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Facts
The assessee, a salaried individual, sold two properties in Chennai and Bangalore. He claimed deductions for cost of improvement and brokerage on the Chennai property and for cost of acquisition on the Bangalore property. He also claimed exemption under Section 54 for investing sale proceeds in two flats in Mumbai, which were purchased in the name of his wife and son. The Assessing Officer disallowed these claims.
Held
The Tribunal directed the assessee to provide evidence for cost of improvement and brokerage for the Chennai property to the Assessing Officer for verification. For the Bangalore property, the Tribunal restored the ground to the Assessing Officer to determine the indexation cost of acquisition. Regarding the Section 54 exemption for the Mumbai flats, the Tribunal, following the jurisdictional Bombay High Court ruling in Prakash (supra), held that investment in a residential house must be in the assessee's name to qualify for exemption.
Key Issues
Whether the assessee is eligible for exemption under Section 54 for investments made in property purchased in the names of his wife and son, and whether cost of improvement, brokerage, and cost of acquisition of sold properties can be claimed without proper documentary evidence.
Sections Cited
Sec. 48, Sec. 54, Sec. 250, Sec. 143(1), Sec. 143(2), Sec. 142(1), Sec. 54B, Sec. 54F
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Income Tax Appellate Tribunal, ‘C’ BENCH
Before: SHRI BR BASKARAN & SHRI SUNIL KUMAR SINGH
आदेश / O R D E R PER SUNIL KUMAR SINGH (J.M): 1. This appeal has been preferred against the impugned order dated 13.03.2024 passed in Appeal no. CIT(A) 46, Mumbai/10390/2016-17 by the Ld. Commissioner of Income– tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income- tax Act, 1961 [hereinafter referred to as "Act"] for the Mr. Colathur N. Ram Assessment year [A.Y.] 2013-14, wherein learned CIT(A) has dismissed assessee’s appeal and confirmed the disallowance on account of cost of improvement and brokerage, further confirming the addition on account of capital gain and income from house property made vide assessment order dated 31.03.2016.
(i) The brief facts related to the appeal are that the assessee is a salaried person employed with Essar Services India Ltd. and earned income during the year under consideration under the heads income from salary, capital gain and other sources. Assessee filed his return of income for A.Y. 2013-14 on 30.07.2013, declaring total income of Rs. 2,46,64,570/-. The return was processed u/s. 143(1) of the Act and thereafter the case was selected for scrutiny under CASS. Statutory notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. Assessee’s representative Mr. Suresh Rathod, ITP filed the details called for during the assessment proceedings. (ii) After considering the submissions made by the assessee, learned assessing officer noticed that during the year under consideration, assessee sold two house properties, one at Chennai and the other at Bangalore. The property at Chennai was sold for a net consideration of Rs. 1.55Cr vide agreement dated 27.09.2012 and assessee claimed cost of improvement of Rs. 25,00,000/- and brokerage of Rs. 3,48,316/-. However, Mr. Colathur N. Ram learned assessing officer disallowed the deductions for want of documentary evidence. (iii) Learned assessing officer further noticed that the assessee claimed to have incurred a long term capital loss of Rs. 53,33,204/- on the sale of property at Bangalore (Amos5). It was further traced that the assessee declared the consideration on this property to be 1.25Cr, however the agreement value was Rs. 80,00,000/-. The loss claimed on the sale of Bangalore property was not found to be correct for want of documentary evidence in respect of actual indexed cost. The cost of acquisition of Bangalore property (Amos-5) was taken as Rs. 36,00,000/- on the basis of the purchase agreement. The capital gain on the sale of two house properties at Chennai and Bangalore was computed by ld. AO at Rs. 1,20,89,659 and Rs. 69,33,394/- respectively. Thus computing net capital gain of Rs. 1,90,23,053/-. (iv) As the assessee claimed deduction u/s. 54 with respect to capital gains on sale of house properties at Chennai and Bangalore, he was asked to furnish purchase agreements. The assessee furnished copies of purchase agreements for two flats, one flat no. 1201 and other flat no. 1202 in the same building at Worli residency Mumbai. Learned assessing officer further noticed that both the agreements for purchase were in the name of Smt. Rajani Ram (wife of the assessee) and Mr. Pranav Ram (son of the assessee) learned assessing officer declined to accept the assessee’s claim of deduction since the purchase agreements did not carry the name of the assessee Mr. Colathur N. Ram as purchaser, thus capital gain of Rs. 1,90,23,053/- was added in the total income of the assessee. (v) Learned assessing officer further noted that during the year, the assessee held four properties (i) Villa No.3, Amos, Bangalore; (ii) Villa No.5, Amos, Bangalore; (iii) Chennai house property; (iv) Waheed, Bandra, Mumbai. While two of the house properties at Chennai and at Bangalore (Amos5) were sold during the year, the third property at Bangalore (Amos3) was held in ownership throughout the year under consideration and no income from house property was incurred for this property and in respect of the properties sold during the year. On issuance of show cause notice, assessee offered a sum of Rs. 2,76,437/- as rental income for the property at (Amos5), which was in fact the annual rental income for (Amos3), as it was sold in F.Y. 2013-14 and Amos- 5 was sold in F.Y. 2012-13. Learned assessing officer computed rental income for (Amos5) from 01.04.2012 to 31.07.2012 as (Amos5) was sold vide agreement date 13.08.2012 and added rental income of Rs. 2,76,437/- as offered by assessee on Amos-3 and Rs. 64,680/- as notional rental income on Amos-5, as income from house property.
Aggrieved by the assessment order dated 31.03.2016, assessee preferred first appeal before learned CIT(A), who dismissed assessee’s appeal.
Mr. Colathur N. Ram 4. Aggrieved by the impugned order, assessee has preferred this second appeal raising following grounds: “I) The Ld. CIT (Appeals) erred in confirming the disallowance of claim made u/s 48 towards "cost of improvement" of Rs. 25,00,000/- and "brokerage" of Rs. 3,48,316 incurred on the Chennai property, without giving any finding on the same, and without considering the details filled before it. II) The Ld. CIT(Appeals) erred in disallowing the claim made for "cost of acquisition/construction" duly indexed of Rs. 1,22,66,598/- on Sale of Bangalore property, being difference of Rs. 1,78,33,204 claimed and Rs. 55,66,606/- allowed by AO, without giving cogent reasons to allow a part sum as cost. III) The Ld. CIT (Appeals) erred in disallowing the exemption claimed u/s 54 of Rs. 39,08,139/- for investment made in 2 flats in Mumbai. The CIT(A) erred in rejecting the claim on the ground that the investment was not made in appellants name but in the name of wife and son, when there were legal precedents allowing the same. IV) The Ld. CIT(Appeals) erred in confirming a sum of Rs. 64,680/- made by the AO as Notional Income under the head Income from House Property.”
In response to the notice issued by the tribunal, learned DR appeared and participated in the hearing.
We have perused the records and heard learned representatives for both the parties.
Learned representative for the assessee has submitted that with regard to the ground no. 1, he could not file the said brokerage receipts before the authorities below as the same was misplaced in the files and paper work and prayed to file the said brokerage receipt as additional evidence, which is attached at page no. 11A of the paper book volume no. 1, further submitting to allow the deductions of Rs. 25,00,000/- as cost of improvement and Rs. 3,48,316/- as brokerage incurred on the transaction of Chennai Property.
Mr. Colathur N. Ram 8. Learned DR has submitted that assessee did not file any documentary evidence in respect of the aforesaid cost of improvement and the brokerage before the lower authorities, hence cannot be permitted to file the same at this belated stage.
As regards assessee’s ground no.1, it is noticed that though the assessee filed breakup of said ‘cost of improvements’ in respect of Chennai Property before learned assessing officer but without any evidence. No efforts by assessee seem to have been made to procure such evidence even before the first appellate authority. The said receipt depicted at page no. 11A of the assessee’s paper book no. 1 cannot be accepted at this stage without verification. The same can be verified at the level of learned assessing officer. We direct assessee to file evidence with regard to the ‘cost of improvement’ and ‘brokerage’ in respect of Chennai property before learned assessing officer. Learned assessing officer, after verification and examination of such evidence shall pass appropriate order in accordance with law. Ground no. 1 is determined accordingly.
10. As regard ground no.2, learned representative for the assessee has submitted that the learned assessing officer has wrongly disallowed the claim for the cost of acquisition/construction on the sale of Bangalore property without any cogent reason.
Mr. Colathur N. Ram 11. It transpires from the perusal of the assessment order that no documentary evidence in respect of the details with regard to the actual indexed cost of Bangalore property (Amos5) was submitted by the assessee during the assessment proceedings. This made the assessing officer to treat the cost of acquisition at Rs. 36,00,000/- on the basis of purchase agreement. This apart, learned assessing officer found that the assessee declared the consideration received on sale of Bangalore property (Amos5) to be 1.25 Cr, whereas the agreement value was only Rs. 80,00,000/-. Such ambiguities were also not met out even before the first appellate authority. We direct appellant / assessee to submit required details in respect of the actual indexed cost of Bangalore property (Amos5) before the assessing officer. We accordingly restore this ground to the file of learned assessing officer for determination of the indexation cost of acquisition of Bangalore property (Amos-5) after considering the submissions and evidence adduced by the assessee and pass order in accordance with law. The ground no. 2 is determined accordingly.
The small issue needs to be answered in the third ground of assessee’s appeal is as to whether assessee is entitled to the exemption u/s. 54 of the Act, despite purchase agreement not being in assessee’s own name but on the name of his wife and son.
Mr. Colathur N. Ram 13. Learned representative for the assessee has submitted that the authorities below are not right in rejecting the deduction claimed u/s. 54 on the ground that the investment in the two flats at Mumbai was not made in appellant’s own name but in the name of his wife and son. Learned AR has referred Commissioner of Income Tax- XII V Kamal Wahal, MANU/DE/0134/2013, wherein Hon’ble Delhi High Court, vide para 8, has held as under: “8. It thus appears to us that the predominant judicial view, including that of this Court, is that for the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife. Having regard to the rule of purposive construction and the object which Section 54F seeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue.”
14. Learned representative for the assessee has further referred order dated 04.01.2024 passed by the Delhi Bench of this Tribunal in for A.Y. 2020-21 in Simran Bagga V ACIT, reported in MANU/ID/0012/2024. The relevant paras 12 and 13 are reproduced as under:
“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, MANU/TN/8708/2006: [2006] 287 ITR 271 (Madras HC)- The deduction under section 54 was allowed where the new residential property was purchased in the name of the wife of the assessee. b) DIT vs. Mrs. Jennifer Bhide MANU/KA/2766/2011: [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 (Delhi HC)-Followed the judgment of Hon'ble Delhi Mr. Colathur N. Ram High Court in the case of CIT vs. Ravinder Kumar Arora, MANU/DE/7363/2011:[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 Act for investment made by the assessee in the name of his wife. e) Shankar Lal Kumawat vs. ITO MANU/11/0270/2020: 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 property 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 v. ACIT MANU/IH/0206/2012: [2012] 25 taxmann.com 337 (Hyd. ITAT)-The assessee purchased a flat in the name of her minor daughter and claimed deduction u/s 54F. The exemption was allowed by Hon'ble ITAT. g) Krishnappa Jayaramaiah vs. ITO-MANU/IL/0059/2021: [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 MANU/IP/0329/2019: [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 MANU/DE/0134/2013: [2013] 351 ITR 4 (Delhi) and CIT vs. Ravindes Kumar Arora MANU/DE/7363/2011: [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 54F 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 exemption/deduction to the taxpayer and deduction should not be denied. 14.Hence, keeping in view, the entire facts of the case, since, the sale proceeds have been duly invested in acquisition of new property within the due time allowed, the assessee is eligible for claim of deduction u/s. 54F.”
15. Learned assessee has further referred Commissioner of Income Tax V V.Natarajan, MANU/TN/8708/2006, wherein Hon’ble Madras High Court, vide para 4.5, held as under:
Mr. Colathur N. Ram “4.5 In the instant case, the assessee purchased a house at Anna Nagar in the name of his wife Smt. Meera after selling the property at Bangalore. But the same was assessed in the hands of the assessee. Hence, as correctly held by the CIT(A) as well as by the Tribunal that the assessee is entitled for exemption under Section 54 of the Act.”
16. Learned AR has further referred order dated 28.02.2024 passed by the Indore Bench of this Tribunal in Siddhulal Patidar V Income Tax Officer, reported in MANU/II/0037/2024, wherein ratio of Kamal Wahal (supra), PCIT vs. Balmukund Meena (M.P. High Court) and V. Natarajan (supra) has been followed.
17. Learned representative for the assessee, fairly referred Prakash V Income Tax Officer, MANU/MH/0825/2008, wherein Hon’ble Jurisdictional Bombay High Court (Nagpur Bench) framed three substantial questions of law. The relevant third question was as to whether for qualifying exemption under Section 54 of the I.T. Act, is it necessary and obligatory to have investment made in residential house in the name of assessee only or investment in residential house is enough to qualify and claim the said exemption? Hon’ble Court answered this question in affirmative. The relevant paragraphs 12 to 17 read as under:
12. It is, therefore, clear that the purpose is to give this benefit on the ownership of one residential house only by the assessee and to encourage to have one residential house of the assessee. Therefore, right from the sale of original asset till the purchase and/or construction of the residential house i.e. the “new asset , the ownership and domain over the new asset is a must. The new property must be owned by the assessee and/or having legal title over the same. The others may use and occupy the same along with the assessee but the ownership should be of the assessee
13. Having observed above and in view of the undisputed position on the record that the deceased assessee, admittedly, though sold the property owned by him yet purchased the new property in the name of adopted son and paid consideration out of the sale proceeds in question, with clear intention to transfer the property to the adopted son. He, therefore, utilised the sale proceeds to construct a house by transferring the property and submitting plan in the name of the son only. The intention was very clear from the day one to transfer the property even before the construction of residential house to the adopted son. He transferred the property before the prescribed period, as per the scheme of Section, and the son becomes the owner of the property for all the purposes. The deceased/assessee, admittedly, had no domain and/or right whatsoever on the said property. This fact itself, therefore, disentitled him to claim any exemption as there were various non compliances of the conditions as per the scheme of Section 54 and 54F of the IT Act as mentioned above.
The strong reliance was placed on the following decisions by the appellant. In Late Mir Gulam Ali Khan (By legal representative Mrs. Noor Begum) ..vs.. Commissioner of Income Tax; 228 Income Tax Reports 165 (A.P.) the Andhra Pradesh High Court has granted exemption under section 54 of the Income Tax Act and observed as under:-
“Relying upon the expression “assessee” occurring in section 54 of the Act, it is contended for the Department that in order to claim the exemption, the person who sold the house must be the same as the person who purchased the house, that is, the assessee must be one and the same person. The identity must be the same. We are unable to accept this contention. The object of granting exemption under section 54 of the Act is that a person who sells a residential house for the purpose of purchasing another convenient house must be given exemption so far as capital gains are concerned. As long as the sale of the house and purchase of another house are part of the same scheme, the lapse of some time between the sale and purchase makes no difference. The word “assessee” must be given a 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 the exemption and what is more, in the instant case, the very same assessee immediately after the sale of the house, entered into an agreement for purchasing another house and paid a sum of Rs. 1,000 as earnest money and subsequently the legal representative completed the transaction within a period of one year from the date of the death of the deceased. The sale and purchase are two links in the same chain. We are fortified in this view by a decision of the Madras High Court in C.V. Ramanathan v. CIT [1980] 124 ITR 191.”
We are not inclined to accept the liberal view to the word “assessee” in Late Mir Gulam Ali Khan (supra) for the reason already recorded in the above paras. The Scheme of Section 54F is clear. The facts are different here.
The deceased assessee admittedly sold and purchased the property from the realisation but in the name of the adopted son, who in the scheme of the Act and Section 54F is not an assessee, who after selling the old asset purchased and constructed the new property. He was not the owner of the new purchased property. In M/s. Ponds India Ltd. (Merged with H.L. Ltd.) v. Commissioner of Trade Tax, Lucknow; JT 2008 (9) SC 94, the Apex Court's following declaration supports the view we have taken based upon the principle of interpretation of revenue/taxation status. “39. When a case of obvious intent on the part of the Legislature is made out, a meaning which subserves the legislative intent must be given effect to. It is however also well known that when a word is defined by the legislature itself, the same meaning may be attributed even in the changed situation.”
In this background, the submission with regard to the principle of Benami transaction based upon the Supreme Court judgments in Bhim Singh (dead) by L.R.s and another..vs..Kan Singh; AIR 1980 S.C. 727 and The Controller of Estate Duty, Lucknow vs. Aloke Mitra; AIR 1981 SUPREME COURT 102, are unacceptable. The intention, as well as, transaction on record makes the position very clear. In no way this can be said to be a Benami transaction. The facts and circumstances are totally distinct and distinguishable of the judgments cited by the learned counsel appearing for the assessee in all respects.
In light of above, the reasoning given by the Tribunal by maintaining the order passed by the Assessing Officer, need no interference. The reasonings, as given, are as under:- “8. .....A plain reading of section 54F would show that it is the assessee who has to invest the capital gain in the new construction of a residential house in his name. The expression that the assessee has purchased or constructed a new asset in sub-section (1) would only mean that the new asset has to be in the name of the assessee. The proviso to sub section (1) makes the position very clear in as much as it says that the assessee shall not own any residential house on the date of transfer or purchase a residential house within 1 year of the transfer or construct residential within a period of 3 years, other than the new asset. Thus, reading of sub-section (1) together with the proviso would show that the investment in the new asset by the assessee has to be in his own name and not in the name of any other person. The legal consequences of purchase of the new asset by assessee in the name of his son is to constitute his son as the beneficial owner of the new Mr. Colathur N. Ram asset. The assessee has, therefore, not made the investment in this name. Therefore, he has rendered himself liable to pay tax on capital gains arising out of the transfer of a capital asset. 9. .....
In all the above case, it will be significant to note that the issue was never regarding purchase of the new asset in the name of other person. Death during the period within which the new asset had to be acquired was an intervening event in some cases. The distinction between a legal heir and an heir apparent in law is very significant. An heir apparent succeeding to the estate of a prepositus is dependent on the fact of his surviving the prepositus. Death is a certain event but who will die first is not a certain event. This is the reason why law regards transfer by a heir apparent of his chance of succession as non transferable under section 6 of the Transfer of Property Act. 11. .....In the present case, the assessee has not made any such claim. In the affidavit filed before the Assessing Officer he had admitted that his son is the beneficial owner of the property and the investment was made in his name in view of the fact that he is 86 years old and that he was counseled to do so. Thus, on facts and circumstances of this case, we are of the view that the decision of the Madras Tribunal is also distinguishable.”
Ld. Representative for the assessee submitted that according to the facts of the case decided by Hon’ble Bombay High Court in Prakash (supra), deceased assessee invested the sale proceeds in vacant plot and constructed residential building in the name of his adopted son, whereas the assessee in the present case, made investments in the two flats in the name of his wife and real son, hence as per ratio of Hon’ble Delhi High Court in Kamal Wahal (supra), assessee is entitled for the exemption u/s.54 of the Act.
It is well established principle of law that the law does not discriminate between a biological / real son and adopted son. Both possesses equal rights and obligations at par under law.
Mr. Colathur N. Ram Nothing has been brought to our notice in respect of any other authoritative precedent contrary to the above referred dictum propounded by Hon’ble Jurisdictional Bombay High Court. Hence, this bench has no option but to follow the binding precedent of Hon’ble Jurisdictional Bombay High Court in Prakash (supra), wherein Hon’ble Jurisdictional High Court has held that, for qualifying the exemption u/s.54 of the Act, it is necessary and applicable to have the investments made in residential house in the name of the assessee only. We, therefore determine the 3rd ground against the assessee and in favour of the revenue.
The last ground no. 4, in respect of the addition of Rs. 64,680/- as notional income under the head income from house property, has not been pressed by the learned representative for the assessee. This ground is accordingly not adjudicated in consequence thereof.
In the result, the appeal is partly allowed for statistical purposes in terms of what we have observed hereinabove.
Order pronounced in the open Court on 17.09.2024.