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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI ABY T VARKEY & SHRI GAGAN GOYALDr. Dharmista Mehta
ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-46, Mumbai [hereinafter referred to as [‘CIT(A)’] dated 31.01.2017 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as [‘the Act’] for the Assessment Year (AY) 2012-13. The assessee has raised the following grounds of appeal:
“Based on the facts and circumstances of the case and in law, the Appellant respectfully submits that the Ld. Income Tax Officer - 34(1)(3), Mumbai (the 'AO) and the Commissioner of Income Tax (Appeals) - 46, Mumbai (the 'CIT(A)) have in their orders, erred on the following grounds which are without prejudice to each other.
1. In not allowing the benefit of Section 54 of the Income Tax Act, 1961 (the Act) while computing long term capital gain on sale of property merely on the ground that the appellant had failed to deposit the amount in the Capital Gains Account Scheme and also failed to purchase the house property before the due date of filing of return of income as per Section 139(1) of the Act.
2. In rejecting the explanation, clarification and reliance on the judicial precedence of the various courts submitted by the appellant relating to that Section 54 of the Act being the beneficial provision, it should be construed liberally to advance the object of giving the benefit to the Appellant.
3. In failing to understand that the requirement to invest in a bank account under the Capital Gains Account Scheme is a procedural requirement to ensure investment is made in a residential house as claimed in the return of income. Merely because of the technical breach/ non-compliance, the benefit due to the Appellant by the legislature cannot be denied particularly when substantive compliance was made. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to decide this appeal according to law.”
2. Brief facts of the case are that assessee has filed her return of income on 28.07.2012 declaring total income of Rs. 3,19,812/-. The case was selected for scrutiny under CASS to examine large deduction claimed under section 54 of the Act. During the course of proceeding, it was observed by Assessing Officer (AO) that assessee has sold immovable property on 26.05.2011 for Rs. 1.7 Cr. and purchased a new property on 30.04.2013 for Rs. 1.66 Cr.
3. It is also observed that assessee has failed to deposit the amount in Capital Gains Accounts Scheme (CGAS) and also failed to purchase House Property before the due date of filing of return as per section 139(1) of the Act i.e. 31.07.2012. Based on these observations, AO issued a show-cause that why Rs. 1, 19, 45,236/- should not be taxed under the head “Long Term Capital Gain (LTCG)”.
During the course of hearing, assessee relied upon the judgment in the case of CIT Vs. Miss. Jagriti Aggarwal (2011) 339 ITR 610 (P&H) and CIT Vs. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gau.) to substantiate its claim under section 54 of the Act. Whereas AO relied upon the literal interpretation of section 54 of the Act which speaks about section 139(1) only. AO was not convinced with the argument advanced by the assessee in her favour and disallowed the claim of the assessee. Being aggrieved, assessee preferred an appeal before the Ld. CIT (A)-46, Mumbai. 5. Ld. CIT (A) also affirmed the view of AO. Against this order of Ld. CIT (A), assessee preferred this appeal before us. We observed that certain facts are not under challenge from both the sides i.e. (1) amount of LTCG arisen (2) Nature of Capital Gain & (3) Availability of section 54 to the assessee subject to our final decision on the issue of entitlement of section 54 of the Act. 6. During the course of hearing, ld. counsel of the assessee filed a Paper Book (PB) and in support of his contentions filed following Rulings of Jurisdictional Bench of ITAT as well as other Co-ordinate Bench and Hon’ble High Courts as under: i. Mrs. Madhu Kaul Vs. CIT in of 1999 order dt. 17.01.2014 (P&H)
ii. CIT Vs. Bharati C. Kothari [2000) 160 CTR 0165 (Cal. HC). iii. CIT Vs. Ms. Jagriti Aggarwal [2011] 339 ITR 610 (P&H). iv. CIT Vs. Manjula J. Shah [2013] 355 ITR 474 (Bom). v. Mrs. Seema Sabharwal Vs. ITO in for AY 2013-14. vi. Rajendra Pal Verma Vs. ACIT [2019] 104 taxmann.com 303 (Mum. Trib.) vii. ITO Vs. Pamela Pritam Ghoseh in ITA No. 5644/Mum/2016 dated 27.07.2018. viii. Hasmukh N. Gala Vs. ITO [2017] 83 taxmann.com 149 (Mum. Trib.) 7. Ld. CIT(A) relied upon the decision of Hon’ble Jurisdictional High Court in the case of Humayun Suleman Merchant in ITA No. 545 of 2002 dated 18.08.2016 after considering various other judgements on the time available for investment, the Court has adjudicated a similar issue- time limit upto which the invested amount is to be considered for exemption u/s.54F. The condition of 54(2) & 54F(4) are identical with respect to the time limit except that 54F required entire sale proceeds to be invested and 54 stipulates only the amount of capital gain to be invested. All other conditions of time lines are identical. The Court has held that only the amount invested before filing return of income is eligible for exemption.
Section 54 of the Income-tax Act, 1961 ("Act") provides for exemption of capital gains arising to a specified assessee from transfer of a long term capital asset to the extent capital gains are invested in a residential house within a prescribed period. The said exemption is available if the residential house is purchased or constructed within the prescribed period of one year before or two years after (in case of purchase); or three years after (in case of construction) the date of transfer of the long-term capital asset.
Invariably, a person is not able to utilize the entire amount of capital gains on or before the due date of filing of return for the year in respect of which such capital gains arose. Such a situation is addressed by sub-section (2) by providing for deposit of unutilized funds in a Capital Gains Account Scheme before the prescribed date so that an assessee may not lose upon the exemption of unutilized funds. Section 54(2) reads as under: "The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, 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 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] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : ……"
Section 54(2) provides for an interesting proposition that the amount of capital gains which is not appropriated by the assessee for prescribed purposes within one year before; or on or before the due date of filing of return of income under section 139, shall be deposited in the capital gains account scheme. It needs to be emphasized that the literal reading of section 54(2) provides for the two dates i.e. the due date under section 139 and the due date under section 139(1). Pertinently, section 139 cannot be said to mean only section 139(1), but it means all sub-sections of section 139.
It may be noted that the aforesaid provision mandates that the period of utilization or appropriation of the capital gains in purchase or construction of the new residential house is to be considered till the due date under section 139 [which also covers sub-section (4) and (5) of section 139]. However, for the purpose of taking the benefit of Capital Gains Account Scheme, the time limit for making such deposit has been prescribed to be till the due date under section 139(1) [see the text of section 54(2) as contained in the parenthesis].
In other words, the sub-section (2) clearly provides a pigeonhole in the sense that the investment by way of purchase or construction, without resorting to the Capital Gains Account Scheme, can be made till the date of belated return under section 139(4) or revised return under section 139(5) as the wordings used in section 54(2) is "section 139", and not section 139(1), which covers all sub- sections of section 139”. The Supreme Court, in the context of interpretation of provisions of 276CC, in Prakash Nath Khanna v. CIT [2004] 135 Taxman 327/264 ITR 1 (SC) had observed that "…Had the Legislature intended to cover sub-section (4) also, use expression "section 139" alone would have sufficed." Therefore, in terms of the decision of the Supreme Court, since the legislature in section 54(2) used the words "section 139" only, the interpretation as discussed above seems plausible.
Section 54(2) is a subject matter of extensive litigation. Further, the view of various High Courts and Tribunals of the country in the following cases clearly outlines that the judicial consensus is that the exemption to be allowed in regard to the amount invested in purchase or construction of the residential house under section 54 or 54F is to be considered till the date of filing return of income under section 139(4) of the Act. Reliance in this regard has been placed on the following decisions: 1. CIT v. Smt. Umayal Annamalai [2020] 118 taxmann.com 80 (Mad.) 2. Dr. Kushagra Kataria v. Dy. CIT, Circle-1(1), Gurgaon [2019] 101 taxmann.com 359/174 ITD 648 (Delhi - Trib.) 3. Rajendra Pal Verma v. Asstt. CIT [2019] 104 taxmann.com 303 (Mum.) 4. ITO v. Nilima Abhijit Tannu [2019] 106 taxmann.com 256 (Mum.) 5. Nand Lal Sharma v. ITO [2015] 61 taxmann.com 271 (JP.-Trib) 6. CIT v. Jagtar Singh Chawla [2013] 33 taxmann.com 38/215 Taxman 154 (Punj. & Har.) 7. CIT v. Ms. Jagriti Aggarwal [2011] 339 ITR 610/203 Taxman 203/15 taxmann.com 146 (Punj. & Har.) 8. CIT v. Rajesh Kumar Jalan [2006] 157 Taxman 398/286 ITR 274 (Gau.) 9. Fathima Bai v. ITO [2010] 32 DTR 243 (Kar.) 10. R.K.P. Elayarajan v. DCIT [2012] 23 taxmann.com 206/52 SOT 159 (Chennai) (URO) 11. ITO v. Smt. Sapana Dimri [2012] 19 taxmann.com 15/50 SOT 96 (Delhi) 14. Interestingly, none of the decisions referred above rely upon a binding precedent of the Supreme Court which has settled this issue. The aforesaid interpretation has been approved by the Hon'ble Supreme Court in the case of Xavier J. Pulikkal v. Dy. CIT [2016] 242 Taxman 59/73 taxmann.com 34 when the Hon'ble Apex Court, while allowing the civil appeal, modified (or so to say - reversed) the reasoning of the Kerala High Court in the underlying order reported in [2016] 242 Taxman 206 (Kerala). The Kerala High Court held as under: "So far as the facts of the present case, we have already stated above, it is possible that facts of the other appeal considered by the Appellate Tribunal along with appeal of the revenue may be different. The scheme for depositing capital gain is contemplated under Section 54F (4) and it depends upon when the property of the assessee is sold and when exactly the amounts were invested, whether it was invested in a residential house or otherwise. All these facts have to be considered with reference to provisions of Section 54F (4) along with Section 139 (1) of the Act, as the due time would be under Section 139(1) only not under Section 139(4) of the Act.”
Tribunal, as a matter of fact, has accorded one more opportunity to the appellant assessee to place on record relevant facts for consideration and if his case were to be different from the facts of the other case and makes a vast difference altogether. So far as provisions of law are concerned, it is always open to him to place such facts before the Assessing Officer for consideration. However, Assessing Officer while applying the provisions of law, to the facts of a case without interdependent on facts of the other case has to consider the same. With these modifications, we dispose of the appeal directing the Assessing Officer to dispose of the matter in the light of the above observations."
It is to be noted that the Hon'ble Supreme Court, in (2016) 242 Taxmann 59 (SC) (supra), while remanding the matter for de-novo consideration to the assessing officer has clearly modified the aforesaid observations of the Hon'ble Kerala High Court. The purported effect of the decision of the Hon'ble Supreme Court is that it has modified the "modifications" made by the Kerala High Court in the civil appeal after granting the SLP under Article 136 of the Constitution of India. Pertinently, the Supreme Court has allowed the appeal of the assessee and the effect of allowing an appeal by the Hon'ble Apex Court is to vacate a preceding order of the Kerala High Court containing a specific position taken by the Revenue. Also, the Supreme Court has to be understood to have differed in law with the Kerala High Court. The following verdict of the Hon'ble Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 113 Taxman 470/245 ITR 360 supports the aforesaid proposition: "Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court."
It is also submitted that the order passed by the Hon'ble Supreme Court, albeit in brief, is the declaration of law in terms of Article 141 of the Constitution of India, the exemption needs to be allowed if the amount is invested on or before the due date of filing of return under section 139(4).