GOVINDARAJAN RAMASAMY,CHENNAI vs. ITO, CHENNAI

आयकर अपील�य अ�धकरण, ’ ए ’ �यायपीठ, चे�नई IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI �ी संजय अरोड़ा, लेखा सद�य एवं �ी जी. पवन कुमार, �या�यक सद�य के सम� BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER आयकर अपील सं./ I.T.A. No. 2551/Mds/2016 �नधा�रण वष�/Assessment Year : 2013-14

Govindarajan Ramasamy, The Income Tax Officer, No. 11/90, First Main Road, Vs Internationakl Taxation, 2(1), Ramakrishna Nagar, . Chennai - 600 034. Ennore, Chennai - 600 057.

[PAN: AHAPR 3583J]

(अपीलाथ�/Appellant) (��यथ�/Respondent)

: Shri K.S. Balakrishnan, Advocate अपीलाथ� क� ओर से/Appellant by : Shri Shiva Srinivas, JCIT ��यथ� क� ओर से/Respondent by सुनवाई क� तार�ख/Date of Hearing : 07.12.2016 घोषणा क� तार�ख/Date of Pronouncement : 06.03.2017 आदेश /O R D E R PER BENCH The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals)-16 in ITA No. 96/CIT(A)-16/2013-14 dated 21.06.2016 passed u/s. 143(3) and 250 of the Income Tax Act.

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3.1 The brief facts of the case that the assessee is a non-resident and filed Return of income for the assessment year 2013-14 on 20.12.2013. Subsequently, filed Revised return of income on 13.05.2014 admitting total income of Rs. 1,00,800/-, whereas at the time of filing the original return of income the residential status was wrongly mentioned as Resident though the assessee was employed with M/s. VR Maritime Services (P) Ltd as Chief Engineer and in the financial year2012-13, the assessee was non-resident and received salary in US Dollars. Further, in the Revised Return of income

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assessee disclosed sale of property and investment in residential property and further claimed exemption u/s. 54F of the Act. Subsequently, the case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act was issued. In compliance to notice, the Ld. AR appeared from time to time and furnished the information. The Ld. AO on perusal of financial statements found that the assessee sold vacant land (the original asset) for a consideration of Rs. 1,32,90,700/- on 01.11.2012 and invested the consideration (to the extent of Rs. 1,27,33,400/-) in the purchase of a residential plot on 01.11.2012, claiming exemption u/s. 54F of the Act at Rs. 73,84,350/- on pro-rate basis; the long term capital gains (LTCG) being Rs. 75,53,400/-. But as per the provision of 54F, the assessee should purchase the residential property within two years or construct a residential house within a period of three years from the date of sale of original asset. The assessee filed letter on 22.01.2016 explaining the delay in obtaining the approval for construction from the statutory authorities as referred at page 3 of the order. The ld. AO considered the submissions and the reasons advanced by the assessee qua commencement of construction of the residential property as well as the judicial decisions relied by the assessee at Para 4 of his order, and held that the assessee had sold the property on 01.11.2012 and an application for approval was made on 07.08.2014 i.e., 22 months after purchase of residential plot due to his employment as Chief Engineer, and being away from Chennai had executed a general power of attorney in favour of his wife on 15.06.2012. The ld. AO observed that the exemption u/s. 54F of the Act does not apply to a vacant plot which was purchased on 01.11.2012 and the Ld. AR explained the property is near Chennai Metro Rail and various Government approvals had to be obtained and construction commenced only after obtaining necessary permissions on 16.11.2015, and disallowed claim of exemption u/s. 54F of the Act of Rs. 73,84,350/- and passed order u/s. 143(3) of the Act dated 29.02.2016.

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3.2 In appeal, the assessee reiterated his case before the ld. CIT(A), who after stating the cases of both the AO and the assessee, held as under:

‘I have given careful consideration to the finding arrived at by the AO which is narrated in detail as above and the appellant's written submissions with evidences and arguments during the appeal proceedings. It is a established fact that assessee has invested sale consideration into a purchase of vacant land. Thereafter, it is clear from his submission and the evidences that the assessee wanted to construct house on the vacant land. The assessee has given in the written submission that as on date on the same plot of land, the house has been constructed and completed. Thus, finality of the fact is that the assessee has invested sale consideration into a construction of new residential house. It is a fact also that as per sec. 54F the assessee was required to construct a house within 3 years from the date of sale. However, the assessee could not complete construction of house within 3 years from the date of sale and has given detailed reason for such delay. The AO has analysed the case laws referred by the assessee and has given his finding that the same are distinguishable and not applicable to the facts of the present case. However, it is held by the Hon'ble Court while deciding the case of CIT vs. Sardarmal Kothari held that in order to get the benefit u/s. 54F of the Act, the assessee need not complete the construction of the house and occupy it, it was enough if the assessee establishes the investment of entire net consideration within the stipulated period. In the instant case, there is no dispute about the fact that the assessee has invested the entire net consideration of sale of capital asset in land itself and subsequently constructed the house within the stipulated period even in the case of Mrs. Seetha Subramaniam Vv ACIT, Hon'ble ITAT, Madras Bench has held that where assessee had invested entire net consideration of capital asset sold in constructing residential house is eligible for claim of exemption u/s. 54F and relying on the case laws of Bajaj Tempo Ltd. vs CIT, 196 ITR 188 (SC) and Satish Chandra Gupta vs AO, 54 ITO 508 Delhi the Apex Court held that a beneficial provision has to be construed liberally so as to promote the purpose for which the section was introduced. Therefore considering the above the intention of the Legislature was to invest the acquisition of a residential house and completion of construction or occupation is not required. The intention is also supported by two circulars issued by the CBDT where it was held that an assessee is entitled to the benefit of section 54 and 54F, if an assessee gets an allotment under the self financing scheme and pays the first instalment of the cost of construction. From that it is clear that in order to get benefit under section 54F the assessee need not complete the construction of the house and occupy the same. In the instant case it is proved beyond doubt that assessee has invested entire sale consideration into a purchase of another vacant plot of land, moreover assessee could not even begin construction house even after lapse of 3 years from the date of sale and therefore the assessee is not entitled to exemption u/s.54F of the Act. Accordingly the appellant ground of appeal on the issue is dismissed.’ [emphasis, supplied]

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4.1 The assessee’s case is that for reasons beyond his control; he being required to seek approval / NOC from various Agencies due to the location of his land, was unable to complete the construction of the new residential house (the new asset) within the prescribed time, the land for which stands in fact purchased on 01.11.2012, i.e., the date of transfer of the original asset, investing 97.76% of the net consideration of Rs. 1,30,24,900/-. The chronology of events, in-so-far as the various approvals are concerned, is stated as under, claiming to have started the construction after the date of the final approval on 16.11.2015:

Application for sanction of plan by the assessee 07.08.2014 Letter to Thasildar to confirm the genuineness of Patta issued by 24.03.2015 Town Planning Department State Government, Thasildar confirmed the Patta as genuine April 2015 NOC application to Chennai Metro Rail Limited as the land is 08.04.2015 within the 50 meters of Metro Rail NOC received from Chennai Metro Rail Limited 22.05.2015 NOC from Special Dy. Collector (Land Acquisition) Tamil Nadu 10.08.2015 Urban Development Project requested by the Executive Engineer for issuing the sanction plan Letter from Dy. Collector (Land Acquisition), that no land was 22.09.2015 acquired nearing to the site Approval of plan of the Corporation of Chennai, Town Planning 16.11.2015 and permission from Works Department i.e., building permission

The Revenue’s on the other hand, though fairly concedes that non- completion of construction of the new house within three years may not oust the assessee's case, particularly where there is investment of the whole or a substantial part of the net consideration toward the same, in the instant case the construction itself had not commenced after the lapse of three years. The assessee is no less responsible for the same, having in fact applied for the sanction of the plan only in August, 2014, i.e., nearly 22 months after the date of the transfer. He cannot therefore take shelter in the plea of being a victim of

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the circumstances. At this stage, it may be in fairness stated that the Revenue has not doubted the commencement of construction soon after 16.11.2015, so that it may well be so and, further, completed within a reasonable period (6 to 8 months) thereafter.

4.2 The question before us is if the assessee’s claim u/s. 54F, made with reference to the purchase cost of a plot of land, is in law and in the facts and circumstances of the case, sustainable, i.e., considering that the construction of residential house (on the said plot land) had not even commenced by the end of the specified three year period (from the date of transfer), though without doubt, had been soon after. Section 54F(1) read as under:- ‘Capital gain on transfer of certain capital asset not to be charged in case of investment in residential house. 54F. (1) Subject to the provision of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new 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 new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capita gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged u/s. 45. Provided that ......"

