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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-33, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-33/Rg.21/385/2015-16 dated 22.12.2017. The Assessment was framed by the Income Tax Officer, Ward-21(3)(5), Mumbai (in short ITO / AO) for the assessment year 2012-13 order dated 26.03.2015 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the claim of deduction under section 54 of the Act on purchase of new residential house. For this assessee has raised the following three grounds, without prejudice to each other: - “The appellant prefers an appeal against the order passed by Ld. Commissioner of Income Tax (A)-33, Mumbai on following amongst other grounds each of which are without prejudice to any other :-
1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the disallowance of deduction u/s 54 of Rs. 83,04,453/- on purchase of a residential house; 2.0 On facts and circumstances of the case and in law, Ld. CIT(A) before confirming the disallowance of deduction u/s.54, ought to have considered the vital facts and settled law stated as under:- a) The appellant purchased a residential house on 19/4/2011 i.e within one year of the sale of a residential house on 04/02/2012 undisputedly within the time limits prescribed uls.54(l); b) The entire payments for purchase of a residential house had been paid prior to the due date of filing of IT return u/s 139(1); c) Sec 54(1) mandates the purchase of a residential house and does not postulate any condition to utilise the capital gain for purchase of new residential house; c) The incentive provision of Sec. 54 is required to be construed liberally; 3.0 Without prejudice, a fresh claim is made to allow the deduction u/s 54 in respect of re- investment of long term capital gain utilised for purchase of a new residential house at Mahindra Life spaces of Rs.59,25,017/-.
The appellant craves leave to add, amend, alter, and/or withdraw any of the grounds of appeal at the time of hearing.”
3. Briefly stated facts are that the assessee sold an immovable property No. B/802, Jupitar CHS, Goregaon West, Mumbai for a total consideration of ₹ 1.11 crores on 04.02.2012. Out of this sale of immovable property, the assessee earned long term capital gain of ₹ 83,04,453/-.The assessee purchased a residential flat at B/104, Raheja Exotica, Malad West on 19.04.2011 of ₹ 1.25 crores on 19.04.2011. The assessee stated that, to the extent of his 70% share, he has invested a sum of ₹ 91.20 lakhs, and the source of the same is ₹ 24 lacs from savings bank accounts of the assessee and balance sum of ₹ 67 lacs is from Bank loan i.e. from Union Bank of India. The assessee filed copies of saving bank accounts and copy of sanctioned letter of Union Bank of India sanctioning home loan. The assessing officer required the assessee to explain as to why the claim of exemption under section 54 of the Act be not disallowed, on the grounds that the investment made out of borrowed funds. The assessee claimed that it has purchased a Flat at B/104, Raheja Exotica, Malad West on 19.04.2011, for a sum of Rs. 91.20 lakhs to the extent of his share. The assessee explained before the AO that he has sold residential flat at B/802, Jupitar CHS, Goregaon West, Mumbai for a total sum of ₹ 1.11 crores on 04.02.2012, which gives long term capital gain of ₹ 83,04,453/-. The assessee claim that in view of the provisions of section 54 of the Act, the assessee is entitled for claim of exemption on the investment/ purchase of new residential house i.e. before the sale of the another residential house, that was sold on 04.02.2012. The AO has not accepted the explanation of the assessee and disallowed the claim of exemption of long term capital gain by observing that the assessee has not utilized capital gains of ₹ 83,04,453/- for purchase of new residential house contending that the new residential house has been purchased out of own sources i.e. savings from saving bank account and bank loans. According to AO, the assessee has not utilized this long term capital gain for the purchase of new assets and not eligible for claim of deduction under section 54 of the act. Aggrieved, assessee preferred the appeal before CIT(A).
4. The CIT(A) relying on the decision of co-ordinate Bench of ITAT Mumbai in the case of Milan Sharad Ruparel vs. ACIT (2009) 27 SOT 61 (Mum), Co-ordinate Bench of Indore in the case of Sushil Kumar Bafna vs. ITO (2017) 81 taxmann.com 50 (Indore – Trib.), co-ordinate bench of Hyderabad in the case of Smt. V. Kumuda vs. DCIT (2012) 18 taxmann.com 256 (Hyd.), confirm the action of the AO by observing in Para 5.10 as under:-
5.10 It is observed that the above mentioned judgements not only covers the issue under consideration but have discussed the case laws relied upon by the appellant, which has been distinguished too by the Hon’ble Tribunals. Since the facts of the instant case as identical to the facts mentioned in the judgements mentioned above, respectfully following the ratio of the judgements it is held that the appellant is not eligible for claim of deduction under section 54 of the IT Act since he has not utilized the sale consideration for the purpose of change of the new property. He has also not utilized the sale consideration of the purpose of repayment of the loan. He has also not deposited the capital gain from the sale of the old property in the capital gain account scheme. Thus the disallowance made by the AO ₹ 83,04,453/- is confirmed. Thus the ground of appeal number 3 is dismissed.
Aggrieved, now assessee is in second appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. From the facts of the case, we find that the assessee has work out long term capital gain as under: - Sale consideration of a 1,25,00,000 residential house located at Vasant Galaxy, Goregaon, Mumbai on 04.02.2012 (undisputed) Less : Indexed cost of (41,95,547) acquisition (undisputed) Long term capital 83,04,453 gain(undisputed) Less: deduction u/s 54 Purchase of a residential 91,20,000 house at Barcelona, Malad (west), Mumbai on 19.04.2011 Taxable long term capital gain nil 6. From the above it is clear that the assessee has first purchase residential house within one year from the sale of the residential house on which capital has accrued. The relevant date of purchase of sale reads as under:- a) Purchase of residential 19.04.2011 house at Barcelona, b) Sale of residential house 04.02.2012 at Vasant Galaxy, Jupiter co-op. Housing society, Goregaon (West) of ₹ 1,11,00,000/- 7. We also find that the assessee had made purchase of residential house in Malad west and the payments are made as under: - Date Bank name Amount 03.03.2011 Union Bank of India 5,00,000 28.03.2011 Union Bank of India 12,00,000 30.03.2011 Union Bank of India 7,00,000 06.05.2011 Union Bank of India 67,20,000 (Home Loan) Total purchase value 91,20,000 8. From the above, we find that the assessee has sold self-occupied residential flat at B/802 Jupitar CHS, Goregaon West, Mumbai on 04.02.2012 for a total consideration of ₹ 1.11 crores, giving rise to long term capital gain of ₹ 83,04,453/-. The assessee before this sale, purchased residential flat at B/104, Raheja Exotica, Malad West for a consideration of ₹ 1.25 crores (the assessee is having 70% shares) on 19.04.2011. This flat was purchased within one year of the sale of the Goregaon West flat on which capital gain has accrued to the assessee. The assessee has purchased residential house with its own funds in saving bank account amounting to ₹ 24 lacs and balance amount was taken as loan amounting to ₹ 67.20 lakhs from Union Bank of India and paid a total purchase value of his share for this new flat at ₹ 91.20 lakhs for his share. In such circumstance, whether the assessee is entitled to claim exemption on long term capital gain arising out of sale of flat of Goregaon West amounting to ₹ 83,04,453/- under section 54 of the Act which was invested in purchase of residential flat at Malad West amounting to ₹ 91.20 lakhs. Revenue’s main contention is that this amount of long term capital gain was accrued later and investment was made prior out of own sources and this capital gain was never invested. According to AO, and CIT(A) and now the learned Departmental Representative before us, the amount long term capital gain has not been utilized in purchase of residential house. We have gone through the provision of section 54(1) of the Act and the same reads as under:-
“Profit on sale of property used for residence.
(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.”
From the above provision of section 54(1) of the Act, we observed that capital gains arising on the transfer of a house property which in the two years immediately preceding the date of its transfer was used by the assessee or a parent of his for self-residence is exempted from income tax if the assessee, within a period of one year before or after that date, purchases or within a period of two years after the date of such transfer constructs a house property for the purpose of his own residence. The exemption of capital gains restricted to the amount of such capital gain utilized for the purchase or construction of the new house property. Where the amount of capital gain is greater than the cost of the house property so purchased or constructed, the balance amount of the capital gains is charged to tax. If, however, the amount of capital gain is equal to or less than the cost of the house property purchased or constructed, the capital gain is completely exempted from income-tax. If such house property purchased or constructed is transferred within a period of three years of its purchase or construction the capital gain on the property so transferred is calculated by reducing the cost of its acquisition by the amount of the capital gain exempted from income –tax. We find that this issue has been dealt by Hon’ble Kerala High Court in the case of ITO vs. K.C. Gopalan (1999) 107 Taxman 591 (Ker.), wherein Hon’ble High Court has interpreted the section of 54 of the act by observing as under:-
“The assessee has to construct or purchase a house property for his own residence in order to get the benefit of section 54. The wording of the section itself would make it clear that the law does not insist that the sale consideration obtained by the assessee itself should be utilised for the purchase of house property. The main part of section 54 provides that the assessee has to purchase a house property for the purpose of his own residence within a period of one year before or after the date on which the transfer of his property took place or he should have constructed a house property within a period of two years after the date of transfer. Clauses (i) and (ii) of section 54 would also make it clear that no provision is made by the statute that the assessee should utilise the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset.
A reading of sections 53 and 54 of the Act would make it clear that a special provision is made in respect of capital gains arising out of transfer of particular type of capital asset, namely, house property which was being used by the assessee or a parent of his for the purpose of their residence. Entitlement of the exemption under section 54 relates to the cost of the acquisition of a new asset in the nature of a house property for the purpose of his own residence within the specified period. The three decisions relied on by the learned standing counsel for the revenue have no application to the issue raised in this appeal. The statutory provision is clear that it does not call for a different interpretation from what has been given to it by the Commissioner (Appeals) and the Tribunal.”
We also find that co-ordinate Bench of this Tribunal in the case of ACIT vs. Dr. PS Pasricha for AY 2001-02 in vide order dated 11-01-2008, wherein Tribunal has interpreted the provision as under: - “Having heard the rival submissions and from careful perusal of the Orders of the lower authorities and provisions of section 54 of the Act, we find that the assessee has initially utilized the sale proceeds on sale of its residential flat in commercial properties and later on he purchased two residential flats within a period specified in sub section (2) of section 5 of the Act, and these facts are not disputed by the Revenue. The Revenue’s main dispute is that the sale proceeds were utilized for purchase of a commercial property and residential house was purchased out of the funds obtained from different source, as such, the identity of heads has been changed. We do not find much force in this argument as the requirement of section 54 is that the assessee should acquire a residential house within the period of one year before or two years after the date on which transfer took place. Nowhere, it has been mentioned that the same funds must be utilized for the purchase of the another residential house. The requirement of the law is that, the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant.”
Hon’ble Bombay High Court has affirmed the decision of this Tribunal in the case of CIT vs. Dr. PS Paricha in Income Tax Appeal No. 1825 of 2009 vide order dated 07-10-2009 by observing in Para 2 as under: - “2. Having seen the finding of fact recorded by the Tribunal in Paragraph No.9 that the assessee has initially utilized the sale proceeds of sale of his residential flat for purchase of commercial properties and later on he purchased two residential flats within a period specified in sub section (2) of section 54 of the Act. In view of the matter, the view taken by the Tribunal cannot be faulted. The appeals without any substance. Hence, the same stands dismissed in limine with no order as to costs.”
Similarly, the Hon’ble Punjab & Haryana High Court in the case CIT vs. Kapil Kumar Agarwal (Punjab & Haryana) (2016) 382 ITR 56 has considered this issue and held that the assessee has to purchase or construct a house property during the period specified under section 54F of the Act in order to get benefit thereunder. Section 54F of the Act, nowhere envisages that the sale consideration obtained by the assessee from the original capital asset is mandatorily required to be utilised for the purchase or construction of a house property. No provision has been made by the statue that in order to avail benefit of section 54F of the Act, the assessee has to utilize the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F of the Act. Hon’ble High court further observed that the Tribunal has categorically observed that the assessee has made investment well within the stipulated period. The investment was more than the capital gain earned by him. The investment made by the assessee being within the stipulated time and more than the capital gain earned by him, the addition was rightly deleted by the Tribunal under the head long-term capital gain. Similar issue also arose before Hon’ble Gauhati High Court in the case of CIT vs. Rajesh Kumar Jalan (2006) 286 ITR 286 (Gau), wherein Hon’ble High Court observed as under:-
We are of the view that the assessee had already appropriated the entire capital gain for purchase of the new asset within the stipulated time. In this regard, we find support from the decision of the Kerala High Court in the case of K.C. Gopalan wherein it was held that the assessee is entitled to exemption under section 54 even though for the construction of the new house, the amount that was received by way of sale of his old property as such was not utilized. It was held by the Kerala High Court that no provision is made by the statue that the assessee should utilize the amount which he obtained by way of sale consideration for the purpose o meeting the cost of the new asset. It was held that Section 54 only provides that the assessee has to purchase a house property for the purpose of his own residence within a period of one year before or after the date on which the transfer of his property took place or he should have constructed a house property within a period of two years after the date of transfer. It was further held that entitlement of exemption under section 54 relates to the cost of acquisition of a new estate in the nature of house property for the purpose of his own residence within the specified period.
In view of the above, we are of the view that the assessee has met with all the conditions stipulated under section 54(1) of the Act in the