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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeal of Revenue is raised by the order of Commissioner of Income Tax (Appeals)-38, Mumbai [in short CIT(A)], in appeal No. CIT(A)- 38/ITO 21(2)(1)/IT 85/2014-15 dated 29.08.2016. The Assessment was framed by the Income Tax Officer, Ward-21(2)(1), Mumbai (in short ‘ITO’) for the A.Y. 2011-12 vide order dated 18.03.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
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The only issue in this appeal of Revenue is against the order of CIT(A) allowing the claim of deduction under section 54 of the Act. For this Revenue has raised the following grounds: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee is entitled to claim deduction u/s. 54 of the l.T. Act of Rs.90,64,790/-".
On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not considering that up to the due date of filing Return of Income for AY 2011-12 i.e. till 31.07.2011, the assessee utilized only Rs.48,17,305/- out of the total Capital Gain of Rs.90,64,790/- for making payment towards purchase of Flat in 'Rivali park Project' of M/s. CCI Projects P. Ltd."
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that the assessee ought to have deposited the unutilized amount of capital gain amounting to Rs.42,47,485/- into the Capital Gains Account Scheme within the time limit prescribed u/s 54 of the I.T. Act i.e. before the due date of filing of Return of Income for AY 2011-12 which was 31.07.2011.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee has failed to comply with the conditions laid down in sub-section 2 of Section 54
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and hence, is not eligible for deduction u/s 54(1) of the I.T. Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the assessee has not invested the entire capital gain arising out of sale of flat, within the prescribed time limit of two years as per provisions of Section 54."
Briefly stated facts are that the assessee sold a residential house property i.e. Flat in Omkar Residency at Parel on 17.05.2010 for a total consideration of ₹ 1.49 crores, as per agreement for sale. This house property was jointly owned by assessee and his wife Mrs. Shobha Shahani. The Assessee and his wife earned long term capital gain of ₹ 90,64,790/- on the sale of this Flat held jointly. The assessee claimed exemption of this long term capital gain under section 54 of the Act as the assessee jointly with his wife invested the above capital gain by booking a Flat under construction in Rivali Park a project of CCI project at Borivali. The assessee received allotment letter from CCI project Pvt. Ltd. dated 27.10.2010 confirm allotment of a specific flat No. 09E in B Wing of the building vide Spring 1A for a total consideration of ₹ 96,34,610/-. According to AO, the assessee has made a payment to the builders, CCI project Pvt. Ltd for booking of Flat on the following dates: -
Date Amount 16.03.2010 2,00,000 21.04.2010 12,37,453 21.09.2010 7,739 11.01.2011 4,81,730 03.03.2011 9,63,461 4. According to AO, the assessee has made investment of entire capital gain beyond the period of 2 years from the sale of the old property
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and has not met with the conditions of laid down under section 54(2) of the Act to invest the capital gains. The assessee has also not kept this long term capital gain in capital gain account scheme. According to AO, the assessee has not produced any proof for purchase of property and also not utilized the capital gain arising on account of sale of the Flat for purchase of immovable property i.e. Flat or House on or before 16.05.2012. Accordingly, he denied the claim of the deduction under section 54 of the Act of long term capital gain of ₹ 90,64,790/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) following the decision of Hon’ble Bombay High Court in the case of CIT vs. Mrs. Hilla J.B. Wadia (1993) 69 Taxman 114 (Bom) allowed the claim of the assessee by observing in para 5.2.12 as under: -
“5.2.12 To conclude, host of decisions by various courts and tribunals says that, if for reasons beyond the control of the taxpayers, the builder has not completed construction, a tax payer, in her/his claim for deduction under section 54/54F. cannot be penalised for no fault of his/her. In the case of the appellant, the construction activity was under way and completion of the property has been delayed by the builder for which the appellant should not be penalised. In view of the facts and circumstances of the case and discussion herein above, the contentions and submissions of the assessee are found to be acceptable and accordingly Ground No.2 of the appellant is allowed.”
Aggrieved, now Revenue is in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee has sold a
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jointly owned residential House i.e. Flat at Omkar Residency for a sale consideration of ₹ 1.49 crores on 17.05.2010. The assessee earned long term capital gain of ₹ 90,64,790/- on sale of the above house hold jointly with his wife. The assessee jointly with his wife invested the above capital gain to book a House under construction in Rivali Park, a project of CCI project at Borivali. The assessee received allotment letter from CCI Project Pvt. Ltd. on 27.10.2010 confirming the allotment of a specific Flat No. 09E, B Wing, vide Spring 1A for a total consideration of ₹ 96,34,610/- . The assessee along with his wife made a total payment to CCI Project as follows:-
“a. ₹ 28,89,384 before 31 March 2011.
b. ₹ 20,13,229 from 1st April to 31st July 2011.
c. ₹19,98,348 from 1st August 2011 to 16th May 2013.
d. ₹ 19,86,461 from 17th May 2013 till 31st January 2014”
From the above facts, we find that the assessee was paying the amount to CCI Projects Private Limited as when the same was becoming due. In order to keep the funds readily available for payments to the builders, the assessee invested the balance amount in separate earmarked Fixed Deposits. However, being a Senior Citizen, the Assessee was ignorant of the provision that these Fixed Deposits have to be kept in a designated Capital Gain Scheme account. Thus, in essence, the Assessee has complied with the provision of the law of keeping the money aside and not utilizing the same for any other purpose. When the Assessee booked the house in Rivali Park the construction was supposed to be completed in 3 years. However, due to non-clearance of
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various statutory approvals, CCI Projects Private Limited was not completed and the possession of the said flat was not received by the assessee by 16th May 2013. The Company regularly informed the assessee by way of an official letter, regretting the delay occurred on their part. Since the assessee, always intended to stay in the residential flat allotted to him in Rivali Park, he did not take any legal action against the company and regularly paid the installments due. All the above facts relating to Rivali Park house have been brought on record before the AO at the time of assessment. However, the AO still passed an order U/s 143(3) of the Act on 18th March 2014 wherein he added the entire sum of 90,64,790/- as income of the assessee under the head 'Long term capital gains'. Further, the assessee jointly with his wife invested in a house under construction in Conwood Astoria' a project by Conwood Realty Pvt. Ltd. The assessee received the allotment letter from Conwood Realty Pvt. Ltd. dated 7th May 2010 confirming allotment of a specific Flat no. B/502, in building Conwood Astoria for a total consideration of Rs. 93,00,000. The assessee and his wife, together made total payments of Rs. 28,80.000 before 31 March 2011 to Conwood Realty Pvt. Ltd. This asset is reflected in the Balance Sheet and the bank statements that have been filed before the AO at the time of assessment.
The above facts were considered and also the case law of Hon’ble Bombay High Court in the case of CIT vs. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bombay), wherein it is held as under:-
Under the terms of the agreement of the assessee with the society, the assessee obtained a right to take possession of a specific flat bearing Nos. 7-A and B on the seventh floor of the said society. The assessee under the
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terms of the agreement had no right to cancel the agreement or claim any damages. Thus, the assessee acquired substantial domain or control over the above flat by virtue of making almost the entire payment relating to the cost of construction of this flat to the society within a period of two years from the date when the assessee and her husband conveyed the original property to the society.
In these circumstances, we have to see whether the assessee has complied with the requirements of section 54 of the Income-tax Act, 1961, as then in force. The material part of section 54 at the relevant time was as follows:
"Section 54. Profit on sale of property used for residence. — Where a capital gain arises from the transfer of a capital asset.... being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee .... mainly for the purposes of his own .... residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after
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that date constructed, a house property for the purposes of his own residence, 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. ..."
In the present case, the assessee had transferred the property in which she had a half share and which was being used for the purpose of her residence to the society. The question is whether she can be said to have constructed a house property for the purpose of her residence within a period of two years from that date. This provision will have to be construed in the context of the manner in which such residential properties are now being constructed in a city like Bombay where, looking to the cost of the land, co-operative housing societies are being formed for constructing a building in which flats are allotted to the members. This must also be viewed as a method of constructing residential tenements. What we have to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the society and whether she has made a substantial investment within the prescribed period which
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will entitle her to obtain possession of the flat so constructed and in which she intends to reside. The material test in this connection is domain over the flat and investment in it. The assessee satisfies both these conditions. She has acquired such a domain and has invested almost the entire requisite amount in it within a period of two years prescribed under section 54.
In this connection, our attention was drawn to a circular of the Central Board of Direct Taxes bearing No. 471 (see [1986] 162 ITR (St.) 41), dated October 15, 1986, which dealt with the investment in flats under the self-financing scheme of the Delhi Development Authority. The Board has stated in the circular that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment 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 instalments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of a flat under this scheme should be treated as a case of construction for the purpose of capital gains. The present case is on a much stronger footing because there is not merely an allotment of the flat but even almost the entire cost of
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construction is paid by the assessee within a period of two years.
Our attention in this connection was also drawn to a decision of the Andhra Pradesh High Court in the case of CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397. In the case before the Andhra Pradesh High Court, the assessee had paid a substantial purchase instalment and secured possession of the property within one year of the sale of her residential property, but the sale deed in respect of the property so purchased by her was executed and registered after the expiry of one year. The Andhra Pradesh High Court said that the assessee was entitled to the benefit of section 54(1) because the house property purchased by the assessee had come into the full domain and control of the assessee within a period of one year.
In the case of Kesho Ram Passey v. Reserve Bank of India [1984] 146 ITR 16, the Punjab and Haryana High Court considered the provisions of section 54E of the Income-tax Act which were then in force. It had to consider whether the capital gains arising from the transfer of the capital asset were invested in a new asset within a period of six months. The petitioner who sold a plot of land deposited the consideration amount in National Rural Development Bonds
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by sending a bank draft for the amount along with his application in the prescribed form within a period of six months. However, on account of certain technical problems, the bonds were not issued to the assessee until after the expiry of six months. The court held that by depositing the amount with the agent of the Reserve Bank of India within six months, the assessee had substantially complied with the provisions of section 54E and he should be given the benefit of that section.
Dr. Balasubramaniam drew our attention to a decision of the Gujarat High Court in the case of Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218. In that case, the assessee's property was divided into two portions one of which was larger than the other. A building was constructed on the larger portion which was partly occupied by the assessee. The assessee constructed a house on the smaller plot and the construction was completed in March, 1968. The larger plot with the building standing thereon was, thereafter, sold and the conveyance was executed in March, 1970. In respect of capital gains arising from the sale of the larger property, the assessee claimed the benefit of section 54 on the ground that the house on the smaller plot had been constructed for the purpose of residence. The court held that
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the assessee was not entitled to the exemption because the assessee could not be said to have constructed a new house on the smaller plot within a period of two years after the transfer of the larger plot. We do not see how this decision is of any assistance to the Revenue because it turned entirely on the facts of that case. Similarly, the decision of the Karnataka High Court in the case of CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 also does not assist the Revenue. In the case before the Karnataka High Court, the assessee sold a building on the ground floor of which the assessee was residing, in February, 1977. In March, 1976, the assessee had commenced construction of the new house which was completed in March, 1977. The assessee claimed exemption from tax on capital gains under section 54 of the. Income-tax Act, 1961. The, court said that the assessee had resided in a major portion of the building which the assessee had sold and had completed the construction of a new residential house in March, 1977. Hence, the assessee was entitled to the benefit of section 54 even though the construction of a new house started prior to the sale of the old building. This decision once again has turned on its own facts and it does not assist us in any manner because the
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circumstances of the present case are very different.
For the reasons which we have set out above, in our view, the present case falls within the provisions of section 54 in view of the fact that the assessee had acquired substantial domain over the flat in question under the agreement with the society coupled with the payment of almost the entire cost of construction within a period of two years.
