In the present case, new house was purchased and the construction of additional floors was on such new house purchased by the assessee and this new house building purchased by the assessee has been accepted as eligible for deduction u/s. 54F.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee and the same is directed against the order of Id. CIT(A)-6, Bangalore dated 27.11.2018 for Assessment Year 2015-16.
2. The grounds raised by the assessee are as under.
“1. On the facts and in the circumstances of the case the order of the learned Commissioner of Income-tax (appeals) is not only erroneous but is perverse to the extent it is prejudicial to the assessee.
2. The learned Commissioner of Income-tax (appeals) erred in affirming the order passed by the learned Assessing Officer which rejects the claim of deduction u/s. 54F in respect of the additional floors constructed and addition of Rs. 28,08,000/- as capital gains income.
3. The learned CIT (Appeals) erred in relying on decisions which are distinguishable on facts and further erred in holding that what the assessee has done is construction of second and third floors which is a separate residential unit while as the Khata certificate as per BBMP records demonstrate that second and third floors are part of the same residential unit and thereby erred in denying deduction u/s. 54F.
4. The learned CIT (A) ought to have appreciated the legal position that if two decisions are available on that is favourable to the assessee is to be followed and thereby erred in following the decision against the assessee though there is a decision in favour of the assessee.
5. The learned CIT (Appeals) erred in relying upon the decision of Hon’ble Chennai – ITAT in the case of ACIT vs T.N Gopal which cites that construction of additional floor would not make the assessee eligible for deduction u/s 54F without appreciating the fact that the assessee in the said scenario had only constructed additional floor on his existing house property. However, the exemption Under Section 54F is available only for purchase or construction of a new property, the assessee MrAshwath Ramakrishna constructed the additional floors on newly purchased residential units.
Based on these and such other grounds that may be adduced from time to time, the appellant requests the Honorable Income Tax Appellate Tribunal to consider the petition in the light of principles of justice and cancel the additions made by the Assessing Officer.”
3. Brief facts are that in the present case, the assessee sold an industrial shed on 27.08.2014 and on such sale, the assessee earned long term capital gain of Rs. 97,62,280/-. The assessee claimed deduction u/s. 54F of IT Act on entire amount of capital gain of Rs. 97,62,280/-. The amount of this claim for deduction u/s. 54F included two things. First part of the claim of Rs. 69,33,645/- was for the amount invested by the assessee in the purchase of new residential house which included cost of purchase of Rs. 65 Lakhs in the purchase cost + stamp duty of Rs. 3,67,680/- and registration charges of Rs. 65,965/-. To this extent, the AO also accepted that this much capital gain was invested in the acquisition of new house and proportionate deduction was allowed by him to the extent of Rs. 56,01,096/-. The second part of the claim of the assessee included the amount spent by the assessee for the construction of 2nd and 3rd floor on the same property because property purchased by the assessee was consisting of ground floor and first floor only. The amount of investment for such construction was of Rs. 30,62,500/-. In addition to this, the assessee also claimed that Rs. 17,62,878/- was incurred on account of renovation and civil works of the new asset which included an amount of Rs. 10 Lakhs towards civil works contract, Rs. 7.25 Lakhs towards civil works interior / kitchen cabinets, Rs. 1.30 Lakhs being Brokerage @ 2% of the cost of purchase of Rs. 65 Lakhs, Rs. 18,000/- towards Solar Water Heater and Rs. 19,878/- on account of KEB meter and deposit. This amount of Rs. 17,62,878/- was also not considered by the AO but as per para no. 4.4 of the order of CIT(A), the ld. CIT(A) has accepted the claim of the assessee regarding this investment of Rs. 17,62,878/- and the only amount not accepted by the CIT(A) is towards the cost of construction of 2nd and 3rd floor of Rs. 30,62,500/- and the assessee is now in further appeal before the Tribunal in respect of this amount for which claim is not accepted by the AO and CIT(A).
4. It was submitted by ld. AR of assessee that this issue was decided by ld. CIT(A) as per Para 4.5 of his order. He pointed out that this is the main objection of CIT(A) that the additional 2nd and 3rd floors constitute separate residences. He pointed out that this is also noted by CIT(A) in same Para that although the entire house is under one survey number but the assessee has not brought anything on record to show that these additional floors were part of the same house that was originally purchased. The third objection is this that construction of 2nd and 3rd floor is seen to have commenced only in March 2017, a full year after the new residential house comprising ground and first floors was purchased. This objection of the CIT(A) is this that if the two additional floors were indeed part of the same residential unit, the construction work should have been carried on at the same time as the civil works / renovation of the ground and first floors was undertaken. Regarding these objections of ld. CIT(A), he submitted that as per the judgement of Hon’ble Calcutta High Court rendered in the case of B.B. Sarkar Vs. CIT as reported in 132 ITR 150 (Cal), it was held that if an assessee is entitled to relief on fulfilment of either of the two conditions, that is to say, either purchasing a house property within one year or constructing the house within two years, in our opinion, it would be improper to read that on fulfilment of both the conditions, he would be disentitled to that relief. He also submitted that in same para, it is also observed by Hon’ble Calcutta High Court that there is no evidence that two different houses were constructed with two different municipal numbers. He pointed out that it was also observed that if a floor is added to the new house or if it is renovated it remains a house and this will not be two houses. Regarding this objection of ld. CIT(A) that the construction of 2nd and 3rd floor started after a full year, he submitted that reasons for such delay in starting of the construction of 2nd and 3rd floor is already explained by the assessee before the authorities below and in the written submission filed before the Tribunal also, this aspect is explained. He pointed out that it is explained by assessee in the written submissions filed before the Tribunal that the assessee always had the intention to construct 2nd and 3rd floor at the time of purchasing the property. But after the purchase of property, the assessee’s younger daughter was pregnant and also his elder daughter’s divorce proceedings were ongoing and the assessee himself had serious health issues due to which the construction of 2nd and 3rd floors commenced only in March 2017. He submitted that the birth certificate of the younger daughter’s child is enclosed on page no. 24 of paper book as per which the birth took place on 02.09.2016 and copy of order sheet in the court of Principal Judge, Family Court, Bengaluru for the memorandum of settlement u/s. 89 of the CPC concerned to elder daughter’s divorce proceedings is also available on pages 25 to 33 of paper book. He submitted that because of these reasons, the delay in starting of the construction of 2nd and 3rd floor should not be fatal to the assessee’s claim in this regard which is otherwise allowable. Regarding the Tribunal order of Chennai Bench rendered in the case of ACIT Vs. T.N. Gopal on which reliance has been placed by CIT(A), it was submitted that the copy of this Tribunal order is available on pages 62 to 69 of paper book and this is a reported Tribunal order reported in (2009) 121 ITD 352. It was submitted that in that case, the AO disallowed the exemption u/s. 54F on the ground that the assessee has only constructed additional floor on his existing house property but the exemption u/s. 54F is available only for purchase or construction of a new property and in cases, where the assessee does not own a house other than the new property. He submitted that in the present case, the additional floor was constructed in the new property purchased by the assessee and not on existing property and therefore, this Tribunal order is not applicable in the present case. As against this, ld. DR of revenue supported the orders of authorities below.
5. I have considered the rival submissions. First of all, I reproduce para no. 5 from the order of CIT(A) because in this para, the objections of CIT(A) are contained. This para reads as under.
“4.5 The Other claim of the appellant that the construction of the second and third floors also should be counted towards the cost of construction of the new asset is not admissible. The claim of the appellant is not admissible since he had purchased the new asset which consisted of the ground and first floor. The provisions of the Act are clear in this regard. Either the new asset is purchased or constructed within the limit specified. At the time of transfer, the appellant purchased a new residential house, which was a complete residential unit and only undertook renovation and civil works to make it more habitable. I am in agreement with the AO that the additional second and third floors constitute separate residences. Except to affirm that the entire house property is situated under one survey number, the appellant has also not brought anything on record to show that these additional floors were part of the same house that was originally purchased. Further, the construction of the second and third floors is seen to have commenced only in March 2017, a full year after the new residential house comprising ground and first floors was purchased. If the two additional floors were indeed part of the same residential unit, the construction work should have been carried on at the same time as the civil works/renovation of the ground and first floors was undertaken. The appellant’s claim that the expenditure incurred on these floors is to be added to the purchase cost of the new asset cannot be entertained for the reasons discussed above. If it were to be allowed, then the purchase cost of the new asset can be indefinitely increased through extension/additions to the new asset. That is not the purport of section 54F of the Act.”
6. Now I reproduce para 6 of the judgment of Hon’ble Calcutta High Court rendered in the case of B.B. Sarkar vs. CIT (supra) from pages 73 and 74 of the paper book. This para reads as under.
“6. It may be mentioned in this connection that Section 154 deals with the rectification of a mistake and in order to be applicable the section enjoins that “with a view to rectifying any mistake apparent from the record”. Therefore, Section 154, on its own force, to be applicable is attracted only where there is a mistake apparent from the record. It is well settled, and it has been so held by several judicial decisions, that the question on which a debate is possible, such a question cannot be said to be a mistake apparent from the record in terms of Section 154 of the Act. The said section is headed as “Rectification of mistake “while Section 155 is headed as “Other amendments”, that is, to indicate the consequences of other amendments made subsequently or in respect of other assessments on the assessment orders. These assessment orders are to be altered and modified as contemplated by the different sub-sections of Section 155. Now, adverting back to the provisions of Section 54 of the Act, in our opinion, the language contemplates that in order to be entitled to the relief, the assessee must fulfil either of these conditions either the assessee or his parents must be using or residing in a house and it must have been used as a residential house within two years prior to the date of the transfer. This is a mandatory provision in order to attract the provisions of Section 54. If a house was so used, then on a transfer of that house, (1) one year prior to the transfer or one year after the transfer, (2) either purchased a house or within a period of two years after the date constructed a house property for the purpose of his own residence, then in respect of the value of the new asset, that is to say, the house property purchased or constructed he would be entitled to claim relief as contemplated in clauses (i) and (ii) of the section. In the facts and circumstances of the case, Clause (ii) would be attracted if the assessee’s contention is accepted. Now, if an assessee is entitled to relief on fulfilment of either of the two conditions, that is to say, either purchasing a house property within one year or constructing the house within two years, in our opinion, it would be improper to read that on fulfilment of both the conditions, he would be disentitled to that relief. The mistake seems to be that the authorities below found as if two kinds of relief are contemplated in Section 54. It is the fulfilment of two alternative conditions that is contemplated by Section 54. But, if both the conditions are fulfilled within the time stipulated then, in our opinion, the assessee does not become disentitled to the relief if the other conditions are fulfilled, viz., the house which was transferred was being used as residential house either for himself or by his parents within the period of two years before the transfer. It is in this context that Section 54. would be applicable. On behalf of the revenue it was sought to be urged that what was required to be fulfilled was that the house property was to be used for the residence of the assessee. The revenue is right that it must be a house property. If a floor is constructed to the new house or if it is renovated it remains a house and this will not be two houses. There is no evidence that two different houses were constructed with two different municipal numbers, that is to say, giving two different municipal numbers in respect of two houses. If the interpretation sought to be urged by the revenue is given to the expression “a house was constructed” then the expression “purchased a house” would not include purchasing the land first and constructing a house thereon. That would be an absurd construction defeating the purpose of the scheme of Section 54. In such a case, the question of reading the expression “or” as conjunctive does not arise. It is not a question of reading “or” as conjunctive. It is a question of interpreting the section, which stipulates that on the fulfilment of either of the two alternative conditions, the assessee would be entitled to a relief, by saying that it would not mean that the fulfilment of both the conditions disentitled the assessee to the relief in question. Therefore, the principle of how the expression “and” or “or” should be construed as was mentioned in Maxwell on the Interpretation of Statutes, 12th edn., p. 233, are not attracted. In any event, as the learned editor of that well-known book emphasises, to carry out the intention of the Legislature it may be necessary to read “and” in place of “or” and vice versa. The scheme and purpose of Section 54, in our opinion, if read in the entirety of the section, would be defeated if the construction sought for by the revenue is accepted. But it is only on the fulfilment of this that Section 155(8) would be attracted.”
7. When I go through the objections of CIT(A) contained in Para 4.5 of his order as reproduced above, I find that it is observed by CIT(A) in this para that as per the provisions of section 54F, either the new asset is purchased or constructed within the time limit specified. Hence it is seen that as per this observation of CIT(A) in this para, as per him, cost of purchase and cost of construction of additional floors both cannot be considered for the purpose of allowing deduction u/s. 54F of IT Act. This objection of CIT(A) is not valid in the light of this judgement of Hon’ble Calcutta High Court. Regarding the delay in starting of the construction of 2nd and 3rd floors, it is seen that such delay is explained by giving proper reasons by saying that the assessee was having health problem of himself and apart from that, both of his daughters as noted above had some problems. There is one more objection of CIT(A) that if this is allowed then the purchase cost of new asset can be indefinitely increased through extension/additions to the new asset. In this regard, I would like to observe that the addition to the new asset can only be made during the prescribed period and not after that and this is not the case of the department that the claim of the assessee is for an extension outside the permitted time limit. In view of this discussion, it comes out that none of the objections of CIT(A) is valid and hence, by respectfully following the judgement of Hon’ble Calcutta High Court, I hold that the claim of the assessee for deduction u/s. 54F in respect of the amount incurred by the assessee for construction of 2nd and 3rd floors should also be allowed.
8. Now I discuss and examine the applicability of the Tribunal order of Chennai Bench of the Tribunal rendered in the case of ACIT Vs. T.N. Gopal (supra). Regarding this Tribunal order, it is seen that in that case, there was no purchase of any new residential house and the assessee merely constructed additional floor on his existing house property. Whereas in the present case, new house was purchased and the construction of additional floors was on such new house purchased by the assessee and this new house building purchased by the assessee has been accepted as eligible for deduction u/s. 54F. Hence in my considered opinion, this Tribunal order is not applicable in the facts of present case.
9. In view of above discussion, I hold that the assessee should be allowed deduction u/s. 54F after considering this amount also which has been incurred by the assessee for construction of 2nd and 3rd floors of the new house building purchased by the assessee.
10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on the date mentioned on the caption page.