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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA, AM & SHRI PAVAN KUMAR GADALE, JM
BEFORE SHRI ARUN KUMAR GARODIA, AM AND SHRI PAVAN KUMAR GADALE, JM Assessment Year : 2015 – 16 C A Badrinath (HUF), No. 57 & 57/4, 1th Main, ACIT, Circle – 2 (2) (1), vs. Malleswaram, Bangalore Bangalore – 560003. PAN: AADHC3044B APPELLANT RESPONDENT Assessee by : Shree V. Srinivasan, Advocate Revenue by : Shri Pradeep Kumar, CIT DR Date of Hearing : 11.12.2019 Date of Pronouncement : 29.01.2020 O R D E R PER SHRI A.K. GARODIA, AM:
This appeal is filed by the revenue and it is directed against the order of CIT(A) – 2 Bengaluru dated 28.09.2018 for A. Y. 2015 – 16. 2. The revenue has raised as many as 6 Grounds of appeal but the grievances are only two. First grievance is this as to whether the capital gain in question is LTCG or STCG. As per the AO, it is STCG but as per the assessee, it is LTCG and learned CIT (A) has agreed with the assessee. Second grievance is about allowability of deduction u/s 54.
3. In course of hearing, learned DR of the revenue filed written submissions and argued that the appeal can be decided by considering his written submissions and after hearing the learned AR of the assessee. In his written submissions, he submitted that the assessee took possession of the 23 flats in question in F. Y. 2013 – 14 and sold the same in F. Y. 2014 – 15 and hence, as per the provisions of section 2 (42A) of I. T. Act, the asset in question i.e. 23 flats is short term capital asset and income on its sale is assessable as (B)/2018 Page 2 of 7 STCG. As against this, learned AR of the assessee supported the order of CIT (A). He also submitted that the JDA is dated 16.12.2010 and its copy is available on pages 17 to 42 of the paper book. He also submitted that occupancy certificate issued by BBMP is dated 30.03.2016 and it is available on pages 43 & 44 of the paper Book. Thereafter, he submitted that the copy of the Assessment Order for A. Y. 2011 – 12 passed u/s 143 (3) r.w.s. 147 of I. T. Act is dated 28.03.2016 and its copy is available on pages 13 to 16 of the paper Book. Reliance was placed on a judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. A. Suresh Rao, 223 taxman 228. He also placed reliance on a judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. H. Anil Kumar, 242 CTR 537.
4. We have considered rival submissions. We find that it is noted by the AO on page 2 of the assessment order that the JDA was entered on 16.12.2010 and in consideration of transfer of land measuring 2 Acres and 21 Guntas owned by the assessee along with some land of another person, total land 3 Acres 32 Guntas, the assessee was to get Super Built Up Area of Apartments with Covered Car Parking to the extent of 23.73% and the other land owner 11.87% total 35.60% equivalent to residential units and balance 64.40% was the share of the builder. Total 127 Apartments, Villaments and Row Houses were constructed and the assessee got 23 apartments equal to built up area of 47,524 sq. ft. In Para 6.1 of the assessment order, the AO has noted that capital gain arising on account of transfer of land in consideration of 23 apartments as per JDA dated 16.12.2010 was offered to tax in A. Y. 2011 – 12 as per return filed by the assessee in compliance to notice issued u/s 148 dated 18.06.2014 and assessment was completed on 28.03.2016. Hence, this is admitted position of fact that capital gain on transfer of land as per JDA was brought to tax in A. Y. 2011 – 12 and the sale consideration received by the assessee in respect of this capital gain was the same 23 flats which are sold in the present year giving rise to further capital gain. This gain was offered by the assessee in the present year as LTCG as per the revised return filed but as per Para 11 of the assessment order, the AO held that as per section 2 (42A) of I T Act, the asset is short term capital asset and gain on its sale is STCG. As per section 2 (42A) of I T Act, short-term capital asset means a capital asset held (B)/2018 Page 3 of 7 by an assessee for not more than thirty-six months immediately preceding the date of its transfer. Now, we have to decide as to whether, the asset in question is a short-term capital asset or not. In this regard, it is also very important to note that in para 7.4 of the written submissions of the assessee reproduced by the AO on page 4 of the assessment order, it is stated by the assessee that the right to acquire built up area arose on 16.12.2010 i.e. the date of signing of JDA and in Para 7.5 of the written submissions reproduced on the same page of the assessment order, it was submitted by the assessee that the said right acquired on signing of JDA was transferred in the present year before completion of development. The Occupancy certificate issued by BBMP is dated 30.03.2016. Hence in the present year i.e. F. Y. 2014 – 15 relevant to A. Y. 2015 – 16, the Building was not complete and therefore, what is sold cannot be flat but only right in the flat. Hence, it is seen that in the facts of the present case, capital Asset in question is not the flats but right to obtain flats from the builder. This right has accrued to the assessee on 16.12.2010 itself on signing of JDA itself and the assessee is holding it since then because nothing more was required to be done in this regard. In our considered opinion, this right was held by the assessee for more than 36 months because it was acquired on 16.12.2010 and sold in F. Y. 2014 –
15. Hence, the capital gain in question is LTCG and not STCG. On this issue, we find no infirmity in the order of CIT (A).
