MR.ASLAM ZACKRIA SAIT,BANGALORE vs. INCOME TAX OFFICER, BANGALORE

Per Inturi Rama Rao, Accountant Member

This appeal filed by the assessee directed against the order of the learned CIT(A)–1, Bangalore dated 21/12/2016 for the assessment year 2012-13. The appellant raised the following grounds of appeal:

ITA No. 453/Bang/2017 Page 2 of 16

deriving income under the head “business”. The appellant filed the

ITA No. 453/Bang/2017 Page 3 of 16 return of income for the Assessment Year 2012-13 on 29.09.2012

declaring a total income of Rs.1,08,74,100/-. Against the said return of

income, the assessment was completed under section 143(3) of the

Income Tax Act, 1961 vide order dated 25.03.2015 at a total income

of Rs. 5,82,86,900/-. The disparity between the returned income and

the assessed income is on account of denial of claim for exemption

under section 54 of the Income Tax Act, 1961 amounting to

Rs.4,74,12,802/-. The brief facts leading to this addition are as under:

The appellant was owning an apartment No. 7, on the third floor of

‘Rockline West End’ having a super build-up area of 4777 sq. ft. and

the appellant had sold the said property for a total sale consideration of

Rs.7,25,00,000/- vide sale deed dated 17.08.2011. The appellant had

determined the capital gains at Rs.4,62,36,920/- after deduction of

indexed cost of acquisition, cost of improvement and commission

payment aggregating to Rs.2,62,63,080/-. The case of the appellant is

that he paid a sum of Rs.4,75,00,000/- vide cheque No.000018 dated

08.06.2012 to M/s. Rockline Housing Development Pvt. Ltd., towards

purchase of the residential property being built by the said company in

“Rockline Seethalakshmi Project” at Kasturba Road, Ward No. 111,

Bangalore-560001 and receipt of this money was acknowledged by the

ITA No. 453/Bang/2017 Page 4 of 16 said company vide receipt dated 13.06.2012. Accordingly, the

appellant claimed a deduction under section 54 of Income Tax Act, of Rs.4,62,36,920/-. The same was denied by the Assessing Officer by setting out the following facts:

“As per provisions of section 54 of the I.T. Act, the exemption is available where the assessee has within one year before or two years after the date of transfer purchased or within three years after the date of transfer constructed a residential house by reinvesting the net sale proceeds. The following are the points being raised against the assessee for the claim of benefit u/s 54 of the I.T. Act: a) Payment is held by the close associate, where the assessee has substantial interest: The amount reinvested by the assessee for acquiring the capital asset is one where the assessee himself is the director of the company and also holding substantial share capital in the company. After the receipt of sale consideration the assessee kept the amount in mutual funds for quite some time and transferred the amount to the pvt. Limited c ompany where he is holding beneficial interest. From the verification of facts submitted by the assessee the project referred was only a concept on the date of reinvestment, since the assessee has applied for the plan sanction to the BBMP only on 07.01.2013. Whereas the investment is made on 08.06.2012. b) Amount invested is not utilized: The assessee made the investment as per the submission on 08.06.2012 in the private ltd. company where the assessee has business interest. From the date of investment till the date of this order the builder has not utilized the fund in total for the project proposed.

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c) No identity of the capital asset acquired: It is learned from the submission that the assessee in his individual capacity has not entered into a return agreement specifying conditions of the residential space acquired from the developer company. In fact, location of the property, flow and sq. ft. area also not decided on the date of payment. The investment is only amounts to on account transfer to the sister concern without any identification of the asset acquired. The allotment letter received by the assessee prior to the payment is reproduced as under: Wednesday, 7th June 2012 To Mr. Aslam Zackria Sait Martello Boulevard Third Floor, No. 6/4 Museum Road Bangalore-560001.

Dear Sir, Sub: Allotment of Residential Space

With refer to the above and the discussion had with your goodself we hereby allot you the Residential space in the Upper Floor, in the commercial cum residential complex known as “Rocklines Seethaalakshmi” bearing Corporation No.21 situated at Kasturba Road, Bangalore, together with common area, common facilities, common open space, common stair case, common water and sanitation, separate electricity.

Thanking you, Yours Truly,

ITA No. 453/Bang/2017 Page 6 of 16 for ROCKLINES HOUSING DEVELOPMENT PVT LTD

sd/- MOHAMMED DAANISH ZACKRIA MANAGING DIRECTOR The building proposed consist of two basement floor + ground floor + 17 upper floors. Further, as per the details submitted it is a commercial cum residential building. The developer has not identified the commercial portion as well as the residential portion of the building. Under this circumstance, just earmarking “space in the upper floor” cannot be denotified clearly the acquired asset is of residential in nature and exemption u/s 54 of the I.T. Act can be granted only on investment in residential property. d) Can the benefit u/s 54 can be allowed indefinitely?: In the referred case assessee sold the property on 17.08.2011. Accordingly, the assessee has to purchase the apartment u/s 54 within two years of time i.e., 17.08.2013. The reinvestment claimed by the assessee is 08.06.2012. The application for the construction of the ground + 17 upper floors applied to BBMP only on 7.1.2013. Further, the assessee applied for commencement certificate on 30.1.2015 which is pending. As per the consultation report of the IISc, Bangalore dated February, 2013 the stability analysis of the building proposed indicates the possible technical issues concerning the construction thereby the date of completion of the project becomes indefinite. Under this circumstances an answer is needed if the assessee liable to capital gain allowed to have possession of the property for indefinite period ad in case if the allotment letter from the assessee’s

ITA No. 453/Bang/2017 Page 7 of 16 related company gets cancelled by the assessee subsequently and after lapse of the legal time limit, will the revenue able to recover the revenue loss made by the assessee by such cancellation? If there is no remedy for the same under the Act, then the revenue loss is many cases cannot be compensated. The proviso emphasis time limit for the completion within the specified period is only to monitor that such revenue loss can be plugged. e) No legal title on the reinvestment: As a general principle of law an immovable property is said to be transferred when the conveyance is registered and the possession of the same is handed over to the assessee. As on the day, after 3 years of payments made on reinvestment, the assessee do not have any legal entitlement over the new asset acquired. This is no registered document of agreement to sell or agreement to construct as evident that the money transferred to the private limited company by the director in his individual capacity amounts to reinvestment. f) Amount of capital gains lost identity: From the rectification of the bank account of the assessee, it is learned that the assessee has many debit and credit payments with the developer company as director of the company. In that event the payment made by the assessee on 8.6.2012 cannot be concluded that it is the money out of the sale of the property. The sale consideration and the capital gain had by the assessee lost its identity under the circumstances. Assessee cannot claim the amount debited to the related company is only the capital gain amount and the intention is only for reinvestment.

ITA No. 453/Bang/2017 Page 8 of 16 g) Accounting go against the assessee’s claim: The assets side of the statement of affairs of the assessee as on 31.03.2012 is as under:

From the verification of the above it is clear that the assessee has not considered the reinvestment made in the project of “M/s. Rockline Seethaalakshmi” either in fixed assets or investment. He has grouped the payment made u/s 54 of the I. T. Act under the heading Loans and Advances. Hence it is evident from the assessee’s claim in the statement of affairs that the amount transacted referred above is claimed as loan and advances only. So the assessee himself claims it as loan and advances and treat the payment as, not as ‘reinvestment, establishes that he is not eligible for claim of exemption.”

that the said amount was paid as a loan not against purchase of

ITA No. 453/Bang/2017 Page 9 of 16 residential premises and there was no agreement of sale entered for

purchase of said premises and there was no residential property

existing which is capable of being transferred in favour of the appellant

as the permission was applied by the said company to BBMP for the

construction of ground + 17 upper floors only on 7.1.2013. It was

further noted that the builder applied for certificate of commencement

only on 30.01.2015. These facts made the Assessing Officer to believe

that there is no property which is capable of being registered in favour

of the appellant. The AO further observed that there was no registered

document of agreement to sell and in view of the fact that the appellant

is also a partner in the company called Rockline Housing Development

Pvt. Ltd. All these factors enabled the AO to disbelieve that the

payment of Rs. 4,75,00,000/- was not made towards purchase of the

house property. Hence the AO denied the claim.

CIT(A). The CIT(A) confirmed the addition in the following words: “4. It is seen that the amount reinvested by the assessee firm acquiring the capital asset is one where the assessee himself is the director of the company and also holding substantial share capital in the company. After the receipt of sale consideration the assessee kept the amount in

ITA No. 453/Bang/2017 Page 10 of 16 mutual funds for quite some time and transferred the amount to the Pvt. Limited Company where he is holding beneficial interest. From the verification of facts submitted by the assessee the project referred was only a concept on the date of reinvestment, since the assessee has applied for the plan sanction to the BBMP only on 7.1.2013. Whereas the investment is made on 8.6.2012.”

The learned AR of the appellant vehemently contended that the

acquired property could not be registered in favour of the appellant

only for the reasons which are beyond the control of the appellant. The

residential house could not be registered in favour of the appellant on

account of delay in the completion of the project by the developer and

since the entire consideration had been paid, the deduction should be

allowed to the assessee and since the provisions of Section 54 are

beneficial provisions, the provision should receive a liberal

construction and should be construed in favour of the assessee and

reliance in this regard was placed on the decision of Hon’ble Karnataka

High Court in the case of CIT Vs. Sambandam Udaykumar 345 ITR

54 it is not mandatory condition that the construction house should be

completed. It is enough for the assessee to establish that the assessee

ITA No. 453/Bang/2017 Page 11 of 16 had invested the consideration within the stipulated period and reliance

was placed on the following decisions:

CIT vs. Mrs. Shakuntala Devi 389 ITR 366 (Kar) Pr. CIT vs. C. Gopalaswamy, 384 ITR 307 (Kar) CIT vs. B S Shanthakumari, 126 DTR 436 (Kar)

Ltd. vs. CIT 378 ITR 596 in support of the proposition that the

exemption under section 54 cannot be denied merely for the reason that

the developer did not utilise the amount invested by the appellant. On

other hand, the learned Standing Counsel vehemently contended that

the appellant had failed to discharge the onus of proving the real

substance of the transaction in view of the fact that the appellant had

interest in the company called Rockline Housing Development

Company as a Director and there was no property existing which is

capable of being transferred in favour of the appellant. The theory

advanced by the appellant is only make believe story and there is no

registered agreement of sale on the date of payment. The registered

sale agreement was entered on 08.06.2015 and thus he prayed that the

orders of the lower authorities be upheld.

ITA No. 453/Bang/2017 Page 12 of 16 7. We heard the rival submissions and perused the material on

record. The only issue that arises for consideration in the present

appeal is whether the assessee is entitled to benefit of deduction under

section 54 of the Income Tax Act, 1961. There is no dispute about the

amount of the capital gains computed. The dispute is only with regard

to the eligibility for deduction under section 54 in the light of the fact

that the payment was made to the builder in which the appellant had

substantial interest as a Director and that there was no permission

obtained for construction of project in which the assessee was

proposing to purchase from the builder on date of payment of money.

There was no agreement of sale on the date on which the payment was

made. The agreement of sale was entered only on 8.6.2015 but even in

terms of this agreement of sale from the schedule of the property it is

clear that the property is not identified by means and bounds merely

mentioned as under: “All that piece and parcel of the Residential property being a portion of the Composite Property bearing Corporation No.21 (Old No.37), 22 and 22/1 (Old Municipal No.38), situated at Kasturba Road, Bangalore, measuring 25106.954 Square Feet being the undivided share of land and including all rights, privileges and appurtenances thereto and the property bounded as follows: EAST BY : Private Property WEST BY : Private Property

ITA No. 453/Bang/2017 Page 13 of 16 NORTH BY : Kasturba Main Road SOUTH BY : Private Property”

buildings by the BBMP only in the year 2013 and we are informed at

the Bar that even as on today the construction is not completed nor was

the assessee handed over the property. The appellant shown this

amount as loans and advances in his books of accounts. All these

factors casts doubts on the genuineness of key transactions. It is

incumbent on the appellant to dislodge these doubts by leading the

necessary evidences on record. But the assessee miserably failed to do

so nor attempt was made by the appellant in this direction. Therefore,

we are inclined to believe that this money was not advanced towards

purchase of any residential house and consequently the appellant is not

entitled to the benefit of deduction under section 54 of the Income Tax,

1961. The submission of the learned AR that it is a beneficial

provision and it should be construed in favour of the assessee cannot

be accepted as “it is a settled position of law that no occasion to give a beneficial construction to a statute can arise when there is no

ambiguity in the provision of law which is subject to interpretation.

Thus in the face of the clear words of the Statute the intent of parties

and/or beneficial construction is irrelevant. In fact, the Apex court in

ITA No. 453/Bang/2017 Page 14 of 16 Sales Tax Commissioner vs. Modi Sugar Mills [1961] 12 STC 182

reiterated the well settled principle of interpretation in the following

words:

“in interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statute be interprete on any presumption or assumptions……It must interpret a taxing statute in the light of what is clearly expressed…”

Recently, the Supreme Court in Mathuram Agrawal vs. State of

Madhya Pradesh [1999] 8 SCC 667 has observed as under:-

“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the Legislature…..” (emphasis supplied)

Similarly this Court in Thana Electricity (Supra) had observed as

under :

“If the provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted. This is a well-accepted view of law. It is the satisfaction of the court interpreting the law that the language of the taxing statute is ambiguous or reasonably capable of more meanings than one, which is material. If the court does not think so, the fact that two

ITA No. 453/Bang/2017 Page 15 of 16 different views have been advanced by the parties and argued forcefully or that one such view which is favourable to the assessee has been accepted by some Tribunal or High Court, by itself will not be sufficient to attract the principle of beneficial interpretation”. In the present facts and provision of Section 54F(4) of the Act are very clear. There is no ambiguity. Thus, there is no occasion to apply liberal/beneficial construction while interpreting the Section as contended by the Appellant.”

Pronounced in the open court on this 17th day of May, 2017.

Sd/- Sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) Judicial Member Accountant Member

Bangalore. Dated: 17th May, 2017. /NShylu/*

ITA No. 453/Bang/2017 Page 16 of 16 Copy to:

By order

Assistant Registrar, ITAT, Bangalore.