C I T JAIPUR-II JAIPUR vs. RAM PRAKASH MIYAN BAZAZ

By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has allowed

This court while admitting the appeal on 12.7.2016 framed following substantial question of law:- “Whether on the facts and in circumstances of the case, the ITAT was justified in law in deleting the addition of Rs.1,27,14,208/- made on account of long term capital gain by disallowing the claim u/s 54F as the assessee was having more than one

Counsel for the appellant Mr. Mathur has taken us to the order of AO more particularly detail with regard to assessee and reply filed thereto which reads as under:- “Please refer to your rely dt. 18.7.2011: you have submitted a copy of booklet of EMAAR MGF Land Limited and form regarding booking of a flat of total value Rs.79,66,275/- which includes charges of Rs.5,33,250/- for IDC & EDC Rs.2,50,000/- for car parking slot and Rs.75,000/- for club membership. The agreement as per stamp paper it was purchase on 10th Dec. 2009 from HP Singh Stamp Agent Patiala House, New Delhi. It means you have entered into agreement for purchase of flat after due date of furnishing of return of income. Please justify your claim?”

He also taken us to the order passed by the authority with regard to comparison to statement which is reproduced as under:- “Comparison of Investment u/s 54F in the New Flat at Emar MGF and Rights at Noida/Chandigarh. Investment u/s 54F at EMAAR MGF Booking Rights at Nodia/Chandigarh Source

1 He also pointed out the finding on the points raised before AO which reads as under:- “14. After going through rival submissions following points emerge:-

2 He has also taken us the CBDT circular dt. 15.10.1986 and the finding of AO which reads as under:- “The CBDT Circular no. 471 (1986) 162 ITR (St.) 41 dated October 15, 1986 has been issued clarifying that when the Delhi Development Authority issues the allotment letter to an allottee under its self-financing scheme, on payment of the first installment of the cost of construction, the allottee gets title to the property and such allotment should be treated as cost of construction for the purpose of capital gains.

Noida and Chandigarh flats argued wrongly as not residential flats. The appellant has come forth with contradictory arguments. On one hand he is stating that the investment in Noida and Chandigarh flats had been made even before acquisition proceeds were received by the appellant, that flats were acquired/booked for investment purposes to earn capital gains, but till date the flats are retained that is in 2013 the flats are in possession of the appellant. The other argument is that Noida and Chandigarh flats are being used for business and cannot be branded as residential flats for denying exemption u/s 54F because maintenance charges of these flats are being paid by the firm in which appellant is a partner, also does not hold water, because the flats at Noida and Chandigarh appear in the personal Balance sheet of the appellant, it is not disputed by the appellant that the flats are acquired/owned by him. The argument that investment in these flats was made even before the sale consideration from land acquisition from government was received by the appellant, goes against the appellant, because he is himself accepting that the flats

