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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Shamim Yahya & Shri Amarjit Singhand
आदेश / O R D E R Per Shamim Yahya (Accountant Member) This appeal by assessee is directed against order of the Ld. CIT(A)-30, Mumbai, dated 18/12/2018 and pertains to Assessment Year 2015-16. The ground of appeal raised by the assessee is as under:-
i. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-30 erred in confirming the disallowance of exemption U/s. 54 of the Income Tax Act in respect of the long term capital gain arising to the appellant upon sale of a residential flat. ii. The Assessing officer erred in implying the true meaning of a provision of law and has to be determined on the basis of what it provides by its clear language, with due regards to the scheme of law. iii. The intention of the Act as well as the intention of the assessee is to be considered in a right perspective. iv. Facts and claim of the case CIT(A)-30 justify rejecting 54EC exemption of claim to the extent of Rs. 7,70,000.00 merely because it was kept in an appellant's Savings bank account instead of separate Capital Gain scheme account. v. Keeping in view the totality of the facts and circumstances of the case the amount of Rs. 7,70,000.00 were ultimately invested within the stipulated time in purchase of new property vi. Kindly Accept the compilation of decision relied upon which was not allowed by the Assessing Officer at the time of his hearing which is self explanatory.
The brief, facts of the case are as under:-
The assessee appellant flied return of income for the A.Y.2015-16 on 31.08.2015 declaring total income of Rs. 20,41,430/-. The case was selected for scrutiny under CASS. Notices u/s 143(2) and 142(1) alongwith questionnaire were issued and served on the assessee appellant. The Ld. AO observed that the assessee appellant has sold property during the FY 2014-15 for Rs.3,61,00,000/- and purchased a new property worth Rs.1,57,70,000/-, against which the assessee appellant had paid Rs.1,50,00,000/- in FY 2014-15 andRs.7,70,000/-, in FY 2015-16. Long term capital gain was computed at Rs. 18,10,270/- and the assessee appellant claimed
Rs.7,70,000/- as deduction u/s 54 of the I.T. Act, 1961 for Long Term Capital Gain earned on sale of immovable property during FY 2014-15. The Ld. AO held that as per the provisions of Sec. 54, the assessee appellant did not utilise the capital gains towards purchase/construction of a house before the due date of filing of the return, that is the unutilised amount of Rs.7,70,000/- (carried forward from FY 2014- 15) was required to be deposited in Capital Gain Account Scheme of any Bank. The assessee appellant kept the unutilised amount of Rs.7,70,000/- in her savings bank account instead of depositing the same in a specified Capital Gain Scheme Account. The Ld. AO therefore disallowed the deduction of Rs.7,70,000/- and added the same to the total income of the assessee appellant for A.Y. 2015-16.
Against above order assessee appealed before the Ld. CIT(A). Ld. CIT(A) noted the submissions of the assessee as under:-
• That the assessee appellant had paid Rs.1,50,00,000/- (95.12%) before filing of the IT Return and balance token of Rs.7,70,000/- (4.88%) was withheld by her as the builder had not given the necessary possession. • That the unused amount of Rs. 7,70,000/- was paid to the builder within two months of filing the returns inspite of the developer not giving the possession, as her intentions were clear.
• That the amount of Rs. 7,70,000/- was ultimately invested within the stipulated time frame as mentioned u/s 54EC of Income Tax Act in purchase of new property. • That it was not the intention of the assessee appellant to utilise the amount for any other purpose other than for the purchase of the house. 4. Thereafter, Ld. CIT(A) dealt with the assessee’s claim. He proceeded to make enhancement and held that in view of her order of enhancement the assessee’s plea for relief on account of Rs.7,70,000/- is redundant. However, for the sake of completeness, Ld. CIT(A) dealt with the issue and decided the same against the assessee. We may gainfully refer to the concluding adjudication of the Ld. CIT (A) as under:-
5.8 The assessee appellant has a one third share in the said property, that is one third of Rs 2,65,00,000/-. In view of the decision of the jurisdictional Hon'ble High Court of Bombay and the ratio of the order of the Hon'ble Punjab and Haryana High Court, the claim of exemption u/s 54 is restricted to one third of the consideration for purchase of property of Rs 2,65,00,000/, i.e. Rs. 88,33,333/-, as against Rs 1,57,70,000/- claimed by assessee appellant and the income is enhanced accordingly. (the assessee appellant has not furnished any proof that the share of her husband devolved upon her alone. Else, the claim of the assessee appellant would have been computed at two-thirds.) 5.9 Accordingly, the income from long term capital gains is computed as under:- Income from Long Term Capital Gain Sale Agreement value:- 3,61,00,000.00 Less: Legal Fees Paid:- 45,000.00 Less: Indexation as on 31.03.2015: 1,68,24,730.00 Less: U/s 54 88,33,333.00 1,03,96,937.00
As per working 1,03,96,937.00 Less: Exempted u/s 54EC 16,50,000,000 84,46,937.00
The income from long term capital gains declared by the assessee appellant is Rs. 18,10,270/-. The income from long term capital gains determined by the Ld AO is Rs. 25,80,270/-. This is enhanced per the computation supra to Rs 87,46,937/-.
The long term capital gain has been re-computed and enhanced as above. Therefore, the claim for relief against the disallowance of Rs 7,70,00 0 by the assessee appellant, on account of unutilized balance being paid by assessee appellant after filing of ROI, becomes redundant and does not merit adjudication. However, the same is adjudicated for the sake of completeness.
Appellant filed her return of income for AY 2015-16 declaring total income of Rs.20,41,430/- on 31.08.1S and claimed deduction u/s.54 of the I.T. Act for the Long Term Capital Gain earned on sale of immovable property. The unutilized balance of Rs. 7,70,000/- (Rs. 1,57,70,000 - Rs. 1,50,00,000) of FY 2014-15 was paid by the appellant to the builder only in November/December 2015 i.e. FY 2015-16 and also after the date of filing of Return of income for A.Y. 2015-16, i.e. 31.08.2015.
As per the provision of section 54(2) of the I.T. Act, 1961, the unutilized amount of FY 2014-15 amounting to Rs. 7,70,000/- should have been deposited in a bank account opened under capital gain account scheme. The provision of section 54(2) of the I.T. Act is reproduced as under.
'The amount of the capital gain which is not appropriated by the assessee appellant towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee appellant for furnishing the return of income under subsection (1) of section 1391 in an account in any such hank or institution as may be specified in and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purpose of sub-section (1), the amount, if any, already utilized by the assessee appellant for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: ..." It is an undisputed fact that the assessee appellant has not deposited the unutilized amount of Rs. 7,70,000/- under Capital Gain Account scheme on or before the due date for filing of return of income for A. Y. 2015-16 which was 31.07.2015 and thus is not entitled for claim of deduction of Rs. 7,70,000/- u/ s. 54 of the I.T. Act, 1961.
The assessee appellant submitted that it was only a technical error and the amount was utilised for purchase of property only and was paid to builder within two months of it lying in the savings bank account. The assessee appellant relied on the decision of the Hon'ble ITAT, Mumbai in the case of Kishore H Galaiya ((2012) 24 taxmann.com 11 (Mumbai)). The Hon'ble ITAT, Mumbai held that in view of judgment of Punjab and Haryana High Court in CIT v. Jagriti Aggarwal [2011] 339 ITR 610, wherein it was held that sub-section (4) of section 139 has to be read along with sub-section (1), extended period under section 139(4) has to be considered for purpose of utilization of amount of capital gain and assessee appellant could not be said to have defaulted in not depositing amount under capital gain account scheme, as it had utilized entire capital gain before extended period under section 139 (4) i.e., 31-3-2008. The assessee appellant also relied on the decision of the Hon'ble ITAT, Jodhpur in the case of Jagan Nath Singh Lodha ([2005] 148 Taxman 1 (Jodhpur)(MAG.)). The Hon'ble ITAT held that since intention of assessee appellant from very beginning was to purchase a flat and it was not a case of department that assessee appellant wanted to utilise amount for purpose othcr than to purchase a house, amount which was ultimately invested within stipulated time was to be exempt from tax although assessee appellant failed to technically deposit same in Capital Gains Account.
The jurisdictional High Court, which is the Hon'ble HC of Bombay held in the case of Humayun Suleman Merchant ((2016) 387 ITR 421 ((Bombay) that where assessee appellant had filed return of income and entire amount which was subjected to capital gain tax had not been utilized for purpose of construction of new house, nor were unutilized amounts deposited in notified Bank Accounts before filing return of income, Assessing Officer rightly restricted exemption under section 54F proportionately to amount invested. Amount subject to capital gain on sale of capital asset for purpose of exemption has to be utilized before date of filing of return of income and mandate of section 54F(4) is clear that amount which has not been utilized in construction and/or purchase of property before filing return of income, must necessarily be deposited in an account duly notified by Central Government, so as to be exempted. Where assessee appellant had filed return of income and entire amount which was subject to capital gain tax had not been utilized for purpose of construction of new house nor were unutilized amounts deposited in notified Bank Accounts in terms of section 54F(4) before filing return of income, Assessing Officer rightly computed deduction under section 54F, restricting exemption under section 54F proportionately to amount invested. Accordingly, following the decision of the Hon’ble jurisdictional High Court, the appeal of the assessee appellant is dismissed. In view of the discussion supra, the long term capital gains of the assessee appellant is enhance.
Against above order, assesse has filed appeal before us.
