SMT Y MANJULA REDDY vs. THE INCOME TAX OFFICER

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF AUGUST 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.177 OF 2017 BETWEEN: SMT. Y. MANJULA REDDY PRESENTLY R/AT. NO.1010 3RD FLOOR, 26TH MAIN 4TH 'T' BLOCK, JAYANAGAR BANGALORE-560041. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. BHAIRAV KUTTAIAH, ADV.,) AND: THE INCOME TAX OFFICER WARD-10(2), BMTC BUILDING 6TH BLOCK, 80 FT. ROAD KORAMANGALA, BANGALORE-560095.

... RESPONDENT (BY SRI. E.I. SANMATHI, ADV., FOR SRI. K.V. ARAVIND, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 02.12.2016 PASSED IN ITA NO.1755/BANG/2013 FOR THE ASSESSMENT YEAR 2008- 09, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT.

2 (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU, 'A' BENCH, BENGALURU IN ITA NO.1755/BANG/2013 AND 1780/BANG/2013 DATED 02.12.2016 FOR THE ASSESSMENT YEAR 2008-09 VIDE ANNEXURE-A & ETC. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee against the order dated:02.12.2016 passed by Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether the Tribunal was justified in law in denying the exemption under section 54F and consequently passed a perverse order on the facts and circumstances of the case?

3 (ii) Whether the Tribunal was justified in law in holding that the appellant has not acquired a property, and the transaction was mere paper transaction when the issue was not before it and consequently passed perverse order on the facts and circumstances of the case? (iii) Without prejudice whether the Tribunal ought to have held that the Transaction of release has culminated into a Transfer in favour of the appellant and consequently the finding of the Tribunal is perverse in law on the facts and circumstances of the case? (iv) Whether the Tribunal was justified in law holding that the release deed of the property between spouses was a colorable device and not a proper form for acquisition of property and consequently passed a perverse order on the facts and circumstances of the case?" 2. Facts leading to filing of this appeal briefly stated are that assessee is an individual. The assessee

4 filed the return of income for the Assessment Year 2008-09 on 29.09.2008 declaring total income of Rs.9,06,856/-. The assessee along with other co-owners sold the immovable property of Sy.No.54/1 to Sy.No.54/3 situated in Kalenagrahara Village, Begur Hobli, Bangalore South Taluk for a sale consideration of Rs.5,35,00,000/- vide sale deed dated 27.10.2007. The share of the assessee was Rs.1,60,50,000/- and after deduction, the selling expenses and indexing the cost of acquisition, the Long Term Capital Gain of Rs.1,56,85,225/- was assessed by the assessee. In respect of the aforesaid capital gain, the assessee claimed exemption under Section 54F of the Act to the extent of Rs.1,56,33,870/- and offered balance of Long Term Capital Gain of Rs.51,355/- to tax. 3. The assessment was completed under Section 143(3) of the Act. The Assessing Officer by an order dated 31.12.2010 inter alia held that the assessee has not purchased the asset, in respect of which the

5 claim under Section 54F of the Act has been made and the assessee without prejudice had re-worked the amount of cost of acquisition of new asset, which was reduced by the Assessing Officer to Rs.91,57,683/-. Accordingly, the claim under Section 54F of the Act was denied. 4. The assessee thereupon preferred an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 24.09.2013 inter alia held that assessee is entitled to deduction under Section 54F of the Act to the extent of 50% of the cost of acquisition of the new property, which was estimated at Rs.91,58,083/-, which comes to Rs.45,79,042/-. Being aggrieved, by the aforesaid order, the assessee as well as the revenue filed an appeal before the tribunal. The tribunal vide common order dated 02.12.2016 inter alia held that the assessee is not entitled to deduction under Section 54F of the Act as assessee has failed to prove that she has acquired a new house by sale proceeds of

6 original asset sold and further held that the assessee has not acquired any asset. The appeal preferred by the assessee was dismissed without any adjudication on the ground that the appeal preferred by the revenue has been allowed. In the aforesaid factual background, this appeal has been filed. 5. Learned Senior counsel for the assessee submitted that admittedly, the assessee has purchased the asset and the tribunal erroneously held that no exemption under Section 54F of the Act can be granted even in respect of 50% of the property owned by the assessee on 24.02.2007. It is also urged that the tribunal could not have denied the exemption under Section 54F of the Act in respect of an asset purchased by registered sale deed and it ought to have been appreciated that the purchase was made by the assessee before one year prior to the transfer. It is also urged that assessee is entitled to claim exemption on the entire property and the findings of the

7 Commissioner of Income Tax (Appeals) as well as the tribunal are perverse. It is also urged that the tribunal did not even adjudicate the grounds raised by the assessee in her appeal. It is submitted that finding recorded by the tribunal that the assessee is not entitled to benefit of Section 54F of the Act is required to be set aside and the matter deserves to be remitted to tribunal to adjudicate the issue raised by the assessee in her appeal in accordance with law. In support of aforesaid submissions, reliance has been placed on decisions 'NAVIN JOLLY VS. ITO', (2020) 424 ITR 462 (KAR.), 'CIT VS. GITA DUGGAL', (2013) 357 ITR 152 (DEL.), 'MR.M.GEORGE JOSEPH VS DCIT IN ITA NO.238 OF 2015 DATED 12.07.2021 (KAR.), 'CIT VS. MRS. JENNIFER BHIDE', (2012) 349 ITR 80 (KAR.) and 'CIT VS. KAMAL WAHAL', (2013) 351 ITR 4 (DEL.) 6. On the other hand, learned counsel for the revenue submitted that the Assessing Authority rightly

8 rejected the claim of the assessee as she was owning more than one house on the date of acquisition of new property. It is further submitted that as per the balance sheet, the assessee owns three properties and had shown income from house property. It is also urged that the property purchased jointly with her husband on 24.02.2007 cannot be considered as compliance of Section 54F of the Act as the assessee was required to purchase the property in her individual mean. It is also submitted that entitlement of the assessee to claim benefit under Section 54F of the Act is intrinsically connected with the grounds raised by her in the appeal, which has not been adjudicated by the tribunal and therefore, the matter be remitted to the tribunal for decision afresh. 7. We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of Section 54F of the Act, it is evident that if the assessee within a period of one year

9 before or two years after the date on which transfer took place, purchases, or has within a period of three years after that date constructs a residential house, the assessee is entitled to the benefit of Section 54F of the Act. It is noteworthy that in order to claim an exemption under Section 54F of the Act, it is not necessary that same sale consideration should be used for construction of new house property. Section 54F of the Act is a beneficial provision, which has been enacted with an object to promote investment on housing and to enable the assessee to save tax on capital gains. In the instant case, admittedly, the assessee within one year before the date of transfer i.e., on 24.02.2007 has purchased along with other co-owners a property and had sold the capital asset on 24.10.2007. The revenue has raised the following grounds in appeal: (i) The order of CIT (A) is opposed to facts of the case.

10 (ii) The CIT (A) ought to have appreciated the fact, that the assessee is not eligible to claim deduction under Section 54F to the extent of 50% of investment in an asset in which she already had a stake. (iii) The CIT(A) erred in holding the three residential houses owned by the assessee in OOtocamund as a single residential house for the purpose of claiming deduction under Section 54F relying on the judgment in the case of CIT VS. GITA DUGGAL (2013) 257 CTR (DEL) 358. (iv) The appellant craves for permission to add or delete the grounds of appeal at the time of hearing the case. 8. From close scrutiny of the order passed by the tribunal, it is evident that the tribunal while deciding the appeal preferred by the revenue has adjudicated only grounds 2 and 3 and has not adjudicated the

11 ground with regard to the claim of assessee under Section 54F of the Act in the light of law laid down by Delhi High Court in 'CIT VS. GITA DUGGAL', (2013) 257 CTR (DEL.) 208. The tribunal has failed to adjudicate the grounds raised by the assessee in her appeal. The impugned order therefore, cannot be sustained in the eye of law. It is accordingly quashed. The matter is remitted to the tribunal to decide the appeal preferred by the assessee as well as the revenue afresh in accordance with law laid down by this court in NAVIN JOLLY, GITA DUGGA, M.GEORGE JOSEPH, M/S JENNIFER BHIDE AND KAMALA WAHAL supra. It is therefore, not necessary for us to answer the substantial questions of law. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss