The allotment letter issued by the developer does not confer title until the agreement for sale under the provisions of the MOFA is registered. In the present case, however, it is not in dispute that the agreement for sale was entered into only on 24th November, 2008 beyond the period of three years from the date of surrender of tenancy which was 13th September, 2005. Moreover, the developer had no approval for construction of the 9th floor of Wing ‘C’, wherein the assessee had booked three flats and such approval was received by the builders only on 7th September, 2010. Thus, according to us there is no question of assessee establishing the title over the property which was not been approved for construction at the material time.
Relevant Extract of the Judgment
21. According to Mr. Shah the second question deserves to be answered in negative and in favour of the appellant – assessee. He submitted that while dealing with second question one has to consider three aspects. Firstly, the applicability of Section 54F(1) juxtaposed with Section 54F(4); Secondly, noncompletion of construction of the building in which the appellant – assessee had agreed to purchase flats and Thirdly, contiguity of three flats which the appellant – assessee had agreed to purchase. Mr. Shah referred to the impugned order and submitted that relevant portions of the impugned order are to be found in paragraph 8 to 11 thereof. He submitted that the assessee surrendered tenancy on 13th September, 2005 and received net consideration of Rs.1.66 crores. The assessee had invested a sum of Rs.1.33 crores towards construction cost of the new flats before the due date for filing the return under Section 139(4) of the Act. He submitted that even before the due date of filing the return under Section 139(1), a sum of Rs. 55 lakhs had been paid over but the benefit was denied to him.
22. Mr. Shah drew our attention to the provisions of Section 54F and submitted that Section 54F(4) provides that the net amount of consideration which is not appropriated by the assessee towards the purchase of the new asset within one year or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139, shall be deposited by the assessee in a separate account before furnishing the return of income under sub-section (1) of Section 139. This provision according to Mr. Shah is to be read as a proviso to Section 54 F(1) and read as such, the appellant – assessee would be entitled to benefit under section 54 F. He submitted that filing of a return has no relevance since Section 54 F (4) in its present form would be read as extension to Section 139(1).
23. Mr. Shah relied upon the following decisions in support of his submissions on the second question.
i) Commissioner of Income Tax vs. Rajesh Kumar Jalan (2006) 286 ITR 274;
ii) Commissioner of Income Tax vs. Punjab Financial Corporation 254 ITR 492;
iii) Commissioner of Income Tax vs. Kullu Valley Transport Co. P. Ltd. 77 ITR 518;
iv) Humayun Suleman Merchant vs. The Chief Commissioner of Income Tax, Mumbai in Income Tax Appeal No. 545 of 2002 decided on 18th August, 2016;
v) K. P. Varghese vs. Income Tax Officer, Ernakulam and Anr. 131 ITR 596 (SC);
vi) CBDT and Others vs. Aditya V. Birla 170 ITR 137;
vii) Commissioner of Income Tax vs. J.H. Gotla 156 ITR 323;
viii) Commissioner of Income Tax vs. Mrs.Hilla J.B. Wadia (1995) 261 ITR 376;
ix) Commissioner of Income Tax vs. R. L. Sood 2000 245 ITR 727;
x) Munibyrappa vs. Commissioner of Income Tax 265 ITR 560;
24. Mr. Shah submitted that important dates such as the date of approval of the amended plan 8th March, 2002 was not taken into account by the Tribunal. Although this date would have made a difference to the case. Mr. Shah then made reference to the observations of the Tribunal in paragraphs 9 and 10 of the impugned order wherein the Tribunal had come to certain conclusions apropos the assessee’s entitlement to claim exemption under Section 54F of the Act arriving at a decision but had failed to record whether these documents had been admitted in evidence. According to him, had the Tribunal decided the issue of admissibility by passing a reasoned order, the appellant could have been able to clear any doubts with the Tribunal.
25. Mr. Shah submitted that the expression ‘shall’’ appearing in Section 54 F(4) is not mandatory but only directory. To this effect, he relied upon the decision of Punjab and Haryana High Court in Commissioner of Income Tax vs. Punjab Financial Corporation 254 ITR 6 and submitted that the question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. He further submitted that in Section 54 F the words ‘shall’ be deposited by him before furnishing such return (such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of Section 139), is indicative of its directory nature and it is not mandatory to deposit such sum before the specified date and non-deposit would not be fatal to the appellant – assessee’s claim for exemption.
26. According to Mr.Shah the interpretation placed on Section 54F by the impugned order results in absurdity since the appellant – assessee had paid entire consideration demonstrating his intention to purchase new premises. Having paid the entire consideration he was not required to deposit monies in any specified account. On account of construction of premises/building being incomplete, the assessee was deprived of benefit of Section 54. Such technical interpretation ought not to be placed on the section. He, therefore, submitted that the second question is liable to be answered in the affirmative. He submitted that making the investment is the critical requirement for Section 54. In the present case the Appellant had remitted the entire price yet the impugned order while dealing with the assessee’s case had observed in paragraph 9 that the contention of assessee having invested a sum of Rs.1.33 crores towards construction of flat before due date of filing return under Section 139(4) cannot be accepted because sub-section (4) of Section 54 F clearly mentions that the amount of net consideration which is not appropriated by the assessee towards construction of new premises before the date of furnishing return under Section 139 ‘shall’ be deposited by him before furnishing the return (such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of Section 139).
27. Mr. Shah submitted that this interpretation was incorrect and based on improper appreciation of provisions. Merely because the Tribunal had queried the assessee as to stage of construction and to which the assessee responded that the construction was in progress, the Tribunal had proceeded to hold that construction had not been completed even after a lapse of seven years and declined to accept assessee’s contention that three residential flats which were adjacent to each other were contiguous and therefore to be treated as one unit.
28. Mr. Shah further submitted that the provisions similar to Section 54 F to be found in Section 22 of the 1922 Act were in pari materia with Section 139. Section 24(2) is pari materia to Section 72 and Section 22(2 a) of 1922 Act was in pari materia to Section 80 which dealt with withdrawal of losses and considering this aspect, the Supreme Court in Commissioner of Income Tax vs. Kullu Valley Transport Co. P. Ltd. 77 ITR 518 held that Section 24(2) confers benefit of losses being set off and carried forward and there is no provision in Section 22 of that Act for determining losses for the purpose of Section 24(2). Section 22(2 A) simply says that in order to get the benefit of Section 24(2) the assessee must submit his loss return within the time specified under Section 22(1). Thus, a return so submitted is a valid return. It further held that if two views are possible, the view one which is favourable to the assessee must be accepted. In that case the appellant assessee had two points to urge, firstly, that the delay in submission of the return be condoned and return should have been treated as having made under Section 22(3) which Mr. Shah submitted is similar to Section 139(4). In such case there would have been valid return under Section 22(2 A). He submitted that Section 22(2A) was in pari materia to Section 80. Furthermore, Mr. Shah pointed out that Section 24(2) which was in pari materia to section 22, providing for carrying forward of business loss, contained a specific provision whereunder, if the assessee sustains a loss of profit or gain in any year being a previous year, in any business, profession or vocation, the loss cannot be partly or wholly set off or the whole loss, (where the assessee had no other head of income) could be carried forward to the following year demonstrating a beneficial interpretation.
29. Mr.Shah submitted that provisions of Section 54 should have been interpreted in manner beneficial to the assessee. The Court held that there is no requirement when the question is submitted to the opinion of the High Court it found that it consisted two, (i) whether the loss returned by the assessee was determined by the Income Tax Officer for the relevant assessment year and (ii) whether those losses could be carried forward after being set off under Section 24(2) of the Act. The Court relied that Section 22(3) is merely a proviso to Section 22(1) and thus, a return submitted at any time before the assessment is made is a valid return. Relying upon the said observation Mr. Shah submitted that in the present case also the date of filing the return is of no relevance and Section 139(4) should be read as extension of Section 139(1) and to that effect he submitted that the date of filing return is of no relevance provided other conditions had been satisfied, namely, that of investing amount received from the sale of old property. He, therefore, submitted that second question is liable to be answered in the affirmative.
30. When his attention was drawn to the fact that this Court had in case of Humayun Merchant (supra) had delivered a judgement dated 18th August, 2016 which would cover the issue, Mr. Shah submitted that the said decision could be differentiated. He further submitted that the decision in Humayun Merchant (supra) was per incuriam inasmuch as it had not appreciated the judgement of the Guwahati High Court in Commissioner of Income Tax vs. Rajesh Kumar Jalan (2006) 286 ITR 271 which has been referred to on behalf of the assessee. He then proceeded to attempt differentiation, referring to the facts of the case of Humayun Merchant (supra). He submitted that relevant dates in that case were 29th April, 1995 but the appellant sold plot of land for consideration. The petitioner paid two instalments of Rs. 10 lakhs each in July 1996 and October 1996 before the due date of filing the return under Section 139(1) of the Act, the due date being 31st October, 1996. On 1st November, 1996 a further instalment was paid to the developer and the applicant filed his return of income on 4th November, 1996 which was after the due date of filing the return of income. Apropos Mr. Shah’s submission that the decision in Humayun Merchant (supra) was per incuriam having failed to notice that the decision in the Supreme Court in case of Rajesh Kumar Jalan (supra) we are unable to agree.
31. In our view the submission of Mr. Shah that the expression ‘shall’ appearing in Section 54 F(4) is not mandatory but only directory has no merit inasmuch as not only Section 54F(4) used the word ‘shall’ be deposited it is followed by the bracketed portion which reads :
“(such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of Section 139)”
In view of this clarification Mr.Shah’s submitted that the word ‘shall’ is not mandatory but only directory cannot be sustained and reliance placed on K.P. Varghese (supra) that in interpreting Section 54 we must eschew literalness in interpretation of the section and arrive at an interpretation which is not absurd, is of no avail.
32. In Aditya V. Birla (supra) the court observed that an exemption provision must be interpreted as the situation demands and not in a technical sense. We do not see how this decision assists Mr. Shah. As far as possible a beneficial provision should be liberally but not if to the extent that renders the intent of the provision redundant. The restrictions on the time within which the conditions of Section 54 have to be complied with are reasonable. If we were to take a different view it would result in dilution of the statutory provision and promote misuse.
33. In J.H. Gotla (supra) the Court observed that interpretation of a taxing Statute would submit to equitable construction where strict literal construction leads to an unjust result. We do not find that the Appellant has faced an unfair result or that the interpretation of the provisions was improper. In Mrs. Hilla J.B. Wadia (supra) the assessee had satisfied the material test of having domain over the flat and having made an investment therein. In that behalf we hasten to add that the scheme of Delhi Development Authority clearly provided for an allotment letter to be issued on the first instalment being paid and that the allotment letter is final unless it is cancelled or the allottee withdraws from the scheme. It further observed that under the scheme, the allottee would get title to the property on the issuance of the allotment letter and that the payment of instalment is only a follow up action and taking delivery of possession is only a formality.
34. In the fact situation at hand we are afraid the assessee can derive no benefit from the provisions of circular No. 672 dated 16th December, 1993 inasmuch as the scheme contemplated in paragraph 2 of circular No. 471 is not available to the appellant. The appellant has to obtain the allotment letter from the developer under the provision of Maharashtra Ownership of Flats Act, 1963 (MOFA) and not from the co-operative society. The allotment letter issued by the developer does not confer title until the agreement for sale under the provisions of the MOFA is registered. In the present case, however, it is not in dispute that the agreement for sale was entered into only on 24th November, 2008 beyond the period of three years from the date of surrender of tenancy which was 13th September, 2005. Moreover, the developer had no approval for construction of the 9th floor of Wing ‘C’, wherein the assessee had booked three flats and such approval was received by the builders only on 7th September, 2010. Thus, according to us there is no question of assessee establishing the title over the property which was not been approved for construction at the material time.
35. In R. L. Sood (supra) it was held that a substantial amount being paid, the assessee acquired substantial domain over new premises and merely because the builder failed to hand over possession of the flat within the period of one year, the assessee cannot be denied the benefit of the benevolent provisions of Section 54. We observed in that case, an agreement of purchase had been entered into within one year of sale of old residential home. On facts, therefore, it clearly can be differentiated. Moreover, the assessee in that case had the benefit of board circular no.471 which clarifies that under the allotment letter issued by DDA under the self-financing scheme, the allottee gets title to property which is not so in the case at hand. We are of the view that the issue pertaining to incomplete construction and that of contiguity of flats need not be gone at this stage since on very first issue, we are not satisfied with the eligibility of the appellant assessee to claim exemption under Section 54 F. Such being the position, in our view it is not necessary to consider the aspect of non-completion of construction and flat being reportedly contiguous since these are aspects in any case did not arise in the assessment year under consideration. We must not lose sight of the fact that we are presently concerned with assessment year 2006-07 in which year these issues did not arise.
36. We have also considered the submission of Mr. Shah based on the case of Munibyrappa (supra) that the case laws relied upon by the appellant before the Tribunal was not considered and the Tribunal had brushed aside case laws in a single sentence. We noted that grievance of the assessee is based on the observations of Tribunal in paragraph 11 that they have not relied on the decisions cited. Every decision cited may not be relevant. We find that the decisions cited were relating to contiguous units being treated as one residential unit. We have already observed that we are not required to go into this aspect in order to answer the question, since on first principles, we find that the assessee had not complied with Section 54 F. In our view it is not necessary to consider this aspect of challenge and hence reference to said decision is of no avail to the assessee. The other cases enlisted by us in this judgement have no bearing on the facts of the case of the Appellant herein.
37. In the course of the submissions in support of the Appellants’ case over exemption under section 54 F Mr. Shah has strenuously argued and tried to draw a parallel between the provisions of Section 24(2) of the 1922 Act and Section 72 contending they are in pari materia. Likewise Sections 22 and 22(2 A) were in pari materia with Sections 139 and 80 respectively of the 1961 Act. However, in our view this does not come to assistance of Mr. Shah inasmuch as the language of Section 54 will not admit of such an interpretation. We have already taken a view that the consequences of the amount of capital gains or difference between amount spent for purchase of house and the total amount of capital gains not being deposited in the specified account in the case of Humayun Suleman Merchant (supra). We find no reason to take a different view in the facts and circumstances of the present case. Accordingly, for all the reasons set out above question (B) is answered in the affirmative in favour of the Revenue and against the Assessee.