The following question, therefore, referred to us under section 256(1) of the Income-tax Act, 1961, namely:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to relief under section 54 of the Act ?" is answered in the affirmative and in favour of the assessee.
We may observe here that the situation of the kind which is before us is likely to arise frequently in a city like Bombay. It is desirable, in order to avoid litigation on this topic, that the Central Board of Direct Taxes issues a circular similar to the circular which it issued in respect of the construction work done by the Delhi Development Authority on October 15, 1986, for
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the proper guidance of the Income-tax Department and in order to carry out the letter and spirit of section 54.”
Even Hon’ble Madras High court in the case of CIT vs. Sardarmal Kothari [2008] 302 ITR 286 (Madras), has considered the provisions of section 54F of the Act as a beneficial provision for promoting the constructing of residential house and requires to be construed liberally for achieving that purpose. Hon’ble High Court held as under:-
“There is no dispute about the fact that the assessees have invested the entire net consideration of sale of capital asset in the land itself and subsequently the assessees have invested large sums of money in the construction of the house. The cost of investment in land and the cost of expenditure towards the construction of the houses is not in dispute. The one and only ground on which the Assessing Officer has non-suited the assessees for the claim of exemption was that the houses have not been completed. There remains some more construction to be made.
The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they
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have also constructed residential houses. In order to establish the same, the assessees submitted before the Commissioner of Income- tax (Appeals) several material evidence, viz., invitation card printed for the house-warming ceremony to be held on July 12, 2003. The assessees have also produced the completion certificates from the Municipal authority on January 30, 2004. On the basis of the above documents, the Commissioner of Income-tax (Appeals) concluded that the requirement of the statutory provision has been complied with by the assessees and that was reconfirmed by the Tribunal in the orders impugned.
In the second question of law formulated, a reference is made to the Board Circular No. 667, dated October 18, 1993 ([1993] 204 ITR (St.) 103). On a reading of the circular, we are of the view that the Circular would not in any way advance the case of the Revenue to come to the conclusion that in order to have the benefit under section 54F of the Income-tax Act, the construction should have been completed.
The Tribunal has also taken note of its own earlier order in the case of Mrs. Seetha Subramanian v. Asst. CIT reported in [1996] 59 ITD 94 (Mad.), wherein the Tribunal has held that, in order to get the benefit under section
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54F, the assessee need not complete the construction of the house and occupy the same. It is enough if the assessee established that the assessee had invested the entire net consideration within the stipulated period. The said view taken consistently by the Tribunal has been applied in these cases also. The Tribunal has distinguished the Delhi High Court judgment in the case of D.P. Mehta v. CIT reported in [2001] 251 ITR 529 , relied on by the Revenue in their favour to non-suit the assessees for exemption. In our view, the Tribunal has distinguished the same rightly because in the cited case, there was a factual finding by the authorities that the assessee himself has admitted that the construction put up was only a garage and service quarters and it was not fit enough for occupation of the assessee. That factual finding is totally absent in these cases. There is no material to entertain these appeals. The appeals fail and the same are dismissed.”
Herein, the present case before us also there is no dispute that the assessee has sold the Flat at Parel on 17.05.2010 for a consideration of ₹ 1.49 crores and long term capital was arising at ₹ 90,64,790/-. The assessee has made total payment for purchase of Flat at CCI Project Pvt. Ltd. at Borivali on 27.10.2010 at ₹ 96,34,610/-. The assessee has invested the long term capital gain in purchase of residential flat, although, the payments were made for more than 2 years but actually the
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assessee made investment and delay is not attributable to him for construction of flat. Hence, we find no infirmity in the order of CIT(A) allowing the claim of deduction under section 54 of the Act and we uphold the same. This issue of Revenue’s appeal is dismissed.
In the result, the appeal Revenue is dismissed.
Order pronounced in the open court on 31-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 31.05.2018 kao kI ga[- .
Sd/- Sd/- (G MANJUNATHA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 31-05-2018 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI