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Facts
The assessee, a non-resident, sold ancestral jewellery for Rs. 20,10,008/-, initially claiming long-term capital gain and deduction under sections 54/54F for a new residential house purchased partly in his wife's name. The Assessing Officer reclassified the gain as short-term capital gain due to lack of acquisition cost evidence and disallowed 50% of the section 54 exemption (Rs. 80,14,041/-) asserting the house was jointly owned. The assessee's appeal to the CIT(A) was dismissed as non-maintainable, leading to a delayed appeal to the Tribunal.
Held
The Tribunal condoned the delay in filing the appeal, finding sufficient cause. It held that the addition of Rs. 20,10,008/- as short-term capital gain on jewellery was unjustified, as the assessee provided a valuation report and evidence of ancestral property, and the AO failed to refer the matter to the DVO. Furthermore, the Tribunal allowed the full exemption under section 54, deleting the Rs. 80,14,041/- disallowance, ruling that property purchased entirely by the assessee, even if registered in the spouse's name, qualifies for the deduction.
Key Issues
1. Classification of capital gains from ancestral jewellery without DVO referral. 2. Admissibility of full exemption under Section 54 for a residential house purchased by the assessee but partly registered in the spouse's name. 3. Condonation of delay in filing the appeal.
Sections Cited
143(3), 144C(13), 54F, 54, 131, 133(6), 260A, 45
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: Dr. B. R. R. KUMAR & SHRI YOGESH KUMAR U.S.
This appeal is filed by the assessee for Assessment Year 2020-21 against the assessment order dated 27/04/2023 passed u/s 143(3) r.w.s. 144C(13) of the Act by the Assistant Commissioner of Income Tax , DCIT/ACIT-INT-Tax, Gurgaon.
The Grounds of Appeal are as under:-
“1. That under facts and circumstances, the impugned assessment order passed by Ld. A.O. Intl Tax Gurgaon and consequently Hon'ble DRP-1 Delhi is grossly flawed in law as well as on merits.
2. That under the facts and circumstances of the case, the treatment of long-term capital gain on Jewellery as short- term capital gain and disallowance of the exemption available U/s 54F by Ld. A.O. Intl Tax Gurgaon and consequently Hon'ble DRP-1 Delhi is totally unwarranted and against the spirit of law. The addition of Rs. 20,10,008/- as short-term capital gain without considering the registered govt. approved valuer report, CBDT circular on Jewellery and without referring the matter to DVO is against the spirit of law and need to be quashed.
That under the facts and circumstances, the Ld. A.O. and consequently Hon'ble DRP- I grossly erred in law as well on merits in not allowing the full exemption U/s 54 for new residential house purchased by the assessee out of sale consideration and registered in his wife's name only for namesake. The judicial pronouncement as mentioned in the Hon'ble DRP-1 direction was also not followed by the Ld. A.O. The addition of Rs. 80,14,041/- by disallowing the exemption U/s 54 being 50% wife's share in the new house property is totally against the facts, law, and various judicial pronouncements, hence, the addition is patently unsustainable and needs to be deleted.” having only income from other sources and filed return declaring income of Rs. 1,20,830/-. The case of the assessee was selected for complete scrutiny through CASS and notices were issued during the scrutiny proceedings. It was found that the assessee had sold some jewellery for a consideration of Rs. 20,10,008/- and the same was offered to tax as long term capital gains. Further, the assessee claimed deduction u/s 54/54F of the Act as a new residential house was purchased by him during the year. During the scrutiny proceedings, the assessee was requested to provide evidences of cost of acquisition of the jewellery. The assessee was also requested to provide copy of wealth tax returns for AY 2014-15 and 2015-16 in support of his claim of possession of jewellery; however, no documentary evidences could be produced by the assessee which could show that the said jewellery was in possession of the assessee since long. The assessee claimed that it was ancestral jewellery and bills/invoices of purchase were not available. The assessee claimed fair market value of jewellery as on 01.04.2001 as cost of acquisition. The assessment order came to be passed u/s 143(3) read with Section 144C(13) of the Act dated 27/04/2023 by making disallowed Rs. 80,14,041/- u/s 54 of the Act being 50% wife’s shares in the new house property.