3 He contended that the tribunal has committed serious error in reversing the view taken by the CIT(A) & AO.

Counsel for the respondent has taken us to the order of tribunal which reads as under:- “Undisputedly, the assessee became owner of the Noida flat only on 10.7.2010 and has not acquired ownership of the Chandigarh flat till date. Thus, picture becomes clear in respect of proviso (a)(i) to section 54F of the Act that the residential house mentioned therein has a different connotation because ‘house’ means a building in its normal residential conditions which is found fit for living by human-beings and not a house under construction’ and this house should be completely owned by the (8 of 26) [ITA-166/2014] assessee at the relevant time. The Legislators in their wisdom have used two different terms to refer to the original residential house sold as ‘old asset’ and by referring to the new residential house to be purchased or constructed as the case may be, as ‘new asset’. The collective reading of this section makes it clear that two conditions should be satisfied and both are co-exist at the relevant time of transfer of original asset (1) the assessee must owned the residential house on the date of transfer and (2) income from such residential house should be chargeable under the head ‘income from other house property’. If the above two conditions co-exist, the assessee becomes disentitled to the exemption section 54F of the Act, particularly when, the assessee owns such a house other than the original asset and its income is chargeable as a income from house property as per the provisions of section 22 of the Act. The assessee needs to be owner rather legal owner of that house. Hon’ble Supreme court in explained this position by holding that ‘owner’ is a person who is entitled to receive income from the property in his own right. In the absence of completion and possession by way of registration and transfer of its title etc., of these two flats booked by the assessee on the date of transfer original capital asset i.e. 05.06.2008, the question of assessing ‘Income from House property’ under section 22 of the Act will not arise. The Ld. CIT(A) has misdirected himself treating even ‘right to acquire a flat’ as owned by the assessee. In our considered opinion, the conclusion of Ld. CIT(A) is not correct. Thus with regard to Noida & Chandigarh flats it can be safely concluded that these were not owned by the assessee on 5.6.2008 in terms of section 54F of the Act. The Ld. CIT(A) has observed (at page 14 of her order) that “the argument atht the flats at Noida and Chandigarh are just booked and not possessed does not hold water, because if the same logic is applied, no exemption would be available to the appellant because the flat at the Grugaon with respect to which exemption is being sought from capital gain is also just booked and possession has not been given to the appellant in the assessment year under consideration”.

We have found that section 54F of the Act is a beneficial provision aimed at promoting construction or addition of new residential houses to meet out the needs of the society in respect of increasing demand of houses. Thus, the intention of the Legislator is to encourage and give an impetus towards investments in the acquisiton of ‘residential houses’. The provisions of section 54F of the Act prescribes and proscribes the conditions for availing its benefit. The terms/words used in this section have been very selectively & prudentially chosen by the Legislators. This benefit is available against the ‘capital gain’ arising out of transfer of any ‘long term capital asset’ not being a residential house and which has been referred to as an ‘original asset’. This benefit is available subject to the condition that if the ‘net-sale-consideration’ is invested either in purchasing or construction a ‘residential house’ within the limits of time prescribed in section 54F. However, if the assessee owned more than one residential house other than the ‘new asset’ on the date of transfer of the ‘original asset’, this benefit will not be available to him. In the given case, undisputedly, the assessee had sold a capital asset in the from of land on 3.10.2008 and has earned ‘long term capital gain’ of Rs.2,03,76,237/- (this LTCG has been calculated by the Assessing Officer at Rs.2,04,37,654/- as there was some error in the computation failed by the assessee with the return because in the indexing of the cost of land in F.Y. 1991-92, the assessee’s half share was not considered). The assessee has claimed exemption under section 54F (1)(b) of the Act to the extent of Rs.1,26,52,789/- as against total investment of Rs.1,29,66,275/-. Thus, by now we have come to the conclusion that the assessee did not own more than one residential house on the date of transfer of the original asset. Therefore, one condition of this provision stands satisfied.”

He has relied upon the following decisions:-

1 In Commissioner of Income Tax-II vs. Kuldeep Singh ITA No.117/2014 decided on 12.8.2014 wherein Delhi High Court held as under:- “8. The word 'purchase' can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. 'Purchase' can also refer to payment of MANU/SC/0302/1979MANU/SC/0302/1979 : (1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word 'purchase.' It was observed that the word 'purchase' used in Section 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that 'purchase' primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of moneys worth. The word 'purchase,' it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain.

Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sh. Sanjeev Lal etc. etc. vs. CIT, Chandigarh & Anr., decided on 01/07/2014, MANU/SC/0555/2014MANU/SC/0555/2014 :

More direct are the two decisions of MANU/MP/0213/1996MANU/MP/0213/1996 : [1997] 224 ITR 106 and Calcutta High Court MANU/WB/0265/2000MANU/WB/0265/2000 : (2000) 244 ITR 352. In Shashi Verma (supra), the assessee had invested the sale consideration for purchase of a flat from Delhi Development Authority and had paid part installments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was Rs.31,980/- whereas the installments paid were Rs.71,256/-, i.e. much more than the amount of capital gain. Reference was made

It was observed that Section 54 of the Act says that assessee could have constructed the house and not that the construction should have necessarily been completed. Noticing that it was not easy to construct a house within the time limit of three years and under the Government schemes, construction takes years. When substantial investment was made in the construction and it should be deemed that sufficient steps had been taken and it satisfied requirement of Section 54. 13. The view we have taken gets support from sub-section (2) to Section 54. The aforesaid sub-section requires the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word 'purchase' is used in sub- section (2) and indicates that the said word is not restricted or confined to registered sale deed or even possession but has a wider

2 ITR 727 wherein Delhi High Court held as under:- “7. In our view, the Tribunal was justified in declining" to make a reference on the proposed question to this court. Admittedly, the assessed had paid a sum of Rs. 2,39,850 out of the total sale consideration of Rs. 2,75,000 for the purchase of the flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dated September 25, 1981, i.e., within four days of the sale of his old property, the assessed acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of Section 54 of the Act. Merely because the builder failed to hand over possession of the flat to the assessed within the period of one year, the assessed cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of Section 54 of the Act.”

3 In Commissioner of Income Tax-XII vs. Sh. Kamal Wahal (2013) 351 ITR 4 (Delhi) wherein it has been held as under:- “5. The revenue preferred an appeal before the Tribunal questioning the decision of the (15 of 26) [ITA-166/2014] CIT (Appeals). The Tribunal, however, by the impugned order, agreed with the decision of the CIT (Appeals) and in doing so followed the judgment of the Madras and Andhra Pradesh High Courts cited supra and also another judgment of the Karnataka High Court in Director of Income-tax, International Taxation, Bangalore : (2011) 203 Taxman 208. It also : MANU/MH/0825/2008MANU/MH/0825/2008 : (2008) 173 Taxman 311 in which a contrary view was taken but preferred the view taken by the Madras and Karnataka High Courts adopting the rule laid down by the Supreme Court in CIT Vs. Vegetable Products Ltd : MANU/SC/0241/1973MANU/SC/0241/1973 : 88 ITR 192 which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred. The Tribunal also observed that Section 54F being a beneficial provision enacted for encouraging investment in residential houses should be liberally interpreted.”

4 ITR 351 (Delhi) wherein it has been held as under:-

Turning to question (i) whether the exemption under Section 54F could be availed of by the Assessee, it requires to be first noticed that in light of the decision of the Supreme Court in CIT v. Podar Cements (P) Limited (supra), CIT v. T.N. Aravinda Reddy (supra)

In the present case, as pointed out by the CIT (A), the sale deed dated 13th March 1996 does show that what was purchased by the Appellant (Assessee herein) is an agricultural land bearing Khasra Nos. 75 and 90. Khasra Girdawri also clarifies that while there is a kothi, i.e., house on Khasra No. 76 (purchased by the Assessee's father), the land in Khasra Nos. 75 and 90 purchased by the Assessee was used only for agricultural purpose. The explanation by the Assessee that only the rental income from letting out the constructed portion property was being shared between him and the father in the ratio of 15%: 85% appears to be a plausible one. Unless there is document to show that the Assessee was a co-owner of the said building to the extent of even 15%, there cannot be an inference in that regard. As explained by Umacharan Shaw & Bros v. CIT MANU/SC/0080/1959MANU/SC/0080/1959 : (1959) 37 ITR 271 (SC) suspicion howsoever strong cannot partake the character of evidence. The evidence produced by the Assessee showed that the house was purchased by him on 10th April 2007 within the time allowed under Section 54F of the Act, after making payment and by obtaining the possession thereof. A substantial part of the consideration of Rs. 2 crores was paid on the date of the agreement to sell itself. The balance payment of Rs. 22 lakhs was made on 17th April 2007 when the possession was (17 of 26) [ITA-166/2014] handed over. The conclusion that the house was in fact purchased on 10th April 2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10th April 2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him.”

