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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [CIT(A)], Vijayawada vide ITA No.205/CIT(A)/VJA/2012-13 dated 12.02.2016 for the assessment year 2010-11.
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Originally, the assessee has filed as many as 11 grounds of appeal along with Form No.36. Since the grounds of appeal are argumentative, the assessee filed revised and concise grounds on 10.09.2018. In the revised grounds of appeal, the assessee raised 4 grounds in total and all the grounds of appeal are related to the deduction u/s 54F of the Income Tax Act, 1961 (hereinafter called as ‘Act’).
Brief facts of the case are that the assessee filed the return of income admitting total income of Rs.1,97,000/- for the A.Y 2010-11 on 03/03/2011. The case was selected for scrutiny and the Assessing Officer (AO) observed that the assessee has not admitted the capital gains arising out of the transactions entered into by her for sale of the property at Madhuranagar, Vijayawada. The AO called for the details and the assessee submitted that she has purchased apartment on 01.12.2010 in Kesava Heights for a consideration of Rs.13,91,000/- and claimed the deduction u/s 54F, thus contended that there is no liability for capital gains. However, the AO found that the assessee had sold the property during the assessment year 2010-11 and acquired the property on 01.12.2010 relevant for the assessment year 2011-12 and the assessee did not make investment of unutilized consideration on sale of property in the capital
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gains account before the due date of furnishing the return of income i.e. 31.07.2010 as required u/s 54F, sub section (4) of the Act, therefore viewed that the sum is chargeable to capital gains in the impugned Assessment year(A.Y). The Ld.AO further observed that the consideration for the purchase of the property was paid on 30.11.2010, that is after the due date for furnishing the return of income u/s 139(1) for the assessment year 2010-11. The assessee submitted explanation opposing the proposed addition and relied on the decisions of CIT Vs. Rajesh Kumar Jalan 286 ITR 274, CIT Vs. Jagati Aggregate 15 Taxman 146 (P&H), Nipun Mehotra 110 ITD 520 ITAT (Bangalore) and argued that the assessee is entitled for deduction u/s 54F even if the amounts are utilized before filing the return of income u/s 139(4) of the Act. However, the AO denied the exemption stating that the decision rendered by the non jurisdictional Hon’ble High Courts is not binding on the AO, and there is no binding decision of the Hon’ble jurisdictional High Court on this issue. Since the assessee failed to comply with the statutory requirement, the AO disallowed the claim made by the assessee u/s 54F and assessed the total income at Rs.13,64,920/-.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) partly allowed the appeal of the assessee.
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Before the CIT(A), the assessee relied on the decision of Hon’ble Karnataka High Court in the case of Fathima Bai Vs. ITO in ITA No.435 of 2004 dated 17.10.2018 (2010) 032 DTR 0243 which supports the contention of the assessee. The Ld.CIT(A) held that the assessee is eligible for exemption u/s 139(4) of the Act even if the property was purchased before the extended due date u/s 139(4) of the Act. However, the Ld.CIT(A) observed that the assessee has purchased the new property on 01.12.2010 by availing housing loan for sum of Rs.9,00,000/- from Divan Housing Finance Corporation, which had issued Axis Bank Cheque No.702485/- dated 30.11.2010 for a sum of Rs.8,74,246/- in favour of the seller of the apartment and the remaining amount of Rs.5,16,754/- was paid through DD No.035218 dated 30.11.2010 drawn on Axis Bank Ltd. Since the assessee has invested in purchase of house by taking a loan from Divan Housing Finance Corporation ,the Ld.CIT(A) held that the assessee is not entitled for deduction on the said sum of Rs.8,74,246/- which was invested out of the loan taken. However, the Ld.CIT(A) allowed the balance amount of deduction of Rs.5,16,754/- which was paid through DD drawn on Axis Bank,since there was cash balance of Rs.7,05,395/- in the account of the assessee on 30.11.2010. Thus, the Ld.CIT(A) has partly allowed relief to the extent of Rs.5,16,754/- and confirmed the remaining addition made by the
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AO, u/s 54 of the Act. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) which reads as under : 8.3. However, appellant contended that new property (Flat) was purchased on 01.12..2010 i.e. before the due date of furnishing the return of income u/s.139 of the Act which implies u/s.139(4) also i.e. on or before filing of belated return of income u/s.139(4) of the Act. Decision of Hon’ble Karnataka High Court in the case of Fathima Bai Vs. ITO in ITA No.435 of 2004 order dated 17.10.2008 (2010) 0932 DTR 0243 clearly supported appellant’s contention (i.e. when entire capital gain was utilized by the appellant by purchasing a house property before the extended due date under section 139(4), exemption under section 54 would be allowed to appellant. 8.4. In the case of Pawan Kumar Garg V s. CIT (2009) 311 ITR 397 (P&H) Hon’ble Punjab and Haryana High Court held as follows : "Since section 54F is a relief provision, it is for the assessee to establish the right to such relief by adducing evidence for the same" 8.5. However, on perusal of relevant details including registered document [6604/2010] dated 01.12.2010 in favour of appellant it is noticed that appellant had availed a housing loan for a sum of Rs.9,00000/- from Divan Housing Finance Corporation, which had issued Axis Bank ChequeNo.702485 dated 30.11.2010 for Rs.8,74,246/- in favour of the seller of the apartment, viz. Sri N.V.V.N. Chandra SekharRao and the remaining amount of Rs.5,16,754/- was paid through D.D. No. 035218, dated 30.11.2010 drawn on Axis Bank Ltd. Assessing Officer in his show cause notice dated 13.09.2012 observed as follows "From the above facts, it is clearly evident that you have invested loan availed from Divan Housing Finance Ltd., for purchase of the apartment and not utilized the sale consideration received by you on sale of property at Madhura Nagar, Vijayawada for purchase of apartment at Vijayanagar Colony, even though the capital gains have arisen and received by you much prior to the date of investment in apartment. As you have not invested the capital gains for purchase of the apartment, you are not entitled to claim deduction u/s.54F of the I.T.Act, 7. In view of the above reasons, the long term capital gains arising out of the sale of property at Door No.21-9-38, Madhuranagar, Vijayawada are chargeable to tax in your case for the Asst. Year 2010-
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In this regard, it is proposed to bring to tax the long term capital gains on sale of the above property for the Asst. Year 2010-11. In this regard, you are requested to file your objections, if any, on or before 20/09/2012, failing which it will be presumed that you do not have any objection for the above proposed charging of capital gains for the Asst.Year 2010-11 and accordingly the assessment will be completed without giving any further opportunity in this regard.” Assessee’s Authorized Representative did not address this issue in his reply dated 24.09.2012. Sri J. Ajay Babu, Senior Executive - Accounts of Dewan Hosing Finance Corporation Limited in his letter dated 25.09.2012 addressed to the AO confirmed the following: "With reference to your letter dated 24.092012 we provide here with the complete loan account statement of App. Mr. Kancharapalli Veeraganapathi & Co Applicant K Hemalatha, in respect of loan sanctioned on purchase of flat No. 102, Sri Kesava Heights, Patamata, Vijayawada”. As per loan code No.00003001, a sum of Rs.9 lakh was sanctioned as loan on 19.11.2010 by Dewan Housing Finance Corporation Limited. Details are as follows:
Date Account Cheque Amount Head No. 30.11.2010 Housing 000000 Rs.25,754/- Loan (Disb) 30.11.2010 Housing 702485 Rs.8,74,246/- Loan (Disb) From the above confirmation, as well as the registered document (No. 6604/2010) dated 01.12.2010, it is evident that loan amount of Rs.8,74,246/- issued by cheque No.702485 was utilized for purchase of new flat by appellant. This indicates that sale proceeds were admittedly appropriated by the appellant for different purposes and the appellant did not have personal funds to purchase the property. Since the sale proceeds or the capital gain accrued to the appellant was not wholly appropriated towards the purchase of flat, the appellant is not entitled to claim exemption of whole capital gain u/s 54F of the Act. When the property is purchased out of borrowed funds, it is not proper to say that appellant is entitled for exemption u/s 54F of the Act. i.e. whatever amount of capital gain was utilized towards purchase of flat, the corresponding deduction u/s 64F was to be allowed.
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Hon'ble ITAT, Mumbai in the case of Milan Sharad Ruparel Vs. ACIT 27 SOT 61 held as follows : "Exemption under section 54F is not available where assessee purchased new house out of funds borrowed from bank." The scope and effect of new provision (section 54F) was explained by the Board in circular No.346 dated 30th June, 1982 (1982) 138 ITR St 24. Relevant excerpt is quoted below: "With a view to encouraging house construction, the Finance Act ,1 982, has inserted anew section 54F to provide that where any capital gain arises from the transfer of any long term capital asset, other than a residential house, and the assessee purchases within one year before or after the date on which the transfer took place or constructs within a period of three years after the date of transfer, a residential house the capital gain arising from the transfer will be treated in a concessional manner as under:- (i) if the cost of house that has been purchased or constructed is not less than the net consideration in respect of the capital asset transferred, entire capital gain arising from the transfer will be exempt from tax. (ii) ……………….” In appellant's case as borrowed funds were utilized to the extent of Rs.8,74246/- for purchase of new property, as confirmed by Dewan Housing Finance Corporation Limited, in view of decision of Hon’ble Mumbai ITAT mentioned supra, appellant is not entitled for deduction u/s.54F of the Act to this extent of Rs.8,74,246/-. As regards the balance amount of Rs.5,16,754/-, it was paid through DD No.03218 dated 30.11.2010 drawn on Axis Bank Limited. There was cash balance of Rs.7,05,395/- in the bank account of appellant on 30.11.2010. There is an entry of withdrawal of Rs.5,18,180/- on 30.11.2010 by cheque No.663934 with remarks (particulars) Y/S DD. As this amount may represent purchase of DD for Rs.5,16,754/- and DD commission etc., appellant might have applied this amount for purchase of flat. Hence, to the extent of Rs.5,16,754/- appellant in my view, is entitled to claim deduction u/s 54F of the Act. I direct the AO to recomputed his capital gain working by giving deduction u/s 54F of the Act to the tune of Rs.5,16,754/- as against ‘Nil” allowed by him.”
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Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that the assessee has purchased the property before the date of filing the return of income u/s 139(4) of the Act and hence, the assessee is entitled for deduction u/s 54F of the Act. Similarly, the Ld.AR argued that though the Ld.CIT(A) has accepted that the assessee is entitled for deduction u/s 54F, relying on the decision of Hon’ble Karnataka High Court in the case of Fatima Bai Vs. ITO (supra), disallowed the investment sourced from the loan taken from Divan Housing Finance Corporation and allowed only to the extent of the investment made from the sources of the assessee. The assessee further argued that the source is immaterial and the assessee is permitted to make the investment either from the sale proceeds or from his own source or from the loans. The Ld.A.R argued that the assessee is also entitled for deduction even if the amount is invested out of the bank loans. The Ld.AR relied on the decision of Hon’ble High court of Karnataka in the case of Gouli Mahadevappa Vs. ITO (2013) 215 Taxman 145 (Karn) and the decision of Hon’ble Madras High Court in the case of CIT Vs. R.Srinivasan (2010) 45 DTR 298 (Mad).
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On the other hand, the Ld.DR argued that it is mandatory on the part of the assessee to acquire the new asset out of the sale consideration. If the assessee did not utilize the funds relating to the sale of the house in purchase of new property the assessee would not be entitled for claiming the deduction u/s 54F. Therefore, the Ld.DR argued that the Ld.CIT(A) has rightly confirmed the addition to the extent of Rs.8,74,246/- and submitted that no interference is called for in the order of the Ld.CIT(A).
We have heard both the parties and perused the material placed on record. In this case, there is no dispute that the assessee has acquired the property before the due date for filing the return of income u/s 139(4) of the Act and the Ld.CIT(A) has accepted that the assessee is entitled for deduction u/s 54F even if the assessee acquired the property within the time limit allowed u/s 139(4) for filing the return of income. The only issue in this case is whether the assessee would be entitled for deduction u/s 54F even if the assessee acquired the new property from the bank loan instead of utilizing the sale consideration for the purpose of acquiring the new property. This issue has been considered by the Hon’ble Madras High Court in the case of CIT Vs. R.Srinivasan (2010) 45 DTR 298 (Mad) relied upon by the assessee and held that the assessee is entitled for deduction
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u/s 54F even if the source was funded from the bank loan. The coordinate bench of ITAT, Mumbai, 'SMC' also considered the similar issue u/s 54 in Hansa Shah v. Income-tax Officer, Ward- 21 (1) (4), Mumbai, reported in [2018] 98 taxmann.com 393 (Mumbai - Trib.) and held as under:
Even, assuming that the housing loan was utilised for the purpose of purchase of new house property, it needs to be examined whether by the reason of utilisation of housing loan in purchase of new house property, the assessee will not be eligible to claim deduction under section 54 of the Act. For this purpose, it is necessary to look into the provision of section 54 of the Act. On a careful reading of the aforesaid provision as a whole and more particularly sub-section (1) of section 54 of the Act, it becomes clear that the only condition which requires to be fulfilled is, one year before or two years after the date of transfer of the original asset the assessee must have purchased the new house property. In case, the logic of the Department that for availing deduction the consideration received by the assessee from sale of original asset has to be utilised for investment in new house property is accepted, the provision of section 54(1) becomes redundant because such a situation will never arise in case assessee purchases the new house property one year before the date of transfer of new asset. Thus, in such an eventuality the assessee can never utilise the capital gain in purchase of new house. Thus, on a plain interpretation of section 54(1) of the Act, it has to be concluded that if the assessee purchases a new house property one year before or two years after the date of transfer of original asset, it is entitled to claim deduction under section 54 of the Act irrespective of the fact whether money invested in purchase of new house property is out of the sale consideration received from transfer of original asset or not. The conditions of sub-section (2) of section 54 of the Act comes into play only in a situation where the assessee does not stick to the time limit provided under section 54(1) of the Act. Undisputedly, in the present case, the assessee has purchased the new house property within the stipulated period of two years from the date of transfer of original asset. That being the case, the assessee is eligible to avail deduction under section 54 of the Act. Accordingly, the Assessing Officer is directed to allow assessee's claim of deduction under section 54(1) of the Act. Ground raised is allowed
This issue on similar facts was considered by the coordinate bench of ITAT ‘C’ Bench Chennai in the case of Smt. Sumati Siva Kumari Vs. ITO Wd.2(4) (Chennai) in 2132/Mds/2016 for the assessment year 2013-14 for
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which the Accountant Member is one of the signatories held that the assessee is entitled for deduction u/s 54F even if the amount is sourced from the bank loan. For ready reference, we extract relevant part of the order of the Coordinate Bench of ITAT in para Nos. 6, 7 and 11 of the order which reads as under: “6. Ld. AR, Shri R.M. Narayanan, appearing for the assessee argued that the assessee has sold the property on 17.9.2012 and acquired the new property on 30.1.2013 i.e within two years from the date of the sale of the original asset. The sale consideration of the asset sold was Rs.90 lakhs and the cost of the new asset was 1,44,59,800/-.Since the assessee has invested the sale consideration within two years from the end of the relevant assessment year, the assessee is entitled for the claim of deduction u/s 54F of the Act. The Ld. AR further submitted that though the assessee along with her son and daughter-in-law borrowed money from the State Bank of India over and above the sum of Rs.56,54,000/- the same should not come on in the way of income tax Department for allowing the deduction u/s 54F of the Act. The only requirement of sec. 54F is that the new asset required to be acquired within two years but not the source of investment. The assessee is free to invest from the sale proceeds his own source of income and also from borrowed funds. The Assessing Officer's observation that the balance has been funded out of bank loan and the bank loan was given only based on the credentials of the assessee's son Shri Aneesh Sivakumar and daughter-in-law Smt Neha Bhujang and their capacity to repay the loan should not become a ground for disallowing the claim of the assessee. For granting deduction u/s 54F, the Assessing Officer has to rely on the main object of sec. 54F which is to encourage housing and the assessee has duly complied with by purchasing a new house property. The assessee also relied on the jurisdictional High Court's judgment in the case of CIT vs R. Srinivasan, 235 CTR 588. The Ld. AR also relied on the judgment of P&H High Court in the case of CIT vs Kapil Kumar Agarwal
In order to avail benefit under section 54F, the assessee is required to either purchase a residential house within a period of one year before or two years after the date on which transfer takes place or construct a residential house within a period of three years after that date. In such cases, the capital gains shall be computed as per clauses (a) and (b) of sub-section
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(1). In case, the assessee is not able to appropriate the sale proceeds of long- term capital gain, then before filing of a return under section 139(1) he is required to deposit the same under any Capital Gain Account Scheme with a bank or institution specified by the Central Government in the official gazette. The assessee has to file proof of such depositalong with the return for claiming exemption under section 54F[Para 13]
* The assessee has to purchase or construct a house property during the period specified under section 54F in order to get benefit thereunder. Section 54F nowhere envisages that the sale consideration obtained by the assessee from the original capital asset is mandatorily required to be utilized for the purchase or construction of a house property. No provision has been made by the statute that in order to avail benefit of section 54F, the assessee has to utilize the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F. [Para 14] It has been categorically recorded by the Tribunal that the assessee had made investment well within the stipulated period. The investment was more than the capital gain earned by him. [Para 15] The investment made by the assessee being within the stipulated time and more than the capital gain earned by him, the addition was rightly deleted by the Tribunal under the head long-term capital gain. [Para 7. The Delhi High Court in CIT vs. Ravindra Kumar Arora(ITA No. 1106 of 2011) held that Section 54F mandates that the house should be purchased by the taxpayer and it does not stipulate that the house should be purchased in the name of the taxpayer only. Objective of section 54F of the Act and the like provision such as section 54 of the Act is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the taxpayer only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deductionto the taxpayer and deduction should not be denied on hyper technical ground. The Honourable HC also relied onthe Andhra Pradesh High Court ruling in Late Mir Gulam Ali Khan Vs.CIT1 (1987) 165 ITR 228 (AP) where in it was held that: Object ofgranting exemption under Section 54 of the Act is that the taxpayer who sells a resident/al house for purchasing anoth1r house must be given exemption so far as capital gains are concerned. The word "assessee" must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word "assessee" as that would frustrate the object of granting exemption. Based on the above judgments and another ruling (CIT Vs, Natrajan (2007) 287 IT!? 271 (Mad) and CIT Vs. Gurnam Singh (2010) 327 ITR 278), the Honourable HC held that the conditions stipulated in section 54F
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of the Act was fulfilled by the taxpayer and taxpayer was entitled for benefit of Section 54F of the Act with reference to the total investment of Rs. 3,28,15,000/-.
11.The issue regarding whether the investment in a capital asset is required to be sourced from the capital gain or not has been considered by the Honble P&H High Court in the case of Kapil Kumar Agarwal (supra) relied upon by the assessee. The High Court has held that sec. 54F nowhere envisages that the sale consideration received by the assessee from the original capital asset mandatorily should be utilized for the purchase or construction of the new house property. The simple requirement is to invest in an asset within the stipulated time. In this case, the assessee has invested within the stipulated time. Therefore, we hold that the assessee is entitled for the deduction u/s 54F of the Act. Accordingly, we set aside the orders of the lower authorities and the addition made by the Assessing Officer is deleted.” In the instant case, there is no dispute that the assessee has purchased the property within the stipulated time and the case is squarel covered by the decisions cited supra. Therefore, respectfully following the view taken by the coordinate bench of ITAT, Chennai and the decisions of Hon’ble High Court of Karnataka and the Hon’ble Madras High Court in the case of CIT Vs. R.Srinivasan (supra), we hold that the assessee is entitled for deduction u/s 54F on the amount invested for purchase of new property from the bank loans also. Accordingly, we set aside the order of the Ld.CIT(A) and allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
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Order pronounced in the open court on 14th November, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयकसदस्य/JUDICIAL MEMBERलेखासदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated :14.11.2018 L.Rama, SPS आदेशकीप्रधिधलधपअग्रेधर्ि/Copy of the order forwarded to:- 1. अपीलधथी / The Appellant –Smt.Kancharlapalli Hemalatha, Flat No.102, Sri Kesava Heights, D.No.59A-21/3-5/2, Vizayanagar Colony, Vijayawada 2. प्रत्यार्थी / The Respondent–Income Tax Officer, Ward-2(3), Vijayawada 3. The Pr.CIT, Vijayawada 4. The Commissioner of Income Tax (Appeals), Vijayawada 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6. गाडाफ़ाईल / Guard file
आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM