In ITO vs. Smt. Swati Oberoi [ITA No. 4150/Del./2018 decided July 30, 2021], ITO, Ward 32(4), New Delhi (Appellant) sought an appeal to set aside the order dated March 23, 2018 (Impugned Order) passed by the Commissioner of Income-Tax (Appeals) (Revenue) allowing the benefit of capital gain deduction under Section 54F of the Income Tax Act, 1961 (IT Act) to Smt. Swati Oberoi (Respondent).
The Respondent filed return of Income (ROI) of Rs Rs.15,06,65/- for the relevant year which was subjected to scrutiny. The Assessing Officer (AO), during the scrutiny proceedings, held that the Respondent has sold 50% share in a commercial property of Rs.3.5 crores and has shown Long Term Capital Gain (LTCG) of Rs.3,15,35,564/- in the ROI out of which the Respondent claimed deduction under section 54EC of the IT Act to the tune of Rs.49,55,589/- and deduction under Section 54F of the IT Act for Rs.2,65,79,975/-.
AO– Disallow deductions claimed by the Respondent under Section 54F of the IT Act on failure of the Respondent to furnish sale deed of the property and thereby made an addition of Rs.2,65,79,975/- under the head “income from capital gains”. Being aggrieved, the Respondent preferred an appeal before Commissioner of Income Tax (Appeals) (“CIT(A)”)
CIT(A)- Decided in favour of the Appellant. Being aggrieved, the Appellant preferred an appeal before the Hon’ble Delhi Income Tax Appellate Tribunal (ITAT),
ITAT- Held that, benefit of deduction under Section 54F of the IT Act cannot be denied to the Respondent merely on the ground that conveyance deed has not yet been got registered particularly when the Respondent is proved to be in possession of the property in question out of which the Respondent was already owner in possession of 1/3rd share since 2008 after making a complete payment of the sale consideration to the vendors and has duly proved possession over the property by way of electricity and water charges bills.
Further held that, the Impugned Order allowing deduction under Section 54F of the IT Act to the Respondent is precise and dismissed the appeal.
FULL TEXT OF THE ITAT JUDGEMENT
Appellant, ITO, Ward 32 (4), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 23.03.2018 passed by the Commissioner of Income – tax (Appeals) – 11, Delhi qua the assessment year 2015-16 on the grounds inter alia that :-
“1. Whether the Ld. CIT (A) was justified in deleting the addition levied by the AO disallowing the deduction u/s 54F of the Act disregarding the facts of the case.
2. Whether the Ld. CIT (A) was justified in deleting the addition levied by the AO disallowing the deduction u/s 54F of the Act since primary requirements necessitating transfer under Sec 53A of transfer of immovable property act are not satisfied.
3. Whether the Ld. CIT (A) was justified in deleting the addition levied by the AO disallowing the deduction us 54F of the Act disregarding the report of Inspector wherein it has been reported that the property In Issue was in the possession of Smt. Purnima Mehra.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee filed return of income of Rs.15,06,65/- which was subjected to scrutiny. Assessing Officer (AO) noticed that the assessee has sold 50% share in a commercial property of Rs.3.5 crores and has shown Long Term Capital Gain (LTCG) of Rs.3,15,35,564/- in the return of income out of which assessee claimed deduction under section 54EC of the Income-tax Act, 1961 (for short ‘the Act’) to the tune of Rs.49,55,589/- and deduction u/s 54F of the Act for Rs.2,65,79,975/-. Assessee claimed to have invested an amount of Rs.2,65,79,975/- for purchasing 2/3rd share in a residential house i.e. Villa No.V-2/2, Jaypee Greens, D-Block, Surajpur-Kasna Road, Greater Noida (U.P.) from her parents and the balance 1/3rd share was already owned by the assessee since 2008. AO proceeded to disallow deductions claimed by the assessee u/s 54F of the Act on failure of the assessee to furnish sale deed of the property and thereby made an addition of Rs.2,65,79,975/- under the head “income from capital gains”.
3. Assessee carried the matter before the ld. CIT (A) by way of filing appeal who has deleted the addition made by the AO by partly allowing the same. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
4. Assessee has not preferred to put in appearance despite issuance of the notice and consequently, we proceeded to decide the present appeal with the assistance of the ld. DR as well as on the basis of documents available on the file.
5. We have heard the ld. Departmental Representative for the revenue to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
6. Undisputedly, assessee has sold 50% share in a commercial property for a sale consideration of Rs.3.5 crores and has shown long term capital gain of Rs.3,15,35,564/- in its return of income and claimed deduction u/ss 54EC and 54F of the Act. It is also not in dispute that deduction u/s 54F claimed by the assessee to the tune of Rs.2,65,79,975/- has been disallowed by the AO on the sole ground that the assessee has failed to prove registered sale deed qua 2/3rd share claimed to have been purchased by her in the house property out of which 1/3rd share is already owned by the assessee since 2008 by way of conveyance deed between the assessee and builder along with her parents. It is also not in dispute that assessee has brought on record Agreement to Sell, General Power of Attorney and possession letter dated 19.03.2015 along with detail of payment made to her parents for purchase of property.
7. AO disallowed the deduction claimed u/s 54F of the Act on the ground that transfer of immovable property i.e. house property qua which deduction has been claimed by the assessee, is complete only by way of registered sale deed.
8. In the backdrop of the aforesaid facts and circumstances of the case, the sole question arises for determination in this case is:-
“as to whether deduction claimed by the assessee u/s 54F of the Act for the investment made in the house property is allowable only after registration of sale deed in favour of the assessee/claimant?”
9. Ld. CIT (A) thrashed and decided this issue in favour of the assessee by relying upon the decisions of the Hon’ble Supreme Court & Hon’ble High Courts in the cases of CIT vs. Balbir Singh Maini (Supreme Court-2017-LL-1004-1 dated 04.01.2017, Sanjeev Lal vs. CIT (Chandigarh) (Supreme Court-2014-LL-0701-17 dated 01.07.2014, Narinder Singh vs. DCIT Circle, Sangrur (P&U HC) – 2016-LL-0122-213 dated 22.01.2016, CIT vs. Ram Gopal (Delhi HC) – 2015-LL-0209-2 dated 09.02.2015, Pr. CIT-1, Chandigarh vs. Mukhitar Kaur (P&H HC) – 2017-LL-1114-11 dated 14.11.2017 & Pr. CIT, Jalandhar-1 vs. Ranjit Kaur (P&H HC) – 2017-LL-0502-36 dated 14.11.2017.
10. When we examine the impugned order passed by the ld. CIT(A) in the light of the undisputed facts, that the assessee has purchased 2/3rd share of the constructed villa in question from her parents, 1/3rd share of which was originally purchased by the assessee in March 2008; that the assessee has duly proved details of payment made by her to the vendee/her parents qua the property in question; and that the assessee has also proved on file photograph of the property along with electricity and water bills to prove her possession over the property, in our considered view for all intents and purposes and for the purpose of the Act, the assessee shall be construed as owner of the property.
11. Identical issue, “as to whether assessee was entitled to depreciation in respect of house sale in respect of which assessee had not obtained a deed of conveyance from the vendor although it had taken possession who made part payment of the consideration, has been decided by the Hon’ble Supreme Court in case of Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775 (SC) By returning following findings :-
“ Section 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred.
Section 32 of the Act allows certain deductions, one of them being depreciation of buildings, etc., owned by the assessee and used for the purposes of the business or profession. The terms “own”, “ownership” and “owned” are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. CIT v. Poddar Cement Pvt. Ltd. 226 ITR 625 (SC), is a case under the Income-tax Act and has to be taken as a trendsetter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term “owned” as occurring in section 32(1) of the Act. The term owned as occurring in section 32(1) of the Income-tax Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. “Building owned by the assessee”, the expression as occurring in section 32(1) of the Income-tax Act, means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc. Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. The very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset and is utilising the capital asset and thereby losing gradually the investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent.
The assessee was a private limited company. During the assessment year 1981-82 (accounting year ending on March 31, 1981), the assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The assessee had made part payment and was in turn given allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim under section 32 of the Act in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the Assessing Officer. This was upheld by the Tribunal and the High Court. On appeal to the Supreme Court:
Held, reversing the judgment of the High Court, that the finding of fact arrived at in the case at hand was that though a document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. The assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part payment of the consideration.”
12. Coordinate Bench of the Tribunal in case of Charanjit Singh Atwal and Ors. vs. ITO in ITA No.276/Chd/2012 also dealt with the identical issue and decided the same in favour of the assessee in the light of the provisions contained u/s 2(47)(v)(vi) of the Act as well as u/s 53 of the Transfer of Property Act by following the law laid down by Hon’ble Supreme Court in case of Surana Steel vs. DCIT 237 ITR 777 (SC) by returning following findings :-
“70. A plain reading of the above provision shows that it provides a safety measure or a shield in the hands of the transferee to protect the possess ion of any property which has been given by the transferor as lawful possession under a particular agreement of sale. This position of law was incorporated in the definition of ‘transfer’ by insertion of clauses (v) & (vi) in section 2(47) of the Act. It is important to note that clause (v) uses the expression “contract of the nature referred to in section 53A of T.P. Act, therefore, clearly the idea is that an agreement which provides some defense in the hands of transferee was incorporated under the definition of ‘transfer’ in the Income Tax Act . Now originally section 53A of T.P. Act provided that even if “the contract though required to be registered has not been registered”, which means the right of defending the possess ion was available even if the contract was not registered but by Amendment Act 48 of 2001, the expression “though required to be registered has not been registered” , has been omitted which means for the purpose of possession u/s 53A of T.P. Act, a person has to prove that possession has been given under a registered agreement. In other words, now u/s 53A of T.P. Act, the agreement referred is required to be registered. This requirement cannot be read in clause (v) of section 2(47) because that refers only to the contract of the nature of section 53A of T.P. Act without going into the controversy whether such agreement is required to be registered or not . The Ld. Counsel for the assessee had referred to the decision of Hon’ble Supreme Court in the case of Surana Steel s v DCIT 237 ITR 777 (SC) for the proposition that when a sec t ion of a particular statute is introduced into another Act it must be read in the same sense as it bore in the original Act …..
73. In case of clause (v) to section 2(47), clearly the expression used is “contract of the nature referred to in section 53A of T.P. Act”, which means it is not a case of incorporation of one piece of legislation into another piece of legislation. If that was the intention of the Parliament, obviously clause ( v) would contain the expression “contract as defined under section 53A of Transfer of Property Act, 1882”. Further, it is settled position of law that any interpretation which could render a particular provision redundant should be avoided. If the contention of the Ld. counsel was to be accepted, obviously the provisions of clause (v) of section 2(47) of the Act would become redundant in the sense that registration of agreement would again be made compulsory but since properties were being sold in the market on “power of attorney” basis through unregistered agreements which would make this provision redundant.
74. Thus, it is clear that non registration of agreement cannot lead to the conclusion that provision of section 2(47) (v) is not applicable. Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G. Sreenivasan Vs DCIT 28 Txmann.com 200 (Coch. ) and ITAT Pune Bench in the case of Mahesh Nemi Chandra Ganeshwade v ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected.”
13. In view of what has been discussed above, we are of the considered view that benefit of deduction u/s 54F of the Act cannot be denied to the assessee merely on the ground that conveyance deed has not yet been got registered particularly when the assessee is proved to be in possession of the property in question out of which she was already owner in possession of 1/3rd share since 2008 after making a complete payment of the sale consideration to the vendors and has duly proved her possession over the property by way of electricity and water charges bills. So, we find no reason to interfere into the impugned order passed by the ld. CIT (A) allowing deduction to the assessee u/s 54F of the Act, hence appeal filed by the Revenue is dismissed.
Order pronounced in open court on this 30th day of July, 2021.
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