Aggrieved by the assessment order passed u/s 143(3) r.w.s 144C(13) of the Act dated 27/04/2023, the assessee instead of filing the Appeal before this Tribunal, preferred Appeal before the CIT(A). The Ld. CIT(A), Delhi-42 vide order dated 29/02/2024 dismissed the Appeal filed by the assessee as the same is not maintainable. Thereafter, the Assessee preferred the present Appeal by challenging the impugned assessment order dated 27/04/2023 on the grounds mentioned above.
There is a delay of 250 days in filing the present Appeal, the Assessee filed an application for condonation of delay claiming that the Assessee instead of filing Appeal before the Tribunal aggrieved by the Assessment Order passed u/s 143(3) r.w.s 144C(13) of the Act dated 28/04/2023, filed Appeal before the Ld. CIT(A) on 23/05/2023 within 30 days. The Appeal was pending before the Ld.
CIT(A) and ultimately dismissed the Appeal on 29/02/2024 as not maintainable. Thereafter the present appeal has been filed on is not intentional but for the bonafide reasons mentioned above, thus sought for condoning the delay in filing the present Appeal.
6. The Departmental Representative vehemently opposed for condoning the delay of 250 days in filing the present Appeal.
7. We have heard the parties perused the material available on record. As can be seen from the record, the Assessee was before the wrong forum, who was under the impression that the assessment order has to be challenged before the Ld. CIT(A).
Moreover, the Assessee has filed the Appeal before the Ld. CIT(A) well within the limitation of 30 days and after dismissal of the Appeal by the Ld. CIT(A) as not maintainable, the present Appeal has been filed within 30 days from the date of dismissal of the Appeal by the Ld. CIT(A). Considering the fact that the Assessee was before the wrong forum, which was neither intentional nor deliberate, thus we find that there is a sufficient cause to condone the delay of 250 days. Accordingly, delay in filing the present Appeal is hereby condoned. adjudication.
9. Ground No. 2 is regarding addition made on account of treating Rs. 20,10,008/- as short term capital gain. The Ld.
Counsel for the assessee submitted that the treatment of Long Term Capital Gain (‘LTCG’ for short) on jewellery as Short Term Capital Gain (‘STCG’ for short) and making disallowances of the exemption available u/s 54F of the Act by the Revenue Authorities is totally unwarranted and the same has been done without considering valuation report of Government approved valuer and contrary to the CBDT Circular on jewellery. The Ld. Counsel further submitted that the said disallowance has been made without referring the matter to the DVO, therefore, sought for deletion of the said disallowance.
10. Per contra, the Ld. Departmental Representative relying on the findings of the Lower Authorities sought for dismissal of Ground No.
2 of the assessee. available on record. The assessee sold jewellery for consideration of Rs. 20,10,008/- and offered to tax as LTCG by claiming deduction u/s 54/54F of the Act. During the scrutiny proceedings, the assessee was called to provide evidences of cost of accusation of the jewellery and also wealth tax return. It was the case of the assessee that the jewellery were ancestral property and the bills/invoices of purchase were not available. Thus, claimed fair market value of jewellery as on 01/04/2001 as cost of accusation. During the assessment proceedings A.O. has also cross examined the wife of the assessee and the jeweler by issuing a summons u/s 131 of the Act by issuing notice u/s 133(6) of the Act. Both the persons i.e. wife of the assessee as well as the jeweler have confirmed the sale of old gold were inherited jewellery. The assessee has also produced the valuation report as on 01/04/2001 who certified that the old jewellery was sold and copy of sale bill on which old gold jewelry was duly mentioned. The Revenue Authorities neither agreed to the valuation report nor invoked the statutory provisions for referring the matter to the DVO and without their being any basis made the addition of Rs. 20,10,008/- as STCG.
