Case Law Details
Nisha Sarawgi Vs ACIT (ITAT Ranchi)
The issue under consideration is whether AO is correct in disallowing the exemption u/s 54F on the ground that residential flat was not constructed after the date of transfer and they were constructed alongwith saleable flats?
ITAT states that, CBDT Circular No.791 dated 2.6.2000 (supra), clarified that for the purpose of claiming deduction u/s. 54EA/54EB/54EC, the date of transfer shall be the date on which the stock-in-trade is sold or otherwise transferred by the assessee and not on the date of conversion of the capital asset into stock-in-trade. Further, Special Bench of ITAT Kolkata in the case of Octavius Steel & Co. Ltd (supra) has held that on conversion of capital asset into stock-in-trade, there is no profit as no can make profit out of himself. Further, as per amended sub-section(2) of section 45 of the Act, which was inserted by the Taxation Legislation (Amendment Act), 1984 w.e.f. 1.4.1985, notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. Therefore, in view of above CBDT circular and order of Special Bench of Kolkata Bench of the Tribunal in the case of Octavius Steel & Co. Ltd (supra), I have no hesitation to hold that the Assessing Officer was also not correct in denying benefit of section 54F of the Act to the assessee on the ground that residential flat was not constructed after the date of transfer but alongwith saleable flats.
Hence the appeal filed by assessee allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This assessee’s appeal for assessment year 2015-16 arises against the Commissioner of Income Tax (Appeals)-Ranchi’s order dated 07.02.2019 passed in case No.CIT(A), Ranchi/10112/2017-18, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’.
Heard both the parties. Case file perused
2. It transpires during the course of hearing that the assesse’s sole substantive grievance raised in the instant appeal seeks to revise both the lower authorities’ action declining sec.54F deduction claim of Rs.60,94,982/- in assessment as upheld in the lower appellate proceedings. The assessee ITA No.137/Ran/2019 A.Y. 2015-16 Nisha Sarawgi Vs. ACIT Cir-2, Ranchi Page 2 had converted the alleged capital asset as stock-in-trade in the year 2012. i.e.09.01.2012 as per Assessing Officer and 29.11.2012 as per the taxpayer she sold the same on 21.05.2014 relevant to the impugned assessment year 2015-16. The assessee would then re-invest the corresponding capital gains is a yet another independent property. The Revenue’s stand as per the foregoing synopsis is that the date of transfer of the capital asset(s) have to be taken as on their conversion of stock-in-trade way back in the year of 2012-13 going by sec. 2(47)(iii) of the Act. We find this instant issue a no more res integra since covered by this tribunal’s co-ordinate bench’s in ITA No.14/Ran/2018 Rajesh Kumar Adukia vs. DCIT, Circle-2, Ranchi dated 30.10.2019 as follows:-
“16. The last controversy for our adjudication is that as to whether the authorities below are right in dismissing the claim of the assessee u/s 54F of the Act on the ground that residential flat was not constructed after the date of transfer and they were constructed alongwith saleable flats.
17. Ld. AR submitted that the assessee is entitled for claim of exemption u/s.54F of the Act as the income earned or accrued to the assessee from sale of flats has been utilized for the purpose of construction of flats kept by the assessee for his residential purpose. Ld. AR further drawn my attention towards judgment of Special Bench of ITAT Kolkata in the case of Octavius Steel & Co. Ltd. Vs. ACIT, 83 ITD 087 (Kol)(SB) and CBDT Circular No.791 dated 2.6.2000and submitted that for the purpose of claiming deduction u/s. 54EA / 54EB / 54EC, the date of transfer shall be the date on which the stock-in-trade is sold or otherwise transferred by the assessee and not on the date of conversion of the capital asset into stock-in- trade. Ld. AR submitted that on conversion of capital asset into stock-in- trade, there is on profit as no can make profit out of himself and this situation is now clarified by the legislature by introducing provisions of section 45(2) of the Act, which provided that for taxation where the converted -in-trade is sold and difference between the market value on the date of conversion and actual cost is the capital gain, then the difference on transfer or sale of capital asset shall be the date of transfer of stock-in-trade and not the date on which capital asset was converted into stock-in-trade and not the date on which capital asset was converted into stock-in-trade.
