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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 09/03/2015, passed under section 250 of the Income Tax Act, 1961 (‗the Act‘) by the learned Commissioner of Income Tax (Appeals)–41, Mumbai [‗learned CIT(A)‘], for the assessment year 2010–11.
The appeal filed before us is delayed by 5 days. Along with the present appeal, assessee has also filed an application seeking condonation
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of delay in filing the appeal, which is also supported by an affidavit sworn by the assessee. In the application, it has been submitted that the order passed by the learned CIT(A) was received by the assessee on 29/04/2015, and the said order along with all the papers were sent to the Chartered Accountant’s office on 22/06/2015. It is further submitted that after perusal of the papers the Chartered Accountant advised the assessee to file the appeal against the impugned order, which advice was duly accepted by the assessee and instructions were given to the Chartered Accountant to file the appeal. In application it is submitted that pursuant thereto advice of Senior Counsel was also tried to be sought, however, due to paucity of time the same could not be availed within time. Accordingly, instructions were given to the Chartered Accountant to file the appeal without awaiting the advice from the Senior Counsel and eventually the appeal was filed on 03/07/2015, which resulted in delay of 5 days in filing the present appeal. In view of the above, the assessee has requested to condone the delay as the same is unintentional and due to circumstances beyond the control of the assessee. On the other hand, learned Departmental Representative (‘learned DR’) did not raise any serious objection against the application seeking condonation of delay.
Having perused the application, which is also supported by an affidavit sworn by the assessee, we are of the considered view that there exist sufficient cause for not filing the appeal within the limitation period
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and therefore we condone the delay in filing the appeal and we proceed to decide this appeal on merits.
In this appeal, assessee has raised following grounds:
―1. The learned CIT (A) has erred in law and in facts in passing the appellate order, which is Invalid and bad in law. 2. The Learned CIT(A) has erred in law and in facts in confirming the addition of Rs. 1,87,793/– under the head "Income from House Property. 3. The Learned CIT (A) has erred in law and in facts in treating the gain arising out of purchase and sale of shares with holding period of less than 30 days as business income and rest of the gain with holding period of more than 30 days as STCG/LTCG. 4. The Learned CIT (A) has erred in law and in facts in confirming the addition of Rs. 55,000/– u/s 40(a)(ia) of the Act. 5. The Learned CIT(A) has erred in law and in facts in confirming the addition of Rs.1,54,585/– u/s 14A of the Act. 6. The Learned CIT (A) has erred in law and in facts in not allowing the deduction from LTCG u/s 54/54F. 7. The Learned CIT (A) has erred in law and in facts in confirming the addition of Rs.16,25,000/- as income from other sources. 8. The Learned CIT(A) has erred in law and in facts in sustaining the disallowance for claim of set off of current year speculation profit of Rs.27,85,009/- against the brought forward business loss from AY 2009– 10. 9. The Learned CIT(A) has erred in laws and in facts in charging the interest u/s 234A, 234B and. 234C of the Act.‖
During the course of hearing, at the outset, learned Authorised Representative (‘learned AR‘), appearing for the assessee, wish to not press grounds no. 3, 4, 5 and 8 raised in assessee’s appeal. Accordingly, these grounds are dismissed as not pressed.
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The issue arising in ground no. 1, raised in assessee’s appeal, is pertaining to addition under the head ‘Income from House Property’.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and is engaged in the business of trading in shares and securities. During the year, the assessee has derived income from salary, house property, business, capital gains and other sources. For the year under consideration, assessee filed his return of income on 15/10/2010 declaring total income of Rs. 39,15,433. During the course of assessment proceedings, assessee was asked to file the details of immovable assets. In reply, assessee submitted that the details of owning 2 flats namely, A–605 and A–608 at Harishchandra Apartment, Raheja Township, HIP, Malad (E), Mumbai–97. As the assessee was already having a residential property at B– 504, Harishchandra Apartment, Raheja Township, Malad (E), Mumbai, therefore, the aforementioned properties were subjected to house property income by the Assessing Officer vide order dated 26/03/2013 passed under section 143(3) of the Act and income from house property was computed at Rs.1,87,793, after adopting annual value of said property at 8% of capital cost.
In appeal, learned CIT(A) vide impugned order upheld the annual value of the aforesaid 2 flats as determined by the Assessing Officer. Being aggrieved, assessee is in appeal before us.
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During the course of hearing, learned AR submitted that annual letting value determined by the Assessing Officer is contrary to the provisions of sections 22 and 23 of the Act. The learned AR further submitted that the properties are subjected to rent control legislation and therefore determination of annual letting value should be in terms of the rent control legislation.
On the other hand, learned DR vehemently relied upon the order passed by the lower authorities and submitted that there is no evidence that the rent control legislation is applicable to the aforesaid properties. In short rebuttal, learned AR submitted that the properties are situated in Mumbai and therefore are subject to rent control legislation.
We have considered the rival submissions and perused the material available on record. We find that in CIT vs Tip Top Typography: [2014] 368 ITR 330 (Bom.), following substantial questions of law arose for consideration before the Hon’ble Jurisdictional High Court:
―(i) Whether on the facts and circumstances of the case and in law, Tribunal was right in holding that the fair rental value specified in section 23(1)(a) is the municipal value or actual rent received whichever is higher and not the annual letting value on the basis of comparable instances as adopted by the Assessing Officer, though the property under consideration was not covered by Rent Control Act? (ii) Whether on the facts and circumstances of the case and in law, Tribunal was right in remitting the matter back to the file of the Assessing Officer with a direction to verify the rateable value fixed by the Municipal Authorities and if the same is less than the actual rent received, then the actual rent received should be taxed?‖
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The Hon’ble Jurisdictional High Court decided the appeal by observing as under:
―47] We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and license agreements. These are usually for fixed periods and renewable. In such cases as well, the conceded position is that the Annual Letting Value will have to be determined on the same basis as noted above. In the event and as urged before us, the security deposit collected and refundable interest free and the monthly compensation shows a total mismatch or does not reflect the prevailing rate or the attempt is to deflate or inflate the rent by such methods, then, as held by the Delhi High Court, the Assessing Officer is not prevented from carrying out the necessary investigation and enquiry. He must have cogent and satisfactory material in his possession and which will indicate that the parties have concealed the real position. He must not make a guess work or act on conjectures and surmises. There must be definite and positive material to indicate that the parties have suppressed the prevailing rate. Then, the enquiries that the Assessing Officer can make, would be for ascertaining the going rate. He can make a comparative study and make a analysis. In that regard, transactions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rate stated therein straightway. He must find out as to whether the property which has been let out or given on leave and license basis is of a similar nature, namely, commercial or residential. He should also satisfy himself as to whether the rate obtained by him from the deals and transactions and documents in relation thereto can be applied or whether a departure therefrom can be made, for example, because of the area, the measurement, the location, the use to which the property has been put, the access thereto and the special advantages or benefits. It is possible that in a high rise building because of special advantages and benefits an office or a block on the upper floor may fetch higher returns or vice versa. Therefore, there is no magic formula and everything depends upon the facts and circumstances in each case. However, we emphasize that before the Assessing Officer determines the rate by the above exercise or similar permissible process he is bound to disclose the material in his possession to the parties. He must not proceed to rely upon the material in his possession and disbelieve the parties. The satisfaction of the Assessing Officer that the bargain reveals an inflated or deflated rate based on fraud, emergency, relationship and other considerations makes it unreasonable must precede the undertaking of the above exercise. After the above ascertainment is done by the Officer he must, then, comply with the principles of fairness
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and justice and make the disclosure to the Assessee so as to obtain his view. 48] We are not in agreement with Shri Chhotaray that the municipal rateable value cannot be accepted as a bonafide rental value of the property and it must be discarded straightway in all cases. There cannot be a blanket rejection of the same. If that is taken to be a safe guide, then, to discard it there must be cogent and reliable material. 49] We are of the opinion that market rate in the locality is an approved method for determining the fair rental value but it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. We are of the view that municipal rateable value may not be binding on the Assessing Officer but that is only in cases of aforereferred nature. It is definitely a safe guide. 50] We have broadly agreed with the view taken by the Full Bench of the Delhi High Court. Hence, the issue of determination of the ―fair rental value‖ in respect of properties not covered by or covered by the Rent Control Act is to be undertaken in terms of the law laid down in the Full Bench decision of the Delhi High Court. 51] We quite see the force in the arguments of Ms. Vissanjee that ordinarily the license fee agreed between the willing licensor or a willing licensee uninfluenced by any extraneous circumstances would afford reliable evidence of what the landlord might reasonably be expect to get from a hypothetical tenant. She has in making this submission, answered the issue and summed up the conclusion as well. Then, it is but natural and logical that in the event, the transaction is influenced by any extraneous circumstances or vitiated by fraud, or the like that the Assessing Officer can adopt a ―fair rent‖ based on the opinion obtained from reliable sources. There as well, we do not see as to how we can uphold the submissions of Mr. Chhotaray that the notional rent on the security deposit can be taken into account and consideration for the determination. If the transaction itself does not reflect any of the aforestated aspects, then, merely because a security deposit which is refundable and interest free has been obtained, the Assessing Officer should not presume that this sum or the interest derived therefrom at Bank rate is the income of the assessee till the determination or conclusion of the transaction. The Assessing Officer ought to be aware of several aspects and matters involved in such transactions. It is not necessary that if the license is for three years that it will operative and continuing till the end. There are terms and conditions on which the leave and license agreement is executed by parties. These terms and conditions are willingly accepted. They enable the license to be determined even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and license does not create any interest in the property. Therefore, it is not as if the security deposit being made, it will be necessarily refundable after the third year and not otherwise. Everything depends upon the facts and circumstances in each case and the nature of Page | 7
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the deal or transaction. These are not matters which abide by any fixed formula and which can be universally applied. Today, it may be commercially unviable to enter into a lease and, therefore, this mode of inducting a 'third party' in the premises is adopted. This may not be the trend tomorrow, therefore, we do not wish to conclude the matter by evolving any rigid test. 52] We have also noted the submissions of Shri Ahuja. We are of the opinion that even in the cases and matters brought by him to our notice, it is evident that the Assessing Officer cannot brush aside the rent control legislation, in the event, it is applicable to the premises in question. Then, the Assessing Officer has to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. The attempt by the Assessing Officer to override the rent control legislation and when it balances the rights between the parties has rightly been interfered with in the given case by the Appellate authority. The Assessing Officer either must undertake the exercise to fix the standard rent himself and in terms of the Maharashtra Rent Control Act, 1999 if the same is applicable or leave the parties to have it determined by the Court or Tribunal under that Act. Until, then, he may not be justified in applying any other formula or method and determine the ―fair rent‖ by abiding with the same. If he desires to undertake the determination himself, he will have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by the Assessing Officer. Once again having respectfully concurred with the judgment of the Full Bench of the Delhi High Court, we need not say anything more on this issue.‖
In another decision, Hon’ble jurisdictional High Court in Smt. Kokilaben D. Ambani v/s CIT: [2014] 226 Taxmann 208 (Bombay), following the aforesaid decision in Tip Top Typography (supra), observed as under:
―8. In our view, in the judgment in Tip Top Typography case (supra) after concurring with the conclusion of Delhi High Court, we have held that the assessing officer in the cases of properties, which are subject to Rent Control Legislation cannot ignore the same. If the standard rent has not been fixed under the Rent Control Legislation by the competent authority, it is the duty of the assessing officer to determine the same in of the Rent Control Legislation. The law has been crystallized in terms of the decision of the Hon'ble Supreme Court as also the Full Bench of the Delhi High Court. In these circumstances, we do not find any for an apprehension that the Tribunal would ignore the Rent Control Legislation and prefer some other mode in determining the fair rent or annual letting value of the property under section 231(1)(a). We have also stated that the principle Page | 8
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cannot be any different for self occupied properties and in relation to which the exercise must be carried out in terms of the relevant section 23(1) of the IT Act. The reference is answered accordingly and disposed of.‖
In the present case, it is evident that the lower authorities have determined the annual letting value by applying 8% of capital cost and not considered the provisions of rent control legislation, despite the fact that the aforesaid properties are subjected to the said legislation. Thus, respectfully following the aforesaid decisions of Hon’ble jurisdictional High Court, we remand this issue to the file of the Assessing Officer for determination of annual letting value in terms of the applicable rent control legislation. Accordingly, ground no. 2 raised in assessee’s appeal is allowed for statistical purpose.
The issue arising in ground No. 6, raised in assessee’s appeal, is pertaining to deduction claimed under section 54F of the Act.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee had received profit from cancellation of booking of Flats no. B – 1301, 1302, 1303 and 1304 in Sahayadri, Upper Govind Nagar, aggregating to Rs. 59,29,200, which was claimed as long term capital gains and exemption was sought under section 54 of the Act, as the assessee had invested in following properties: (i) A – 605, Harishchandra Apartment, Raheja Township, Malad (E), Mumbai, (ii) A – 608, Harishchandra Apartment, Raheja Township, Malad (E), Mumbai, and (iii) 1/6th share in R– 37, Tower B, Ahuja Towers, Prabhadevi, Mumbai.
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During the assessment proceedings, the assessee had also furnished a copy of letter from Panchvati Associates (builder) mentioning that the amounts received were the compensation for cancellation of booking of said flats booked in February, 2005. The Assessing Officer vide order passed under section 143(3) of the Act denied the claim under section 54 of the Act, by observing as under:
―8.3 In respect of the other two properties, the assessee has not entered in to any agreement for purchase. He had only a right to acquire the property by way of the allotment letter. So what is surrendered is only the right to acquire the property and not the residential property as such. Being so, the claim of exemption u/s 54 of the I.T Act do not sustain, as the capital gain is not from sale of residential house. The payments towards acquisition of the 'right' is spread over from F.Y. 2004-05 to FY 2008-09, as per the details provided by the assessee. The assessee has not identified which are the payments made towards the right to acquisition of each property. Neither any computation of capital gain attributing cost individually to each property has been furnished Therefore, it is not possible to identify the property which was acquired and held for more than 36 months. As such, the compensation received as above amounting to Rs.59,29,200/- is assessed as short term capital gain. Since the income from surrendering the right to acquire the properties as above have been assessed as short term capital gain; the question of allowability of exemption u/s 54 of the I.T. Act do not arise. Penalty proceedings u/s 271(1)(c) is initiated for furnishing inaccurate particulars of income.‖
In appeal, learned CIT(A) vide impugned order accepted the plea of the assessee and treated the resultant gain to be long term capital gains, by observing as under:
―8.3.1. As regards the first issue, it is an undisputed fact that the appellant has surrendered the right in under-construction flat for cancellation, which was earlier allotted to the appellant by way of Allotment letter issued in February, 2005. The appellant has made the payments over the period from 20.11.2004 to 01.03.2009, however, the fact remains that the said payments are against the said allotment letters. There is merit in appellant's contention that the right of conveyance gets vested from the date of allotment, and the dates of subsequent payments are irrelevant. Since more than 36 months have passed since the date of Page | 10
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allotment of said flats and surrender thereof, the resultant gain would be in the nature of LTCG in hands of the appellant.‖
In appeal before the learned CIT(A), the assessee made an alternative claim under section 54F of the Act as the said long term capital gains arose on sale of right in residential flat and not sale of residential flat itself. The said claim made by the assessee under section 54F of the Act was denied by the learned CIT(A), vide impugned order, by observing as under:
―The AR has made alternate claim u/s 54F, which also cannot be allowed to the appellant as the case of appellant falls within the exclusions given under proviso to said section. As per said proviso, section 54F(1) shall not apply where (a) the assessee (1) 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". In the present case, the appellant is admittedly holding at least two flats (no. A-605 & A-608) in his Individual name, in addition to co-ownership/ joint ownership in some other flats. Also the income from such flats are assessed under the head income from House Property. Hence, the exemption u/s 54F is clearly not allowable to the appellant.‖
Being aggrieved, assessee in appeal before us.
During the course of hearing, learned AR submitted that assessee is a joint owner in two residential Flats (No. A–408 and B–504) on the date of transfer of original asset and no residential house was owned in a single name. The learned AR further submitted that prior to amendment by the Finance Act (No.2), 2014, there was no bar under section 54F from
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purchasing/constructing more than one residential house and thus assessee is entitled to claim relief under section 54F of the Act.
On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities.
We have considered the rival submissions and perused the material available on record. Section 54F of the Act, as prevalent during the year under consideration, reads as under:
―54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: 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
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(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".
Thus, for claiming the benefit under section 54F of the Act, in respect of capital gain arising from transfer of any long-term capital asset, not being a residential house, the assessee (individual/HUF) is required to either purchase or construct a residential house, within the period prescribed under the section. The proviso to section 54F of the Act further lays down following conditions, under which the benefit of section 54F shall not be available to the assessee:
(i) the assessee owns more than one residential house; or (ii) purchases any residential house within a period of one year after the date of transfer of original asset; or (iii) constructs any residential house within a period of 3 years after the date of transfer of original asset.
The proviso further requires that such residential house, other than the residential house owned on the date of transfer of original asset, is chargeable under the head ‘Income from House Property’ and that residential house is other than the new asset. As per section 54F, the expression ‘new asset’ refers to ‘a residential house’ purchased or constructed by the assessee, within the prescribed period.
The meaning of expressions ‘own’ and ‘a residential house’ has been the subject matter of litigation in past. We find that while dealing with the Page | 13
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issue whether the term ‘own’ include the joint ownership also, Hon’ble Madras High Court in Dr. Smt. P.K. Vasanthi Rangarajan vs CIT, [2012] 209 Taxman 628 (Madras) held that merely because taxpayer jointly owned another property on date of transfer of asset, its claim for exemption under section 54F could not be rejected in respect of capital gains earned from transfer of her individual property. In CIT vs Kapil Nagpal, [2016] 381 ITR 351 (Delhi), Hon’ble Delhi High Court also took the similar view and granted relief to the taxpayer under section 54F.
However, Hon’ble Karnataka High Court in CIT vs M.J. Siwani, [2014] 366 ITR 356 (Karnataka) took a contrary view and held that in terms of provisions of section 54F, where taxpayer on date of sale of long term capital asset owns a residential house even jointly with another person, his claim for deduction of capital gain arising from sale of asset has to be rejected.
We further find that the coordinate bench of Tribunal in Ashok G. Chauhan vs ACIT: [2019] 176 ITD 717 (Mum.), while granting relief to the taxpayer under section 54F of the Act, observed as under:
"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 any one 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
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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 by two 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) ITR 783/32 Taxman 112A, wherein 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 "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 Banarsi 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 provision 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.‖
Thus, divergent views of the Courts are available as regards the meaning of the term ‘own’. No decision of Hon’ble jurisdictional High Court was brought to our notice on this aspect. Thus, the difficulty arises as to which of the Hon'ble non jurisdictional High Court is to be followed by us in the present situation. It will be wholly inappropriate for us to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our highest respect to both the views of Hon'ble High Courts, adopt an objective criterion for deciding as to which of the Hon'ble High Court should be followed by us. We find guidance from the judgment of Hon'ble Supreme Court in CIT v.
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Vegetable Products Ltd., [1972] 88 ITR 192. Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted"
Thus, respectfully following the decisions passed by the Hon’ble Madras High Court in Dr. Smt. P.K. Vasanthi Rangarajan (supra) and by the Hon’ble Delhi High Court in CIT vs Kapil Nagpal (supra), which view has also been taken by the coordinate bench of Tribunal in Ashok G. Chauhan (supra), we are of the considered view that joint ownership of the assessee, in the present case, in 2 residential Flats, namely, Flat No. A–408 and B–504 on the date of transfer of original capital asset will not disentitled the assessee from claiming relief under section 54F of the Act.
Further, it is also the claim of the Revenue that assessee owns 2 flats namely, A–605 and A–608 in his individual name and the income from such flats is also assessed under the head ‘Income from House Property’ and therefore the assessee is not entitled to claim exemption under section 54F of the Act, in view of proviso to the said section. As stated earlier, ‘residential house’ referred to in proviso is other than the ‘new asset’. Thus, it is pertinent to examine the meaning of the term ‘new asset’ mentioned in the provisions of section 54F of the Act. As the residential house, purchased/constructed, referred to in the proviso, is other than the new asset, therefore, in the facts of the present case it is
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necessary to examine under which category the properties purchased by the assessee will fall, i.e. ‘residential house’ or ‘new asset’ for the purpose of section 54F, as it stood, for the year under consideration. As stated earlier, for the purpose of section 54F of the Act, the expression ‘new asset’ means ‘a residential house’ purchased or constructed by the assessee, within the prescribed period. At this stage, it would also be appropriate to mention that vide Finance (No. 2) Act, 2014, section 54F of the Act was amended with effect from 01/04/2015 and in place of the expression ‘a residential house’, the expression ‘one residential house’ was substituted. We find that while deciding the issue whether word 'a residential house' as occurring in section 54(1) can include more than one or plural residential house, Hon’ble Madras High Court in Tilokchand & Sons v/s ITO, [2019] 413 ITR 189 (Madras), after considering the similar amendment vide Finance (No. 2) Act, 2014 in section 54 of the Act w.e.f 01/04/2015, observed as under:
―19. A closer and bare reading of the aforesaid Explanatory Notes to the provisions of the said Act, clearly shows that the said amendment was intended to be specifically applied only prospectively with effect from A.Y.2015-2016. It took note of the judicial precedents for the period prior to 01.04.2015, giving a different and contra interpretation. Therefore this amendment cannot be held to be mere clarificatory so as to be applied retrospectively for A.Y.2005-2006 in the present case. 20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D. Ananda Basappa case stated (supra), two flats in question were admittedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M. Makhija (supra), two door nos are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts Page | 17
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narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word 'a residential house' to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential house in the given circumstances of availability of such residential houses as per the requirement of the HUF will not alter the position of interpretation. 21. In our understanding, if the word 'a' as employed under Section 54 prior to its amendment and substitution by the words 'one' with effect from 01.04.2015 could not include plural units of residential houses, there was no need to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y.2015-2016. Once we can hold that the word 'a' employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case. So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. If that be so, the Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in D. Ananda Basappa (supra) & Khoobchand M. Makhija (supra) cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case.‖
Similarly, in an earlier decision, while dealing with similar issue in respect of benefit claimed under section 54F of the Act, Hon’ble Madras High Court in CIT vs Smt. V.R. Karpagam, [2015] 373 ITR 127 (Madras), observed as under:
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―10. The above-said amendment to Section 54F of the Income Tax Act, which will come into effect only from 01.04.2015, makes it very clear that the benefit of Section 54F of the Income Tax Act will be applicable to constructed, one residential house in India and that clarifies the situation in the present case, i.e, post amendment, viz., from 01.04.2015, the benefit of Section 54F will be applicable to one residential house in India. Prior to the said amendment, it is clear that a residential house would include multiple flats/residential units as in the present case where the assessee has got five residential flats.
Hon’ble Karnataka High Court in CIT vs Khoobchand M. Makhija: [2014] 223 Taxman 189 (Karnataka) also expressed similar view. We find that recently, the coordinate bench of Tribunal in Nilufer Sayed vs ITO, [2021] 188 ITD 603 (Mumbai - Trib.), after taking note of aforesaid decisions rendered by the Hon’ble Courts as well as decision of Special Bench of Tribunal in ITO v. Sushila M. Jhaveri [2007] 107 ITD 327, observed as under:
―4.5 Keeping in view the rules of judicial precedents, the aforesaid view of Hon'ble High Courts shall take precedent over the decision of Tribunal (SB) in Sushila M. Jhaveri (supra) as relied upon by Ld. CIT(A). 4.6 In view of the foregoing & accepting the interpretation of word 'a' as occurring in Section 54 as made by Hon'ble Madras High Court in Tilokchand & Sons (supra), we hold that on the facts and circumstances, the assessee would be eligible to claim deduction u/s 54 on account of investment made in both the flats….‖
Thus, respectfully following the aforesaid decisions, rendered in context of section 54 and section 54F of the Act, since both are similarly worded, we are of the considered view that the expression ‘a residential house’ in section 54F, prior to its amendment vide Finance (No. 2) Act, 2014, w.e.f. 01/04/2015, includes more than one residential house purchased/constructed by the assessee, within the prescribed time. In the
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present case, as the properties were purchased by the assessee pursuant to transfer of long-term capital asset (‘original asset’), the same will fall within the category of ‘a residential house’ (or as referred in the section as ‘new asset’) for the purpose of section 54F of the Act. As the aforesaid properties, fall within the category of ‘new asset’, same cannot be considered as ‘residential house’ for the purpose of proviso to section 54F of the Act, which, as stated earlier, is other than the ‘new asset’. The proviso only carves out exceptional situation in which the provisions of section 54F will not be applicable. Therefore, as the aforesaid properties are not in the nature of ‘residential house’, for the purpose of proviso, none of the conditions as mentioned in proviso are applicable to the present case. Further, as it is not disputed that the aforesaid properties were purchased by the assessee within the prescribed time, therefore, we are of the considered view that assessee is entitled to claim benefit under section 54F of the Act. Accordingly, ground No. 6 raised in assessee’s appeal is allowed.
The issue arising in ground No. 7, raised in assessee’s appeal, is pertaining to addition of Rs. 16,25,000 as income from other sources.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee while filing its return of income, for the year under consideration, included an amount of Rs. 16,25,000, in computation of income, in anticipation of refund of investment made in
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property and cancelled during the year. The Assessing Officer vide order passed under section 143(3) of the Act, in absence of any supporting evidence, treated the amount of Rs.16,25,000, as income from other sources. In appeal before the learned CIT(A), assessee submitted that during relevant financial year the assessee had booked another set of Flats no. A–1003 and 1004 in the same building in May 2009, this was subsequently cancelled on 07/07/2009. The assessee was under impression that he will be compensated for an amount of Rs. 16,25,000 for appreciation in value of said flats, and accordingly book the profit in his books of account. The assessee further submitted that during the course of final settlements, he realised that no compensation has accrued to him for the said Flats no. A–1003 and 1004 and thus the profit in his books were wrongly inflated by Rs.16,25,000. The learned CIT(A) dismissed the ground raised by the assessee, by observing as under:
―9.3 I have perused the facts of the case & appellant's submissions carefully. The appellant for the first time during present appellate proceedings has taken the stand that the capital gain declared of Rs. 16,25,000/- is not earned at all. The appellant has submitted letter dated 07.07.2009 of the builder which states that "You had booked the above flat with us in the month of May 2009. Since you desire to sell the above flat, we have agreed to cancel your booking and sell your flat to a fresh buyer. Apparently there is no mention of the consideration in said letter, however, the question arises that when no consideration was actually received, then how the appellant would show the same as received or accrued in his books of accounts, and moreover, why the said fact was not even revealed during assessment proceedings which was conducted as late as till March, 2013. It is also unexplained as to how the appellant arrived at the figure of Rs. 16,25,000/-, when such consideration did not exist at all according to him. The only conclusion which may be drawn from appellant's aforesaid submissions is that the appellant has grossly failed in providing any valid explanation for the unexplained Income of Rs.16,25,000/- and hence the said income is rightly assessed as Income
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from Other Sources in his hands. Therefore, the ground no. 7 is dismissed.‖
Being aggrieved, assessee in appeal before us.
During the course of hearing, learned AR reiterated the submissions made before the learned CIT(A). On the other hand, learned DR by vehemently relying upon the orders passed by the lower authorities submitted that no evidence was filed by the assessee in support of its submission before the lower authorities.
We have considered the rival submissions and perused the material available on record. It is the claim of the assessee that Rs.16,25,000 was wrongly declared as income under an anticipation of refund of investment in property which was made and cancelled during the year. As per the assessee, revised return also could not be filed as the time limit for filing the same was expired. Further, as per the assessee, the aforesaid amount was never realised and the investee with whom the investment was made refused to entertain any claim. It is well established that assessment proceedings before the taxing authority is to assess the correct tax liability and therefore no hypothetical income / profit could be brought to tax. In the present case, addition of Rs. 16,25,000 was made by the Assessing Officer and same was upheld vide impugned order without examining the submission of the assessee. Therefore, we deem it appropriate to remand this issue to the file of Assessing Officer for de
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novo adjudication after consideration of all the aspects. Accordingly, ground no. 7 raised in assessee’s appeal is allowed for statistical purpose.
Ground no.9 raised in assessee’s appeal is consequential in nature and therefore, same is allowed for statistical purpose.
Ground no.1 raised in assessee’s appeal is general in nature and need no separate adjudication.
In the result, appeal by the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 13/07/2022 Sd/- Sd/- PRAMOD KUMAR SANDEEP SINGH KARHAIL VICE PRESIDENT JUDICIAL MEMBER
MUMBAI, DATED: 13/07/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai