HEMANT SHAH,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX-20(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI Before Shri R.C. Sharma (A.M.) & Shri Pawan Singh (JM) ITA No. 4566/Mum/2017(Assessment year: 2013-14)

Hemant Shah ACIT-20(1), Mumbai 10, Oomed Sadan 58, Sion, Mumbai 400 022 Vs PAN : AADPS2405E APPELLANT RESPONDEDNT

Appellant by Shri Paresh Vakharia Respondent by Shri Manoj Kumar Singh Sr DR & R. Bhoopati Sr DR Date of hearing 13.12.2019 Date of pronouncement 25.02.2020

O R D E R PER PAWAN SINGH, JM : 1. This appeal by assessee is directed against the order of learned

Commissioner of Income –tax- 32 [‘ld.CIT(A)’], Mumbai for

assessment year 2013-14. The assessee has raised the following

grounds of appeal:-

“Ground 1 : Clubbing of exempt long term capital gain income of minor child Natisha and Aditya 1.1 The Learned CIT(A) erred in confirming the clubbing of the exempt long term capital gains income of Rs 1,06,27,312/- of the minor child Natisha with the income of the appellant. 1.2 The Learned CIT(A) erred in confirming the clubbing of the exempt long term capital gains income of Rs 1,06,36,3247- of the minor child Aditya with the income of the appellant. Ground 2 : Disallowance of Exemption u/s 54F of the Act (Rs 2,66,82,526/-) In the facts and circumstances of the case and in law:

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

2.1 The learned CIT(A) erred in confirming denial of exemption of long term capital gains of Rs 2,66,82,5267- u/s 54F of the Act although all the conditions of section 54F were complied by the appellant. 2.2 The Learned CIT(A) failed to appreciate the submission of your appellant that your appellant was not 'owner' of the residential houses within the meaning of sub-clause (ij of clause (a) of proviso to section 54F of the Act and consequently, erred in denying exemption of the long term capital gain referred to above. Without prejudice to the foregoing ground of appeal, the Learned CIT(A) failed to appreciate the submission of your appellant that the residential houses were jointly held with other person and accordingly, as per the judgment of the Hon'ble Madras High Court in the case of Smt. P.K. Vasanthi Rangarajan (23 taxmann.com 299) cited before her; the exemption u/s 54F of Rs 2,66,82,526/- claimed by your appellant could not have be denied.”

assessee declared his total income at Rs.43,19,257/- for relevant

assessment year. In the computation of income the assessee computed

long term capital gain on sale of shares of Rs. 3,17,86,086/- and a

residential house for Rs. 60,40,636/- and claimed exemption u/s 54 &

54F of Rs. 3,27,96,082/- and exemption of Rs. 50,00,000/- u/s 54EC.

The case was selected for scrutiny. During the assessment the assessee

was asked as to why exemption u/s 54F be not denied to the assessee

as the assessee owned more than two residential houses on the date of

sales of shares. The assessee filed its reply dated 09-10-2015. In the

reply the assessee stated that he has purchased two flats in the year

2015 when living with his father at Sion and wanted to shift to a new 2

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

premise. However, he could not shift to new premises as his father’s

health deteriorated and he could not leave him alone at Sion. The two

flats purchased in 2015 were in the same compound which can be

considered as one property. Both the flats were never occupied that

intended to be occupied single unit and should be considered as a

single unit for allowability of deduction u/s 54F. The assessee

submissions of assessee was not accepted by AO and rejected claim of

assessee u/s 54F of Rs. 2,66,82,526/- and added to the total income of

the assessee. 3. The AO further noted that income of two minor children was also

clubbed with the assessee after claiming exemption u/s 54F for (long

term capital gain) LTCG earned by them on sale of shares and mutual

funds individually. The AO also issued show cause notice as to why

the benefit u/s 54F should not be denied in the hands of minor. The

assessee also filed his reply to the show cause on the denial of

exemption u/s 54. In the reply, the assessee stated that income of the

minors is to be clubbed after computing the same in accordance with

law. Further capital gain is to be allowed as per chapter IV-E and

minors are entitled for the benefits of section 54F. The assessee also

relied on the decision of Kolkata Tribunal in DCIT Vs Rajeev Goyal

[22 taxmann.com 34]. The reply of the assessee was not accepted and

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

AO disallowed exemption of Rs. 2,11,90,716/-.The AO completed the

assessment u/s 143(3) on 10-12-2015 determining total income at

Rs.5,22,65,417/- and denied the exemption claimed by assessee u/s

54F to the extent of Rs.4,79,46,206/-.On appeal before the ld. CIT(A),

the action of assessing officer was confirmed. Thus, further aggrieved

by the order of ld. CIT(A), the assessee filed present appeal before this

Tribunal.

(ld.AR) of the assessee and the learned departmental representative (ld.

DR) for the revenue and perused the material available on record. The

Ld.AR of the assessee submits that assessee being an individual,

earned long term capital gain along with his minor children Aditya and

Natisha on sale of equity shares of a private limited company. The ld.

AR for the assessee explained the details of asset wise LTCG on sale

of equity shares and mutual funds and sale of house property.

particulars Assessee (A) AY No. of shares Amounts Rs. Date of acquisition From AY 1987- 126000 9,73,918/- 88 to 1995-96 (indexed cost) Details of sales 126000 3,27,60,000/- LTCG 3,27,60,000/- STCL -1,03,510/- AY 2013-14 LTCG net STCL 3,16,82,572/- Benefit u/s 54 EC claimed : allowed 50,00,000/- Benefit u/s 54F(investment in 2,62,82,572/- CGAS) Income chargeable under the head Nill capital gain Benefit u/s 54F denied 2,66,82572/- Assessee’s LTCG 2,66,82572/- 4

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

In case of Aditya Shah (Minor Child)

particulars Aditya Shah (Minor Child)

AY No. of shares Amounts Rs. Date of acquisition From AY 1987- 60,000 3,24,642/- 88 to 1995-96 (indexed cost) Details of sales 42,000 1,09,20,000/- LTCG 1,05,95,358/- STCL ----- AY 2013-14 LTCG net STCL 1,05,95,358/- Benefit u/s 54 EC claimed : allowed ----- Benefit u/s 54F(investment in 1,05,95,358 CGAS) Income chargeable under the head Nill capital gain

Benefit u/s 54F denied 1,05,95,358/- Assessee’s LTCG 1,05,95,358/- In case of Natisha Shah (Minor Child)

particulars Natisha Shah (Minor Child) -

AY No. of shares Amounts Rs. Date of acquisition From AY 1987- 60,000 3,24,642/- 88 to 1995-96 (indexed cost) Details of sales 42,000 1,09,20,000/- LTCG 1,05,95,358/- STCL -- AY 2013-14 LTCG net STCL 1,05,95,358/- Benefit u/s 54 EC claimed : allowed -- Benefit u/s 54F(investment in 1,05,95,358 CGAS) Income chargeable under the head Nill capital gain

Benefit u/s 54F denied 1,05,95,358/- Assessee’s LTCG 1,05,95,358/- Total LTCG claimed, allowed and denied,

Particulars Amounts Rs.

Details of sales 5,46,00,000/-

LTCG 5,29,76,798/-

STCL -103,510/-

LTCG net STCL 528,73,288/-

Benefit u/s 54 EC claimed : allowed 50,00,000/-

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

Benefit u/s 54F(investment in CGAS) 478,73,288/- Income chargeable under the head capital Nil gain Benefit u/s 54F denied 478,73,288/- Assessee’s LTCG 478,73,288/- B- Details of long term capital gain on sales of Mutual Funds of minors

Particulars Aditya Natisha Total Sales value -Rs 20,77,464/- 24,28,578/- 45,06,042/- Indexed cost Rs. 20,36,498/- 23,96,624/- 44,33,123/- LTCG Rs 40,966/- 31,954/- 72,920/- Date of purchase 12.04.2010. 23.04.2010 Date of sale 05.12.2012 05.12.2012 Period of holding 2 years 2 years Benefits claimed 40,966/- 31954/- 72,920/- u/s 54F (investment in CGAS) Benefit u/s 54F 40,966/- 31,954/- 72,920/- disallowed C- LTCG on sale of house property by assessee;

Particulars Juniper flat Mayflower Total Flat 1601 flats - 1601/1602 Date of purchase 15.10.2007 16.12.2007 (AY-2008-09) (AY-2008-09) Date of occupation certificate 22.07.2009 22.07.2009 Date sale 06.12.2012 01.12.2012 Period oh holding 5 years 5 years LTCG 25,41,264/- 34,99,372/- 60,40,636/- Benefit u/s 54 claimed and 25,41,264/- 34,99,372/- 60.40,636/- allowed

explained that the assessee and minors invested the capital gain in the

capital gain account scheme for availing exemption u/s 54F.

Accordingly, minors, viz. Aditya and Natisha have no income 6

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

chargeable to capital gain in view of the investment in capital gain

account scheme. 6. The Ld.AR submits that as per definition of income u/s 2(24)(vi),

capital gain is defined as “capital gain chargeable u/s 45”. Section

45(1) of the Act which is a charging section exclude the charge of

capital gain in case of investment is made in accordance with section

54F. Consequently, such capital gain does not accrue or arise and,

therefore, does not form part of gross total income. If capital gain is

not charged u/s 45, there is no capital gain chargeable to tax.

Therefore, the investment made by minor children u/s 54F left no

chargeable capital gain which could be clubbed u/s 64(1A) in hands of

assessee. The AO clubbed the capital gain income of children without

considering investment by them u/s 54F. The assessee has challenged

the action of lower authorities in wrongful clubbing of gross capital

gain of minor children. In support of his submission, the Ld.AR of the

assessee relied upon the decision of Tribunal in Govind Rohira 95 ITD

77 and Madanlal Bassi 88 ITD 557 and Rajiv Goyal 81 ITD 379. The

ld. AR for the assessee submits that in view of the facts explained and

the case law relied by him; the ground No. 1.1& 1.2 are liable to be

allowed.

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

lower authorities. The Ld. DR further submits that when the assessee

himself is not eligible for exemption u/s 54, how the same could be

given to the minor children, whose income is required to be clubbed

with his income. The lower authorities have rightly disallowed the

claim of exemption. In support of his submissions the ld. DR for the

revenue relied on the decision of Delhi Tribunal in ITO Vs Subash

Chandra Wadhwa 366 TTJ 075/ 2001(6) TMI-ITAT Delhi. 8. We have considered the rival submissions of the parties and have gone

through the orders of the lower authorities. During the assessment the

AO clubbed the income / capital gain of both the minors with the

assessee without considering the facts that the minors’ income was

invested in capital gain accounts scheme (CGAS). The ld CIT(A)

affirmed the action of the AO by taking view that section 64(1A) of the

Act states that while computing the income of any individual , there

shall included all such income accrued or arise to his minor children. It

was also held that the assessee is also not entitled for the benefits of

section 54F; the same cannot be extended to the minors. We have

noted that the lower authorities have not disputed the date of

acquisition and sale of assets, nature of asset and the period of holding,

at the hand on the minors. Further, there is no dispute that the gains

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

earned by minors were invested in CGAS. We have further noted that

after the investment made by minor children u/s 54F left no chargeable

capital gain which could be clubbed u/s 64(1A) in hands of assessee. 9. The coordinate bench of Kolkata Tribunal in Rajeev Goyal (supra)

held that in case of clubbing of income of minors child, deduction u/s

54EC is to be allowed on minors’ income from LTCG separately and

only net income is to be clubbed. In Madan Lal Bassi (supra),

Chandigarh bench of Tribunal also held that under section 45(1), any

profits or gains arising from the transfer of a capital asset are chargeable

to income-tax. Save as otherwise provided in various sections including section 54F. In other words, if section 54F is applied, only the amount of capital gains found taxable after application of above provisions can be charged to income-tax. Therefore, to find out whether there is any profit

or gain chargeable to tax under section 45(1), the provisions of both the sections are to be read together. Section 54F cannot be read in isolation. Considering the aforesaid decisions of the Tribunal the AO / CIT(A)

was not justified in denying the exemption of capital gain to the

minors, which was invested in capital gain accounts scheme (CGAS). 10. The case law relied by the ld. DR for the revenue in Subhash Chandra

Wadhwa (supra) is not helpful to him as the facts of this case are

entirely based on different facts. In that case the assessee claimed the

assessee claimed deductions which was separately allowable under 9

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

section 10(32) and has already been allowed to him. And the assessee

was further claiming deduction u/s 80I for each of the children and

thus his claim was not admissible. However, the facts of the case in

hand are entirely different. Therefore, we direct the AO to allow

exemption with regard to the capital gain earned and invested on behalf

of both the minors in CGAS. In the result the ground No. 1.1 &1.2 are

allowed.

assessee. The ld. AR for the assessee submits that the AO denied

exemption u/s 54 on the ground that the assessee is the owner of more

than one residential house on the date of transfer of shares from long

term capital gain arose. However, the fact is that the builder has not

made conveyance of the property to the assessee or to the society (not

form at that point of time). The Ld.AR of the assessee submits that he

has filed copy of the agreement between assessee and builder. Thus,

the assessee has not acquired title to the property which can be

considered as ownership. Besides that the properties are jointly held

which is evident from the copy of agreement which is placed on

record. Such general holding is not exclusively ownership and does not

breach the claim of exemption u/s 54F. In support of his submission,

the Ld.AR of the assessee relied upon the decision of Hon’ble Supreme

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

Court in Alipati Ventaramaih 57 ITR 185 (SC); Gujarat High Court in

Ushaben Jayantilal Sodhan 93 taxmann.com 453 (Guj (HC), decision

of Tribunal in Rasiklal Satra (98 ITD 335), Ashok Chouhan (176 ITD

717), Smt. Vasanti Rangarajan 23 taxmann.com 299 (Madras HC),

Kapil Nagpal (63 taxmann.com 336 (Delhi HC). 12. On the other hand, the Ld. DR for the revenue supported the order of

lower authorities. The Ld. DR further submits that the assessee was

owner of more than one residential house and the exemption claimed

u/s 54F cannot be allowed if the assessee is owner of more than one

residential house as on the date of transfer of share. In support of his

submission, the Ld. DR for the revenue relied upon the decision of

Hyderabad Tribunal in Apsara Bhavana Sai (148 ITD 658). To support

the clubbing of income of assessee with minors relied upon the

decision of Yogi Aggarwal (96 ITD 288). 13. In the rejoinder submission, the Ld.AR of the assessee submitted that

the decisions relied upon by Ld. DR for the revenue in Apsara Bhavana

Sai (supra) is of non-jurisdictional Tribunal, while the assessee has

relied on the decision of jurisdictional Tribunal in Rasiklal Satara

(supra), Ashok Chouhan (supra) and Hon’ble Madras High Court in

Vasanti Rangarajan (supra), therefore, in view of the decision of

Hon’ble Madras High Court in Vasanti Rangarajan (supra), the

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

reliance by ld. DR is not a good law. On the decision of Yogi

Aggarwal relied by ld. DR, the ld. AR of assessee submits that this

decision is completely distinguishable on fact. Similarly, the facts in

Subhash Chandra Wadhwa relied by ld. DR for the revenue is not

based on the exemption provision like 54F under consideration, rather

relates to deduction of Chapter-VI of section 80L or 80I are not

applicable on the facts of the case of assessee.

through the orders of authorities below. The AO denied the exemption

u/s 54 to the assessee by taking view that the assessee is owner of more

than one residential house on the date of transfer of shares from which

the assessee earned LTCG. Before the ld. CIT(A), the assessee

furnished exhaustive written submission as recorded in para- 4 of the

impugned order. The Ld. CIT(A) upheld the action of AO by taking

view that exemption under section 54F cannot be allowed as he is the

owner of more than one residential house on the date of transfer of

shares. Before us, the ld. AR of the assessee explained that the assessee

purchased flat no. 1601 in Juniper on 15.10.2007 and flat no.

1601/1602 in Mayflower on 16.12.2007. The dates of occupation of

certificate of all the flats are 22.07.2009. The flat no. 1601 was sold on

06.12.2012 and Mayflower flats were sold on 01.12.2012. The period

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

of holding for all the flats were claimed for five years and the assessee

claimed LTCG of Rs. 25,41,264/- and 34,99,372/- respectively. The

entire benefit/gain earned by assessee was invested in CGAS. The

assessee further claimed that neither the possession of the asset was

given nor conveyance deed was executed. Thus, interest in the asset

was transferred. We have noted that there is no clarity about the facts

whether the assessee owned any other residential house or not, in the

order of Assessing Officer as well as ld. CIT(A). Therefore, we deem it

appropriate to restore this issue to the file of Assessing Officer to

decide the issue afresh. The assessee is also directed to bring all the

facts with clarity before Assessing Officer. Needless to order that

before passing the order, the Assessing Officer shall grant opportunity

of hearing to the assessee and pass order in accordance with law.

Hence, this ground of appeal is allowed for statistical purpose. 15. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 25-02-2020.

Sd/- Sd/- (R.C. Sharma) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER Mumbai, Dt : 25th February, 2020 Pk/- Copy to : 1. Appellant 2. Respondent 13

ITA No. 4566/Mum/2017-Hemant Shah (AY 2013-14)

Asstt. Registrar, ITAT, Mumbai