12. The Hon’ble Rajasthan High Court in the case of CIT, Alwar Vs. Satya Narain Patni in order dated 07.04.2014 held as under:-
“It is true that the circular of the Central Board of Direct Taxes, referred to supra dated May 11, 1994, only refers to the jewellery to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family, need not be seized and it does not speak about the questioning of the said jewellery from the person who has been found with possession of the said jewellery. However, the Board, looking to the Indian customs and traditions, has fairly expressed that jewellery to the said extent will not be seized and once the Board is also of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possession of a married lady to the extent of 500 gms., 250 gms. per unmarried lady and 100 gms. per male member of the family will also not be questioned about its source and acquisition. It is certainly "Stridhan" of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisition of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found."
13. Considering the fact that the jewellery is claimed to be more 30 to 40 years old which were inherited/gifted by the Assessee’s relatives on various customary occasions and also considering the assessee, it is quite reasonable as per the culture and customs of an Indian family to have the grammage of jewellery inherited by the assessee. The Revenue Authorities should have considered the Valuation Report submitted by the Assessee and should have also been considered the statement of wife of the Assessee and the jeweler of the Assessee and ought to have considered as LTCG and even the benefit u/s 54 of the Act. Following the Judgment of Hon’ble Rajastjhan High Court in the case of CIT, Alwar Vs. Satya Narain Patni (supra) and considering the above facts and circumstances, we delete the disallowance/addition of Rs.
20,10,008/- , accordingly we allow Ground No. 2 of the assessee.
Ground No. 3 of the Assessee is regarding addition of Rs.
80,14,041/- wherein the A.O. disallowed the exemption u/s 54 of the Act being 50% share of the wife in the new house property.
The Ld. Counsel for the Assessee submitted that the entire cost of accusation including the cost of stamp duty has been borne by the Assessee out of sale proceed of another property, all the payments were made by the Assessee through proper banking the Assessee has also deducted the TDS on the entire purchase price and duly paid the same to the Government and full value of purchase price was also reflected in Form No. 26AS of the Assessee for the year under consideration. Further submitted that the wife of the Assessee is dependent of the Assessee, thus, the Ld. CIT(A) has committed error in disallowing the exemption u/s 54 of the Act without following the settled position of law therefore, sought for allowing the Ground No. 3 of the Assessee.
Per contra, the Departmental Representative by relying on the orders of the Lower Authorities sought for dismissal of Ground No.
3 of the Assessee.
We have heard the parties perused the material available on record. The entire cost of the accusation including the cost of the stamp duty has been borne by the Assessee out of the sale proceeds of another property. It is not in dispute that, all the payments were made by the Assessee through proper banking channel and duly reflected in the bank statement of the Assessee and also the Assessee had deducted the TDS on the entire sale price, which was duly paid to the same to the Government. Apart from the same, the full value of purchase price was also reflected in Form No. 26AS of the Assessee for the year under consideration. It is the case of the Assessee that the wife is dependent of the Assessee and the name of the wife reflected in the sale deed is only for name sake and no consideration was paid by her. The said facts can be corroborated with the bank statement, Form 26AS and the sale deed produced by the Assessee before the Lower Authorities.
The Coordinate Bench of the Tribunal in the case of Simran dated 04/01/2024, considering the fact that the tax payer invested in a new residential house registered in spouse name, it has been ruled on eligibility of income tax deduction u/s 54 of the Act in following manners:
“12. On this issue, we are guided by the various orders of the Hon'ble High Courts and the Tribunal which are as under: a) CIT vs. Natarajan, [2006] 287 ITR 271 (Madras HC) - The deduction under section 54 was allowed where the new Simran Bagga residential property was purchased in the name o f the wife of the assessee. b) DIT vs. Mrs. Jennifer Bhide [2011] 15 taxmann.com 82 (Kar HC) - The Tribunal has allowed exemption u/s 54 for investment in residential property by the assessee jointly with her husband. c) Kamlesh Keswani vs. ACIT W.P.(C) 13713/2022, CM APPL .
41874/2022 & CM APPL. 41875/2022 (De lhi HC) - Followed the judgment of Hon'ble Delhi High Co urt in the case o f CIT vs. Ravinder Kumar Arora, [2011] 15 taxmann.com 307 (Delhi) d) CIT vs. Sh. Mahadev Balai, ITA 136/2017 (Raj HC) - The Hon'ble High Court allowed exemption u/s 54B of the Ac t for investment made by the assessee in the name of his wife. e) Shankar Lal Kumawat vs. ITO 125 taxmann.com 347 (Jaipur - Trib.) - The assessee sold a residential house and invested sale consideration in purchase of a plot of land and carried out construction of a residential house thereon. The Hon'ble ITAT held that mere fact that investment in new pro perty was made in name of his wife could not be a reason for disallowance of deduction under section 54 to assessee. f) N Ram Kumar vs. ACIT [2012] 25 taxmann.com 337 (Hyd. ITAT ) - The assessee purchase d a flat in the name of her Simran Bagga minor daughter and claimed deduction u/s 54F. The exemption was allowed by Hon'ble ITAT. g) Krishnappa Jayaramaiah vs. ITO - [2021] 125 taxmann.com 110 (Bangalore ITAT) - The assessee had invested sale consideration received on transfer of Capital Asset in purchasing a new residential property in name of his married widowed daughter and the exemption was allowed to the assessee. h) Mrs. Kamal Murlidhar Mokashi vs. ITO, Ward-8 (3), Pune [2019] 110 taxmann.com 120 (Pune - Trib.) - In order to claim deduction under section 54F, new residential house need not be purchased by assessee in his own name or exclusively in his name .
Further, we find that the Hon'ble Jurisdictional Delhi High Court in the cases of CIT vs. Kamal Wahal [2013] 351 ITR 4 (Delhi) and C IT vs. Ravinder Kumar Arora [2012] 342 ITR 38 (Delhi), has held that new house purchased in the name of the spouse of the assessee was eligible for claiming deduction under section 54F. The provisions of section 54 F are pari-materia with the provisions of section 54 of the Act and thus, the principle derived equally
applies to section 54 as well. The Hon'ble Jurisdictional High Court has also held in the various judgments that 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/54 of the Act are the beneficial provisions which should be interpreted liberally in favour of the Simran Bagga exemption/deduction to the taxpayer and deduction should not be denied.”
Further the Jurisdictional High Court in the case of CIT Vs.
Ravinder Kumar Arora reported in 342 ITR 38 (Del) wherein it is held as under:-
“5. In these circumstances, the instant appeal is filed by the Revenue under Section 260A of the Act, which we have admitted 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?"
With the consent of the learned counsel for the parties, we have heard the matter finally at this stage itself and in our opinion, the question of law is to be decided in favour of the assessee and against the Revenue. Section 54F(1) of the Act needs to be noted:
"Section 54F. CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE. (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 842a , 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 : Provided that nothing contained in this sub-section shall apply where – (a) the assessee, - (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".
Explanation : For the purposes of this section, - "Net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer."
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.
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 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.
On the aforesaid facts, we are of the view that the conditions stipulated in Section 54F stand 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.
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.
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 same view while discussing the provisions of Section 54 of the Act which is again pari-materia of Section 54F(1) of the Act.
We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ `10,000/
Considering the fact that the entire investment has been made by the Assessee and the entire TDS has been deducted by the Assessee which was duly deposited to the Government and the full value of the purchase price was reflected in the Form No. 26AS of the Assessee for the year under consideration, by following the above ratio laid down by the Jurisdictional High Court and the Coordinate Bench of the Tribunal, we find merit in Ground No. 3 of Assessee by deleting the addition of Rs. 80,14,041/- made by the A.O., wherein by disallowed the exemption u/s 54 of the Act.
In the result, the Appeal filed by the Assessee is allowed.
Order pronounced in the open court on 29th AUGUST, 2024.