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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI PAVAN KUMAR GADALE, HONBLEShri Uday Rajaram Lad v. Shri Deepak Tikekar Shri S.N. Kabra
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)–4, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.08.2019 for the A.Y. 2013-14.
Brief facts of the case are, assessee filed its return of income for the A.Y. 2013-14 declaring total income of ₹.1,20,34,110/-. The return was (A.Y: 2012-13) Shri Uday Rajaram Lad processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). The case was selected for scrutiny through CASS and accordingly, notices u/s. 143(2) and 142(1) were issued and served on the assessee. During the assessment proceedings Assessing Officer observed that assessee has claimed deduction u/s. 54 of the Act and he observed that in order to claim deduction u/s. 54 of the Act assessee needs to satisfy the following conditions as stipulated in the Act they are: - a. There is a long term capital gain on sale of residential house. b. New residential house is purchased within the period mentioned in the statute i.e. one year prior to transfer of original asset or within the two years from sale of original asset.
He observed that the assessee has sold residential house on 28.12.2012 and assessee has made purchase agreement of new flat on 29.10.2011. Since the new flat is purchased by the assessee prior to the limitation period prescribed u/s. 54 of the Act, assessee was directed to submit why claim of deduction u/s. 54 of the Act should not be denied.
In response assessee filed letter dated 17.03.2016 as under: - “1. I am a Sr. Citizen (aged 70 years), I was the owner of a flat situated at Pune. During the financial year 2012-13, I sold this flat (vide agreement dated 28.12.2012). Prior to this date, I had entered into an agreement for purchase of a new flat at Powai vide agreement dated 29.10.2011. However, the possession of the flat was received only on 6.1.2012.
(A.Y: 2012-13) Shri Uday Rajaram Lad 1.2. In the return of income for the relevant assessment year, I claimed exemption under section 54 of the Income Tax act, 1961 (the IT Act) in respect of long term capital gain arising on sale of old flat (situated at Pune) considering the investment made in the new residential flat at Powai. 1.3. During the assessment, your good self has asked as to why the exemption under sec. 54 should not be denied on the ground that the date of the purchase agreement is beyond the period of 1 year prior to the date of transfer. 2.0 Legal submission: 2.1 Relevant portion of section 54 of the Act is produced as under: 54. Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [****], being buildings or ‘lands appurtenant thereto, and being a residential house’, the income of which is chargeable under the head "Income from house property" (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, one residential house in India], ‘then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, (i) if the amount of the capital gain [is greater than the cost of *[the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
(A.Y: 2012-13) Shri Uday Rajaram Lad 2.2. On plain reading of Section 54 of the I.T.Act, it is very clear that to avail the benefit under sec 54 of the act, one must purchase a residential house/new asset within one year prior or two years after the date on which transfer of the residential house in respect of which the long term capital gain had arisen, has taken place. 2.3 The word “Purchase” is not defined in that IT Act and the judicial authorities have interpreted this word differently based on the facts and circumstances of each case, 2.4 Considering the facts of the present case, it would be important to refer to the decision of Hon'ble Pune Tribunal in the case of [TO vs. Shri Narshivha Amrutrao Dhere ITA no.1944/PN/2013. In that case, the assessee sold the land (vide. agreement to sell dated 12.04.2007). Prior to this, the assessee had entered into agreement on. 19.11.2004 for purchase of new residential flats and the possession of which was received only on 20.04.2007. According to the assessee, date of possession was decisive under the provisions of I.T. Act and accordingly, the assessee claimed exemption u/s.54F of the I.T. Act. However, the AO denied the claim of the assessee on the ground that the assessee had entered into an agreement for purchase of flats on 19.11.2004, which was prior to the period prescribed u/s.54F of the I.T. Act and further, majority of payments were paid by the assessee before one year from the date of transfer of the property i.e. before 12.04.2006. On appeal, the CIT(A) allowed the claim of the assessee. When matter travelled before the Hon’ble Tribunal, the Tribunal decided in favour of the assessee The relevant extract of the decision is reproduced as under: “11. We find support from the ratio laid down by the Hon’ble Bombay High Court in CIT vs. Beena K. Jain (supra) wherein it has been held that the relevant date for purchase of the property was when the pertitioner had paid full consideration amount on the flat becoming ready for occupation and had obtained possession of the flat and the date of entering into the agreement to purchase the said flat had not to be considered. Following the said proposition of law propounded by the Hon'ble Bombay High Court in CIT vs. Beena K Jain (supra). The date to be considered is the date on which the assessee had occupied the said property and not the date on which it had entered into an agreement to purchase the property. In the facts of the present case, the assessee had entered into an agreement on 19.11.2004. However, the occupancy certificate was issued by PMC only on 18.03.2008 and even the first
(A.Y: 2012-13) Shri Uday Rajaram Lad MSEB bill was dated 14.08.2007. Consequently, the assessee had received, the possession of the property in assessment year 2008-09 i.e. within the year of sale of the asset and the assessee fulfilled the conditions laid down under sec. 54F of the Act vis-a-vis investment in the new assets and was entitled to the claim of deduction in this regard" (Emphasis added) 2.5 Although the above case deals with interpretation of Section 54F of the I.T. Act the provisions of section 54F are pari-materia to the provisions of Sec.54. 2.6 Based on the above, your good self will appreciate that as the facts of the instant case are identical to that of the above decision of the Pune tribunal (copy attached). Accordingly, the ratio of this judgment should be applied to the case of the assessee. 2.7. Further, it is also pertinent to note here that section 54 of the I.T. Act is a beneficial provision for promoting the construction of residential house. It is fairly well-settled that in constructing a beneficial enactment, the view that advances the object of the beneficial enactment and serves its purpose must be preferred to one which obstructs the objects. It request your good self to take the above details on record. I shall be pleased to clarify any pertinent aspects, if any”
After considering the submissions of the assessee, Assessing Officer rejected the contention of the assessee and disallowed the claim of deduction u/s. 54 of the Act as assessee failed to adhere to the statutory time schedule prescribed u/s. 54 of the Act.
Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the detailed submissions dismissed the appeal filed by the assessee with the following observations: - (A.Y: 2012-13) Shri Uday Rajaram Lad ”6.1.1. During the course of appellate proceedings, a written submission was filed Which find place in para 5 of this order. The appellant had repeated the same arguments which were raised before the AO. The appellant tried to explain his case by citing the date of taking of possession of the property purchased and date of agreement for the property sold. On the principle of consistency, the appellant should take either the date of purchase agreement for both sale and purchase or date of possession. He cannot pick and choose as per his convenience. The appellant has also relied upon judgement of Hon'ble Bombay High Court in case of CIT vs. Beena K Jain, 217 ITR 363 (BOM). The Ld. AO had already distinguished the facts of the case relied upon by the appellant in the assessment order at page no.
The other case laws relied upon by the appellant are distinguishable on facts. From the details filed by the appellant and discussed by the Ld. AO at page 7 and 8 of the assessment order, it is evident that the purchase agreement was signed on 29.10.2011 and ₹.5 crore was paid on the same date, the balance ₹.39 lakh was paid on 02.11.2011. From these facts, it is evident that not only the agreement was signed on 29.10.2011 but the entire payment towards the purchase was also made by the appellant. Since the purchase agreement was duly signed and all payments were received, therefore, it tantamount to transfer of the property which is prior to the time provided by Section 54(1). Hence as per provision of the law, appellant is not eligible for any exemption u/s.54 of the Act. In view of these facts, I have no reason to interfere with the findings given by the AO, therefore, appeal of the assessee dismissed.”
7. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. On facts, in circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance by Asst. CIT of exemption under section 54 of Income Tax Act, 1961.
2. The appellant craves leave to add, alter, modify or delete above ground of appeal.”
8. At the time of hearing, Ld. AR submitted the basic facts available on record, he brought to our notice Page No. 106 of the Paper Book which is (A.Y: 2012-13) Shri Uday Rajaram Lad the letter issued by the builder for taking over the possession. The letter is dated 06.01.2012 further he brought to our notice Page No. 112 of the Paper Book which is the occupation certificate issued by the corporation of Greater Mumbai dated 05.01.2013. Further he brought to our notice Page No. 114 of the Paper Book which is the bank account of the assessee and from which he brought to our notice the sale proceeds received by the assessee in its bank account and from the same account assessee has transferred ₹.90 Lacs to the loan account, which assessee has taken a loan for the purpose of buying the property for the purchase of new flat in Mumbai.
9. Ld. AR specifically brought to our notice Page No. 118 of the Paper Book where the sale proceeds of the property is credited in the loan account to the extent of ₹.90 Lacs. Further he brought to our notice Page No. 34 of the case law Paper Book to submit that similar issue was adjudicated by the ITAT in the case of V.M. Dujod Wala v. ITO in IT Appeal No. 4554/BOm/1986 dated 01.10.1990 and he brought to our notice Para No. 8 of the order in which ITAT has adjudicated that for the purpose of section 54 of the Act the date of ready occupation should be considered. Further he relied in the case of CIT v. Smt Beena K. Jain in IT Appeal No. 260 of 1993 (1996) 217 ITR 0363 in which Hon'ble Bombay High Court
(A.Y: 2012-13) Shri Uday Rajaram Lad has expressed similar view wherein the relevance of the possession of the flat is considered. He Accordingly, prayed before us that the section 54 of the Act is a beneficiary provision and liberal view may be taken.
On the other hand, Ld. DR brought to our notice basic facts involved in this case and submitted that as per section 54 of the Act assessee should have purchased the flat one year prior to the date of sale but in this case assessee has purchased the flat by entering into purchase agreement on 29.10.2011. He submitted that the date of possession is immaterial, in this regard he also relied on the case law filed by the assessee and distinguished the facts. Further he submitted that assessee has received right title and flat was ready at the time of agreement and further he submitted that entire sale consideration also was paid by the assessee. Accordingly, he submitted that the submissions of the assessee should not be entertained.
In the rejoinder, Ld. AR submitted that merely entering into agreement and making payment does not complete the transaction till the builder delivers the flat, it will only be a right to acquire the asset. In this regard he relied on CIT v. T.N. Arvinda Reddy [1979] 4 SCC 721.
(A.Y: 2012-13) Shri Uday Rajaram Lad 12. Considered the rival submissions and material placed on record, the only issue involved in this case is whether assessee can claim deduction u/s. 54 of the Act under this peculiar situation. In the given case assessee has sold the property on 27.12.2012 whereas assessee has entered into purchase agreement dated 29.10.2011 and also made substantial payment for the above purchase. As per the limitation period prescribed u/s. 54 of the Act is only for one year where as in the given case based on the date of purchase agreement, it crosses the limitation period of one year. However, Ld. AR brought to our notice that even though assessee has entered into an agreement of purchase of the flat on 29.10.2011 and also made substantial payment but the assessee has actually received possession only on 06.01.2012 and he brought to our notice in support of the above contentions various electricity bills, occupation certificate from the municipality and telephone bills etc.,
We further observed that whatever sale proceeds received by the assessee was promptly repaid towards the loan taken by the assessee for the purchase of the flat. After considering the above facts on record in our considered view the legislature has intended to give the benefit to the assessee while purchasing the new residential flat that is the reason the legislature has given two types of benefits u/s. 54 of the Act i.e. assessee
(A.Y: 2012-13) Shri Uday Rajaram Lad can invest the sale proceeds one year before or two years from the date of sale. We observe that there is a link with the purchase and sale made by the assessee both are residential properties and merely on the basis of few months’ delay in occupation of the property or date of purchase agreement or beyond the period of limitation the due benefit extended by the legislature cannot be denied to the assessee. We observe that in the similar situation the Coordinate Bench in the case of V.M. Dujod wala v. ITO (supra) held as under: - “8. Left with the relevant date to decide in the facts of the case, the decision of the Tribunal in Purushottam Govind Bhat's case really comes to favour the assessee. In the said case, the assesse joined the society in 1977. He was allotted a flat and occupied the same on 1st Jan., 1980. The Tribunal held, joining the society and paying the amounts cannot really amount to purchase of a house. On the contrary, allotment of the flat would certainly give the assessee certain specific obligations and rights. The manner in which the amounts are paid and the period over which they are paid may not be of much relevance. Considering the peculiar circumstances of that case, it was held that the benefit of s. 54 should be extended by taking the date of allotment and occupation as the relevant cdate of purchase. Following the said decision, we are inclined to hold that in this case also, the assessee has, though, entered into agreement for purchase of flat on 22-10-77, paid the money during 1977 to 1979, but the relevant date to be taken for the purpose of applying of s. 54 should be the date on which the flat was ready for occupation by the assessee. Taking that date as the date of purchase, is within the period of one year and therefore the capital gains are clearly exempt from tax applying the provisions of section. 54.”
Respectfully following the above said decision, what is relevant is the date of possession of the flat and it will be the possession occupied
(A.Y: 2012-13) Shri Uday Rajaram Lad by the assessee, the purchase agreement will remain as the right to acquire the property. Accordingly, we are inclined to follow the above decision and direct the Assessing Officer to allow the deduction u/s. 54 of the Act. Accordingly, appeal filed by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 19.04.2022.