M.B.VENKATESH,CHENNAI vs. ITO COMPANY WARD II(1), CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of

the Commissioner of Income Tax (Appeals) -13, Chennai, dated

17.11.2017 and pertains to assessment year 2010-11.

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submitted that the assessee claimed deduction under Section 54F

of the Income-tax Act, 1961 (in short 'the Act') in respect of capital

gain arising out of the sale of vacant plot. According to the Ld.

representative, the Assessing Officer disallowed the claim of the

assessee on the ground that the construction of new building was

completed well before the date of sale of vacant land, therefore, the

assessee is not entitled for deduction under Section 54F of the Act.

Referring to the judgment of Madras High Court in C. Aryama

Sundaram v. CIT (2018) 97 taxmann.com 74, the Ld. representative

submitted that on identical situation, the Madras High Court found

that it is not a requisite of Section 54 of the Act that construction

could not have commenced prior to the date of transfer of the asset

resulting in capital gain. In view of this judgment of Madras High

Court, according to the Ld. representative, even though the

construction was commenced prior to the sale of subject land on

which the capital gain arises and the construction was completed on

the date of sale, still the assessee is eligible for exemption under

Section 54(1) of the Act. Therefore, according to the Ld.

3 I.T.A. No.668/Chny/18

representative, the CIT(Appeals) is not justified in confirming the

order of the Assessing Officer.

Representative, submitted that the judgment of Madras High Court

in C. Aryama Sundaram (supra) is distinguishable. Referring to the

question of law framed by the Madras High Court, which is

reproduced at para 11 of the judgment, the Ld. D.R., submitted that

the issue before the Madras High Court was with regard to cost of

land, in case such land was purchased three years prior to the sale

of property from which the capital gain arose. According to the Ld.

D.R., the completion of construction of building was not the subject

matter of appeal before the Madras High Court. Therefore,

according to the Ld. D.R., the observation made by the Madras High

Court with regard to completion of construction prior to the date of

transfer may be a passing reference.

Ushaben Jayantilal Sodhan v. ITO (2018) 93 taxmann.com 453,

Shri B. Sagadevan, the Ld. D.R. submitted that an identical question

was considered by the Gujarat High Court and held that the

4 I.T.A. No.668/Chny/18

construction which was stated to have been carried out before the transfer of capital asset is not eligible for exemption under Section 54F of the Act. According to the Ld. D.R., in view of this judgment of Gujarat High Court, the judgment of Madras High Court in C. Aryama Sundaram (supra) may not be applicable to the facts of the case.

5 I.T.A. No.668/Chny/18

the CIT(Appeals) found that the assessee commenced the

construction and completed the same before the transfer of capital

asset on 15.02.2010, therefore, not eligible for exemption under

Section 54F of the Act.

assessee invested his funds in purchasing land and constructing

residential premises before the date of transfer of capital asset,

whether he is eligible for exemption under 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

6 I.T.A. No.668/Chny/18

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.

7 I.T.A. No.668/Chny/18

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.

8 I.T.A. No.668/Chny/18

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 requisite of 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.

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.

High Court in the case of UshabenJayantilalSodhan (supra). In

9 I.T.A. No.668/Chny/18

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 followthe

binding judgment of Madras High Court rather than the judgment of

Gujarat High Court which has persuasive value.

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.

10 I.T.A. No.668/Chny/18

sd/- sd/- (एसजयरामन) (एन.आर.एस. गणेशन) (S. Jayaraman) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member चे�नई/Chennai, �दनांक/Dated, the 20th November, 2018. Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-13, Chennai 5.�वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF. 4. Principal CIT- 2, Chennai