DEEPAK KATHARI,KANPUR vs. ACIT, CC-5, NEW DELHI

4. At the time of hearing, ld. DR of the Revenue submitted that the Ground of Appeal Nos.1 to 3 relate to the first issue of addition on account of Long Term Capital Gain (LTCG). In this regard, he brought to our notice the relevant facts. He brought to our notice page 2 of the assessment order and submitted that during assessment proceedings, the AO observed that assessee had sold number of immovable properties being plots of land and had LTCG. On perusal of the computation of capital gains, it revealed that assessee had sold plot of land at KW-29/1 and 29/2, to his share of 50% for Rs.7.20 crores on 22.08.2016 to M/s. Adyashakti Realtors Pvt. Ltd.. On perusal of the documents submitted by the assessee, the AO observed that assessee has transferred the land under an Agreement to Sell on 28.12.2007 and determined the whole consideration amounting to Rs.7.20 crores. Further, the AO observed that assessee has claimed indexation cost in his computation of income upto FY 2016-17 even though the capital asset stood transferred during FY 2007-08. Accordingly, a notice was issued dated 30.11.2019 and it was asked to provide the utilisation of the abovesaid funds from December 2007. In response, assessee submitted that these were used for further investment. The AO after analyzing the facts on record proceeded to determine the fund enjoyed by the assessee for ten years, accordingly he applied the cost of interest and determined the interest of Rs.7.20 crores for 3161 days and which comes to Rs.8,36,25,157/-. Accordingly, he added the interest with the sale consideration and determined the actual sale consideration of Rs.15,56,25,157/- and after giving indexation cost of acquisition of Rs.3,71,48,678/-, accordingly determined the LTCG of Rs.11,84,76,479/-. In the net result, he determined the interest calculated on the sale consideration received by the assessee in FY 2007-08 as the additional income not declared by the assessee to the extent of Rs.8,36,25,127/-.

5. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) considered the submissions of the assessee and deleted the above addition by considering the detailed submissions of the assessee by observing as under :- “4.1.11 I have considered facts of the case as well as written submission of the appellant. It is observed that the appellant signed 'agreement to sell' on 28.12.2007, handed over possession of property as well as received entire sale consideration in December 2007. The case of the appellant was selected for scrutiny in A Y 2008-09 and despite specific query the Assessing Officer did not hold it taxable in that year in order u/s 143(3) of Income Tax Act. 4.1.12 The sale deed has been executed during FY 2016-17 and the appellant has offered the capital gains to tax in A Y 2017-18. Section 48 of Income Tax Act prescribes the mode of computation of capital gains which is reproduced below: "Mode of computation.

48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset- the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; [(iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in subsection (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner:] Provided that in the case of an assessee, who is a non- resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company: Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted:" 4 1.13 It is not the case of the Assessing Officer that the capital gain on sale of property was taxable in A Y 2008-09 since assessment for that year has already been completed in scrutiny u/s 143(3) of Income Tax Act. If the amount is held to be taxable in AY 2017-18, then the mode of computation prescribed in section 48 of Income Tax is required to be followed. From full value of consideration, indexed cost of acquisition is required to be deducted. In its computation of capital gains, the appellant has taken full value of consideration at Rs.5,56,25,157/- from which Indexed cost of acquisition of Rs.3,71,48,678/- has been deducted to arrive at Long term capital gain of Rs.11,84,76,479/-. It is held that the appellant has rightly computed long term capital gain as per mode of computation prescribed in section 48 of Income Tax Act. 4.1.14 The Assessing Officer held that even though whole consideration was received in 2007- 08, the appellant had taken benefit of indexation upto 22.08.2016 and recognized the above receipts as income during AY 2017-18. He held that time value of money is added to the sale consideration by adding cost of borrowing of such funds by adopting BPLR of the State Bank of India from 28.12.2007 to 22.08.2016 and accordingly recomputed long term capital gain at Rs. 11,84,76,479/-. It is held that there is no such procedure for computation of capital gain prescribed under the Income Tax Act. The Assessing Officer has attempted to tax notional income which is incorrect since the Income Tax Act has specifically provided mode of computation of capital gain in section 48 of Income Tax Act. Moreover, income earned by the appellant on the amount received in December, 2007 has been declared by the appellant in respective years and tax has been paid thereon. 4.1.15 Hon'ble Supreme Court in the case of K.P.Vargehse vs ITO 131 ITR 597 held as follows: "15 .... It may be noted that section 52 is not a charging section but is a computation section. It has to be read along with section 48 which provides the mode of computation and under which the starting point of computation is "the full value of the consideration received or accruing". What in fact never accrued or was never received cannot be computed as capital gains under section 48, Therefore, sub-section (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received for the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and prove the exact quantum of the suppressed consideration, subsection (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the revenue to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer." 4.1.16 It is held that Income Tax Act permits the taxation of Real Income and not the notional Income as held in the following judgments: a) Hon'ble Supreme Court in the case of E.D. Sassoon & Co. Ltd.'s case 26 ITR 27 (SC) b) Hon'ble Supreme Court in the case of CIT v. Shoorji Vallabhdas & Co. 46 ITR 144 (SC) c) Hon'ble Supreme Court in the case of Excel Industries (SC) 358 ITR 0295 4.1.17 In view of above discussion, it is held that-the appellant has rightly computed long term capital gain as per mode of computation prescribed in section 48 of Income Tax Act and the Assessing Officer was not justified in computing income on notional basis taking into consideration time value of money. Accordingly, addition of Rs.8,36,25,157/- is hereby deleted and Ground Nos.1 to 4 of the appeal are allowed.”

6. With reference to the findings of the ld. CIT (A), ld. DR objected to the same and submitted that assessee has taken double benefits i.e. claiming indexation upto 2016 on cost of acquisition of earned income from sale consideration. He supported the AO’s finding and determination of actual sale consideration by applying BPLR of the State Bank of India for the 3161 days of benefit enjoyed by the assessee and he submitted that the addition made by the AO is as per law, therefore, the findings of the ld. CIT (A) are not acceptable.

7. On the other hand, ld. AR of the assessee heavily relied on the findings of the ld. CIT (A) and he brought to our notice paras 14 to 19 of the appellate order. Further he submitted that the case of the AO was that a plot of land was sold by the assessee in AY 2008-09 and received the sale consideration of Rs.7.20 crores and also handed over the possession but the sale deed was executed only on 22.08.2018 i.e. AY 2017-18. The relevant capital gain was offered to tax in AY 2017-18. His case was that assessee ought to have increased the sale consideration by including the notional interest income on such sale consideration which was received in AY 2008-09. He submitted that ld. CIT (A) has deleted the abovesaid addition on the ground that if transfer had taken place in AY 2008-09, there was no question of recognizing any capital gain in AY 2017-18 and in any case, the methodology of computing sale consideration as adopted by the AO is not recognized by any provision of the Act including section 48 and he supported the findings of the ld. CIT (A) and submitted that various judicial decisions are enclosed in the paper book as under :- (i) CIT vs. Balbir Singh Maini – (2017) 398 ITR 0531 (SC); (ii) K.P. Varghese vs. ITO & Anr. (1981) 131 ITR 0597 (SC); (iii) E.D. Sasson & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 0027 (SC); (iv) CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 0144 (SC); (v) CIT vs. Excel Industries Ltd. (2013) 358 ITR 0295 (SC).

8. Considered the rival submissions and material placed on record. We observe that as per the facts brought on record, the assessee has sold the properly by executing the sale deed on 22.08.2016, however as per the information brought on record, assessee has handed over the piece of land to the buyer and also received the sale consideration in AY 2008-09. As per the factual matrix, the actual sale has already been completed in AY 2008-09. Since the sale deed was executed in AY 2017-18, the assessee has offered to tax only in AY 2017-18. We observe that AO has gone one step ahead and determined the notional interest/income from the date of receipt of actual sale consideration in AY 2008-09. We observe that no doubt, assessee has benefited by receiving the sale consideration in AY 2008-09 and there is no mechanism to address such computation of income on the basis of determining notional interest to go back to the assessment year in which assessee has received the benefit. The provisions of Income-tax apply on the basis of real income not on the basis of notional income. We observe that the sale can be treated as complete when the relevant sale deed executed or a proper evidence be brought on record to show that actual property was handed over to the purchaser. In the given case, the AO has not brought on record any evidence to show that assessee has already handed over the land to the purchaser. It is brought to our notice that no doubt assessee has received full sale consideration in FY 2007-08, however due to legal and other clearances & compliances on the land delayed the execution of the sale deed and no activity was taken so as to say that the land was handed over, it is further evident from the Agreement to Sell and sale deed with the condition of land was remained same in the year FY 2007-08 and 2016-17. The AO has merely observed that assessee has received the full consideration on the date of executing Agreement to Sale and proceeded to enhance the value of land for the reason that assessee has enjoyed the funds till the actual registration was completed by applying bank rate of 13.41% and enhanced the sale consideration to the extent of Rs.8,36,25,157/-. As per the computation of capital gain mechanism on the date of transfer, the capital gains will be determined based on the sale consideration mentioned in the sale deed executed and the law prescribes claim of deduction of expenditure incurred on such transfer, indexation cost of acquisition and improvement. Therefore, there is no mechanism to determine the notional income or deemed income earned by the assessee which can be taxed. It is not the case of the AO that the property was not sold in AY 2017-18. Be that be the case, there is no mechanism to go back to AY 2008-09 to determine the capital gain in AY 2017-18. We are in agreement with the ld. CIT (A)’s observation that when the AO determines the notional benefit earned by the assessee, at the same time assessee has registered the document in AY 2017-18 even the assessee has incurred loss by registering the sale consideration as agreed in AY 2008-09. After considering the speaking order of the ld. CIT (A), we do not see any reason to disturb the findings of the ld. CIT (A). Accordingly, ground nos.1 to 3 raised by the Revenue are dismissed.

9. Coming to Ground Nos.4 to 6 raised by the Revenue, the relevant facts are brought on record by the ld. DR of the Revenue that during assessment proceedings, the AO observed that assessee has claimed Short Term Capital Gain (STCG) on sale of shares, namely, Hindustan Petroleum Corporation Limited (HPCL) and Gas Authority of India Limited (GAIL). It was observed that loss on sale of the shares was due to issue of bonus shares of these companies. He observed that assessee had sold shares after receiving the bonus shares and claimed the Short Term Capital Loss, claimed the above loss from sale of LTCG of land. A notice was issued to the assessee to explain the same and the assessee has responded to the same, the relevant extract of the submissions of the assessee are reproduced at pages 8 to 10 of the assessment order. After considering the same, AO rejected the same. He observed that the provisions of section 56(2)(vii)(c) are attracted in this case wherein assessee has claimed STCL of Rs.5,35,67,381/-. The AO observed that the assessee has received bonus shares in the ratio of 2 : 1 and 1 : 3 from HPCL and GAIL respectively. A notice was issued to the assessee to explain when the difference between fair market value of bonus shares and actual consideration paid by the assessee for acquisition of bonus shares i.e. NIL should not be treated as assessee’s income as per provisions of section 56(2)(vii)(c) of the Act. In response, assessee submitted that there is no taxable event on issue of bonus shares and the provisions of section 56(2)(vii)(c) are not applicable. The AO rejected the same and according to the AO, the provisions of section 56(2)(vii)(c) are attracted by relying on various case laws and determined the fair market value of the bonus shares at Rs.11,81,85,000/- which is chargeable to tax u/s 56(2)(vii)(c) of the Act.

10. Aggrieved by the above order, assessee preferred an appeal before the ld. CIT (A) and filed the detailed submissions as under :- “1. That the issue of bonus shares by a company is merely capitalization of the free reserves of the company.

2. That to contend that issue of bonus shares results in receipt of an 'asset without consideration' u/s 56(2)(vii)(c) is against the facts as the value of the balance shares remaining with the appellant diminishes.

5. It may also be submitted that even otherwise bonus shares are not 'property' since the same are not even in existence until after they are issued by a company.

6. That it is for the same reason that the cost of bonus shares is defined as 'nil' under the express provisions of the Act. And once the 'cost' has been defined, there is no case for treating the ex- bonus market value of the shares as the value of the bonus shares since the said value is not even available on the date of the bonus issue. The appellant begs to rely on the following further submissions Why the Bonus shares are not property and no liable to tax as they are created only at the time of issue. The Explanatory Memorandum to Finance Bill 2010 explaining the rationale of introduction of the said section 56(2)(viia), interalia provided that, "In order to prevent the practice of transferring unlisted shares at prices much below their market value, it is proposed to amend Section 56(2) to also include within its ambit, transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where recipient is a Firm or a Company" Thus it is amply clear and duly evident from above that the legislative intent of introduction of section 56(2)(viia) was to prevent the practice of transferring of unlisted shares at prices below their fair market value. The expression "transfer" has altogether different connotation and meaning than the expression "issuance" and as such the provisions of said section 56(2)(viia) were meant to be applicable in cases of receipt of shares by a company or a firm on subsequent transfer of unlisted shares after their initial issuance by the issuing company. Hon'ble Supreme Court in the case of Khoday Distilleries Ltd. vs CIT reported in (2008) 307 ITR 312 has referred to the manner in which bonus shares are issued as under:

"When the company is prosperous and accumulate a large surplus, it converts is surplus into capital and divided the capital amongst the members in proportion to their rights. This is done by issuing fully paid-up shares representing the increased capital. The shareholders to whom the shares are allotted have to pay nothing. The purpose is to capitalise profits which may be available for division. Bonus shares go by the modem name of "capitalisation shares". If the articles of a company empowers the company, it can capitalise profits or reserves and issue fully paid-up shares of nominal value, equal to the amount capitalised to its shareholders. The idea behind issue of bonus shares is to bring the nominal share capital into line with the excess of assets over liabilities. A company would like to have more working capital but it need not go into the market for obtaining fresh capital by issuing fresh shares. The necessary money is available with it and this money is converted into shares which really means that the undisturbed profit, have been ploughed back into the business and converted into share capital. Therefore fully paid-up bonus shares are merely a distribution of capitalised undivided profit. It would be a misnomer to call the recipients of bonus shares as donees of the shares from the company." Hon'ble Supreme Court further held as under: "when a shareholder gets a bonus shares the value of the original share held by him goes down. In effect, the shareholder gets to shares instead of one held by him in and the market value as well as the intrinsic value of the 2 shares put together will be same so nearly the same as the value of the original share before the bonus issue.. " ITAT Mumbai Bench in the case of Sudhir Menon HUF vs Astt. CIT- 21(2), (i) The provisions of section 56(2)(vii) of the Act would not apply to bonus shares, and the argument alluding thereto arises only on account of mis -conception in respect thereof (ii) Issue of bonus shares is by definition capitalization of its profit by the issuing company. There is neither any increase nor decrease in the wealth of shareholder (or of the issuing company) on account of a bonus issue and his percentage holding therein remains constant.

(iii) What in effect transpires is that a share gets spilt (in the same proposition for all the shareholders), as for example by a factor of two in case of a 1: 1 bonus issue. (iv) Reference in this regard may be to the decision in CIT vs Dalmia Investment Co. Ltd. [1964) 52 ITR 567 (SC) as well as in Khoday Distilleries Ltd. (Supra), wherein reference stands made to the former, also quoting there from besides inter alia to Hunsur Plywood Works Ltd vs CIT [1998} 229ITR 112 (SC), where the same were referred to as 'capitalization shares'. (v) In other words, there is no receipt of any property by the shareholder, and what stands received by him is the split shares out of his own holding. It would be akin to somebody exchanging a one thousand rupee note for two five hundred or ten hundred rupee notes. There is, accordingly, no question of any gift of or accretion to property; the shareholder getting only the value of his existing value per share, increasing its mobility and, thus, liquidity, in the sense that the shares become more accessible for transactions and, thus, trading, i. e. considered from the holders’ point of view. We may though add a note of caution. There could be a case of bonus issue coupled with the release of assets (of the issuing company) in favour of the shareholders. The same would fall to be considered as dividend u/s 2(22)(a) of the Act. (vi) In the case of issue of bonus shares (as also demerger), no property is being conveyed to the shareholder in as much as the property therein is comprised in the existing shareholding of the allotee. There is as such no case of a gift, the shareholder only receiving his own property. (vii) No property however being passed on to the assessee in the instant case, i.e. on the allotment of the additional shares, no addition in terms of the provision itself shall arise in the facts of the case. Thus from the above discussion, it is clear that issue of Bonus Shares was never envisaged to be taxed under the provisions of section 56(2)(vii) introduced in Finance Bill 2010. Further, the judgment discussed above further elaborates as to how the provisions of section 56(2) (vii) of the Act would not apply to bonus shares. Thus, it is clear, that the addition made by the AO is not in accordance with law and hence deleted. A very detailed order has been passed by the Delhi ITAT (our jurisdictional ITAT) in the case of DCIT, Faridabad vs Smt. Mamta Bhandari, Delhi on 10 July, 2019Dcit, ITA.No.5681/Del.l2016 Smt. Mamta Bhandari, which has held that provisions of section 56(2)(vii) are not applicable to bonus shares. The judgement of the ITAT is binding on your honour as the same is of the Jurisdictional ITAT and considering the principles of jurisprudence and judicial hierarchy it is mandatory for the subordinate authority to follow the judgement of the superior authority, and principle of following of judicial precedents have time and again been reiterated by the Hon'ble Apex Court. In CIT v. Dalmia Investment Co. Ltd. [1964J 52 ITR 567 (SC), the Court held as under: 'Can we then say that the bonus shares are a gift and are acquired for nothing? At first sight, it looks as if they are so, but the impact of the issue of bonus shares has to be seen to realise that there is an immediate detriment to the shareholder in respect of his original holding. ... by the issue of bonus shares pro rata, which ranked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares. This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately. When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP. coins. The total value remains the same, but the evidence of that value is not in one certificate but in two. .... The bonus shares can be valued by spreading the cost of the old shares over the old shares and the new issue taken together, if the shares rank pari passu. When they do not, the price may have to be adjusted either in the proportion of the face value they bear (if there is no other circumstances differentiating them) or on equitable considerations based on the market price before and after the issue. PCIT Vs Dr. Ranjan Pai (Karnataka High Court) Section 56of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Gift) - Assessment year 2012-13 - Bonus shares can never be considered as received without consideration or for inadequate consideration calling for application of sub-clause (c) of clause (vii) of section 56(2) [In favour of assessee] An assessee who received bonus shares could never be considered as receiving something without consideration or for a consideration less than the fair market value of the property. When bonus shares are received, it is not something which has been received free or for a lesser fair market value. A consideration has flown out from the holder of the shares, may be unknown to him, which is reflected in the depression in the intrinsic value of the original shares held by him. Thus, section 56(2)(v),(vi) and (vii) brought in to the Act for addressing the vaccum caused due to withdrawal of the Gift-tax Act cannot be used for the purpose of taxing the value of bonus shares received by an assessee. Held that the valuation of unquoted shares set out in rule 11 UA(b) will have applicability only on receipt of shares as gift or for inadequate consideration. Bonus shares can never be considered as received without consideration or for inadequate consideration calling for application of sub-clause (c) of clause (vii) of section 56(2). DCIT Vs Veena Goyal (ITAT Jaipur) Appeal Number: the same has been reiterated Without prejudice to what has been stated above, the Ld. A.O, in complete haste, has made several errors while drawing the assessment order in as much that the number of bonus shares received by the appellant have not been mentioned correctly. That the details of bonus shares received were as under: Name of the Number of Number of Difference Rate Difference company bonus shares bonus shares value received mentioned in the other HINDPETRO 100000 25000 75000 403.95 30296250 GAIL 33333 285000 -251667 379.25 -95444710 -65148460 Thus the addition made by the Ld. A.O. is excessive by Rs.6,51,48,460.00.

In view of the above the appeal filed by the appellant be allowed in favour of the appellant as the additions made are wrong on facts and in law and if any adverse inference is to be drawn then a reason thereof and an opportunity of hearing be provided to the appellant for the same.”

Provided that nothing contained in this sub-section shall apply where- (a) the assessee,- (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". b) That in the case of the appellant the L.D A.O has disallowed the claim of the appellant under Section 54F of the Act stating that the appellant received a Residential Property by way of Will on the death of his mother and thus he owned more than "one" residential house before the transfer took place and therefor the exemption under Section 54F of the Act must not be allowed to the appellant. c) The appellants begs to state that the exemption under section "54F" is disallowed if the assessee "Owns" more than 1 residential house. That in the case of the appellant the appellant only had a proportionate 1/4th "Right" in the Property and the "Ownership" of the property was transferred on a later date in the month of March 2017 when the property was "mutated". The disallowance under Section 54F of the Act does not arises on having a "Right" in the property. The appellant has in his earlier submissions placed on record before your honour the judgments of the Hon'ble Supreme Court wherein the apex court has distinguished the "Right" and "Ownership" held in a property. d) Further, the disallowance is warranted in respect of a Residential House whose income is chargeable under the head "Income from House Property". That in the case of the appellant the L.D A.O has claimed the Residential Property at "New Friends Colony, New Delhi" to be owned by the appellant, though on facts the said property has been claimed as a "Self Occupied" property by the mother of the appellant in her return filed by her Legal heir. The copy of the computation of income of the mother of the appellant is attached as per Annexure No 1 wherefrom the facts stated by the appellant are evident.”

by the assessee by observing as under :- “4.3.14 I have considered facts of the case as well as written submission of the appellant. It is not disputed that the appellant received bonus shares of Hindustan Petroleum Corporation Limited and GAIL India Ltd during the year. The primary issue for consideration is whether receipt of these bonus shares was taxable u/s 56(2)(viic) of Income Tax Act. 4.3.15 Hon'ble ITAT Delhi in the case of DC IT Vs Smt. Mamta Bhandari [2019] 178 ITD

89. (Delhi - Trib.) held that Provisions of sub-clause (c) of clause (vii) of section 56(2) would not apply to bonus shares. The operative part of the judgment is reproduced below: "

by the Revenue be allowed.

14. On the other hand, ld. AR of the assessee heavily relied on the findings of the ld. CIT (A) and brought to our notice pages 9 to 12 of the appellate order and also relied on several binding decisions as under :- (i) Sudhir Menon HUF vs. ACIT – ITA No.4887/Mum./2013 dated 12.03.2014; (ii) DCIT vs. Smt. Mamta Bhandari – dated 10.07.2019; (iii) Pr.CIT and Anr. Vs. Dr. Ranjan Pai – (2021) 431 ITR 0250 (Karn.); and (iv) DCIT vs. Smt. Veena Goyal & Anr.- & Anr. Dated 15.09.2020 (JP).

1. The appellant during the year claimed an exemption of Rs.2,09,07,085.00 under section 54F of the Act w.r.t purchase of a residential property, against the long term capital gain earned in respect of transfer of land at Gujarat. The exemption was claimed in respect of a residential property acquired at Kanpur i.e the "new asset". That other than the "New Asset" the appellant was the legal owner of only one Residential Property at Sky lounge Pune. The L.D A.O however disallowed the exemption claimed by the appellant stating that during the year under appeal the mother of the appellant passed away and by the virtue of her will the appellant became the additional owner of 1/4th share of a residential property at New Delhi and therefore he owned more than 1 property other than the "new asset" and is therefore not eligible for exemption under Section 54F of the ACT. The Hon'ble CIT (A)-24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption made by the L.D A.O.

2. The L.D CIT(A)-24 New Delhi erred in law as well as on facts in upholding the contention of the A.O that the Will of the appellant's mother was dated 11.07.2015 and therefore he had already received the rights in the property. The Hon'ble CIT(A) failed to consider the fact that mere creation of the Will does not entitles the beneficiary a "Right" in the asset, a will may be recreated several times cancelling the old will until the death of the testator, a will is executable only after the death of the testator and therefore mere drawing of a will does not entitles the beneficiary a "Right" in the asset.

3. The L.D CIT(A)-24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption of Rs 2,09,07,085.00 made by the A.O without considering the fact that the death of the mother of the appellant happened during the year under appeal and the legal rights in the immovable property were transferred in the appellant's name only after the mutation of the property in March 2017 and therefore there was no violation of the conditions prescribed under Section 54F of the Act as on the date of the transfer of the original asset i.e. August 2016 the appellant was not in ownership of more than 1 property other than the "new asset".

4. The L.D CIT(A)-24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption of Rs 2,09,07,085.00 made by the A.O without considering the fact that unless the property is mutated in the name of the appellant or any document of title is created in the favor of the appellant, the appellant us not the legal owner of the property. The Right in 1/4th share of a property is distinguishable from ownership of 1/4th property.

5. Without prejudice to the above it is stated that the L.D CIT(A)- 24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption of Rs.2,09,07,085.00 made by the A.O without considering the fact that the term "Property" as contained in Section 54F of the Act implies a complete property which is capable of being resided without infringement. 1/4th undivided and non- demarcated 1/4th share in one single property could not be held to be a property. "Residential Property for all practical purposes should be a complete identified and habitable property.

6. That the order appealed against is contrary to the facts, law, principals of natural justice and equity.”

Therefore as on the date of transfer of the original asset i.e. Aug 2016 the assessee held only one property at "Flat no, 1002 Building, Lankad Skylounge, D Wing, Pune” and therefore the assessee is allowable for exemption under section 54 of the Act.”

19. After considering the same, the Assessing Officer rejected the submissions of the assessee and observed that the property at New Friends Colony, Delhi, acquired by the assessee through Will dated 11.07.2015. As per the Will, the assessee had received the right in the above property w.e.f. 11.07.2015 for the purpose of section 22 of the Act. Since the assessee had a right to receive the rent, the position of law on right to receive rent is well settled and registration of the property is not a prerequisite for claiming right to receive income from house property. Therefore, the conditions specified in proviso to section 54F of the Act gets specified as soon as assessee has property whose income is chargeable to tax under the head income from house property. In view of the above, he rejected the clam of the assessee and proceeded to make the addition of Rs.2,09,07,085/-.

Therefore, on the date of transfer or original assets in August 2016, the assessee held only one property at Flat No.1002, F Building, Lankad Skylounge, D-Wing, Pune, therefore, assessee is allowed to claim benefit u/s 54F of the Act. After considering the same, the assessee should be owner of a residential property and as per provisions not more than one house property. In the given case, the assessee was the owner of one house at the time of transfer and he became owner of the property at New Friends Colony after mutation in the month of March 2017. Therefore, at the end of FY 2016-17 (AY 2017-18), the assessee was the owner of only one house property. Merely because the assessee had right to receive the rent w.e.f. 11.07.2015, the position does not change. The absolute ownership acquired by the assessee only after mutation. The relevant rent may or may not be receivable. Mere rights will not get the absolute ownership. Therefore, on the date of transfer, the assessee was the owner of only one property, hence eligible to claim the benefit u/s 54F of the Act. For the sake of argument, in case assessee is the 25% owner of the property, still, he cannot be held to be absolute owner of the second property. We observe that ITAT, Surat Bench in the case of Mukesh Arvindlal Vakharia (supra) has held as under :- “17. We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. We note that assessee claimed deduction u/s 54F of the Act to the tune of Rs.48,96,993/- on the ground that assessee owns only one house at the Oberoi Palace Housing Society in this name at the time of the sale. It is the contention of the assessee that the other two properties are owned jointly with others and therefore it is not required to be considered for the purpose of condition of section 54F of the Act. The assessing officer relied on the order of the Hon`ble Supreme Court in the case of M. J. Siwani v/s. CIT - 53 taxmann.com 318 (SC) where the SLP filed by the taxpayer was dismissed. The ld Counsel stated that by way of the SLP, the Hon`ble Supreme Court did not concur with the finding of the Hon`ble Karnataka High Court in the case of CIT v/s. M. J. Siwani - 366 ITR 356 (Kar.). Mere dismissal of the SLP does not constitute the judgment by the Supreme Court in the favour of the revenue. The ld Counsel placed reliance on the following judgments: i. Khoday Distilleries Ltd. vs. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. – Civil Appeal No. 2432/2019 ii. Smt. Tej Kumari vs. CIT (2001) 247 ITR 210 (Patna HC) 18. The ld Counsel further submitted that Hon`ble Madras High Court in case of Dr. (Smt.) P. K. Vasanthi Rangarajan Vs. CIT (2012) 23 taxmann.com (299) wherein it was held that where the assessee held the property jointly with her husband in equal proportion, it cannot be said that she is the owner of the house property at the time of the sale for availing the deduction u/s 54F of the Act. It is to be noted that w.e.f. 01.04.2001, there was the amendment in section 54F to the effect that assessee could be owner of one house at the time of the sale. Here in the case of the assessee he was sole owner of only one house and other houses under the joint ownership are not required to be considered as per the judgment of the Hon`ble Madras High Court in case of Dr. (Smt.) P. K. Vasanthi Rangarajan (supra).

by the assessee.

25. In the result, the appeal filed by the assessee is allowed.

26. To sum up : the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed. Order pronounced in the open court on this 6th day of August, 2025.