SRI DHEERAJ GOVINDAPPA ,BANGALORE vs. THE INCOME TAX OFFICER WARD-4(2)(2), BANGALORE

Per Shri Jason P Boaz, A.M. : This appeal by the assessee is directed against the order of CIT (A)-4, Bangalore, dated 20.01.2018, for Assessment Year 2015-16.

2.1 The assessee, an individual, earning income from house property, other sources and long-term capital gains (‘LTCG’) filed his return of income for Assessment Year 2015-16 on 22.11.2015 admitting total income of Rs.3,82,270/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) and the case was subsequently taken up for scrutiny. In the year under consideration,

ITA No. 2724/Bang/2018 Page 2 of 9 i.e., on 11.07.2014, the assessee sold a site No.339/333/1, Nallurhalli, K. R. Puram Hobli, Bangalore East for a consideration of Rs.78,75,500/-. Subsequently, the assessee along with his father, Shri. V. Govindappa, jointly purchased site No. 18, BDA NGEF, Byrasandra, Bangalore through an Agreement to Sell dated 05.08.2015 for a consideration of Rs.1,20,00,000/-; Rs.80 lakhs by the assessee and Rs.40 lakhs by his father, paid through regular banking channels. However, thereafter, the assessee and his father jointly registered the purchase of the said land vide deed dated 18.11.2015 for a consideration of Rs.80,00,000/-. The assessee claimed the entire amount of Long Term Capital Gain (‘LTCG’) of Rs.75,18,832/- arising on account of sale of property on 11.07.2014 as exempt u/s 54F of the Act by virtue of re-investment in the residential property purchased jointly on 18.11.2015 in the name of the assessee and his father.

2.2 The assessee’s case was selected for scrutiny for the Assessment Year under consideration, viz., Assessment Year 2015-16 and the assessment was concluded u/s 143(3) of the Act vide order dated 19.12.2017 wherein the assessee’s income was determined at Rs.36,75,163/-. This was in view of the fact of the AO (i) denying the assessee the benefit of cost of acquisition and (ii) restricting the exemption claimed u/s 54F of the Act to 50% of the amount of Rs.75,19,832/- claimed, by holding that since the registered deed dated 18.11.2015 for purchase of new residential property for Rs.80 lakhs did not specifically mention the shares in which the new property was purchased, he restricted the assessee’s claim exemption u/s 54F of the Act to 50% of the LTCG claimed.

2.3 Aggrieved by the order of assessment dated 19.12.2017 for Assessment Year 2015-16, the assessee filed an appeal before CIT(A)-4, Bangalore. The appeal was disposed off vide the impugned order dated 31.08.2018, allowing the assessee partial relief. In the impugned order, the CIT(A) allowed the assessee the benefit of indexation of cost of acquisition of the property sold on 11.07.2014. The CIT(A)

ITA No. 2724/Bang/2018 Page 3 of 9 further held that the consideration for the joint purchase of the new property by assessee and his father was to be taken at Rs.1,20,00,000/- and not Rs.80,00,000/- and upheld the Assessing Officer’s (AO) findings that the assessee was entitled to be allowed exemption u/s 54F of the Act to the extent of 50% thereof only.

ITA No. 2724/Bang/2018 Page 4 of 9 5.1 In this ground (supra), the assessee denies itself liable to be charged interest u/s 234A, 234B and 234C of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I therefore uphold the action of the AO in charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234A, 234B and 234C of the Act, if any, while giving effect to this order.

6.1 This ground raised by the assessee (supra), challenges the action of the authorities below in restricting the quantum of exemption claimed by the assessee i.e., Rs.80 lakhs to 50% thereof. According to the learned AR, the facts are that the total investment in the purchase of the new property at No.18, BDA NGEF, Byrasandra, Bangalore, vide Agreement dated 05.08.2015, jointly by the assessee with his father was Rs.1,20,00,000/-; i.e., Rs.80 lakhs by the assessee and Rs.40 lakhs by the assessee’s father. TDS thereon u/s 194-1A of the Act @ 1% of purchase consideration has been paid in the seller’s name viz., 1% of 80 lakhs by the assessee and of Rs.40 lakhs by assessee’s father. These facts are not disputed by the authorities below. The contention of the learned AR is that the authorities below have erred in restricting the assessee’s claim for exemption u/s 54F of the Act to 50% and instead ought to have allowed the assessee exemption of the entire amount of Rs.80 lakhs invested by him in the joint purchase of the new residential property with his father, irrespective of the fact whether the share of the assessee is mentioned or not in the registered deed dated 18.11.2015. In support of this proposition, the learned AR placed reliance on the decision of the ITAT, Delhi in the case of Virendra Kumar Sharma Vs. ITO in ITA No. 5150/Del/2017 dated 16.01.2018 and prayed that the entire claim of investment of Rs.80,00,000/- in purchase/investment in the new property be allowed in computing the exemption u/s 54F of the Act.

