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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI G. MANJUNATHA
Per G. Manjunatha, Accountant Member:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-34,
Mumbai, dated 30-03-2017 and it pertains to AY 2012-13. The Revenue has raised
the following grounds of appeal:
: 2 :
"On the facts and circumstances of the case and in law, the Ld. CIT(A) was incorrect in holding that the income from sale of shares of Privilege Breweries Pvt. Ltd. (PBPL) is to be taxed as capital gains, instead of income from other sources, as rightly held by the Assessing Officer."
"On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the wrong mentioning of section 56(2)(v) by the assessing officer can be corrected u/s. 292B of the IT Act and the income is to be assessed u/s 56(2)(vii)(a) of the IT Act."
"On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the sale price for shares of PBPL of Rs. 2.8 Crores received by the assessee was not justified from its financial performance and was without adequate basis for valuation as the P&L for PBPL for FY 2009- 10, FY 2010-11 and FY 2011-12 showed income of Rs. 20,000/-, NIL and NIL respectively; and size of balance sheet for FY 2O09-10, FY 2010-11 and FY 2011-12 was Rs. 1,00,000, Rs. 16,15, 87 5/- and Rs. 3,76,329/- respectively, and in the absence of any quantitative valuation provided by the assessee for the letter of intent for beer manufacturing facility issued by State Excise Authority to manufacture 2,50,000 Hecta Litre per annum."
"On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing benefit u/s 54F to the assessee, as the income against which the benefit was claimed was income from other sources as rightly treated by the Assessing Officer, instead of capital gains as treated by the assessee."
4a."Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing benefit u/s. 54F to the assessee, as the registered sale deed for new asset was executed on 30.01.2014 i.e. after two years from the date of sale of original asset by the assessee, and further in the absence of any evidence given by the assessee regarding date of completion of payment for new asset and date of possession of new asset as per the prescribed time limit u/s. 54F of the I. I.T. Act."
4b."Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee has made substantial payment of Rs. 2.25 Crores to the developer on 23.12.2011 even before the : 3 : letter of allotment was signed on 27.01.2012 and there is no mention of these payments even on the registered sale agreement dated 30.01.2014, hence, it cannot be ascertained whether the payments were actually made for the purchase of new residential property and thus, the benefit u/s. 54F is not allowable."
4c. "Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by allowing benefit u/s. 54F to the assessee, as total payment of Rs. 55 lakhs made on 24.01.2012 and 26.09.2012 for the new asset, was not out of the share transfer proceeds received by the assessee, and hence not eligible for benefit u/s. 54F of the IT Act."
The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A.O. be restored.
The appellant craves leave to add, delete, alter, amend and modify any or all grounds of appeal”.
Brief facts of the case are that assessee had shown Long
Term Capital Gain (LTCG) from shares of Privilege Breweries
Pvt. Ltd., @ Rs. 5,600/- per share having face value of Rs.
10/- per share. The assessee had computed LTCG by claiming
indexed cost of acquisition at Rs. 75,626/- and thereafter,
claimed deduction u/s. 54F of the Income Tax Act, 1961(Act)
in respect of re-investment of sale consideration for purchase
of residential house property.
During the course of assessment proceedings, AO called
upon the assessee to furnish necessary details in support of : 4 : LTCG computed in respect of sale of shares of Privilege
Breweries Pvt. Ltd. In response, assessee has filed complete
details along with share purchase agreement, as per which assessee has sold its 50% share holding in Privilege Breweries
Pvt. Ltd., to Privilege Industries Ltd., for a consideration of Rs.
2,80,00,000/-. The said agreement was entered into on 18-
03-2010 but the payment for transfer of equity shares has been received on 23-12-2011. The assessee had further asked
to produce a copy of Balance Sheet along with financial
statement of Privilege Breweries Pvt. Ltd. The AO after
considering the relevant submissions and financial statements
of the assessee observed that the price for which the shares of Privilege Breweries Pvt. Ltd., sold to Privilege Industries Ltd.,
is not real intrinsic value of shares as total balance sheet of Privilege Breweries Pvt. Ltd., is less than Rs. 16,15,875/- and the company does not have any business activities for the year
under consideration. The AO further observed that there was no justification for the Fair Market Value of the shares of Privilege Breweries Pvt. Ltd., as on the date of transaction of sale of shares. In view of the above, AO concluded that assessee had received the sum without any consideration and that the sum received from Privilege Breweries Pvt. Ltd., is : 5 : assessable to tax under the head ‘income from other sources’
as per the provisions of Section 56(2)(v) of the Act. The AO
further observed that since income from sale of shares has been assessed under the head ‘income from other sources’,
the question of allowing deduction claimed u/s. 54F towards
re-investment of sale consideration for purchase of residential
house property does not arise and hence denied the benefit of deduction claimed u/s. 54F of the Act.
Aggrieved by the assessment order, assessee filed an appeal before the CIT(A).
Before the CIT(A), assessee has filed elaborate written
submissions which have been reproduced at para 4.2 in Page
Nos. 4 to 8 of the order of Ld. CIT(A). The sum and substance
of arguments of assessee before CIT(A) are that transfer of equity shares of Privilege Breweries Pvt. Ltd., needs to be assessed under the head ‘income from capital gains’ but not under the head ‘income from other sources’ as claimed by the AO as the share purchase agreement clearly establishes the fact that assessee has transferred its 100% holding in the said
company to another company for a consideration. The assessee further contended that Privilege Breweries Pvt. Ltd.,
: 6 : is holding an asset which is having value as per which the company has obtained a letter of intent from Government of Maharashtra for setting up and manufacture of alcoholic beer.
It was further contended that purchase and sale of shares
between the entities is a decision taken by the parties for the reasons best known to them. The AO cannot question the business decision taken by the entities as long as the genuineness of the transaction is not in doubtful. In this case, AO never doubted the genuineness of the transactions
but only questioned the transactions for the sake of charging
higher premium, which is not permissible. The assessee also argued on the issue of deduction claimed u/s. 54F of the Act.
Ld. CIT(A) after considering the submissions of assessee
and also relied upon certain judicial precedents, held that AO
was erred in applying the provisions of Section 56(2)(v) of the Act as from the facts gathered, during the course of the proceedings, it was clearly proved that the transactions
between the parties does not fall within the purview of Section 56(2)(v) of the Act. Ld. CIT(A) further observed that the assessee has entered into share purchase agreement with Privilege Industries Ltd., for transfer of his holding in Privilege
: 7 : Breweries Pvt. Ltd., for which consideration has been agreed
by the parties. The AO has questioned the transfer of shares
merely for the reason that the price charged for transfer of equity shares is not representing real intrinsic value of the shares. But fact remains that assessee has produced
necessary details to prove that the company is having a letter
of intent from Government of Maharashtra for manufacturing
of alcoholic beer, which is having a potential business.
Because of this, the purchaser agreed to take over the business. Insofar as the deduction claimed u/s. 54F of the Act, Ld. CIT(A) observed that as per the details furnished by the assessee, the assessee has purchased a flat out of the sale
proceeds of shares of Privilege Breweries Pvt. Ltd., and when
the date of transfer of shares and date of investment in residential house property is concerned, the investments made
by the assessee in the residential house is fall within the period of two years as prescribed under the Act. Ld. CIT(A)
further observed that in case of purchase of flat, the date of allotment shall be considered for the purpose of deciding the date of acquisition of the new asset but not the date of agreement. In this case, the assessee has been allotted a flat
by way of letter of allotment dt. 27-01-2012. On that date,
: 8 : assessee has made substantial payment for acquisition of the flat. Therefore, there is no reason for the AO to deny the benefit of exemption u/s. 54F. The relevant observations of Ld. CIT(A) are extracted below:
“4.3 I have considered the facts of the case and the appellant's submissions. It is seen that the appellant and his wife were each holding 5000 equity shares of Rs.10/- per share in M/s Privilege Breweries Pvt. Ltd.(earlier known as Samegh Breweries and Distilleries Pvt. Ltd.) aggregating to 10000 shares which constituted the total authorized and paid up capital of the said company. M/s Privilege Breweries Pvt. Ltd. was holding Letter of Intent issued by the State Excise Authority to set up beer manufacturing facility of 2,50,000 HectaLitre per annum. As per the Share Transfer Agreement dated 18.03.2010, the appellant and his wife had entered into an agreement with M/s Privilege Industries Ltd. to transfer these 10000 shares along with management control of the company for a consideration of Rs. 5,60,00,000/-. The transfer was to be deemed as completed only on receipt of full consideration as per the terms of the Share Transfer Agreement.
4 The appellant, on completion of the transfer of shares, had shown his share of the sales consideration as capital gains which was treated as income from other sources by the Assessing Officer on the ground that the financials of M/s Privilege Breweries Pvt. Ltd. did not justify the transfer of its shares at such a high price. The Assessing Officer was of the view that the amount received by the appellant was without any consideration and hence treated the same as income from other sources by invoking the provisions of section 56(2)(v) of the Act.
5 I find that there is a Share Transfer Agreement on record by which the appellant and his wife agreed to transfer the shares held by them in M/s Privilege Breweries Pvt. Ltd. along with management control of the company to M/s Privilege Industries Ltd. for a consideration of Rs. 5,60,00,000/-. The amount received by the appellant pursuant to this agreement cannot , therefore, be said to be without any consideration as it was received on account of transfer of shares along with management control of the company. The purchase of shares of M/s Privilege Breweries Pvt. Ltd. is also reflected in the audited accounts of M/s Privilege Industries Ltd. Regarding the Assessing Officer's view that the financials of M/s
: 9 : Privilege Breweries Pvt. Ltd. did not justify the transfer of its shares at such a high price, the fact of the company holding Letter of Intent issued by the State Excise Authority to set up beer manufacturing facility of 2,50,000 Hecta Litre per annum which is a valuable asset cannot be ignored. The sales consideration received was, therefore, not without any basis or justification.
6 The provisions of section 56(2)(v) of the Act reads as under:
"(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:—
(i)………….. (ii)………….
(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 but before the 1st day of April, 2006, the whole of such sum".
The appellant had received the consideration during the relevant previous year. From a plain reading of the provisions of section 56(2)(v) of the Act reproduced above, it is apparent that the appellant's transaction does not Tall within the purview of section 56(2)(v) as the appellant had received the sum of money for transfer of shares and the sum of money was also not received within the specified time period. The shares of M/s Privilege Breweries Pvt. Ltd. held by the appellant was a capital asset. The gains arising on transfer of a capital asset will have to be treated as income from capital gains. In view of all these facts, the action of the Assessing Officer in treating the consideration received from sale of equity shares as income from other sources u/s 56 of the Act instead of as capital gains is deleted. The appellant's ground of appeal is allowed.
“5.1 The appellant had also claimed deduction u/s.54 at Rs.2,79,24,374/-. The A.O. held that since the income was taxed u/s.56 under the head 'income from other sources', the question of allowing deduction u/s.54F did not arise. Without prejudice to this stand, the AO observed that the sale deed for purchase of the new property for Rs. 3,14,17,000/- was executed on 30.01.2014 which was after 2 years from the date of sale of the original asset as the agreement for transfer of shares between the appellant and M/s Privilege Industries Ltd. was entered into on 18.03.2010. The AO
: 10 : relied on the judgement of the Hon'ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd. vs State of Haryana 340 ITR 1 (SC) and disallowed the appellant's claim of deduction u/s 54F of the Act.
In the course of appellate proceedings, the the appellant had made submissions as below:
Re: The Ld. AO's action of denying exemption u/s. 54F of the Act on account of investment made in new residential house (Ground Nos. 2 & 3).
The Ld. AO in para 4.9 of the impugned order has stated that since the income is taxed under section 56 under the head 'Income from other sources', the question of allowing deduction u/s. 54F does not arise.
As stated above, the income accrued on transfer of shares has to be taxed under the head 'Long Term Capital Gain' and under no circumstances, the same can be assessed under any clauses of sub-section (2) of section 56 under the head 'Income from other sources'.
The AO also stated in para 4.9 that without prejudice the appellant has purchased an asset i.e., new residential house at Rs. 3,14,17,000/- on 30.01.2014 as sale deed was executed on 31.01.2010, which is after 2 years from the date of sale of original asset on the ground that the share transfer agreement was executed on 18.03.2010. Therefore, according to the Ld. AO, the exemption u/s. 154 as the appellant has not purchased the flat within 2 years from the date of transfer of original asset.
In this respect ft is submitted that the Ld. AO failed to appreciate that the transfer of share will be completed on the date of receipt of full consideration which is specifically mentioned in para 1.3 of the share transfer agreement. The copy of share transfer agreement placed at page no. 5 to 10 of paper book. On perusal of share transfer agreement, your honour will appreciate that in para 1.3 it has been specifically recited as under-
"Completion of transfer means the date of receipt of full consideration as defined in clause no. 4"
Although the share transfer agreement was executed on 18.03.2010, the appellant received the entire consideration for : 11 : transfer of shares during the previous year relevant to the AY 2012-13 and therefore, the shares were transferred during the previous year relevant to the A Y 2012-13. This fact is evident from the bank passbook of the assessee, the bank statement of M/s. Privilege Industries Ltd. and the chart showing the date wise payment received from Privilege Industries Ltd. and corresponding investment made for booking and allotment of new residential house which are placed at page nos. 12 to 14 of paper book. On perusal of page no. 13 of the paper book, your honour will appreciate that the appellant had made the investment of Rs. 2,80,00,000/- for booking and allotment of new residential house before the due date of filing the return of income. Therefore, it is submitted that the AO's contention that the appellant has made investment in new residential house after the expiry of two years from the date of transfer of original asset is incorrect and since, the investment has been made immediately after the date of transfer and before the due date of filing the return of income, the appellant has fulfilled the condition laid down in section 54F and therefore, is entitled to get exemption of entire capital gain of Rs. 2,79,24,3747- claimed in the return of income.
In para 4.10 and 4.11, the AO has relied on the decision of the Hon'ble Supreme Court in the case of Suraj Lamps and Industries Pvt. Ltd. vs. State of Haryana reported in 340 ITR 1 (SC) and disallowed the claim of deduction u/s. 54F.
In this respect it is submitted that in the case of Suraj Lamps and Industries Pvt. Ltd. (supra), the Hon'ble Supreme Court was dealing with section 54 of the Transfer of Property Act and not section 54 of the Income tax Act, 1961. In this case, Supreme Court dealt with transactions of immovable property of the nature of 'GPA-sales' or 'SA/GPA/WILL transfers'. The Supreme Court was never considered the issue of allow ability of deduction u/s. 54/54F in respect of investment made for booking and allotment of new residential house. Therefore, the AO's action of placing reliance on the decision of Suraj Lamp and Industries Pvt. Ltd. (supra) is misplaced.
The assessing officer overlooked the fact that under Income Tax for the purpose of deduction u/s 54 or u/s 54F holding of legal title is not necessary. If the tax payer pays or consideration of substantial portion of it, before the due date of filling return u/s the exemption u/s 54F is available, even if possession is handed over after the stipulated period or the sale deed is registered later on. The Assessing Officer has : 12 : denied exemption u/s 54F on the ground that the Appellant has claimed the same without having actual possession of the property as we/I as without having registration of the said property in his name. The Assessing Officer denied the exemption u/s. 54F because the possession and registration of the residential flat are lacking.
In this regard, reliance is placed on CBDT circular no 471 dt. 15/10/86 which permits cases of allotment of flats under the DDA scheme to be treated as cases of construction for the purposes of capital gains and therefore, investment of capital gain in purchase of DDA flat in the form of first installment of price of flat within two years of sale of original property would entitle Assessee to claim exemption in respect of capital gain even though construction of flat was not completed within two years.
In CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom.), it was observed that the Board had stated in Circular No. 471, dated 15-10-1986 that when an allotment letter is issued to an allottee under this scheme on payment of the first installment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of flat under this scheme should be treated as cost of construction for the purpose of capital gains.
Further, the CBDT has issued circular no. 672 dated 16.12.1993, which reads as under- "
Attention is invited to Board's Circular No. 471, dated 15- 10-1986. It was clarified therein that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act. The Board has since received representations that even in respect of allotment of flats/houses by co-operative societies and other institutions, whose schemes of allotment and construction are similar to those of Delhi Development Authority, a similar view should be taken.
The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the cooperative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No.
: 13 : 471, dated 15-10-1986 (SI. No. 428), such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act."
The above two circulars (dated 15-10-1986 and 16-12- 1993) were explained in Mrs. Seetha Subramanian v. ACIT [1996] 59 ITD 94 (Mad. - Trib.) with the following observations:
"The assessee also relied upon certain circulars issued by the CBDT. One of the circulars was [Circular No. 471, dated 15th October, 1986. This was issued by the CBDT clarifying the position that where an assessee acquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assessee has not paid all the instalments due under the said scheme. Later by another Circular No. 672, dated 16th December, 1993, the CBDT has issued clarification extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore it was contended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self-financing scheme and pays the first instalment of the cost of the construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same."
The above two circulars were applied in the case of Smt. Shashi Verma [224 ITR 106 (MP)] and it was held that :-
"Section 54 of the Income-tax Act, 1961 - Capital gains - Profits on sale of property used for residential house - Assessment year 1982-83 - Whether under Government schedules confining to two years' period for construction and handing over possession thereof is impossible and unworkable under section 54 and, thus, if substantial investment is made in construction of house, it should be deemed that sufficient steps have been taken satisfying requirement of section 54 - Held, yes,"
: 14 :
In the case of Smt. Brinda Kumar [114 Tax/van 266 (DEL)] it was held that –
"Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential house - Assessment year 1970-71 -Whether purchase of a flat in multi-storeyed building amounts to ‘construction’ of building within meaning of section 54(1) for the purpose of claiming exemption - Held, yes"
Similarly, in the case of R L Sood [108 Taxman 227 (DEL)] it was held that –
"Section 54 of the Income-tax Act, 1961 - Capital gains - Profits on sale of property used for residence - Assessment year 1982- 83 - Whether on payment of substantial amount in terms of purchase agreement within four days of sale of his old house, assessee acquired substantial domain over new residential flat within specified period, it could be said that assessee complied with requirements of section 54 - Held, yes - Whether merely because builder failed to hand over possession of flat within specified period, assessee could be denied benefit of benevolent provision of section 54 - Held, no".
Moreover, in the case of Balraj [123 Taxman 290 (DEL)] it was held that -
"Section 54 of the Income-tax Act, 1961 - Capital gains - Profits on sale of property used for residential house - Assessment year 1975-76 - Whether section 54 speaks of purchase only and for availing benefit under this section, it is not necessary that assessee should become owner of property - Held, yes - Whether, where assessee paid a sum at time of entering into an agreement for purchase of a property within a year from sale of another property, he would be entitled to benefit provided under section 54 even though there was no registration within said period - Held, yes"
Further, in the case of Dr. L N Nagda [2111TR 804 (BOM)] it was held that -
"Section 54 of the Income-tax Act, 1961 - Capital gains - Profits on sale of property used for residential house - Assessment
: 15 : year 1975-76 -Whether section 54 speaks of purchase only and for availing benefit under this section, it is not necessary that assessee should become owner of property - Held, yes - Whether, where assessee paid a sum at time of entering into an agreement for purchase of a property within a year from sale of another property, he would be entitled to benefit provided under section 54 even though there was no registration within said period - Held, yes"
Similarly, in the case of A S Khajanchi [163 Taxman 426 (MP)J it was held that –
"Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house - Whether where an assessee possessed a residential house already on date of transfer of original asset which is subjected to capital gain, assessee would not be entitled to exemption contained in section 54F on ground of purchase of new asset - Held, yes - Whether benefits of section 54F cannot be denied to assessee even if transfer of new asset in favour of assessee is not evidenced by a registered deed - Held, yes".
Further, the Hon'ble ITAT, Mumbai 'SMC' bench in the case of Rajeev B. Shah vs. ITO in ITA No. 262/Mum/2015 vide order dated 08.07.2016 has held that the assessee is entitled to get exemption u/s. 54F when he has made substantial payment for construction of residential house within a period of 3 years from the date of transfer of original asset despite the fact that he has not registered the agreement in his name and got the possession of the flat within 3 years. The copy of decision of Hon'ble Tribunal is placed at page no. 112 to 116 of paper book.
Since, the appellant has made payment of Rs. 2,62,50,000/- for acquisition of flat no. 3004 during the previous year relevant to the AY 2012-13 and the original asset was sold in the same year and balance payment of Rs.17,50,000/-was made before the due date off/ling the return of income, the appellant is entitled to get exemption u/s. 54F as claimed in the return of income.
In view of the above, the appellant prays your honour to allow deduction of Rs. 2,79,24,374/- u/s. 54F as claimed by the appellant in his return of income.
: 16 :
I have considered the facts of the case and the appellant's submissions. Since e gains arising on transfer of the shares of M/s Privilege Breweries Pvt. Ltd. has been to be income from capital gains, the allowability of deduction u/s 54F is being adjudicated.
5 The relevant portion of the provisions of section 54F of the Act reads as under:
54 F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
There is no dispute that the asset transferred is a long term capital asset. The asset transferred is also not a residential house. Out of the capital gains of Rs.2,79,24,374/- arising from the transfer of shares, the appellant had invested in a new residential house i.e., Flat No.3004 on 30th Floor in "C" Wing in "Metropolis". The appellant had made payments of Rs. 2,62,50,000/- to M/s Housing Development and Infrastructure Ltd. towards this investment during the relevant previous year itself. An amount of Rs. 17,50,0007- was also paid on 26.09.2012 which was before the due date of filing of return. The appellant's claim of deduction u/s 54F of Rs.2,79,24,374/- is, therefore, prima facie allowable as per the provisions of section 54F of the Act.
6 The Assessing Officer disallowed the claim for deduction u/s 54F by observing that the sale deed for purchase of the new property for Rs. 3,14,17,000/- was executed on 30.01.2014 which was after 2 years from the date of sale of the original asset as the agreement for transfer of shares between the appellant and M/s Privilege Industries Ltd. was entered into on 18.03.2010. It is seen that even though the Share Transfer Agreement was entered into on : 17 : 18.03.2010, as per the terms of the agreement the transfer was to be deemed as completed only on receipt of full consideration which was received during the relevant period under consideration. The AO had also relied on the decision of the Hon'ble Supreme Court in the case of Suraj Lamps and Industries Pvt. Ltd. vs. State of Haryana reported in 340 ITR 1 (SC) in disallowing the appellant's claim of deduction u/s. 54F which is misplaced as in that case the Hon'ble Supreme Court was dealing with section 54 of the Transfer of Property Act regarding transactions of immovable property of the nature of 'GPA-sales' or 'SA/GPA/WILL transfers' and not section 54 of the Income tax Act, 1961. 5.7 It is also seen that prior to registration of the agreement for sale on 30.01.2014, a letter of allotment for booking of Flat No.3004 on 30th Floor in "C" Wing in "Metropolis" stood issued to the appellant by the developer, M/s Housing Development and Infrastructure Ltd. on 27.01.2012 which falls within the prescribed time limit for claiming deduction u/s 54F. The various Courts have consistently held that section 54F is a beneficial section and that its provisions are to be construed liberally. In the instant case, a specific flat, i.e., Flat No.3004 on 30th Floor in "C" Wing in "Metropolis" had been allotted to the appellant vide letter of allotment dated 27.01.2012 for which substantial payment had also been made within the prescribed time limit u/s 54F. In the case of ACIT vs Sanjay Kumath in I.T.A.No. 448/Ind/2013 and C.O.No.83/Ind/2013, the Hon'ble ITAT Indore held that all the rights in the flat were duly acquired by the assessee on the date when he was given letter of allotment which clearly described the precise number of flat so allotted to him. That as per the provisions of section 2(47) (ii), "Transfer" in relation to capital assets included the extinguishment of any right therein. That this letter of allotment extinguished the rights of builder in the said flat in favour of the assessee in respect of this flat and by signing the letter of allotment, the assessee agreed to buy the same and for which payment was also made according to the letter of allotment. CBDT's Circular No. 4781 dated 15.10.1986 and Circular No.672 dated 16.12.1993 also states that "The allottee gets title to the properly on the issue of the allotment fetter and the payment of instalment is only a follow up and taking the delivery of possession is only a formality." The Hon'ble Bombay - :- Court in the case of CIT vs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom) had held that if assessee has acquired substantial domain over new house and has made substantial payment towards cost of construction within a period specified u/s. 54, then assessee can be said to have complied with requirements for claiming exemption u/s 54. In the instant case also, the appellant had acquired substantial domain over the new property by way of the letter of allotment and had also made the : 18 : substantial payment for the cost of the new flat within the period specified u/s 54F of the Act. In view of these facts and the legal position on the issue as discussed, it is my considered opinion that the appellant is entitled to claim deduction u/s 54F in respect of the investment in the new property. The Assessing Officer is directed to allow the appellant's claim of deduction u/s 54F of the Act. The appellant's grounds of appeal on this issue are allowed”.
Ld. DR submitted that Ld. CIT(A) erred in deleting the additions made by the AO towards computation of LTCG from sale of shares and consequent deduction claimed u/s. 54F of the Act, without appreciating the fact that assessee has failed
to justify the price charged for transfer of equity shares with necessary evidence, which represents intrinsic value of shares.
Ld. DR further submitted that assuming for a moment but not accepting that transfer of equity shares falls under the head
‘capital gains’ but the investment made in purchase of residential house is clearly outside the provisions of Section 54F as the assessee has made investments beyond two years
from the date of transfer of original asset, consequently not eligible for deduction u/s. 54F.
Ld. AR on the other hand strongly supporting the order
of Ld. CIT(A) submitted that Ld. CIT(A) has appreciated the facts in the light of evidences furnished during the course of appellate proceedings to delete additions made by the AO
: 19 : towards computation of LTCG and exemption claimed u/s.
54F of the Act. Ld. AR further submitted that merely for the reason that assessee has transferred its shares for a higher
price when compared to face value, it does not mean that the whole transaction is sham, more particularly when the transactions between the parties is genuine, which is supported by a valid share purchase agreement. Ld. AR
further submitted that insofar as exemption claimed u/s. 54F,
it is settled position of law that for the purpose of reckoning
date of investment, the date of allotment shall be considered
but not the date of agreement. In this case, assessee has allotted a flat vide allotment letter dt. 27-01-2012 and on that date, assessee has made substantial amount towards
purchase of flat. Subsequent agreement is a mere formality
but the title and interest in the property will pass on to the buyer, the moment the developer allots the flat by issuing a letter of allotment. Ld. CIT(A) has apprised the facts. In the light of above facts and his order should be upheld.
We have heard both the parties, perused material
available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact
: 20 : that assessee transferred its share holding in Privilege
Breweries Pvt. Ltd., to Privilege Industries Ltd., through a share purchase agreement dt. 18-03-2010. The assessee has agreed to transfer equity shares having face value of Rs. 10/-
@ Rs. 5600/- per share. As per the share price agreement,
transfer will complete as and when the transferee makes the full payment towards purchase of shares. It is also an admitted fact that assessee has filed necessary details in order
to prove that the company possesses a letter of intent issued
by the Government of Maharashtra for manufacture of alcoholic beverages. Therefore, we are of the considered view
that there is no merit in the findings of the Ld.AO that the assessee has received the sum for transfer of shares viz.,
without any consideration, which is assessable to tax under the head ‘income from other sources’ as per the provisions of Section 56(2)(v) of the Act. Ld. CIT(A) after considering the relevant facts has rightly held that consideration received for transfer of equity shares on Privilege Breweries Pvt. Ltd., is assessable to tax under the head ‘income from capital gains’
but not under the head ‘income from other sources’ as considered by the Ld.AO.
: 21 :
Coming to the exemption claimed u/s. 54F of the Act,
AO denied the benefit of exemption mainly for two reasons.
According to the AO, investments made in new house property
is beyond a period of two years from the date of transfer of original asset and also the assessee is not having any legal
title over the property, therefore, not eligible for exemption
u/s. 54F. AO has relied upon the ratio of Hon'ble Supreme
Court in the case of Suraj Lamps and Industries Pvt. Ltd., Vs.
State of Haryana [340 ITR 1] (SC), wherein it was held that sale of immoveable property can be made only by a registered
instrument and agreement of sale does not create any interest
or charge on such property. We find that assessee has filed
complete details in respect of purchase of new house property
as per which assessee has been allotted a flat by way of allotment letter dt. 27-01-2012. Although the agreement for sale has been registered on 30-01-2014, the fact remains that when the builder has allotted a flat by way of an allotment
letter and assessee has made substantial amount of consideration for acquisition of property, the right and interest
in the property passed on to the purchaser as on the date of issue of allotment letter but not on the date of registration of agreement. This proposition has been reiterated by various
: 22 : Hon'ble High Courts and Tribunals, wherein it was held that even assessee acquires substantial domain, over new house
and has made substantial payment towards cost of construction within a specified period under the provisions of Section 54F of the Act, then merely for the reason that agreement to sale has been registered on subsequent date
cannot be a reason for rejection of exemption claimed u/s.
54F. Ld. CIT(A) has allowed the claim after considering the relevant facts and also following the decision of the Hon'ble J.B. Wadia [216 ITR 376] (Bom). Therefore, we are of the considered view that there is no error in the findings recorded
by the Ld. CIT(A) while allowing the benefit of deduction
claimed u/s. 54F as the said provision is a beneficial
provision, which needs to be interpreted literally when all other conditions are fulfilled and merely for the reason that agreement to sale is not registered, the benefit cannot be denied to the assessee. Hence, we are inclined to upheld the findings of Ld. CIT(A) and reject the grounds taken by the Revenue.
: 23 :
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 30th day of January, 2019 (Joginder Singh) ACCOUNTANT MEMBER मुंबई/Mumbai; "दनांक/Dated : 30th January, 2019 TNMM आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to :
अपीलाथ" / The Appellant
""यथ" / The Respondent 3. आयकर आयु"त(अपील) / The CIT(A), Mumbai 4. आयकर आयु"त / CIT, Mumbai
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file
आदेशानुसार/ BY ORDER, स"या"पत ""त ////
उप/सहायक पंजीकार (Dy./Asst.