Section 54/54F: New residential house need not be purchased by assessee in his own name

Mrs. A. Vijayakumari Vs ITO (ITAT Chennai)

The provisions of section 54 of the Act are beneficial and are to be considered liberally for reasonable bonafide cause but investment in residential property is mandatory which is not in dispute in this case. The Assessing Officer was not justified in rejecting the case law relied on by the assessee in the case of CIT v. Shri Kamal Wahal 351 ITR 4 (Del), wherein, it was held that the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. Claiming exemption under section 54(1) of the Act deals with transfer of a long term capital asset being building or lands appurtenant, whereas, section 54F of the Act deals with transfer of any long term capital asset not being a residential house, but both are coming under computation of income from capital gains.  Under these facts and circumstances, the long term capital gains taxed by the Assessing Officer stands deleted.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Trichy, dated 27.11.2018 relevant to the assessment year 2014-15. In the grounds of appeal, the assessee has challenged the order of the ld. CIT(A) on confirmation of both income from long term capital gains and short term capital gains.

2. Brief facts of the case are that the assessee is an individual and filed her return of income for the assessment year 2014-15 on 23.02.2016 admitting income of Rs. 3,57,400/-. As per the information available with the Department that the assessee sold an immovable property (land & building) for a sale consideration of Rs.42,68,880/- as against the guideline value of Rs.44,69,000/- during the financial year 2013-14. As the said transaction attracts the provision of section 50C and for the reason that the assessee has declared the sale value in her capital gain workings at Rs. 42,68,880/-instead of Rs. 44,69,000/-, a notice under section 148 of the Income Tax Act, 1961 [“Act” in short] was issued. In response, the assessee filed a reply dated 16.06.2017 requesting to treat the return filed by her on 23.02.2016 as the one filed in response to notice under section 148 of the Act. After considering the details furnished by the assessee against the statutory notices, the Assessing Officer completed the assessment under section 143(3) r.w.s. 147 of the Act by assessing total income of the assessee at Rs.40,59,160/- after making various additions. On appeal, the ld. CIT(A) confirmed the additions.

3. On being aggrieved, the assessee is in appeal before the Tribunal. Besides relying on the decision in the case of CIT v. Shri Kamal Wahal 351 ITR 4 (Del), the ld. Counsel for the assessee has submitted that the assessee fulfilled all conditions laid down under section 54 of the Act and reinvestment was made well within the time prescribed under the Act and prayed for deleting the addition made by the Assessing Officer.

4. On the other hand, the ld. DR strongly supported the orders of authorities below.

5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. On examination of SB account standing in the name of Dr. M. Ayyasamy, A.Vijayakumari in lOB, Pattukottai, the Assessing Officer observed that major portion of sale consideration received on transfer of original asset of Rs.41,68,880/- through DD dated 14.09.2013 has been credited in this bank account on 19.09.2013. The closing balance available as on 31.03.2014 of this bank account was shown in the balance sheet of assessee’s husband and therefore, it is considered that this bank account is related to Assessee’s husband Shri M. Ayyasamy only. Further, it is verified that as per the capital account filed by the assessee as on 31.03.2014, the assessee has gifted entire sale consideration of Rs. 42,68,880/- received on transfer of original asset to her husband. It is also verified from the said bank account statement that Rs. 57,50,000/- has been paid to the vendor of new property (hereinafter referred to as “new asset”) Shri Mohamed Sirazudeen Hussain through RTGS on 25.08.2014 towards purchase consideration for new investment in the name of their son. From the above, it can be seen that the assessee has gifted the entire sale consideration received from transfer of original asset to her husband. In turn, the assessee’s husband, on 25.08.2014 has gifted Rs.72,30,000/- to his son Shri Ramprasath as evidenced from his capital account as at 31.03.2015, which proves that the assessee has not invested in the said new asset. Moreover, in the purchase of above new asset, a total sum of Rs.72,68,900 has been invested (i.e. sale consideration as per the deed Rs.67,30,100 + stamp duty Rs. 4,71,150 + regn. Fee Rs. 67,750). The assessee has gifted Rs.41,68,880 out of sale consideration received on transfer of original asset to her husband. Therefore, it is evidenced that the balance investment amount of Rs. 31,00,020 (i.e. 42% in total investment of Rs.72,68,900/-) have been met out of funds from assessee’s husband. Whereas in the case law quoted by the assessee supra, the entire purchase consideration was paid only by the assessee and not a single penny was contributed by the assessee’s wife. Therefore, the assessee cannot claim that the entire purchase consideration in the new asset was paid only by her for claiming exemption under section 54 of the Act. Further, the assessee in the return has claimed exemption under section 54 of the Act and not under section 54F of the Act dealt in the case law quoted by the assessee. Accordingly, the Assessing Officer was of the opinion that the case law quoted by the assessee is not having any relevant to the assessee’s case, determined and levied the long term capital gain tax. On appeal, the ld. CIT(A) confirmed the addition.

5.1 In this case, the assessee received sale consideration on transfer of original asset of Rs.42,68,880/- through DD. The Assessing Officer noticed that the entire sale consideration was gifted to her husband. Further, on verification of the said bank account statement Rs.57,50,000/- has been paid to the vendor of new property through RTGS towards purchase consideration for new investment in the name of their son. Further, the Assessing Officer observed that the assessee’s husband Dr. M. Ayyasamy has gifted Rs.72,30,000/- to his son Shri Ramprasath. Moreover, in the purchase of above new asset, a total sum of Rs. 72,68,900/- has been invested. It is clear from the above facts that both the assessee and her husband purchased the new property in their son’s name.

5.2 The provisions of section 54 of the Act are beneficial and are to be considered liberally for reasonable bonafide cause but investment in residential property is mandatory which is not in dispute in this case. The Assessing Officer was not justified in rejecting the case law relied on by the assessee in the case of CIT v. Shri Kamal Wahal 351 ITR 4 (Del), wherein, it was held that the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. Claiming exemption under section 54(1) of the Act deals with transfer of a long term capital asset being building or lands appurtenant, whereas, section 54F of the Act deals with transfer of any long term capital asset not being a residential house, but both are coming under computation of income from capital gains. From the observations of the Assessing Officer, it is evident that he has not appreciated the complete findings given in the case of CIT v. Kamal Wahal (supra), wherein, the Hon’ble Delhi High Court has observed as under:

“This court in the decision cited alone also noticed the judgement of the Madras High Court (supra) and agreed with the same, observing that though the Madras case was decided in relation to section 54 of the Act, that section was in pari materia with section 54F. The judgement of the Punjab and Haryana High Court in the case of CIT v. Gurnam Singh [2010] 327 ITR 278 (P&H) in which the same view was taken with reference to section 54F was also noticed by this Court.”

5.3 Thus, the issue is covered in favour of the assessee by the decisions of Hon’ble Delhi High Court in the case of CIT v. Kamal Wahal (supra), Hon’ble High Court of Madras in the case of CIT v. V. Natarajan [2006] 287 ITR 271, Hon’ble Punjab and Haryana High Courts in the case of CIT v. Gurnam Singh [2010] 327 ITR 278 and moreover, the decision of Hon’ble Karnataka High Court in the case of DIT v. Jennifer Bhide 349 ITR 80. Under these facts and circumstances, the long term capital gains taxed by the Assessing Officer stands deleted.

6. The next ground raised in the appeal of the assessee relates to levy of short term capital gains. Vide another sale deed document, the assessee has sold another immovable property (vacant plot) for a sale consideration of Rs..4,50,000/- as against the guideline value of Rs. .6,55,500/-. The Assessing Officer proposed to adopt the guideline value as sale consideration as per section 50C of the Act, against which the assessee contended that the above sale of property was a distress sale on the reason that the frontage was very small say about 24 feet, construction could not be carried out allowing the property set back on both sides and there were rumours that the railway was going to expand taking over the adjacent lands. Since the above objection of the assessee was not tenable in view of the provisions of section 50C(1) of the Act and accordingly, the Assessing Officer adopted Rs..6,55,500/- as fair market value under section 50C of the Act and assessed the taxable short term capital gain.

6.1 We have considered the rival submissions. Admittedly, the provision of section 50C(1) of the Act reads as where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government [i.e., stamp valuation authority] for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessable shall, for the purpose of section 48 of the Act be deemed to be the full value of the consideration received or accruing as a result of such transfer. In this case, since the assessee has not opted for to refer her case for valuation to the Department Valuation Officer as per section 50C(2) of the Act, we are of the considered opinion that the Assessing Officer has rightly adopted the 50C(1) value as fair market value and determined the short term capital gain. Under these facts and circumstances, we find no reason to interfere with the orders passed by the authorities below. Thus, the ground raised by the assessee stands dismissed.

7. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on the 26^th July, 2019 in Chennai.