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6.2 Per contra, the learned DR for Revenue supported the orders of the authorities below in restricting the quantum of exemption u/s 54 of the Act to 50% thereof, as the shares are neither mentioned both in the agreement to sell nor with registered sale deed entered into by the assessee jointly with his father for investment in acquisition of the new property.

6.3.1 I have heard and considered the rival contention/submissions and perused the material on record; including the judicial pronouncements cited. The undisputed facts are that the assessee’s investment in the purchase of the new property jointly with his father is Rs.80 lakhs. The assessee has placed on record (at pages 37 to 43 of the paper book) copies of TRACES evidencing TDS payments u/s 191-1A of the Act @ 1% on Rs.80 lakhs by assessee and Rs.40 lakhs by the assessee’s father in favour of the seller. In the case on hand, the assessee has earned LTCG of Rs.75,19,832/- from sale of residential site No.339/333/1, Nallurhalli, K. R. Puram Hobli, Bangalore East on 11.07.2014. Thereafter, the assessee invested Rs.80 lakhs, being his share in acquisition of new residential property/house at No.18, BDA NGEF, Byrasandra, Bangalore, jointly with his father Shri. V. Govindappa who invested the remaining amount of Rs. 40 lakhs.

6.3.2 In the decision of the ITAT, Delhi in the case of Virendra Kumar Sharma Vs. ITO (ITA No.5150/Del/2017 dated 16.01.2018), relied upon by the assessee, it is seen that in similar factual circumstances, as in the case on hand, where the investment of capital gains by the assessee in acquisition of new residential property, jointly with his son, the AO had allowed only 50% of the exemption claimed u/s 54 of the Act. On further appeal before the Tribunal, the ITAT Delhi Bench held that the assessee is entitled for the entire capital gains invested in the purchase of the new residential property, though the said property is purchased jointly in the name of the assessee and his son. In coming to this finding the ITAT, Delhi Bench followed the decisions

ITA No. 2724/Bang/2018 Page 6 of 9 of the Hon’ble Delhi High Court in the cases of CIT Vs. Ravinder Kumar Arora in ITA No.1106 of 2011 dated 27.09.2011 and CIT Vs. Sri Kamal Wahal in ITA No.4/2013 dated 11.01.2013. The relevant portion of the decision of the ITAT, Delhi Bench in the case of Virendra Kumar Sharma Vs. ITO (supra) at paras 8 to 11 thereof is extracted hereunder:

“8. I have considered the rival arguments made by both the sides and perused the material available on record. I have also considered the various decisions cited before me. There is no dispute to the fact that the assessee, in the instant case, after selling of the house property at Dwarka, which was in his own name, for a consideration of Rs.65,00,000/- purchased another property at Noida jointly with his son. The assessee claimed the capital gain so arrived as exempt u/s 54F. However, since the property was purchased jointly with the son of the assessee, the Assessing Officer restricted the claim of exemption u/s 54 to Rs.27,23,758/- as against Rs.54,47,517/- which has been upheld by the ld. CIT(A). I find almost identical issue had come up before the Hon'ble Delhi High Court in the case of Ravinder Kumar Arora (supra). In that case also, the assessee had purchased a property jointly with the name of self and his wife and claimed exemption u/s 54 with respect to the whole of the long term capital gain that arose in his name. The Assessing Officer restricted the deduction u/s 54F to the extent of his right in the new residential property and accordingly allowed only 50% exemption of claim. Ld. CIT(A) dismissed the appeal of the assessee. On further appeal, the Tribunal allowed the claim of the assessee and held that the assessee is entitled for benefit of section 54 of the I.T. Act with reference to the whole investment of Rs.3,28,15,000/-. The Revenue filed an appeal before the Hon'ble High Court which was admitted by the Hon'ble High Court on the following substantial question of law :- "Whether the ITAT was correct in law in granting the exemption u/s 54F of the Income Tax Act, 1961, to the assessee for the whole consideration of Rs.3,28,15,000/- for the purpose of the new asset (the residential property) in the joint name of the assessee and his wife, and not to the extent of 50% share of the assessee in the new asset?" 9. After considering various arguments advanced by both the sides, the Hon'ble High Court dismissed the appeal filed by the Revenue by observing as under :- "7. Plain reading of the aforesaid provision indicates that in order to get benefit of this Section, the assessee should, inter alia, "purchase" a house. As per the Revenue, this house has to be purchased in the name of the assessee only and benefit is not given if it is purchased by the assessee jointly with his wife. 8. At the outset, important factual findings recorded by the Tribunal in this case are that it was the assessee who independently invested in the purchase of new residential house though in his own name but along with the name of his wife also and that it was the assessee who paid stamp duty and corporation tax at the time of the registration of the sale deed of the

ITA No. 2724/Bang/2018 Page 7 of 9 house so purchased and has also paid commission and legal expenses in connection with the purchase of the house. The Tribunal further records that whole of the purchase consideration has been paid by the assessee and not even a single penny has been contributed by the wife in the purchase of the house. The Tribunal also noted the argument that the property was purchased by the assessee in the joint name with his wife for „shagun‟ purpose and because of the fact that the assessee was physically handicapped. The Tribunal further concludes that as a matter of fact, the assessee was the real owner of the residential house in question. 9. On the aforesaid facts, we are of the view that the conditions stipulated in Section 54Fstand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property purchased in the joint names would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women. There are various schemes floated by the Government itself permitting joint ownership with wife. If the view of the Assessing Officer (AO) or the contention of the Revenue is accepted, it would be a derogatory step. 10. Even when we look into the matter from another angle, facts remain that the assessee is the actual and constructive owner of the house. In CIT Vs. Podar Cements (P) Ltd. & Ors., (1997) 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wife's name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 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 assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another 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. 11. We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT Vs. Natrajan, (2007) 287 ITR 271 (Mad), though this case was decided in relation to Section 54 of the Act, the said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of CIT Vs. Gurnam Singh, (2010) 327 ITR 278 took the

ITA No. 2724/Bang/2018 Page 8 of 9 same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of the Act. 12. We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ `10,000/-." 10. Similar view has been taken by the Hon'ble High Court in the case of Shri Kamal Wahal (supra) where the Hon'ble High Court has observed as under :- "7. We have no hesitation in agreeing with the view taken by the Tribunal. Apart from the fact that the judgments of the Madras and Karnataka High Courts (supra) are in favour of the assessee, the revenue fairly brought to our notice a similar view of this Court in CIT Vs. Ravinder Kumar Arora : (2012) 342 ITR 38 (Del.). That was also a case which arose under Section 54F of the Act. The new residential property was acquired in the joint names of the assessee and his wife. The income tax authorities restricted the deduction under Section 54Fto 50% on the footing that the deduction was not available on the portion of the investment which stands in the name of the assessee's wife. This view was disapproved by this Court. It noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by the assessee's wife. It also noted that a purposive construction is to be preferred as against a literal construction, more so when even applying the literal construction, there is nothing in the section to show that the house should be purchased in the name of the assessee only. As a matter of fact, Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed "a residential house". 8. This Court in the decision cited alone also noticed the judgment of the Madras High Court (supra) and agreed with the same, observing that though the Madras case was decided in relation to Section 54 of the Act, that Section was in pari materia with Section 54F. The judgment of the Punjab and Haryana High Court in the case of CIT Vs. Gurnam Singh : (2014) 327 ITR 278 in which the same view was taken with reference to Section 54F was also noticed by this Court. 9. It thus appears to us that the predominant judicial view, including that of this Court, is that for the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife. 10. Having regard to the rule of purposive construction and the object which Section 54Fseeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue."

ITA No. 2724/Bang/2018 Page 9 of 9 11. The facts of the instant case are almost similar to the facts of the cases decided by the Hon'ble High Court cited (supra) except that instead of purchase of the property jointly in the name of the wife, the assessee in the instant case has purchased the property jointly in the name of his son and the entire capital gain has been invested in the new property. Therefore, respectfully following the decisions of the Jurisdictional High Court cited (supra) I hold that the assessee is entitled to deduction u/s 54 of the I.T. Act on the whole amount.” 6.3.3 Since the facts of the case on hand and that of the case of Virendra Kumar Sharma Vs. ITO of the ITAT, Delhi (supra) are similar and concurring with the view taken therein, I am of the view and hold that the assessee is entitled to claim and be allowed exemption u/s 54F of the Act to the entire extent of LTCG re-invested by him in acquisition of the new residential property amounting to Rs.75,19,382/-, instead of 50% allowed by the authorities below. The AO is ordered accordingly. Consequently, ground No. 2 of assessee’s appeal is allowed.

Order pronounced in the open court on this 2nd day of January, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P BOAZ) Vice President Accountant Member Bangalore. Dated: 02nd January, 2019. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.