DCIT, CENTRAL CIRCLE-2, NOIDA vs. AJAY GOEL, HARYANA

1. The Revenue has filed appeal against the order of the Learned Commissioner of Income-Tax (Appeals), Kanpur - 4 [“Ld. CIT(A)”, for short] dated 15.02.2023 for the Assessment Year 2020-21.

Brief facts of the case are, assessee filed its return of income on 15.02.2021 for the AY 2020-21 declaring an income of Rs.12,50,39,770. The case was selected for complete scrutiny under CASS. Notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, assessee submitted relevant information as called for through ITBA Portal.

Aggrieved assessee preferred an appeal before the ld. CIT (A), Kanpur-4 and filed detailed submissions before us. For the sake of brevity, the portion of the same are reproduced below :-

As already submitted that the appellant and family members are running various businesses wherein either the family members are partners in case of partnership firms or shareholders/directors in case of the corporate entity One of such corporate entity is named Tirupati Medicare Limited of which entire shared capital is owned by the family members of the appellant family prior to the year under consideration. In order to raise funds from the investors the shareholding pattern of the Company was undergone changes in the year under consideration. The confirmation of changes in shareholding the Company was also submitted before the AO in the course of assessment.

In the year under consideration the family members sold the minority stake in Triupati Medicare Limited of 21.85% to foreign entity namely TRO Korea Holding Korea which in aggregate to 2,96,095 Shares at total cosideration of Rs.70 Crores which includes 74024 shares (1/4 of 2,96,095 Shares) of the appellant for a total consideration of 17.50 Crores (1/4 Rs.70 Crores) 19. The appellant had duly disclosed the capital gain on transfer of the such shares in the return of income and had claimed the deduction under section 54F of the Act in respect of the investment made in purchase of the new property in Pune out of the above capital gain and the investment made in the Capital Gain Account Scheme. The computation of the capital gain as made in the return of income arising from the transfer of the above shares of Triupati Medicare Limited is as under for ready reference. S.NO. Date Particulars Amount (Rs.) 1 August 2, Total Sale Consideration for sale of 74,024 17,50,00,000 2019 shares of Tirupati Medicare Limited Less : Index Cost of Acquisition of 74,024 1,54,28,619 shares (Shares acquired in FY 2007-08, 2009- 10 & 2011-12) 2 Long Term Capital Gain on sale of shares 15,95,71,291 Less : Exemption under section 54F of the for 3,68,14,462 investment in new residential property at Pune (which includes Rs.40 lakhs deposited in Capital Gain Account Schemes). 3 Total Long Term Capital Gain offered to tax in 12,27,56,919 the return of income 20. In the course of assessment, the Ld AO sought details of the capital gain as well as basis of claiming the exemption under section 54F of the Act. The appellant in the reply to above queries submitted the necessary explanations and the documentary evidences in support of the claims which are stated below. i. Copy of the Memorandum of Family Settlement Deed duly notarised dated April 5 2019 between the appellant and his family members namely his wife Mrs Rakhi Goyal, his son Mr. Aakash Goyal, his brother Mr Ashok Goyal and Alka Goyal (wife of Ashok Goyal). (Copy of the Family Settlement is attached as Annexure - 4 at pages 63 to 78 of the PB.) In aforesaid Family Settlement as stated already above.

Appellant foregoes his 1/2 share in House No.3114 Sector 21D Chandigarh - Residential Property (“Residential Property - 2 Chandigarh") in favour of his Brother Ashok Goyal.

Appellant remained in joint ownership with his wife in respect of House No.C-01 SHS Lotus Green Sector-9 Thanesar, Kurukshetra Residential Property - 3, SRS Kurukshetra”. In view of the Family Settlement, the appellant after April 5, 2019 had only joint ownership of House No. C-01, SRS Lotus Garden, Sector - 9 Thanesar. Kurukshetra with his wife. In support of the ownership of the Residential property in order to eligible for exemption u/s 54F of the Act, the appellant also submits the Affidavit on Oath dated March 23, 2022. (Copy of the Affidavit is attached as Annexure - 5 at pages 69 to 70 of the PB.) ii. In respect of the proof of ownership of above properties and changes recorded in pursuant to the above Family Settlement are attached as under - (i) House No. C-01, SRS Lotus Garden, Sector - 9, Thanesar, Kurukshetra : "Residential Property -3. SRS Kurukshetra") (i) Photocopy of the original title deed of the property in the name of Mr. Ajay Goel & Rakhi Goel (Copy of the above documents are attached as Annexure -6 at pages 71 to 86 of the PB.) (ii) House No. 75, Sector -4, Urban Estate, Kurukshetra - Residential Property: ("Residential Property 1, Kurukshetra'"): (i) Proof for transfer of property in the name Mr Aakash Goel submitted to Haryana Shahri Vikas Pradikaran.

From the above, it is evident that the denial of the exemption u/s 54F of the Act is firstly disregarding the Family Settlement on mere pretext that the effect such settlement was done subsequently and secondly on incorrect position of the law that memorandum recording the family arrangement itself does not create or extinguish any rights in the immovable property though the Ld. AO himself admitted that the effect to such family settlement was done subsequently in letter and spirit.

With regard to the above issue that there is delay in transfer of the properties as stated above, it is pertinent to add that the aforesaid properties were under mortgage and tenancy at the relevant point of the time therefore the changes would not be done immediately after entering into the memorandum of family settlement which evidence from the document wherein the transfer of property in the name Mr. Aakash Goel submitted to Haryana Shahri Vikas Pradikaran was rejected by the authority on earlier occasion as it was under mortgage (Please refer Annexure 7A at page 87 of the PB).

Your Honour would appreciate that the intention of the parties to give effect to memorandum of family settlement was evident that subsequently the t5ransfer was made in the form of registered documents and the substantial part of the delay was also attributed to COVID 19 pandemic which is matter of record in any case such delay in no manner affects the legal validity of memorandum of family settlement wherein the ownership of such properties was unconditionally transferred to the family members of the appellant. It is well recognised theory of constructive ownership as held in the case of CIT v. Podar Cement (P.) Ltd. (1997 (5) TMI 2 – Supreme Court), thus mere delay in registration of the properties in the name of family members would not be so fatal to held that the appellant is owner of such properties till the registration of such properties were made in the name of family members.

Having said so and in order to rebuttal the aforesaid allegation of the Ld. AO, the appellant here-in-below explain the legal concept of the Family Settlement and its consequence vis-a-vis rights and ownership of the assets being subject matter of such Family Settlement.”

With regard to addition of Rs.1,54,28,619/- for non-furnishing of cost of acquisition of shares, assessee submitted as under :-

In addition to above, the appellant had time to time submitted that details in respect of the holdings of shares in Tirupati Medicare Limited since inception which inter-alia includes copy of DEMAT account showing ownership of the shares of the Company as well as complete details in the form of confirmatory letter of the Company in respect of the ownership and holding of shares of company by the appellant which are conveniently ignored by the Ld. AO while making the above disallowance.

The appellant further submits that he is initial shareholder of the Company along with his family members and have been serving as Director of the Tirupati Medicare Limited. It is also not in dispute that the Tirupati Medicare Limited that the jurisdiction of the Company is also vested with Ld. AO and being regularly assessed thus if the Ld AO had any doubt then such fact can be enquired from the Company independently by seeking information us 133/6) or otherwise by verifying the assessment records of the Company which lies with the Ld AO.

In view of the above, it is submitted that the above disallowance being arbitrary and based upon mere surmises and conjectures including the complete violation of the principles of natural justice wherein the Ld AO failed confront any material or record which gives an impression that the cost of acquisition and/or index cost of acquisition claimed by the appellant is not correct. On the contrary it is an admitted fact that the appellant assessment under section 143(3) of the Act AY 2010- 11 & 2012-13 were done wherein the investments of the assessee have duly examined and accepted. Thus, it is incorrect to state that there is no material on record to suggest the ownership of such and its cost thereof. Copy of the assessment orders of the Appellant are attached as Annexure - 24 at pages 286 to 290 of the PB.

It is further submitted that the action of the Ld AO denying the entire cost of acquisition and indexation thereof is beyond imagination, as at the one hand the Ld. AO taxing the entire amount of sale consideration of such shares as capital gain meaning thereby that the AO is not disputing the fact that the Appellant is owner of such shares and its holding however unable to allow cost of acquisition of such shares in the hands of the appellant on mere surmises that the appellant had not submitted evidence in respect of cost of acquisition of such shares Assuming but not admitting that the appellant had failed to submit evidence in respect of cost of acquisition of such shares in that case the AO is under an obligation to allow fair market value of cost of acquisition for computation of capital gain which in any case is much higher than index cost of acquisition claimed by the appellant for computing capital gain. Thus, on this account also the addition so made by the Ld. AO is perverse and liable to be deleted 64. In view of the above, the appellant prayer for deletion of disallowance of Rs.1,54 28,619/- being the index cost of acquisition made in the impugned assessment order.”

After considering the detailed submissions of the assessee, ld. CIT (A) allowed the claim of the assessee under section 54F of the Act by observing as under :-

With regard to claim of index cost of acquisition of shares, ld. CIT (A) With regard to claim of index cost of acquisition of shares, ld. CIT (A) With regard to claim of index cost of acquisition of shares, ld. CIT (A) held as under:-

Aggrieved with the above order, Revenue Aggrieved with the above order, Revenue is in appeal before us raising is in appeal before us raising following grounds of appeal : following grounds of appeal :- “l . The Ld. CIT(A) has erred in law as well as on facts by deleting the The Ld. CIT(A) has erred in law as well as on facts by deleting the The Ld. CIT(A) has erred in law as well as on facts by deleting the addition of Rs.3,68,14,462/ addition of Rs.3,68,14,462/- and Rs.1,54,28,619/-.

At the time of hearing, ld. DR of the Revenue brought to our notice detailed findings of the AO and submitted that from the record, assessee held more than two properties, therefore, assessee is not eligible for claim u/s 54F and further he submitted that the assessee has not submitted any detailed sub-cost of acquisition of shares to the satisfaction of the AO and assessee has claimed huge indexation cost, therefore, he supported the findings of the AO.

On the other hand, ld. AR of the assessee brought to our notice a chart with the details of property holding of the family members. For the sake of brevity, it is reproduced below :-

With regard to claim of deduction u/s 54F and cost of acquisition, he heavily relied on the findings of the ld. CIT (A) and he relied on the decision placed at page 90 of the case law paper book and he brought to our notice the decision of Ashok G. Chauhan vs. ACIT (2019) 176 ITD 777 (Mum-Trib.).

Considered the rival submissions and material placed on record. We observe that the ld. CIT (A) has considered the aforesaid submissions of the assessee with regard to various properties held by the family jointly and he has appreciated the details of joint holding by the family members and the details of family settlement and joint ownership was explained by the assessee from the abovesaid chart. Various coordinate Benches held that ownership is linked to the full and whole ownership of the property. In the case of Ashok G. Chauhan (supra), coordinate Bench held as under:- “8. We have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by the revenue authorities. We find that it is an undisputed fact that assessee was actually co-owner of the property i.e. flat at Goa alongwith his wife and had transferred his share to his daughter Ms Alisha Ashok Chauhan by virtue of gift deed dated 15.04.04. 8.1 According to the above decision of Coordinate Bench of ITAT in the case of Mrs. V R. Usha (supra), wherein it was held that Where ownership of assessee over property was subject to life interest retained by her mother in said property, it could not be said that assessee owned said property fully and it could not be a reason to deny exemption under section 54F claimed by assessee on sale of her another property. 8.2 Therefore, as per the principles laid down above, the assessee cannot be said to be the full owner of the property and thus cannot be denied exemption u/s 54 of the Act as claimed by him. Even otherwise as per the decision of Coordinate Bench of ITAT in the case of Resiklel N Satra (supra), it has been categorically held that the word 'own' appearing in section 54F of the Act includes only such residential house which is fully and wholly owned by one person and not a residential house owned by more than one person. The above decision of Rasiklal N Satra (supra), also referred and relied upon other decisions i.e. i) CIT v. T.N Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541 (SC), ii) Shiv Narayan Chaudhari v. CWT [1977] 108 ITR 104 (All.), iii) Smt. Kulwenti D. Alreja v. ITO (Born) and iv) Ahdul Rehman v. CIT [1944] 12 ITR 302 (Lahore) , wherein it was held that shared interest in the property does not amount to ownership of the property. 8.3 Now the only question remains as to whether assessee can be said to be the owner of residential house/flat at Goa. The legislature has used the word "a" before the words "residential house". In our opinion, it must mean a complete residential house and would not include shared interest in a residential house. Where the property owned by more than one person, it cannot be said that anyone of them is the owner of the property. In such a case, no individual person of his own can sell the entire property. No doubt, he can sell his share of interest in the property but as far as the property is considered, it would continue to be owned by co-owners. joint ownership is different from absolute ownership. In the case of residential unit, none of the co-owners can claim that he is the owner of residential house. Ownership of a residential house, in our opinion, means ownership to the exclusion of all others. Therefore, where a house is jointly owned or more persons, none of them can be said to be the owner of that house. This view of ours is also fortified by the judgment of the Hon'ble Supreme Court in the case of Seth Banarsi Dass Gupta v. CIT[1987] 166 ITR 783/32 Taxman 112A, herein it was held that a fractional ownership was not sufficient for claiming even fraction depreciation Under Section 32 of the Act. Because of this judgment, the legislature had to amend the provisions of Section 32 with effect from 1.4.1997 by using the expression II owned wholly or partly". So, the word "own" would not include a case where a residential house is partly owned by one person or partly owned by other person(s). After the judgment of Hon'ble Supreme Court in the case of Seth Benersi Dass Gupta (supra), the legislature could also amend the provisions of Section 54F so as to include part ownership. Since, the legislature has consciously not amended the provisions of section 54F, it has to be held that the word "own" in Section 54-F would include only the case where a residential house is fully and wholly owned by the assessee and consequently would not include a residential house owned by more than one person. 8.4 In this way, in the present case, admittedly the flat at Goa was not fully and wholly owned by the assessee as the same was initially owned co-jointly in the name of assessee and his wife. Admittedly it is nobody's case that wife was benami of the assessee. Therefore, the said house was jointly owned by assessee and his wife. However, by virtue of gift deed dated 15.04.04, which is at page no. 37 to 60 of the paper book, the share of the assessee has already been transferred in the name of his daughter. Thus even if, as per the provision of section 27(1) of the Act, the assessee is considered to be a deemed owner of the Goa flat, but even then, assessee would still being a co-owner cannot be termed that Goa flat is fully and wholly owned by him, thus cannot be denied exemption. 8.5 Therefore, in such circumstances, assessee could not be treated as absolute owner' of the residential flat situated at Goa and the exemption u/s 54F of the Act cannot be denied to the assessee. On the other hand, Ld. DR had not placed on record any contrary judgments to rebut the contentions of the assessee. 8.6 Therefore respectfully following the decision of the Coordinate Bench of ITAT in the aforementioned cases which are mutatis mutandi in the present case, we direct the AO to allow the exemption u/s 54 of the Act. With these directions, these grounds raised by the assessee are allowed.”

Respectfully following the above decision, we are inclined to agree with the findings of the ld. CIT (A).

With regard to claim of index cost of acquisition of shares, we observe that ld. CIT (A) has considered the detailed ledger accounts from the books of Tirupati Medicare Limited wherein they disclosed the details of cheque payments along with cheque numbers and dates. The ledger of Tirupati Medicare Limited has disclosed the detailed investments made by the assessee and also they have confirmed the abovesaid investment and shares, also details of transfer of shares during the concerned years. Since it is a factual issue involved, ld. CIT (A) has verified the same in detail and allowed the claim of the assessee. Therefore, we are inclined not to interfere with the findings of the ld. CIT (A). Accordingly, the grounds raised