18. Replying to above, ld D.R. supported the assessment order and submitted that residential flat on which exemption u/s.54F has been claimed by the assessee was not constructed after the date of transfer but constructed alongwith saleable flats. Therefore, the exemption was righty disallowed by the AO. Ld D.R. further contended that as the CIT(A) treated the income from sale of flats as income from business or profession, therefore, exemption u/s.54F of the Act cannot be allowed to the assessee out of business income.
19. On careful consideration of rival submissions, first of all, I may point out that since in earlier part of this order, I have held that the activity of construction and sale of flat was not in the adventure in nature of trade and income accrued to the ITA No.137/Ran/2019 A.Y. 2015-16 Nisha Sarawgi Vs. ACIT Cir-2, Ranchi Page 3 assessee from sale of flats has to be treated as long term capital gain and thus, ground of disallowance of exemption u/s.54F of the Act by the Assessing Officer cannot be held as sustainable. Further, from the relevant part of the assessment order, I observe that the AO has denied exemption u/s.54F of the Act on the ground that residential flat was not constructed after the date of transfer of saleable flats. Therefore, he held that the assessee is not entitled for exemption u/s. 54F of the Act.
20. At thus juncture, I take cognizance of CBDT Circular No.791 dated 2.6.2000 (supra), which clarified that for the purpose of claiming deduction u/s. 54EA/54EB/54EC, the date of transfer shall be the date on which the stock-in-trade is sold or otherwise transferred by the assessee and not on the date of conversion of the capital asset into stock-in-trade. Further, Special Bench of ITAT Kolkata in the case of Octavius Steel & Co. Ltd (supra) has held that on conversion of capital asset into stock-in-trade, there is no profit as no can make profit out of himself. Further, as per amended sub-section(2) of section 45 of the Act, which was inserted by the Taxation Legislation (Amendment Act), 1984 w.e.f. 1.4.1985, notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. Therefore, in view of above CBDT circular and order of Special Bench of Kolkata Bench of the Tribunal in the case of Octavius Steel & Co. Ltd (supra), I have no hesitation to hold that the Assessing Officer was also not correct in denying benefit of section 54F of the Act to the assessee on the ground that residential flat was not constructed after the date of transfer but alongwith saleable flats.”
We adopt the foregoing detailed reasoning mutatis mutandis and direct the Assessing Officer to allow assessee’s sec. 54F deduction in issue.
3. Learned counsel is fair enough in not pressing for assessee’s sixth substantive grievance seeking to claim cost of improvement of the capital asset amounting to Rs.77,758/-. The same is affirmed accordingly.
4. The assessee’s eighth substantive grievance seeks to claim an amount of Rs.4,47,846/- pertaining to a residential unit offered as a settlement to one Md. Ekram way back in the year 2009. The Revenue’s case is that both the lower authorities have rightly invoked se. 43CA of the Act since the corresponding agreement took place on 28.02.2015. Learned departmental representative fails to rebut the clinching fact that the court proceedings qua ITA No.137/Ran/2019 A.Y. 2015-16 Nisha Sarawgi Vs. ACIT Cir-2, Ranchi Page 4 the foregoing settlement attained finality in the year 2009 whereas sec. 43CA of the Act came into effect much later w.e.f. 01.04.2014. We therefore go by the clinching evidence of court’ settlement in the year 2009 than the agreement between the parties and direct Assessing Officer to delete the impugned disallowance of Rs.4,47,846/-.
5. Last ground of interest computation, if any, is restored to the Assessing Officer in view of hon’ble jurisdictional high court’s decision in Ajay Prakash Verma vs. ITO (2010) TA No. 38 of 2010 reported in 2013(1) TMI 140.
6. This assessee’s appeal is partly allowed in above terms.
Order pronounced in the open court at the close of hearing on Monday 2nd March, 2020.