5 Taxman2 (Delhi) wherein it has been held as under:- “11. Section 54F(1) if read carefully states that the assessee being an individual or Hindu Undivided Family, who had earned capital gains from transfer of any long-term capital not being a residential house could claim benefit under the said Section provided, any one of the following three conditions were satisfied; (i) the assessee had within a period of one year before the sale, purchased a residential house; (ii) within two years after the date of transfer of the original capital asset, purchased a residential house and (iii) within a period of three years after the date of sale of the original asset, constructed a residential house.

For the satisfaction of the third condition, it is not stipulated or indicated in the Section that the construction must begin after the date of sale of the original/old asset. There is no condition or reason for ambiguity and confusion which requires moderation or reading the words of the said sub-section in a different manner. The apprehension of the Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is ill-founded and misconceived. The requirement of sub- section (4) is that if consideration was not appropriated towards the purchase of the new asset one year before date of transfer of the original asset or it was not utilised for purchase or construction of the new asset

Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Supreme Court in CCE

Furthermore, this Court in Associated Cement Companies Ltd. v. State of Bihar [MANU/SC/0840/2004MANU/SC/0840/2004 : (2004) 7 SCC 642], while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held: (SCC p. 648, para 12)

Literally 'exemption' is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v.

In G.P. Ceramics (P) Ltd. v. CTT [MANU/SC/8275/2008MANU/SC/8275/2008 : (2009) 2 SCC 90], this Court has held: (SCC pp. 101-02, para 29)

It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See

As far as the present case is concerned, contrary to the contention of the assessee, the assessee as well as her husband had offered 50 per cent share each in the clinic

As far as the present case is concerned, the purchase of the property was by the individual in her own name and the property held by her as on the date of transfer, stood in the joint names of the assessee and her husband. A reading of s. 54F clearly points out that the holding of the residential house as on the date of transfer has relevance to (23 of 26) [ITA-166/2014] the status of the assessee as an individual or HUF. On the admitted fact that the assessee herein, as an individual, does not own any property in the status of an individual as on the date of transfer, we have no hesitation in accepting the case of the assessee, thereby allowing the appeal. As far as the issue on the purchase of four flats Is concerned, the unreported decision of this Court in Tax Case No. 656 of 2005, dt. 4th Jan., 2012 (supra) answers this issue. We do not find any inhibition in the assessee claiming the benefit on the investment made in the four flats, thereby gaining the benefit under s. 54F of the IT Act.”

9 Court held as under:-

Section 45 of the Act makes it very clear that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save or otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H is chargeable to income tax under the head 'capital gains' and shall be deemed to be income of the previous year in which the transfer took place. The aforesaid sections which form part of section 54 of the Act are cases where capital gain on transfer of capital asset not to be charged in those cases. Section 54F of the Act is a beneficial provision of promoting the construction of residential house. Therefore, the said provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. For such purpose, the capital gain realized should have been invested in a (24 of 26) [ITA-166/2014] residential house. The condition precedent for claiming benefit under the said prevision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favor of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from the said benefit.

In fact, Madras High Court had an occasion to consider this aspect in the case of CIT v. Sardarmal Kothari reported in MANU/TN/0835/2008MANU/TN/0835/2008 : (2008) 302 ITR 286 where it has been held as under:

The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have also constructed residential houses. In order to establish the same, the assessees submitted before the CIT(A)

The said Judgment of the Madras High Court has been affirmed by the Apex Court and the appeal was dismissed at the stage of preliminary

It is contended that the two other properties were never in possession. The title of the property transferred only on execution of an agreement.

1 In our considered opinion, merely an agreement or booking of flat is not the property ownership, it is only a claim over the property.

2 In that view of the matter, the view taken by the tribunal is just and proper.

The issue is answered in favour of the assessee and against the department.

The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 122.