Clearly, it is the import of the words “within a period of three years”, or the time specified for acquisition of the new asset, which is relevant and is to be ascertained. A beneficial provision, though to be construed liberally, taking a purposive approach. The same, however, as explained in IPCA Laboratory Ltd. vs. Dy.CIT [2004] 266 ITR 521 (SC) is yet to be interpreted on its terms. In fact,

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the settled law is that taxing statues are to be strictly construed, on which case law is legion (inter alia, CIT v. National Taj Traders [1980] 121 ITR 535 (SC)). It is even otherwise trite law that a beneficial provision is to strictly interpreted (viz. Orissa State Warehousing Corporation v. CIT [1999] 237 ITR 589 (SC); Novapan India Ltd. v. CCE, 73 ELT 769 (SC)), create as it does a departure from the norm, carving out a classification, so that its terms are to be strictly construed and adhered to. Further, it is only where the subject falls within the four corners of the exemption provision that it could be allowed, in applying which though a purposive approach is to be adopted. In our view the stipulation as to the purchase, or construction of the new residential house within three years from the date of the transfer (of the capital asset transferred), does not create an absolute bar so as to be regarded as determinative of the matter, i.e., operate as a deadline, in that where it is not completed by the said date, the assessee’s case stands ousted. Though, it cannot be discounted as to be of no significance, i.e., as long as the investment is made, the condition is yet to be regarded with a degree of flexibility, i.e., with some latitude in the joints, which normally accompanies the reading of fiscal statutes. This is as the condition is futuristic, and the future is always uncertain. Circumstances beyond the assessee control may arise, disturbing otherwise well laid out plan of action to complete the construction within the specified time. Also, we observe no recourse provided in the provision (of section 54F) where the construction is not completed within the prescribed time, as is for the non-utilisation of the funds within the said period or acquisition of another residential house within the defined period (s.54F(4)), both, again, future events. Therefore, where the assessee has discharged his obligation, investing the sale proceeds (net consideration) of the original asset, or otherwise deposited the same in the capital gains account scheme, making his intention clear, followed by necessary action in the matter, non-completion of construction for reasons beyond his control would not non suit the assessee That the condition is not mandatory, and

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that a substantial compliance would satisfy the mandate of the provision, we also find to be the view of the Hon’ble jurisdictional High Court in CIT v. Sadarmal Kotari [2008] 302 ITR 286 (Mad).

This (the foregoing) is in fact also the reading of the Revenue, which 4.3 though for the reasons aforesaid does not find the same as applicable in the facts of the case. We are in full agreement. The assessee may have been, as stated, away on voyage, being a marine engineer, for most part of financial years 2012-13 and 2013-14 (stated at 184 days and 222 days respectively), but that does not absolve him from complying with his statutory obligations. Exemption u/s. 54F, it may be appreciated, stands availed only on the premise of completing the new construction within three years, so that an assessee is obliged to comply with the said condition/s. In the present case, the assessee has purchased the land for the new house on 01.11.2012 itself, so that he could well have, as was indeed incumbent on him, initiated steps for the approval of the building plan. He was in India for both the years for some part, having in fact granted General Power of Attorney to his wife (to obtain plan approval and electricity connection) on 15.06.2012, yet did not take necessary steps toward the construction, applying for approval of the building plan. Then, again, it does not explain the continued disregard of the matter during financial year 2014-15; the said application having been admittedly made only in August, 2014, i.e., midway through fy 2014-15. It is clear that the assessee pursued the matter earnestly only thereafter, and while it may, because of the location of the plot – of which he must only be conscious and aware, and therefore ought to have taken precautionary steps, as starting early, taken more than the anticipated time, and which could also be due to his continuing absence from India, i.e., even after 31.03.2014. Rather, we observe continuous developments since March, 2015. All this, however, would not detract from the fact that the approval of the plan was granted only on

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16.11.2015, so that the construction could only be subsequent thereto, as is admittedly the case (refer assessee’s letter dated 22.01.2016 to the AO). Even if, as contended, the construction started soon thereafter, the fact of the matter is that the construction did not commence even after the completion of the specified period of three years of the transfer, i.e., by 31.10.2015. The same, which has been for personal reasons, commitments or choices, cannot operate to relax the statutory condition to an extent that construction, instead of being completed, or substantially so, within the prescribed time, has not even commenced by its end. There is no estopple against law. Couple this with the fact that this was largely on account of non action in the matter on the part of the assessee, and the picture is complete. This in fact is precisely the Revenue’s case, which therefore merits acceptance.

4.4 We may, before parting with this order, consider the assessee’s reliance on Sadarmal Kothari (supra), which we have carefully perused, being even otherwise binding on us. In the facts of that case the assessee had expended large sums on the construction within the prescribed period, so that it was held by all the authorities, i.e., first appellate authority onwards, that there has been a substantial compliance of the provision, and relief allowed on that basis. It is in the background of these facts that the Hon’ble Court held the condition of construction as not mandatory. A decision is to be necessarily read in context. The same, in ratio, affirms what we have stated in the earlier part of this order, i.e., regarding the condition of the completion of construction with the specified period. The same is to be regarded with a degree of flexibility and not as fatal to the assessee’s case, excluding the benefit where the acquisition is not complete within the specified period, which could be for various reasons. Once this is accepted as the position of law, the matter becomes essentially one of fact, to be decided with regard to the facts and circumstances of each case. In the present case, we have, on the contrary, found that the construction has admittedly even

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not commenced as the building plan itself approved after the expiry of the specified period, for which the assessee himself is responsible in the main. The said decision would thus not apply in the facts of the case. The construction, signifying the creation of a new asset, is to be completed in a defined time period after the transfer, and it is only in that context that the Tribunal and the Hon'ble Courts have opined it to be not regarded strictly, i.e., as a mandatory requirement, so as to construed as deterministic. At the same time, however, it cannot be allowed to be flouted with impunity or disregarded, so as to be of no consequence or purpose or meaning, as if non-existent, in which case it would amount to doing violence to the clear language of the provision, defeating the stated purpose, which no Court or Tribunal could. Why, if not so considered, the construction may well be completed after (say) five, or seven or ten or even higher number of years! Once, however, subjective considerations come into play, the matter is to be approached in a balanced manner, having regard to all the facts of the case, and which is what we have in the facts and circumstances sought to. We have also gone through the Board’s Circulars referred to. Circular No.667 dated 18.10.1993, reported at 204 ITR (Statutes) 103) does not subscribe to the view, as stated, that the construction may not be completed within the stated period. All it says is that where construction is completed within three years, the cost of land is to be considered as forming part of the cost of purchase/construction of the residential house as land is integral thereto. There can be no quarrel on the said proposition. Rather, therefore, by implication, where not completed within the specified time, investment in land cannot be regarded as toward a residential house. The Circular with regard to the self-financing scheme is also not applicable as all it says is that the same must be regarded as a case of construction (of house property) and not of its purchase. In the present case, we only have investment in vacant land within the three year period. A significant construction within the said period only would amount to a substantial compliance of the provision, entitling the claim for

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deduction. Also, rather than circumstances beyond his control, the assessee in the present case must bear responsibility for the delayed commencement of the construction in his case.

4.5 In view of the foregoing, the assessee is, in our view, not entitled to exemption u/s. 54F on his investment in the plot of land purchased for the construction of a residential house, and that the same stands rightly disallowed by the Revenue. What, we may emphasize, is required, and has been adopted by us, is to give a fair look to the language of the statute, which principle, enunciated by J. Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioner, also called the rule of literal interpretation, stands explained recently by the Apex Court in CIT v. Yokogawa India Ltd. & Othrs. (in Civil Appeal No. 8498 of 2013 dated 16/12/2016) as the mother principle, to which all the principles owe their origin (also refer: CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC)), and which we may reproduce as under. Again, as afore stated, a beneficial provision is yet to be interpreted on its terms (IPCA Laboratory Ltd. (supra):

“…in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” 4.6 We decide accordingly. In the result, the assessee’s appeal is dismissed. 5.

Order pronounced on Monday, the 06th day of March, 2017 at Chennai.

Sd/- Sd/- (संजय अरोड़ा) (जी. पवन कुमार) (SANJAY ARORA) (G. PAVAN KUMAR) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

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चे�नई/Chennai, �दनांक/Dated: 06th March, 2017 JPV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF