Case Law Details
M. George Joseph Vs DCIT (Karnataka High Court)
In the instant case, the daughter of the assessee had entered into an agreement for purchase of a flat on 30.12.2006 with M/s Brigade Enterprises. On 21.08.2008, the assessee transferred his shares in the company on which Long Term Capital Gain was offered. Thereafter, under an agreement, on 18.03.2009, the flat was transferred in the name of the assessee and thereafter a registered sale deed was executed in favour of the assessee on 28.03.2011. The assessee had acquired the residential property viz., the flat under an agreement to sell in respect of undivided land and an agreement to build, thus, the instant case was a case of construction of a residential house. The sale deed was executed in favour of the assessee within a period of three yeas from the date of transfer of shares i.e., on 28.03.2011, prior to three years from the date of transfer of shares i.e., 21.08.2008. Therefore, the authorities under the Act ought to have examined the claim of the assessee whether or not the assessee had constructed a residential house within a period of three years from the date of transfer of original property. It is also pertinent to note that exemption under Section 54 of the Act is dependent on the date of acquisition of the property and not on the date of payment made in respect of such property. It is also noteworthy to mention that to claim an exemption under Section 54F of the Act, it is not necessary that the same sale consideration should be used for construction of a new house property. It is also noteworthy that Section 54F of the Act is a beneficial provision, which has been enacted with an object to promote investment in housing and enable the assessee to save tax on capital gains. It is a well settled rule of interpretation that benevolent provision should be interpreted liberally bearing in mind the object for which the provision is enacted. Thus, from narration of aforementioned facts, it is evident that the assessee had complied with the conditions stipulated under Section 54F of the Act and was entitled for exemption. Therefore, the finding recorded by the tribunal that since, payments were made prior to one year before the date of transfer of shares and therefore, the assessee is not entitled to claim exemption under Section 54F of the Act cannot but be termed as perverse.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court on the following substantial question of law:
“Whether the Income Tax Appellate Tribunal is justified in law in confirming the order passed by the first Appellate Authority and Assessing Officer that the appellant is not entitled to exemption of Rs. 88,98,970/- under Section 54F of the Act even though all the mandatory requirements and conditions were fulfilled on the facts and circumstances of the case?”
2. Facts leading to filing of this appeal briefly stated are that the assessee is an individual. The assessee was a shareholder in two companies viz., Pearl Insulation Pvt. Ltd. And M/s Pearl Metal Products Pvt. Ltd. The assessee had transferred the shares held by him in the aforesaid companies on 21.08.2008 resulting in Long Term Capital Gains. The assessee filed return of income on 31.07.2009 for the Assessment Year 2009-10 and declared total income of Rs.28,39,63,455/- and claimed exemption under Section 54F of the Act to the extent of Rs.88,98,970/- on account of acquisition of a new residential house property vide registered sale deed dated 28.03.2011. The return was selected for scrutiny. The Assessing Officer by an order dated 16.12.2011 inter alia held that assessee had computed Long Term Capital Gain of Rs.26,88,34,949/- under Section 54 of the Act in respect of an investment made in acquiring a new residential house property to the extent of Rs.88,98,970/-. The Assessing Officer held that investment made by the assessee does not fall within purview of Section 54F of the Act and disallowed the claim and added the amount to the returned income.
3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals), which was dismissed by an order dated 16.09.2013. The assessee challenged the aforesaid order before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the tribunal’ for short). The tribunal by an order dated 13.02.2015 dismissed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed.
4. Learned Senior counsel for the assessee submitted that daughter of the assessee had entered into an agreement with M/s Brigade Enterprises on 30.12.2006 for construction of a new flat and made payments to the builder. The aforesaid allotment of the flat was transferred in favour of the assessee on 18.03.2009 and the flat was registered in the name of the assessee on 28.03.2011 i.e., prior to three years from the date of transfer of shares i.e., 21.08.2008. It is also submitted that in order to claim exemption under Section 54F of the Act, the assessee had to construct a residential house within three years from the date of transfer of original asset. It is also urged that case of the assessee was a case of construction of the property and not mere purchase. In support of aforesaid submission, reliance has been placed on Circulars dated 15.10.1986 and 16.12.1993 issued by Central Board of Directors. It is also urged that since, the impugned order has been passed on misinterpretation of Section 54F of the Act, therefore, a substantial question of law arises for consideration in this appeal. In support of aforesaid submissions, reliance has been placed on decisions in ‘BAJAJ TEMPO LTD. VS. CIT’, (1992) 196 ITR 188 (SC), ‘CIT VS. GWALIOR RAYON SILK MANUFACTURING CO. LTD.’, (1994) 196 ITR 149 (SC) and decisions in ‘CIT VS. SMT. BRINDA KUMARI’, (2002) 253 ITR 343 (DEL.), ‘CIT VS. MRS. HILLA .7.B.WADIA’, (1995) 216 ITR 376 (BOM.), ‘CIT VS. SAMBANDAM UDAYKUMR’, (2012) 345 ITR 389 and ‘CIT VS. SADARMAL KOTHARI’, (2008) 302 ITR 286 (MAD.).
5. On the other hand, learned counsel for the revenue submitted that all the authorities under the Act have held that assessee has not satisfied the conditions prescribed in Section 54F of the Act and is therefore, not entitled to benefit of the aforesaid provision. The aforesaid findings are based on appreciation of evidence on record. It is also pointed out that no plea has been taken by the assessee in the appeal that the findings recorded by the authorities are perverse or authorities have invoked any material available on record. Therefore, no substantial question of law arises for consideration in this appeal. It is also submitted that Assessing Officer as well as Commissioner of Income Tax (Appeals) in para 3.2 to 3.4 and tribunal in para 5.5.1 to 5.5.4 have assigned detailed reasons for denying the claim of the assessee under Section 54F of the Act. It is also urged that exemption clause should be interpreted strictly. In support of aforesaid submissions, reference has been made to ‘COMMISSIONER OF CUTOMS (IMPORT), MUMBAI VS. DILIP KUMAR & CO’, (2018) 68 GST 39, ‘JAI NARAYAN VS. INCOME TAX OFFICER’, 306 ITR 335 (P & H), ‘PRAKASH VS. INCOME TAX OFFICER & ORS’, 312 ITR 40 (MUMBAI) and ‘VIPIN MALIK (HUF) VS. COMMISSIONER OF INCOME TAX’, (2009) 330 ITR 0309 (DEL).
6. We have considered the rival submissions and have carefully perused the record. Before proceeding further, it is apposite to take note of relevant extract of Section 54F of the Act, which reads as under:
Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
54F(1) 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 (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India] (hereafter in this Section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say –
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under Section 45
(b) 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 as bears to the whole 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.
7. Thus, it is evident that assessee within a period of one year before or two years after the date on which transfer took place, purchases or has within a period of three years after that date, constructs a residential house, he is entitled to the benefit under Section 54F of the Act.
8. In the instant case, the daughter of the assessee had entered into an agreement for purchase of a flat on 30.12.2006 with M/s Brigade Enterprises. On 21.08.2008, the assessee transferred his shares in the company on which Long Term Capital Gain was offered. Thereafter, under an agreement, on 18.03.2009, the flat was transferred in the name of the assessee and thereafter a registered sale deed was executed in favour of the assessee on 28.03.2011. The assessee had acquired the residential property viz., the flat under an agreement to sell in respect of undivided land and an agreement to build, thus, the instant case was a case of construction of a residential house. The sale deed was executed in favour of the assessee within a period of three yeas from the date of transfer of shares i.e., on 28.03.2011, prior to three years from the date of transfer of shares i.e., 21.08.2008. Therefore, the authorities under the Act ought to have examined the claim of the assessee whether or not the assessee had constructed a residential house within a period of three years from the date of transfer of original property. It is also pertinent to note that exemption under Section 54 of the Act is dependent on the date of acquisition of the property and not on the date of payment made in respect of such property. It is also noteworthy to mention that to claim an exemption under Section 54F of the Act, it is not necessary that the same sale consideration should be used for construction of a new house property. It is also noteworthy that Section 54F of the Act is a beneficial provision, which has been enacted with an object to promote investment in housing and enable the assessee to save tax on capital gains. It is a well settled rule of interpretation that benevolent provision should be interpreted liberally bearing in mind the object for which the provision is enacted. Thus, from narration of aforementioned facts, it is evident that the assessee had complied with the conditions stipulated under Section 54F of the Act and was entitled for exemption. Therefore, the finding recorded by the tribunal that since, payments were made prior to one year before the date of transfer of shares and therefore, the assessee is not entitled to claim exemption under Section 54F of the Act cannot but be termed as perverse.
For the aforementioned reasons, the substantial question of law is answered in the negative and in favour of the assessee. In the result, order of the tribunal dated 13.02.2015 insofar as it pertains the findings in relation to claim of the assessee under Section 54F of the Act are hereby quashed.
In the result, appeal is allowed.
