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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the learned Commissioner of Income Tax (Appeals)-3, Chennai in dated 31.01.2017 for the assessment year 2012-13.
Shri Alexander Zachariah, the assessee, sold a residential property for Rs.2,48,00,000/- on 24.12.2011. However, on 14.08.2010 itself, he entered into an agreement for acquiring a flat at Nungambakkam by paying Rs.1,08,36,000/- on 14.08.2010 & 17.08.2010 and acquired Undivided Share (UDS) in the land by a sale deed dated 06.10.2010 by paying Rs.1,74,71,600/-.
Subsequently, he incurred registration and stamp duty charges of Rs.15,72,400/-. Thus, the total sale consideration for the new property was Rs.2,98,80,000/-. The assessee claimed deduction U/s.54 of the Income Tax Act, 1961 (in short ‘the Act’) on the capital gains arising on the sale of residential property. The assessment was subject matter of a reference U/s.144A of the Act. Subsequently, the AO denied the claim of exemption U/s.54 of the Act, for the reasons that a) the new property had been acquired on 06.10.2010, much prior to one year from the date of sale of his residential property i.e., on 24.12.2011 b) Prior period benefit U/s.54of the Act, cannot be availed in case of construction i.e., available only in the case of purchase.
He further relied on the decisions of the Mumbai ITAT in the cases of ACIT vs. Sunder Kaur Sujan Singh in [2005] 3 SOT 206 & Farida A.
Dunderpurwala vs. ITO [2015] 67 SOT 208. Aggrieved, the assessee filed an appeal before the CIT(A). The Ld.CIT(A) dismissed the appeal. Aggrieved against that order, the assessee is on appeal before this Tribunal.
The Ld.AR submitted that the assessee felt that instead of selling the residential house wherein he was residing and then searching for a new residential house, he thought that it is better to purchase a house and sell the existing one. So, he availed bank loan from HDFC which was repaid from the sale consideration and acquired the new flat. Though he entered into an agreement and got UDS in the land as on 14.08.2010 and 06.10.2010, the new house was ultimately ready for occupation only on 07.02.2011 and it became habitable only in February, 2011.Relying on the Jurisdictioal of High Court of Madras decision in the case of C.Aryama Sundaram vs. CIT-3, [2018] 97 taxmann.com 74, wherein it was held as “not only cost of construction of new property incurred after sale of old property would be eligible for exemption under section 54(1), but also cost of land on which new property was construction, even if such land had been purchased three years prior to sale of old property”, the Ld.AR submitted that the assessee is eligible for exemption U/s.54(1) of the Act and further he relied on the ITAT decision which applied the Jurisdictional of High Court decision, supra, in the case of Shri M.B. Venkatesh in dated 20.11.2018.
Per contra, the Ld.DR supported the orders of the lower authorities and relied on the statute.
We heard the rival submissions and gone through the relevant material. The undisputed fact is that the assessee entered into an agreement for acquiring a flat on 14.08.2010 and paid Rs.16,25,400/- but that agreement was signed on 17.08.2010 with a further payment of Rs.9,21,0600/-. Thereafter, he executed a sale deed on 06.10.2010 and paid Rs.1,74,71,600/-. In addition, he had also paid registration and stamp duty charges at Rs.15,72,400/-, totally Rs.2,98,80,000/-. Although, he sold his residential property on 24.12.2011, substantial consideration for the acquisition of new property was made on 06.10.2010 itself i.e., 444 days prior from the date of transfer. Therefore the AO refused the claim of deduction.
Similar issue arose in the case of Shri M.B. Venkatesh, in dated 20.11.2018, for the assessment year 2010- 11, wherein this Tribunal following the Jurisdictional High Court decision decided as under:- 6. The question now arises for consideration is when the assessee invested his funds in purchasing land and constructing residential premises before the date of transfer of capital asset, whether he is Section 54F of the Act? We have carefully gone through the provisions of Section 54F of the Act and also the judgment of Madras High Court in C. Aryama Sundaram (supra). In the case before the Madras High Court, the assessee sold a residential house at New Delhi on 15.01.2010. The assessee purchased the property with superstructure on 14.05.2007. After demolishing the existing superstructure, the assessee constructed a residential house and claimed the capital gain as exemption from taxation under Section 54F of the Act. The Assessing Officer found that a part of expenditure incurred on construction after the sale of original asset would be eligible for exemption under Section 54F of the Act. However, the cost of construction incurred before the sale of original asset was found to be not eligible. In those factual circumstances, the Madras High Court found that it is not a requisite of Section 54F of the Act that construction could not have commenced prior to the date of transfer of asset resulting in capital gain. In fact, the Madras High Court observed as follows at paragraphs 19 to 13:-
“19. The conditions precedent for exemption of capital gain from being charged to income tax are: (i)The assessee should have purchased a residential house in India either one year before or two years after the date of transfer of the residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three years from the date of the transfer of the residential property which resulted in the capital gain. (ii)If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between the amount of the capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. (iii)If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under Section 45.
What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted.
The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable to the acquisition and/or construction of the residential house.
A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new residential house should have been purchased within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has been constructed in India, within three years from the date of the transfer, which resulted in the capital gain. The said section does not exclude the cost of land from the cost of residential house.
It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain.
At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act.
Therefore, this Tribunal is of the considered opinion that the factual aspect arises for consideration before the Madras High Court is identical as it arises for consideration before this Tribunal. This Tribunal is of the considered opinion that the judgment of Madras High Court is binding on all the authorities in the State of Tamil Nadu and Union Territory of Puducherry including this Tribunal.
We have carefully gone through the judgment of Gujarat High Court in the case of UshabenJayantilalSodhan (supra). In almost similar circumstances, the Gujarat High Court has taken a contrary view and held that the expenditure incurred before the date of transfer is not eligible for exemption under Section 54F of the Act. The Gujarat High Court is not a jurisdictional High Court. However, the findings recorded by Gujarat High Court have persuasive value to decide the case before this Tribunal, whereas, the judgment of Madras High Court, which is a jurisdictional High Court, is binding on this Tribunal. Therefore, this Tribunal is expected to follow the binding judgment of Madras High Court rather than the judgment of Gujarat High Court which has persuasive value.
In view of the above, by respectfully following the judgment of Madras High Court in C. AryamaSundaram (supra), this Tribunal is of the considered opinion that the assessee is eligible for exemption under Section 54F of the Act even though the construction of the building commenced and completed before the date of transfer of capital asset. In view of this, we are unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to grant exemption under Section 54F of the Act.
Following the co-ordinate Bench decision, supra, the assessee’s appeal is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced on the 24th July, 2019 at Chennai.