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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM Both these appeals preferred by the assessee are against the separate orders of the Ld. CIT(A) – 15, Kolkata dated 27.02.2015 for assessment year 2009-10. Since issues are common and facts are identical except variance in amount, we dispose of both these appeals by this consolidated order for the sake of convenience by taking the case of Smt. Sarbani Gupta as the lead case.
The main grievance of the assessee in this appeal is against the action of Ld. CIT(A) in treating capital asset which was acquired on 29.03.2000 as short term capital asset and not considering the expenditure of improvement of the property and the indexed cost of improvement.
Briefly stated facts as observed by the AO are that the assessee is an individual, who by way of gift from her father Ranjit Gupta had became the owner of 4 cottahs 13 chhattak and 20 sq. ft. of land on 15.03.2004 which was purchased by her father Ranjit Gupta on 29.03.2000 for total consideration of Rs.7,50,000/-. Subsequently, on 25.08.2005 the
2 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 assessee along with her mother Smt. Saki Gupta, who is also the owner of another plot of land 4 cottahs 13 chhataks and 20 sq. ft. adjoining to assessee’s land jointly entered into a un-registered development agreement with one M/s. BILCON, a partnership firm to construct and develop a G+4 building on the said total land area of about 9 cottahs 10 chittaks and 40 sq. ft. on the following conditions:
(i) All expenses towards construction of the said building would be borne by M/s BILCON. (ii) General shares of the building would be apportioned between the owners (Saki Gupta and Sarbani Gupta) and the Developer in the ratio 40% and 60% respectively. (iii) The owners would get a refundable security deposit of Rs.20 lacs and entire deposit would be refundable to the developer before taking the Owner's Allocation. (iv) The Owner's allocation would comprise of the entire ground and fourth floor of the proposed building. 4. However, the aforesaid agreement was given partial effect and the entire G+ 5 (in addition to the original proposed G+4) storied building along with undivided share of land was transferred to one Trinath Vanijya (P) Ltd. on 24.07.2008 lock, stock and barrel for a total consideration of Rs. 7,30,00,000/- by a sale deed executed between the assessee and her mother as owners and M/s. Trinath Vanijya P. Ltd. with the developer, M/s. Bilcon being the confirming party. The aforesaid sum of Rs.7,30,00,000/- was segregated as under:
Smt. Saki Gupta (the assessee’s mother) Rs.1,40,00,000/- Smt. Sarbani Gupta (the assessee) Rs.1. 40. 00, 000/- M/s. Bilcom Rs. 4. 50,00,000/- Rs.7,30,000,000/-
The assessee, in her computation of income had shown the sale consideration of Rs. 1,50,00,000/- (Rs.1,40,00,000 from Trinath Vajijya P. Ltd. + Rs.10,00,000/- advance received from M/s. Bilcon as Security Deposit mentioned above). Accordingly, assessee computed the income as under:
Particulars Amount (Rs.) Amount (Rs.) Sale Value 1,50,00,000/- Less: Index cost of Acquisition (being the value of 12,57,020/- Gift Deed) Rs.10,00,000x582/463) Index cost of Improvement Rs.14,50,000x582/480) 17,58,125/- 30,15,145/- 2
3 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 1,19,84,855/- Less: Exempted Investment in N.H. Bonds (Section 54EC) 50,00,000/- Investment in Land 3,50,500/- Investment in NH Bonds (2010-11) 50,00,000/- 1,03,50,500/- 16,34,355/-
Therefore, according to the assessee, Capital Gain Tax was payable on the said amount of Rs.16,34,355/-. However, during the course of assessment proceedings, the AO found that the investments in the NH Bonds were made on 01.09.2008 to the tune of Rs.50,00,000/- and on 03.06.2009 to the tune of Rs.50,00,000/-. Therefore, according to AO, the claim of exemption u/s. 54EC of the Act for purchasing of bond on 03.06.2009 was erroneous since the same was invested after the stipulated period of six months from the date of transfer of the capital asset. However, during the course of assessment, the assessee admitted the inadmissibility of the claim of deduction of Rs. 50 lakhs against the investment made on 03.06.2009 in the NH Bond and also the investment in land for Rs.3,50,000/- and computed revised long term capital gain at Rs.69,10,115/-, which is as under:”
Particulars Amount (Rs.) Amount (Rs.) Sale Value of land 1,50,00,000/- Cost of Land (in the name of Ranjit Gupta (father) purchased on 29.03.2000 Add: Registration cost 7,50,000/- 90,000/- 8,40,000/- Add: Index cost Rs.8,40,000x(582/389) 12,56,760/- Add: Index cost of Improvement (FY 2004-05) Rs.14,50,000x(582/480) 17,58,125/- 30,14,885/- Add: Registration expenses (for Gift deed/Brokerage) 75,000/- 30,89,885/- 1,19,10,115/- Less: Exemption u/s. 54EC 50,00,000/- Net Long Term Capital Gain 69,10,115/-
According to AO, it is evident from the revised computation filed during the course of hearing that the assessee has accepted the inadmissibility of the claim of Rs. 50,00,000/- in respect of Section 54EC and also the claim of investment of Rs.3,50,000/- and have recomputed the Long Term Capital Gain at Rs.69,10,115/-. He also observed that no details/evidence with regard to the assessee's claim for Cost of Improvement for 3
4 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 Rs.14,50,000/- could be filed despite several opportunities given in this regard. As such, the assessee's claim for Indexed Cost of Improvement for Rs.17,58,125/- was not allowed. This apart, it was further ascertained by the AO that the value adopted for the G+ 5 storied building as per the Registration Authority was Rs.8,72,78,388/- instead of the Deed Value of Rs.7,30,00,000/-. The differential value of Rs.1,42,78,388/- (8,72,78,388 - 7,30,00,000) is apportioned between the two co-owners and developers in the ratio of consideration received as under:
Name of the Beneficiary Amount (Rs.) Percentage (%) Smt. Saki Gupta 27,37,167/- 19.17 Smt. Sarbani Gupta 27,37,167/- 19.17 M/s. Bilcon 88,04,053/- 61.64
Considering the aforesaid facts that the assessee’s share in the differential value adopted by the Registration Authority for the purpose of stamp duty was Rs.27,37,167/-, assessee was asked to explain as to why the said amount should not be considered to be part of the consideration received for the purpose of sec. 50C of the Act. In absence of any reply the AO recomputed the Long Term Capital Gain of the assessee as under:
Particulars Amount (Rs.) Net consideration (1,50,00,000+27,37,167) 1,77,37,167/- Less: Indexed cost of Acquisition (as per assessee’s 12,56,760/- revised computation) 1,64,80,407/- Less: Registration Expenses (As per Assessee’s 75,000/- computation) Long Term Capital Gains 1,64,05,407/- Less: Deduction u/s. 54EC (as discussed above) 50,00,000/- Total: 1,14,05,407/-
Therefore, the AO computed the total Long Term Capital Gain at Rs.1,14,05,407/- instead of Rs.69,10,115/- as computed by the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who quantified the sale consideration accruing to the owner on 25.08.2005 at Rs.77,28,900/- and directed the AO to calculate the short term capital gains arising to the assessee as her own share as under:
“Determination of the Computation of taxable Capital Gains: 4
5 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 As a result of the above discussion, the Short Term Capital Gains arising to the assessee as her own share is required to be calculated by the AO as under: Sl. No. Narration Details 1. Sale consideration received The AO shall get the property valued at the earliest as discussed and the deemed sale consideration is to be taken as per Section 50C of the Act. 2. Date of sale 24.07.2008 3. Cost of acquisition 50% of the sum of Rs.77,28,900/- i.e. Rs.38,64,450/- as discussed in this order 4. Date of acquisition 27.08.2005 5. Short Term Capital Gain Difference of 1-3
The AO shall work out the calculation as per Sr. No. 5 above and bring it to tax. Since it is a short Term Capital Gain the assessee shall not be entitled to any deduction u/s. 54EC of the Act. Further the assessee’s ground of appeal no. 3 & 4 are rendered infructuous since the original cost to the assessee’s father and the unproved cost of improvement predate the first sale of the property on 27.08.2005 and are not relevant for the subsequent sale.” Aggrieved, assessee is before us.
We have heard the rival submissions and gone through the facts and circumstances of the case. We have also examined the transactional documents executed by the assessees in relation to their immovable property at VIP Road, Kolkata. In the present case the primary issue to be decided is whether the capital asset, which was transferred during the relevant year was a long-term capital asset within the meaning of Section 2(29A) or short-term capital asset within the meaning of Section 2(42A) of the Act. We note that in the return furnished it was the appellant’s claim that the subject property, which was transferred during the relevant year by way of sale deed, was a long-term capital asset as it was held for period exceeding thirty-six months prior to the date of sale. In the order u/s 143(3) this position was not disputed by the AO who accepted the transferred capital asset to be long- term capital asset since both the assessees had held their respective capital assets for period exceeding thirty six months in view of provision of Section 49(1) of the Income-tax Act, 1961 in terms of which the period for which the land was held by Shri Ranjit Gupta, father of Ms. Sarbani Gupta was also included in computation of the period of holding. In the course of appellate proceedings however the Ld. CIT(A) came to conclusion that when the appellants entered into Development Agreement with M/s BILCON on 25.08.2005 a ‘transfer’ of capital asset in terms of Section 2(47)(v) of the Act had taken place. The Ld. 5
6 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 CIT(A) held that in terms of the said Development Agreement the appellants had transferred their right, title & interest in land in favour of the Developer when possession of the property was delivered for carrying out Development of the property. In the opinion of Ld. CIT(A) in terms of the Development Agreement the appellants being the land owners had acquired ‘Owner’s Allocation’ being 40% of the total saleable area to be comprised in the building to be constructed by the Developer. In the opinion of Ld. CIT(A) the capital asset in question was therefore the appellants’ right to receive 40% of the constructed area in the proposed new building which was the subject matter of transfer when the sale deed was executed on 24.07.2008. According to Ld. CIT(A) since the right to receive constructed area was the capital asset in question and since such capital asset was held for period less than three years from the date of acquisition i.e. 25.08.2005; the capital asset in question was a ‘short-term capital asset’ within the meaning of Section 2(42A) of the Act and therefore gain derived on such sale was not entitled either for exemption u/s 54EC or concessional tax rate or the benefit of indexation on the cost of acquisition.
At the outset we note that the finding recorded by the Ld. CIT(A) resulted in enhancement of total income in as much as in view of his clear finding converting long term capital asset into short term capital asset, total income of the appellant stood enhanced as also the tax liability of the assessee also stood increased because the benefit of concessional tax rate was withdrawn in terms of the directions issued by the Ld. CIT(A). It may be true that under Section 251(1)(a) of the Income-tax Act, 1961 the Ld. CIT(A) has power to confirm, reduce or enhance the assessment. However Section 251(2) of the Act specifically provides that the Appellate Commissioner shall not enhance an assessment unless the appellant before him is given reasonable opportunity of showing cause against such enhancement. On perusal of the impugned order passed by the Ld. CIT(A), we find that there is no mention in the order that any such opportunity of being heard was granted by him before he caused enhancement in exercise of his powers u/s 251(1) of the Act. We therefore find that the directions issued by the Ld. CIT(A) which resulted in enhancement of assessees’ total income as well as overall tax liability was fragile in law for violating the principles of natural justice and on this score alone his findings are required to be reversed.
7 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 12. Be that as it may be and without prejudice to our foregoing findings, we also find that the order passed by the Ld. CIT(A) was unsustainable on other grounds as well. According to Ld. CIT(A) the transfer of the capital asset being assessees’ right, title & interest in land stood transferred in favour of the Developer on 25.08.2005 when the assessees entered into Development Agreement with M/s BILCON and permitted the Developer to enter upon the property to carry out development work. If one accepts this proposition at its face value then obviously the Ld. CIT(A) could not have taken into account the cost of acquisition which Smt. Saki Gupta & Shri Ranjit Gupta incurred in the year 2000 to be cost of acquisition. Going by the hypothesis put forth by the Ld. CIT(A) he should have considered the fair market value of the property on the date of alleged transfer i.e. 25.08.2005 to be the consideration which the assessees notionally received on transfer of their right, title & interest in land and in arriving at the capital gain which accrued on execution of Sale Deed on 24.07.2008, the deduction for such notionally received consideration should have been allowed by way of cost of acquisition. We however find that having held that the ‘transfer’ of the assessee’s rights, title & interest in land stood transferred in August 2005, the Ld. CIT(A) granted deduction for cost of acquisition incurred in 2000; meaning thereby in his opinion no transfer of the said capital asset had occurred in the intervening period. This glaring contradiction in the Ld. CIT(A)’s finding clearly shows that the Ld. CIT(A) himself was not consistent in recording his findings.
We further note that in the Ld. CIT(A)’s opinion the transfer of the capital asset had taken place in view provisions of Section 2(47)(v) of the Income-tax Act, 1961. The relevant provision reads as follows:
“(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882)” 14. On careful perusal of Section 2(47)(v) of the Act, it is apparent that an agreement referred to in Section 53A of the Transfer of Property Act, 1882 is roped into Section 2(47)(v) of the Act. It is therefore pertinent to refer to Section 53A of the Transfer of Property Act, 1882 as amended by the Amendment Act of 2001, which reads as follows:
8 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 “53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed there for by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.” 14. A careful reading of the above Section shows that it not only contemplates taking possession of the property by the transferee in part performance of the contract but the additional condition imposed by Section 53A is for the transferee to show that he has performed or he is willing to perform his part of the contract. In the circumstances we are of the considered opinion that since Section 53A is a deeming provision of the Statute; in interpreting the said provision effect must be given to the words & expression expressly used therein and it not permissible to pick or choose only part of the sentence used in the said deeming provision of Section 53A. We find that in coming to his conclusion that the transfer of the capital asset took place in August 2005 when the Developer allegedly took possession, the Ld. CIT(A) only took into consideration part of Section 53A which referred to taking possession of the property by the transferee in part performance of the contract. Facts as are available on record of the Ld. CIT(A), it was quite discernible that even though the transferee had taken possession of the property in part performance of the contract, he was not willing or rather he had failed to fully perform his part of the contract envisaged in the agreement dated 25.08.2005. We also find from copy of the said Development Agreement that it was executed only on Rs.100/- stamp paper and it was neither registered nor stamped in accordance with provisions of Indian Registration Act. We therefore find that the Agreement dated 25.08.2005 was not a registered contract contemplated by the provisions of Section 53A of the Transfer of Property Act, 1882 and therefore the Ld. 8
9 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 CIT(A)’s conclusion that the assessees had transferred their rights, title & interest in the lands at VIP Road, Kolkata in August 2005 in terms of Section 2(47)(v) of the Act read with Section 53A of the Transfer of Property Act, 1882 was devoid of any merit.
Our foregoing conclusion finds support in the decision of the Hon’ble Supreme Court in the case of CIT VsBalbir S. Maini (398 ITR 531) wherein the Hon’ble Apex Court after considering the provisions of Section 53A of the Transfer of Property Act, 1882 as amended in 2001 and in the specific context of its application for the purposes of Section 2(47)(v) of the Act; held that under section 2(47)(v), there must be a 'contract' which can be enforced in law under section 53A of the Transfer of Property Act. However where an agreement such as a Development Agreement is not registered, then in terms of Section 17(1A) and Section 49 of the Registration Act, it shall have no effect in law for the purposes of section 53A of Transfer of Property Act, 1882. The Hon’ble Supreme Court therefore held that when there is no agreement in the eyes of law, which can be enforced under section 53A of the Transfer of Property Act, the provisions of Section 2(47)(v) does not get attracted and in that view of the matter there is no ‘transfer’ of capital asset. The relevant extracts of the judgment are as follows:
“It is also well-settled that the protection provided under section 53A is only a shield, and can only be resorted to as a right of defence. An agreement of sale which fulfilled the ingredients of section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in section 53A of the Transfer of Property Act and sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words 'the contract, though required to be registered, has not been registered, or in section 53A of the 1882 Act have been omitted. Simultaneously, sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. [Para 19] The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of section 53A. In short, there is no agreement in the eyes of law which can be enforced under section 53A of the Transfer of Property Act. This being the case, that the High Court was right in stating that in order to qualify as a 'transfer' of a capital asset under section 2(47)(v), there must be a 'contract' which can be enforced in law under section 53A of the Transfer of Property Act. A reading of section 17(IA) and section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in section 53A.” 9
10 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 The ITAT was not correct in referring to the expression 'of the nature referred to in section 53A in section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub-section (v) was inserted by the Finance Act of 1987 with effect from 1-4-1988. All that is meant by this expression is to refer to the ingredients of applicability of section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi [2002] 3 SCC 676, that the section applies, and this is what is meant by the expression 'of the nature referred to in section 53A'. This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression 'of the nature referred to in section 53A would somehow refer only to the nature of contract mentioned in section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law, obviously no 'transfer' can be said to have taken place under the aforesaid document. Since sub-clause (v) of section 2(47) is not attracted on the facts of this case, there is no need to go into any other factual question. [Para 20]” 16. We find that a similar issue was recently adjudicated by the jurisdictional Hon’ble Calcutta High Court in the context of ‘transfer’ under Section 2(47)(v) of the Act arising under the Development Agreement in the case of CIT Vs Infinity Infotech Parks Ltd (GA No. 4049 & 4050 of 2015) dated 18th July 2018. In that case also the assessee had entered into a Development Agreement for constructing an IT Park in Kolkata and in terms of the said Agreement the Developer was given license to enter upon the property. The CIT revised the assessment order u/s 263 of the Act on the ground that transfer of the capital asset had taken effect on the date on which Development Agreement was executed and in part performance of the said Agreement, possession was delivered. On the contrary it was the assessee’s contention that in terms of the Development Agreement, the Developer was given merely a license to enter upon the land to carry out the development obligation which did not amount to granting possession in part performance of the contract contemplated by Section 53A of the Transfer of Property Act, 1882. The CIT’s order under Section 263 was set aside by this Tribunal against which an appeal u/s 260A was filed by the Revenue. While dismissing the appeal, the Hon’ble High Court held as follows:
“The Commissioner reasoned that since possession of the land was made over by the assessee to the developer at or immediately upon the execution of the agreement of February 7, 2007, the transfer is deemed to have taken place at such point of time in view of Section 2(47)(v) of the Act. The Commissioner then read Section 45 of the Act to imply that capital gains tax was 10
11 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 payable at the relevant point of time and not at a later date when capital gains tax was offered and paid by the assessee. It is the same argument on this score which is repeated on behalf of the Revenue. Even if the mischief that was sought to be arrested by the amendment as indicated in the statement of objects and reasons accompanying the Finance Act, 1987 is not taken into account, it is evident, on a plain reading of the relevant provision, that transfer would have taken place within the meaning of such provision if such transfer had been made over pursuant to an agreement in such regard notwithstanding the documentation thereof not being completed. In particular, it is only the kind of possession that is protected under Section 53A of the Act of 1882 which is to be regarded as transfer and the mere handing over of possession of an immovable property for any other purpose may not fall within the scope of the word “transfer” in Section 2(47)(v) of the Act. There could be myriad situations. There could be an agreement between a developer and a prospective purchaser of a flat under which the purchaser would make some payment or even the full payment and the developer would promise to construct and make over a flat at a future date. Merely because the consideration is paid and the agreement is executed, it would not imply that a transfer would take place. The transfer in such a situation would take place upon the possession of the relevant flat being made over to the purchaser, irrespective of whether the deed of conveyance is executed or not. In another situation, A may agree to sell an immovable property at an agreed consideration to B, subject to such consideration being paid. If B is then put in possession of the property and a part of the consideration is received, as long as B is willing to discharge B’s obligation under the agreement, A cannot dispossess B from the relevant property notwithstanding the conveyance in respect thereof not being executed. That is the essence of Section 53A of the Act of 1882. The transfer in such a case would be at the time of the possession of the property being made over to the transferee. When the owner of a land enters into an agreement with a developer for the purpose of developing the land, the terms of the contract would indicate when the transfer would take place. There could be rare situations where the transfer may be simultaneous with the execution of the agreement, but where the owner retains any right in the constructed area that may come up in future, it would scarcely be a case of a transfer taking place at the time of the execution of the agreement. The matter may be viewed from another perspective. Merely because de facto possession of the land is made over to a mason or a civil engineer for the purpose of making a construction thereon, it would not imply that possession is made over to the mason or the civil engineer for their enjoyment of the property. Such persons would be in de facto possession under the de jure possession of the owner and only for the purpose of undertaking the construction at the land in question. In terms of the agreement of February 7, 2007, the developer was to get 61% of the land and the proportionate share in the constructed area whereas the assessee was to get the balance 39% of the land and the proportionate constructed area thereupon. Till such time that the construction came up and 39% of the constructed area was made over to the assessee, it could not be said that possession of the balance land, in the sense that the expression carries in Section 2(47)(v) of the Act, had been made over by the assessee to the developer. It is the undeniable position that under the agreement of February 7, 2007, the land and the construction thereon were to be divided in a certain ratio as between the developer and the assessee. It was also the developer’s obligation under the agreement to make the construction or cause such construction to be made on the land. The possession that was made over by the assessee to the developer was not of the developer’s share as envisaged in the 11
12 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 agreement, but of the entirety of the land for the construction to be made thereon. It is true that the developer could have retained possession of the land and declined to return possession thereof to the assessee since the developer was in physical control thereof. But such resistance of the developer would not have been protected under Section 53A of the Act of 1882. It was only after the apportionment of the areas upon the construction on the land being completed that the developer could have rightfully retained possession of the developer’s 61% share and resisted dispossession by discharging his obligation under the agreement and seeking refuge in terms of Section 53A of the Act of 1882 despite the formal conveyance pertaining to the developer’s entitlement not having being executed. In any view of the matter, the right of the developer to retain possession and protect such possession under Section 53A of the Act of 1882 could never have arisen prior to the construction being completed and the apportionment effected.” 17. We find that the ratio laid down in the foregoing decisions are squarely to the assessees’ case in as much as the agreement dated 25.08.2005 was not registered as required under Section 53A of the Transfer of Property Act, 1882. In the circumstances therefore we have no hesitation in holding that the only transfer of the assessees’ capital asset took effect when the assessees’ executed sale deed on 24.07.2008 in favour of TrinathVanijyaPvt Ltd. Since as admitted by both the lower authorities the land being capital asset in question was acquired by the assessees in the year 2000, we hold that the said capital asset was ‘long term capital asset’ within the meaning of Section 2(29A) of the Act since it was held for a period exceeding thirty six months prior to 24.07.2008. Accordingly we reverse the order of the Ld. CIT(A) on this issue and direct the AO to assess the income arising from transfer of the immovable property at VIP Road, Kolkata under the head ‘Long term Capital Gain’ instead of ‘Short Term Capital Gain’.
The second issue raised by the appellant in the matter of computation of capital gains is granting deduction for cost of improvement of Rs.14,50,000/- in the case of Smt. Sarbani Gupta. At the time of hearing before us, the Ld. AR for the appellant submitted that Smt. Sarbani Gupta and Smt. Saki Gupta had jointly incurred expenses towards cost of improvement of their adjacent parcels of land and that the identical quantum of expenses which was incurred by Smt. Saki Gupta has been allowed by the AO as deduction from the computation of capital gains. It was therefore contended that when on same set of facts, the AO had accepted the genuineness of incurrence of the cost of improvement by Mrs. Saki Gupta, and then there was no reason for the AO to disbelieve the same in the assessment of Smt. Sarbani Gupta. The Ld. DR appearing on behalf of the Revenue was unable to
13 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 controvert this submission. Having regard to the foregoing facts, we find sufficient merit in the claim put forth by the appellant. The AO is accordingly directed to allow the benefit of deduction of indexed cost of improvement as claimed by the appellant.
In the course of hearing the Ld. AR of the appellant vehemently argued about granting relief u/s 54EC of the Income-tax Act, 1961 in respect of Rs.50 lacs invested in NHAI bonds made by both the assessees on 03.06.2009. The Ld. AR of the appellant drew our attention to the fact that apart from investment of Rs. 50 lacs made in the bonds issued by NHAI on 01.09.2008, both the assessees had further invested Rs.50 lacs each on 03.06.2009. The Ld. AR of the appellant vehemently argued that during the period 31/03/2009 to 01/06/2009, no bonds were available. He therefore submitted that since the relevant bonds were not available, the assessee was prevented by reasonable cause from subscribing to additional bonds so as to avail the benefit of exemption u/s 54EC of the Act. Relying on the judgment of Bombay High Court in the case of CIT Vs Cello Plast (209 Taxman 617)and Sunil Kumar SahaVs ITO (156 ITD 1); the Ld. AR claimed that the appellants were entitled to claim exemption of Rs.100 lacs under Section 54EC since investments were made in two financial years and further since the assessee was prevented by circumstances beyond her control, the exemption should be granted even when the investment of Rs.50 lacs was made beyond the period prescribed in Section 54EC of the Act.
After giving our thoughtful consideration, we are unable to accept the plea raised by the Ld. AR of the appellants. The relevant provisions of Section 54EC as it stood at the relevant time provided as follows:
“54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified 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 long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
14 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer 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 acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45. [Provided that the investment made on or after the 1st day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakhs rupees]”
In the present case the transfer of the capital asset took place on 24.07.2008 and therefore the period of six months prescribed for making investment in specified bonds so as to avail exemption u/s 54EC expired on 31.01.2009. Even going by assessee’s own assertion before the Bench, the relevant bonds were not available for subscription during the period 31.03.2009 to 01.06.2009. As such no case has been made out by the Ld. AR of the appellant that in January 2009 when the period prescribed in Section 54EC expired, the relevant bonds were not available. As such the explanation given for alleged delay in subscribing to the relevant bonds is found to be factually unsustainable. Even with regard to the deduction claimed for Rs.50 lacs subscribed in June 2009, we find that the decision of this Tribunal in the case of AspiGinwalaVs CIT (20 taxmann.com 75) is of no help to the assessee as the ratio in that decision is found to be distinguishable on the facts of the assessee’s case. In the case decided by the coordinate Bench of this Tribunal, the transfer of the capital asset took effect on 22.10.2007 and the eligible investments were closed for subscription from 31-3-2008 and were reopened only on 26-5-2008. As such the period of six months prescribed for making investment u/s 54EC spilled over two financial years. The assessee argued that since he was entitled to claim deduction to the extent of Rs.50 lacs in each financial year, he could legally claim exemption u/s 54EC by investing Rs.50 lacs in each of the two years. On these facts and having regard to the language then employed in Section 54EC, this Tribunal allowed the assessee’s claim. We however find that facts involved in the present case are distinguishable from the facts considered by the coordinate bench of this Tribunal at Ahemdabad. In the present case the transfer of the capital asset took effect on 24.07.2008 and the period of six months prescribed u/s 54EC expired on 31.01.2009. In the circumstances it was not a case where the period eligible for investment
15 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 spilled over two financial years. It is also not a case that the eligible bonds were not available for subscription during the prescribed period of six months. On the contrary in the present case, the date of transfer as well as the period of investment expired in the same year i.e. FY 2008-09. As such we find that the ratio laid down in the decision of ITAT, Ahmedabad is not applicable and therefore we hold that the assessee could have claimed exemption u/s 54EC only up to Rs.50 lacs and not beyond. Since such exemption up to Rs.50 lacs was granted by the AO, we hold that the assessee was not entitled to any further exemption u/s 54EC of the Act. Accordingly this claim of the assessee is rejected.
In the case of Smt. Saki Gupta, the Ld. AR of the appellant raised an alternate contention claiming exemption u/s 54F of the Act. Drawing attention to the submissions made before the AO, the Ld. AR submitted that in order to acquire another residential house for claiming exemption u/s 54F, the assessee had purchased three storied building for Rs.47,60,000/-. Such purchase was completed on 28.07.2010. In the impugned order the AO referring to the provisions of Section 54F observed that the property was purchased beyond the prescribed period of two years and therefore denied the benefit claimed by the assessee u/s 54F of the Act. In order to claim the benefit of exemption u/s 54F, it was necessary for the assessee to demonstrate that the assessee had used the net sale consideration for purchase of new property within a period of two years from the date of transfer. Further in case the net sale consideration was not so utilized then the assessee had obligation to deposit the unutilized net sale consideration in the Capital Gain Deposit Scheme within the due date u/s 139 of the Act. The Ld. AR argued that since the appellant had under wrong advice utilized sum of Rs.50,00,000/- in purchase of NHAI Bonds on 30.06.2009, the requisite sale proceeds which she would have otherwise invested in purchase of property got invested in NHAI Bonds. The Ld. AR argued that the object of the Legislature behind requiring the assessee to deposit sale consideration in CGDS Scheme is that the consideration should not be available to the assessee for making alternate use but the funds must be kept aside in specified manner. The Ld. AR therefore submitted that once the assessee invested the sale proceeds in purchase of bonds, which otherwise qualified for capital gain exemption, then the appellant did not have with her the requisite funds from which she could have invested the funds for making deposit in CGDS Scheme. We find force in this submission because 15
16 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 interpreting the said provision in any other manner would require the assessee to perform impossibility. We also find that in order to avail the exemption u/s 54F, the assessee actually invested Rs.47,60,000/- towards purchase of new property on 28.07.2010 which the AO disputed on the sole ground that such investment should have been made prior to 24.07.2010. In this regard we note that the Special Bench of this Tribunal in the case of Alkaben B. Patel Vs ITO (148 ITD 31) has held that in terms of the General Clauses Act, 1897, the period of six months in the context of Section 54EC has to be regarded as six British calendar Months. The Law Lexicon by P. Ramnatha Aiyar further defines the expression ‘year’ to mean period of twelve months. Further the provisions of Section 3(66) of General Clauses Act, 1897 defines the “year” as ‘year reckoned according to the British calendar’. Therefore applying the ratio laid down by the Special Bench and the aforesaid definition of ‘year’, we note that the assessee had invested Rs.47,60,000/- on 28.07.2010 which is within twenty four months from the end of the month in which the transfer took place i.e. July 2008 and hence it was within the prescribed time limit u/s 54F of the Act. For the reasons set out in the foregoing, we hold that Smt. Saki Gupta had fulfilled the conditions prescribed in Section 54F of the Act and was therefore entitled to claim benefit of exemption in respect of Rs.47,60,000/- under the said Section. The AO is accordingly directed to compute and allow the proportionate deduction u/s 54F in respect of the sum of Rs.47,60,000/- invested by the assessee in accordance with law.
In view of the above, we now summarize our findings concerning the computation of appellants’ capital gains as follows:
(I) The AO shall adopt the Full Value of Consideration for transfer of the immovable property either on the basis of the FMV of land determined by the DVO or adopted by the Registration authorities, whichever is lower. While doing so the AO shall grant opportunity to the assessee.
(II) The AO shall adopt the indexed cost of acquisition as adopted by the AO in the order u/s 143(3);
17 ITA No.720&719/Kol/2015 Smt. Sarbani Gupta & Smt. Saki Gupta, AY 2009-10 (III) The AO shall treat the date of transfer of the capital asset to be 24.07.2008 and accordingly the gain shall be assessed under the head ‘Long Term Capital Gain;
(IV) In working out the long term capital gain, deduction for indexed cost of improvement as claimed by the assessees shall be allowed;
(V) The AO shall grant benefit of exemption u/s 54EC to the extent of Rs.50 lacs to both the appellants;
(VI) In the case of Smt. Saki Gupta, the AO shall compute and allow further deduction u/s 54F in respect of the sum of Rs.47,60,000/- invested by the assessee for purchase of new property;
(VII) The resultant capital gain shall be taxed at the rates prescribed under Section 112 of the Act.
In the result, the appeal of both the assessee’s are partly allowed.
Order is pronounced in the open court on 21.08.2018 Sd/- Sd/- (Dr. A.L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 21st August, 2018 JD.(Sr.P.S.) Copy of the order forwarded to: 1. Appellant – Smt. Sarbani Gupta & Smt. Saki Gupta, 482, Shyamnagar Road, Near Tatkal, Kolkata-700 055. Respondent – ACIT, Circle-49, Kolkata. 2 3. The CIT(A) -15, Kolkata. (sent through e-mail)
CIT Kolkata 5. DR, ITAT, Kolkata. (sent through e-mail) /True Copy, By order,
Sr. Pvt. Secretary 17