SHRI KAMLESHKUMAR K. CHAUDHARY,,GANDHINAGAR vs. THE INCOME TAX OFFICER, WARD-9(4),, AHMEDABAD

आदेश / O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–7, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-7/263/13-14 dated 23.02.2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 10.02.2014 relevant to Assessment Year (AY) 2011-12.

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 2 - � Payment, Execution of Sale deed and possession of Property sold is completed upto 18.01.2010 i.e. within one year of Purchase of New House on 06.04.2009. � Investment in purchase of House is made before one year of Execution of sale deed. � The final Registration of House is just procedural formalities which are not import while determining allow ability of investment made by the assessee. � Even documents of Sale is executed on 18.1.2010 before one year of purchase of Ne House on 06.04.2009. 2. Disallowance excess claim of Maruti Zen Profit made of Rs.19296/-. � Block of assets & Depreciation on Block of assets concept shall be used as during the current year Block does not become the nil. � Correct effect is to determine the Depreciation after considering effect of sale of Maruti Zen. � To reduce Block of Vehicle by Rs.19296/- and hence disallowance will be Rs.2894.40 (15% of 19296) Only. 3. Briefly stated facts are that the assessee is the present case is an individual and engaged in the business of hiring of Motorcars. The assessee was a joint owner of an immovable property located at sector 22 Plot No. 562/a, Gandhinagar. The assessee was the owner of 50% in such property. The assessee along with co-owner has sold this property for a consideration of Rs. 31,74,000/- dated 4th May 2010 by executing a sale deed.

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 3 - 5. However, the AO noticed that provision of section 54 of the Act requires to make the investment within one year from the date of transfer of the property. Thus, as per the AO, the assessee defaulted in complying the provisions of section 54 of the Act. Hence, the AO issued a show cause notice for denying the benefit of exemption claimed under section 54 of the Act.

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 4 - 8. Aggrieved, assessee preferred appeal to ld. CIT(A) who confirmed the order of the AO by observing as under:

“4.1. I have considered the assessment order and the submissions made by the appellant. The property situated at Sector 22, Plot No.562/A, Gandhinagar was sold on 04.05.2010 as per the sale deed obtained by the Assessing Officer from the Sub-registrar office. The new property, on whose investment benefit under section 54 is being claimed, is said to have been purchased on 6.4.2009. Therefore, the investment in the property has bee made beyond one year period from the sale of property. The appellant’s argument that the sale agreement for the property on which capital gain is computed was made on 18.01.2010 is not tenable because had the property is considered to be sold on 18.01.2010, the capital gain should have been computed in the return in the financial year 2010-11. The fact that the appellant has offered the capital gain in the financial year 2010-11 in which the property got registered, the sale deed has to be taken as 04.05.2010. In view of the above, the disallowance made by the Assessing Officer is confirmed.”

“In this way, the above-mentioned ‘Sales Deed’ of ‘the said property’ is made in the city of Gandhinagar. The abovementioned Sales Deed is unitedly agreed by us, the sellers. We have agreed to it willingly and wisely. We have read it or made others to read it for us. We have understood it. We have well thought on the subject. Without any force, coercion or menance, with our own free will, we are agreeing on the ‘Sales

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 5 - Deed’. This Sales Deed shall be binding on us as well as on all Members of our families, elders, inheritors, assignees and others. It is and it shll be binding on all of them. We put our acknowledgement signature on the said Sales Deed on 18th of January-2010.”

9.1. The details of the payment received by the assessee as evident from the sale deed stand as under:

₹05,00,000.00 Rupees Five Lakhs By Cheque No.000587, only dated 5.12.2009. Kotak Mahendra Bank, Kadi Branch, ‘We, the Sellters’ No.1 have taken as reparation of ‘the said property’ from ‘You, the Buyer’ ₹05,00,000.00 Rupees Five Lakhs By Cheque No.000588, only dated 5.12.2009, Kotak Mahendra Bank, Kadi Branch, ‘We the Sellers’ No.1 have taken as reparation of ‘the said property’ from ‘You, the Buyer’ ₹05,87,000.00 Rupees Five Lakh By cash, “We, the Eighty Seven Sellers’ No.1 have Thousand only taken as reparation of ‘the said property’ from ‘You, the Buyer’. ₹15,87,000.00

₹ 31,74,000.00 Rupees Thirty-One Lakh Seventy Four Thousand

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 6 - Only. “You, the Buyer’ have paid us the price in an abovementioned manner. “We, the Sellers’ have accepted the amount. Also, we are accepting that the total price of ‘the said property’ is received by us from ”You, the Buyer’.

9.2. The details of possession handed over by the assessee as evident from the sale deed stand as under:

“Now, “We, the Sellers’ have sold the whole of the said plot along with whatever construction of the building has been done on the said plot, as well as our rights on ‘the said property’ to ‘You, to the Buyer’ through this Sales Deed. ‘We, the Sellers’ have handed over the possession of this said property to ‘You, the Buyer. Here afterwards, “You, the Buyer’ are bound to adhere to the rules and regulations issued by the government with relation to ‘the said property’.”

9.3. The buyer of the property also purchased the requisite stamp papers for the purpose of the registration of the property dated 16th January 2010 as evident under:

“GUJARAT 210575 2669 DATE : 16/01/2010 ₹25000.00 NUMBER : NAME : DILIPKUMAR KANTILAL PATEL Himself RESIDENCE : SECTOR22 PLOT NO.562/A GANDHINAGAR SUNIL K PARIKH LICENSE No. /1993 Sd/-“

9.4. From the above details, there remains no doubt that the property was transferred as per the provisions of section 2(47) of the Act in the

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 7 - financial 2009-10. Therefore, the requirement for making the investment in the property as per the provisions of section 54 of the Act will be taken from the date i.e. 18th January 2010 as discussed above.

9.5. There is no dispute that the assessee made the investment in April 2009 which falls within one year from the date of transfer of the property. Thus, we are of the view that the assessee is eligible for deduction under section 54 of the Act.

9.6. In holding so, we find support and guidance on the judgment of Honorable Supreme Court in case of Sanjeev lal Vs. CIT (Chandigarh) reported in 46 taxmann.com 300 wherein it was held as under: “Now in the light of definition of "transfer" as defined under section 2(47), it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforestated definition, if one looks at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on 27-12-2002 for transferring the residential house/original asset in question and a sum of Rs. 15 lakhs had been received by way of earnest money. A right in personam had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid Rs.15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand. In addition to the fact that the term "transfer" has been defined under section 2(47), even if looked at the provisions of section 54 of the Act which give relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 8 - the Legislature is to give him relief in the matter of payment of tax on the long term capital gain.

If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain.

The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income-tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to the provisions of the Act.

It has also been said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the aforestated observations and the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provisions of section 54 read with section 2(47), i.e. definition of "transfer", which would enable the assessee to get the benefit under section 54 of the Act.

Consequences of execution of the agreement to sell are also very clear and they are to the effect that the assessees could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation one can say that some right, in respect of the said property, belonging to the assessee had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 9 -

Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the assessees in favour of the vendee/transferee on 27-12-2002. The sale deed could not be executed for the reason that the assessees had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated In view of the aforesaid peculiar facts of the case and looking at the definition of the term 'transfer' as defined under section 2(47), it is opined that the assessee was entitled to relief under section 54 in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property and used for purchase of a new asset/residential house

The appeal is therefore, allowed. The impugned judgments are quashed and set aside and the authorities are directed to re-assess the income of the assessee for the assessment year 2005-2006, after taking into account the fact that the assessee was entitled to the relief, subject to fulfilment of other conditions.” 9.7. We also find guidance from the judgment of Honourable Gujarat High Court in the case of CIT Vs. Hormasji Mancharji Vaid reported in 250 ITR 542 which held as under: “Considering the various decisions and the object of the Act, definition given in the Act is required to be taken into consideration. When the document is executed, the property passes and merely because there is no registration certificate, the State coffers should not suffer. If the view propounded that only on registration, act of transfer will be complete then in that case, if the document is not registered, though the assessee will be enjoying the property, he will say that he is not liable to pay the tax. But that is not the intention of the Legislature. The word 'transfer' as indicated in the Income-tax Act is required to be considered and not 'sale' as indicated in the Transfer of Property Act. If the intention of the Legislature was different, then there would have been specific reference. If the words are defined in the Act itself, then it is not proper to read the meaning of the similar words given in another statute unless otherwise expressly provided. In the Act, wherever Legislature has thought fit to have the meaning of the word provided in

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 10 - different statute, specific provision has been made. Therefore, 'Transfer' as defined in the Act is to be given simple meaning as indicated. In case of ownership, there is a transfer of capital assets. This was a case of lease. The transferee was put in possession and was enjoying the property as a lease-holder. There cannot be different criteria for transfer of capital asset. For the purpose of tax even if document, i.e., conveyance, is not executed but the transferee exercises all the rights of the true owner, one cannot emphasize for the taxation purpose that unless and until the deed of conveyance transferring the rights in property is executed, the transferee is not liable though did everything which is required for acquiring a property. The vendor is not permitted in law to disposes or question the title of the vendee. Under the circumstances, transfer of immovable property in question had been effected on the date of execution of the document”

9.8 It is also a fact on record that the assessee has offered the capital gain in the assessment year 2011-12 instead of 2010-11. If we take the date of transfer, i.e. the date of conveyance deed registered on 4th of May 2010, then assessee defaulted in making the investment within the prescribed time as specified under section 54 of the Act. However, it is the settled law that the income of the assessee has to be taxed in the hands of the right assessee and the right assessment year. The right assessment year is the assessment year 2010-11 as the property was transferred in the financial year 2009-10. Therefore, the assessee has wrongly declared income in the wrong assessment year, but that cannot be the ground to deprive the assessee of the benefit provided under section 54 of the Act.

9.9. In holding so, we find support and guidance from the judgment of Hon’ble Supreme Court wherein it was held that the income has to be

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12

- 11 - taxed in the right hands and the right assessment year in the case of A. Gajapathy Naidu reported in 53 ITR 114 wherein it was held as under: “An income accrues or arises when the assessee acquires a right to receive the same. It is common place that there are two principal methods of accounting for the income, profits and gains of a business; one is the cash basis and the other , the mercantile basis. The latter system of accountancy 'brings into credit what is due immediately it becomes legally due and before it is actually r eceived; and it brings into debit expenditure the amount for which a legal liability has been incurr ed before it is actually disbursed.' The book profits are taken for the purpose of assessment of tax, though the cr edit amount is not r ealised or the debit amount is not actually disbursed. If an income accrues within a particular year , it is liable to be assessed in the succeeding year . When does the right to r eceive an amount under a contract accrue or arise to the assessee, i.e., come into existence ? That depends upon the terms of a particular contract. No other r elevant provision of the Act has been brought to notice-for ther e is none which provides an exception that though an assessee does not acquire a right to r eceive an income under a contract in a particular accounting year , by some fiction theamount received by him in a subsequent year in connection with the contract, though not arising out of a rightaccrued to him in the earlier year , could be r elated back to the earlier year and made taxable along with the income of that year . When an ITO proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, namely: (i) what is the system of accountancy adopted by the assessee? and (ii) if it is the mercantile system of accountancy , subject to the deemed provisions, when has the right to receive that amount accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year , he shall include the said income in the assessment of the succeeding assessment year . No power is conferred on the ITO under the Act to r elate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose. Section 34 of 1922 Act empowers the ITO to assess the income which escaped assessment or was under- assessed the income which escaped assessment or was under-assessed in the relevant assessment year . Subject to the provisions of the section and following the procedure prescribed there under , he can include the escaped income and r eassess the assessee on the basis of which the earlier assessment was made. So, too under section 35 of 1922 Act officers mentioned ther ein can

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12

- 12 - rectify mistakes either of their own motion or when such mistakes are brought to their notice by a party to the proceedings. For that purpose the correctitem may be taken into consideration in the matter of assessment. But strictly speaking even in these cases there is no r eopening of the accounts of the assessee, but a r e-assessment is made or the mistake is corr ected on the basis of the actual income accrued or received by the assessee. In the r esult, it was held that the sum in question was rightly assessed in assessment year 1951-52.”

9.10. Moreover, we also note that the provisions specified under section 54 of the Act are beneficial to the assessee. Therefore the assessee should not be deprived of the benefit given under the statute merely on account of technical fault i.e. delay of a couple of months in making the investment. In this case we find support and guidance from the judgment of Honourable Supreme Court in the case of Sanjeev Lal vs. CIT, Chandigarh(365 ITR 389) wherein it was held as under: “22. In addition to the fact that the term "transfer" has been defined under Section 2(47) of the Act, even if looked at the provisions of Section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income Tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 247 ITR 658/115 Taxman 69 this Court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12 - 13 - been said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the aforestated observations and the principles with regard to the interpretation of Statute pertaining to the tax laws, one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of "transfer", which would enable the appellants to get the benefit under Section 54 of the Act.”

9.11. In view of the above we are not impressed with the finding of lower authorities. Therefore, we reverse the order of ld. CIT(A) and direct the AO to delete the addition made by him.

This Order pronounced in Open Court on 30/11/2018

Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 30/11/2018

ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS

ITA No.1258/Ahd/2015 Kamleshkumar K. Chaudhary vs. ITO Asst.Year - 2011-12

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-7, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ( word proceed by the Hon’ble AM in his computer) 2. Date on which the typed draft is placed before the Dictating Member …27.11.18 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………