5. Now we discuss and decide the second issue i.e. about allowability of deduction u/s 54. On this issue, the objections of the AO are summarized by learned CIT (A) in Para 5.0 of his order and it is stated that the new asset was acquired by the assessee on 10.01.2014 but the assets were transferred by way of sale deed executed on or after 16.01.2015 and therefore, as per the AO, the new asset was acquired prior to one year before the date of sale of flats. In Para 5.5 of his order, it is noted by the learned CIT (A) that all the agreements to sell were entered into during the financial year 2013 – 14 and 2014 –
15. In the written submissions filed by the learned DR of the revenue before us, on this issue, this is not an argument of learned DR of the revenue that sell agreements were not executed in F. Y. 2013 – 14 and 2014 – 15 as noted by CIT (A). His argument is same as stated by the AO in the assessment order (B)/2018 Page 4 of 7 that only two sale deeds were brought on record being dated 16.01.2015 and 23.01.2015 and hence, it is held that all sales has taken place on 16.01.2015 or thereafter and therefore, acquisition of new asset on 10.01.2014 is prior to one year before the date of sale of flats and hence, deduction u/s 54 is not allowable. Now, we have to decide this aspect as to whether date of sale agreement should be considered or date of sale deed should be considered for the purpose of counting the period of one year before the date of sale as provided in section 54. On page no. 16 of his order, learned CIT (A) has given a chart for all 23 flats giving date of Agreement, Date of Possession/Transfer and date of Sale Deed. No mistake is pointed out by the learned DR of the revenue in this chart. As per this chart, the latest date of Agreement and Date of possession/transfer is 27.11.2014. Even if we consider this date as the date of sale, the acquisition of the new asset acquired by the assessee on 10.01.2014 is not prior to one year before the date of sale of flats. In para 5.4 of his order, learned CIT (A) has followed a judgment of Hon’ble Apex Court rendered in the case of Sanjeev Lal & Smt. Shail Moti Lal, 365 ITR 389. Para 17 to 25 of this judgment are relevant and hence, we reproduce the same hereinbelow for ready reference. These are as under:-
“17. Upon plain reading of Section 54 of the Act, it is very clear that so as to avail the benefit under Section 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.
In the instant case, the following three dates are not in dispute. The residential house was transferred by the appellants and the sale deed had been registered on 24th September, 2004. The sale deed had been executed in pursuance of an agreement to sell which had been executed on 27th December, 2002 and out of the total consideration of Rs.1.32 crores, Rs. 15 lakhs had been received by the appellants by way of earnest money when the agreement to sell had been executed and a new residential house/new asset had been purchased by the appellants on 30th April, 2003. It is also not in dispute that there was a litigation wherein the Will of late Shri Amrit Lal had been challenged by his son and the appellants had been restrained from dealing with the house in question by a judicial order and the said judicial order had been vacated only in the month of May, 2004 and therefore, the sale deed could not be executed before the said order was vacated though the agreement to sell had been executed on 27th September, 2002.
If one considers the date on which it was decided to sell the property, i.e. 27th December, 2002 as the date of transfer or sale, it cannot be disputed that the appellants would be entitled to the benefit under the provisions of Section 54 (B)/2018 Page 5 of 7 of the Act because long term capital gain earned by the appellants had been used for purchase of a new asset/residential house on 30th April, 2003 i.e. well within one year from the date of transfer of the house which resulted into long term capital gain.
The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December, 2002 can be considered as a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immoveable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word “transfer” in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word “transfer” is as under: “2(47) “transfer”, in relation to a capital asset, includes,- (i)……………. (ii) the extinguishment of any rights therein; or ………………………………”
Now in the light of definition of “transfer” as defined under Section 2(47) of the Act, 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, let us look at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on 27th December, 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. It is also not in dispute that the sale deed could not be executed because of pendency of the litigation between Shri Ranjeet Lal on one hand and the appellants on the other as Shri Ranjeet Lal had challenged the validity of the Will under which the property had devolved upon the appellants. By virtue of an order passed in the suit filed by Shri Ranjeet Lal, the appellants were restrained from dealing with the said residential house and a law-abiding citizen cannot be expected to violate the direction of a court by executing a sale deed in favour of a third party while being restrained from doing so. In the circumstances, for a justifiable reason, which was not within the control of the appellants, they could not execute the sale deed and the sale deed had been registered only on 24th September, 2004, after the suit filed by Shri Ranjeet Lal, challenging the validity of the Will, had been dismissed. In the light of the aforestated facts and in view of the definition of the term “transfer”, one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the (B)/2018 Page 6 of 7 property to someone else in accordance with law. 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) 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. Commissioner of Income Tax [(2001) 3 SCC 359] 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 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.
Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants 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 immoveable property in favour of one person, tries to sell the property to another. In our opinion, 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 we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.
Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants 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 aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act