applicable to the facts of the assessee’s case. Here in the case of the assessee, the fact remains that the assessee has purchased the residential house on 22/04/2010 i.e. beyond the time allowed as per the provisions of section 54F of the Act. The conditions laid down in section 54F of the Act have not been fulfilled by the assessee. Therefore, the exemption u/s.54F of the Act claimed by the assessee at Rs.40,74,793/- is disallowed and added to the total income of the assessee. Penalty proceedings u/s.271(1)(c) of the Act are initiated separately for furnishing inaccurate particulars of income.”
5. In appeal preferred by the assessee, the CIT(A) observed as under :
“I have considered the facts of the case, the submission of the appellant and the AO’s observations. A perusal of the assessment order shows that the appellant had not made any submission before the AO that it should be allowed exemption u/s 54F of the IT Act on account of the fact that he had entered into sale agreement with the purchaser on 13.08.2010 and hence, the house purchased by him on 22.04.2010 was within one year of the transfer of the land. This is a new argument taken by the appellant during the course of the current appellate proceedings on the basis of the decision of the Hon’ble Supreme Court of India in the case of Sanjeevlal (supra). But, the fact involved in the decision in the case of Sanjeevlal (supra) are entirely different from the facts involved in the appellant’s case. In the case of Sanjeevlal, the assessee had entered into an agreement to sell the house on December 27, 2002. But the sale deed could not be executed by him because of the fact that the will, by virtue of which he had inherited the house, had been challenged in the Court by another person and only after the decision in that case, the assessee could execute the sale deed. During the pendency of proceedings relating to challenge of the will, the Court had restrained the assessee from the dealing with the house property. Meanwhile the assessee had purchased another house on 30.04.2003 whereas the sale deed of the original house could be executed only on September 24, 2004. Under such peculiar circumstances, the Hon’ble Supreme Court held as follows:
“In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house.”
In the present case also a peculiar fact was involved, but it was entirely different from the facts of the decision in the case of Sanjeev Lal (supra). In the present appeal, the agricultural land owned by the appellant, was being transferred for non agricultural purposes. The purchaser in this case was not an agriculturist which is evident from the facts narrated in the agreement to sale executed on 13.08.2010. In this sale agreement, it has been clearly mentioned that the sale deed will be executed only after the said land is converted to non agricultural land. The sale agreement also mentions that on the date of its execution, no possession was given to the purchaser. Besides, it has been clearly mentioned that possession will be given at the time of executing the sale seed of the said property. Relevant parts of the English Translation of the sale agreement as provided by the appellant himself are as follows:
“3. Schedule selling property’s absolute possession will be given us the execute to you the execute at the time of executing registered sale deed of said property at that time we the executor have to give to you the execute, such is decided.
4. After transferring the above said schedule property into non agricultural as mentioned above on paying said sale consideration amount by executing registered sale deed, you the executor are rightful. But, you the executee, by paying sale consideration amount and ready to execute sale deed and then also at that time we the executors does not execute registered sale deed to you the executee and/or for that does any excuses then at that time you the executees, to gets special existence of this Banakhat Agreement and by filing suit against us in court, at court way are rightful to execute registered sale deed and at that time to you getting all the expenses responsibility will be of the executors.”
Thus, the sale agreement makes it very clear that neither any possession was given to the purchaser nor any right was given to the purchaser for enforcing the sale agreement prior to conversion of the land from agricultural land to non agricultural land and payment of the sale consideration by the purchaser. Thus, no right was created by virtue of sale agreement which can be considered as transfer with the meaning of Section 2(47) of the IT Act, 1961. ”
6. In further appeal by the assessee to the ITAT, the Tribunal held as under :
“We have heard the rival contentions and perused the material on record. The assesse has claimed exemption u/s. 54 of the act of Rs. 40,74,793/-. The assessing officer has noticed that according to the provisions of section 54F of the act, the said exemption is available if the assessee has purchased within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer (or from the date of receipt of compensation in the case of compulsory acquisition) one residential house. In the light to the above provision, the assessing officer has observed that the transfer of the land was taken placed on 03/07/2012, however, the assessee had purchased the residential house on 22/04/2010 beyond the stipulated conditions laid down in section 54F of the act. The asssessee claimed that he has executed an agreement to sell the agricultural land to Smt. Aneetben M.Patel on 13-08- 2010 and the conveyance deed was executed on 03-07-2012. The assessee contended that he has entered into sale agreement with the buyer on 13-08-2010 and the new house was purchased on 22/04/2010 which was within one year of the transfer of the land. The assessee has placed reliance on the judgment of hon’ble supreme court of India in the case of Sanjeev Lal vs. CIT 365 ITR 389. In the case of Sanjeev Lal, the assesse had received earnest money of 15 lacs when entered into agreement on 27th Dec, 2002. It is held that a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendor/transferee on Dec 27, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. We have perused the decision in the case of Sanjeevlal case of the Hon’ble Supreme Court wherein the assessee has entered into an agreement to sell the house on 27th Dec, 2002 and the sale deed could not be executed for the reason that the assessee had been prevented from dealing with the residential house by the order of the court due to pending litigation. The relevant part of the judgment of Hon’ble Supreme Court of India in the case of Sanjiv Lal vs. CIT 365 ITR 389 is reproduced as under :
“23. Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immoveable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.
24. Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated.
25. In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house.
26. The appeals are, therefore, allowed with no order as to costs. The impugned judgments are quashed and set aside and the Authorities are directed to re-assess the income of the appellants for the Assessment Year 2005-2006, after taking into account the fact that the appellants were entitled to the relief, subject to fulfillment of other conditions.”
It is crystal clear that the decision in the case of Sanjeevlal was delivered after taking into account the peculiar facts of the case that the sale deed could not be executed because of the pending litigation and the competent court has prohibited the assessee to execute the sale deed therefore it is held that the assessee was entitled for relief under section 54 of the act. However, in the case of the assessee, we did not find any such peculiar circumstances which have prohibited the assessee to execute the sale deed. We have also considered all the judicial pronouncements referred by the assessee and we find facts of the case of the assessee are distinguishable, therefore, the same are not applicable to the case of the assessee. Further when the assessee has executed agreement to sale on 13.08.2010 the land was agricultural land and agreement to sale was made with non-agricultural person. However, transfer of agricultural land to non- agricultural is prohibited in the state of Gujarat as per the provision of section 43 of the Bombay Tenancy& Agricultural Lands Act 1948 as applicable to the state of Gujarat. Therefore, no right can be enforced by the buyer as the land was agricultural land by virtue of sale agreement. After considering the above facts and findings, we uphold the decision of the ld. CIT(A) that the land was transferred only on 03-07-2012 when a registered sale deed was executed and it was absolutely correct that there was no creation of any right of the purchaser in the said land as the same were prohibited by the law relating to transfer of agricultural land as existing in the state of Gujarat. ”
7. Thus, it appears that all the three Revenue authorities, having regard to the facts of the present case, took the view that for the purpose of claiming exemption under Section 54F of the Act, the assessee is supposed to purchase residential house within one year before the date of the transfer or two years after the date of the transfer or construct house within three years after the date of the transfer. The Revenue authorities took notice of the fact that in the case on hand the transfer of the land took place on 3rd July 2012, and in such circumstances, the residential house should have been purchased by the assessee within the preceding one year, i.e. on or after 4th July 2011. The Revenue authorities took notice of the fact that the assessee had purchased the residential house on 22nd April 2010, i.e. beyond the time period as stipulated under Section 54F of the Act. In such circumstances, the claim of the assessee for exemption under Section 54F of the Act at Rs.40,74,793=00 came to be disallowed.
I. SUBMISSIONS ON BEHALF OF THE ASSESSEE :
7. Mr.B.S.Soparkar, the learned counsel appearing for the assessee, vehemently submitted that the Tribunal committed a serious error in concurring with the findings recorded by the Assessing Officer as well as the CIT(A). According to Mr.Soparkar, the law on the subject is well-settled. He submitted that the decision of the Supreme Court, in the case of Sanjeev Lal v. Commissioner of Income-tax, Chandigarh, (2014)46 taxmann.com 300 (SC), clinches the issue. He vehemently submitted that the Revenue authorities committed a serious error in distinguishing the decision of the Supreme Court in the case of Sanjeev Lal (supra) on facts while completely ignoring the principle of law, or rather the statement of law, that the date of agreement to sell should be taken as the date of transfer of the original asset in terms of Section 2(47) of the Act, 1961. Mr.Soparkar brought to our notice the following events :