We note that no ground has been raised regarding the enhancement made by the Ld. CIT(A). The assessee is only aggrieved that that assessee should be granted benefit of investment of Rupees. 7,70,000/-, which was neither utilised for the purpose of acquiring the new flat before filing the date of return nor the same was kept in specified capital gain bank account as mandated in the act.
We have heard both the counsel and perused the records. Ld. Counsel of the assessee pleaded that assessee is a senior citizen that she has always paid her taxes in time. He pleaded that assessee had full intention to make the payment for the flat. That she was under bona-fide belief that deposit in her saving bank account would not be infraction of section 54F of the Act. He submitted that immediately within two months of the filing of return that assessee has duly paid the sum of Rs.7,70,000/- to the builder, which was earlier withheld for ensuring due performance by the builder. Ld. Counsel of the assessee placed reliance upon Catena of case laws for the proposition that section 54F should be liberally construed.
Per Contra, Ld. Departmental Representative relied upon the order’s of the Ld. CIT(A). Ld. DR submitted that Ld. CIT(A) has correctly dealt with the concerned exemption provisions contained in section 54 of the Act. He submitted that as per the provisions of the act, assessee should have deposited the unutilized money in the specified capital gain account. Ld. DR submitted that since assessee has not followed the mandate of the act the decision of Hon’ble Bombay High Court relied by the Ld. Commissioner of Income Tax is correctly applicable on the facts of the case. Ld. Counsel further placed reliance upon the decision of the Hon’ble Apex Court Constitutional Bench judgement in the case of Commissioner of Custom vs M/s Dilip Kumar and Company in Civil Appeal No.3327 of 2007, vide order dated 30/07/2018 for the proposition that exemption provision/ notification have to be strictly construed and if two view are possible one in favour of the revenue should be adopted. Hence Ld. DR submitted that order of the Ld. CIT(A) on this issue should be upheld.
In rejoinder in this regard learned counsel for the assessee contended that even as per the decision of the aforesaid constitutional bench assessee is entitled to the exemption. He submitted that assessee has duly fulfilled all the criteria. He referred to the case laws that substantial payment will be sufficient for the purpose of the Act. The Ld. counsel for the assessee pleaded that the provision of section 54 should be liberally construed.
Before proceeding further, we may gainfully refer to the provisions of section 54 as under:-
“54. (1) 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. Following provisos shall be inserted after clause (ii) of sub-section (1) of section 54 by the Finance Act, 2019, w.e.f. 1-4-2020 : Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India, and where such option has been exercised,—
(a) the provisions of this sub-section shall have effect as if for the words "one residential house in India", the words "two residential houses in India" had been substituted; (b) any reference in this sub-section and sub-section (2) to "new asset" shall be construed as a reference to the two residential houses in India: Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]” In this case, the assessee has claimed investment of Rs.1,57,70,000/-. The sum of Rs.1,50,00,000/- was utilised before the filing of the return. To that extent authorities below have granted exemption u/s 54 of the Act. A sum of Rs.7,70,000/- which was not invested was kept in assessee saving bank account instead of specified capital gain account as per the prescription of Section 54(2) of the Act as highlighted above. The assessee claims that said amount was paid within two months of the date of filing of return and since substantial compliance has been done the assessee should granted deduction for the aforesaid sum of Rs.7,70,000/- also, by liberally construing the provisions of the act in this regard, we find that it is undisputed that assessee has not utilised a sum of Rs.7,70,000/- for the purchase of the new flat by the time of filing of return. It is also undisputed that the said amount was not deposited in a specified capital gain account. As per the mandate of the act, in this view of the mater, it is clear that, there is a default on the part of the assessee in complying with the provisions of the Act. The reliance by Ld. CIT(A) on Hon’ble Bombay High Court’s decision is germane. In these circumstances, the ratio of the decision of the constitutional Bench of Hon’ble Apex Court is squarely applicable. Hon’ble Constitutional Bench of the Apex Court was considering the question of interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be offered. The Hon’ble Apex Court concluded as under:-
“52. To sum up, we answer the reference holding as under - (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands over-ruled.
11. Examining the present issue on the touchstone of above said constitutional bench decision, we find that admittedly the assessee has not followed the prescription of the statute dealing with exemption provision of section 54 properly to the extent of investment of Rs.7,70,000/-. It is not the case that the entire claim of the assessee is being denied.
Exemption to the extent of the payment of Rs.1.5 crores before the date of filing of return has been duly allowed. It is only to the extent of Rs.7,70,000/-, the unutilized portion in that year which as per the mandate of the act was required to be deposited in the capital gain account the claim is being denied. We have full sympathy with the assessee’s claim.
However, the Hon’ble Apex Court constitutional bench decision is applicable here. Hence in view of the aforesaid case laws, we are unable to accede to the request of the Ld. Counsel of the assessee. Accordingly, in the background of aforesaid discussion and precedent, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, we uphold the same.
In the result, appeal filed by the assessee stand dismissed.
Order pronounced in the Open Court on 13/05/2019