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ITA.No.456/2017
- 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 30TH DAY OF OCTOBER , 2018
PRESENT
HON’BLE MR.JUSTICE DINESH MAHESHWARI, CHIEF JUSTICE AND HON’BLE MR.JUSTICE S.G.PANDIT
I.T.A. NO.456 OF 2017 BETWEEN:
THE PR. COMMISSIONER OF
INCOME-TAX, CIT (A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA
BENGALURU - 560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-8(1), PRESENT ADDRESS
CIRCLE-1(2)(1)
2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA
BENGALURU - 560 095.
... APPELLANTS
(BY SRI. K. V. ARAVIND, ADVOCATE)
AND:
MRS. VANAJA MATTHEN NO. 401, EMBASSY WOODS 6A CUNNINGHAM ROAD BENGALURU - 560 052 PAN: AKLPM 4914E.
… RESPONDENT
(BY SRI.ADITYA SONDHI, SENIOR ADVOCATE FOR SRI.MANEESHA KONGOVI, ADVOCATE )
THIS ITA IS FILED UNDER SECTION 260A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW; ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE
ITA.No.456/2017
- 2 - TRIBUNAL, BENGALURU IN ITA NO.1431/BANG/2012 DATED:25.01.2017 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2)(1), BENGALURU.
THIS ITA HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S.G.PANDIT. J., PRONOUNCED THE FOLLOWING:
JUDGMENT
The appellants-revenue are before this Court, questioning the order dated 25.01.2017 in ITA No.1431/Bang/2012 passed by the Income-Tax Appellate Tribunal, Bangalore (hereinafter referred to as ‘the Tribunal’ for short) confirming the order passed by the Commissioner of Income-Tax (Appeals), Bangalore (hereinafter referred to as ‘the Appellate Authority’ for short). 2. Brief facts of the case are that: The respondent-assessee filed return of income for the assessment year 2009-2010 declaring a total income of Rs.10,16,30,850/-. The case of the assessee was taken up for scrutiny. The assessee made available necessary information and details to the Assessing Officer. The assessee had shown capital gains for sale of property at Rs.10,13,45,711/- and income from other sources at Rs.3,85,142/-. The assessee
ITA.No.456/2017
- 3 - acquired the property under the Will dated 24.08.1994 executed by her husband who died on 22.02.2006. Subsequently, the assessee obtained probate from the City Civil Judge, Bangalore, under the order dated 30.10.2006. The husband of the assessee had acquired the property prior to 01.04.1981 and the assessee opted the date as 01.04.1981 to arrive at fair market value (‘FMV’) for the purposes of arriving at cost of acquisition. But, the Assessing Officer rejected the date i.e., 01.04.1981 opted by the assessee and the Assessing Officer took 30.10.2006 for arriving at the cost of acquisition. Further, the Assessing Authority disallowed deduction under Section 54F of the Income-Tax Act, 1961 (‘the Act’ for short) on the ground that the assessee purchased the property vide sale deeds dated 10.09.2008 and 20.11.2008, however, the construction of the flats have not been completed when the purchase was made under the said sale deeds. Further, it observed that the construction was completed and the flats were handed over to the assessee only on 23.03.2011. Moreover the Assessing Officer held that the deduction under Section 54F of the Act for long term capital gain is allowable to investment made in residential building and not investment made on land. Aggrieved by the order of the Assessing
ITA.No.456/2017
- 4 - Officer, the respondent-assessee filed appeal in ITA No.968/R- 8/CIT(A)–V/2011-12 before the Appellate Authority. 3. The Appellate Authority, on appreciation of material on record accepted the contentions of the assessee and observed that the respondent-assessee had the option of taking FMV as on 01.04.1981 and entitled for the benefit on reading of the provisions of the Sections 2(42A), 49(1) and 55(2)(b)(ii) of the Act. With regard to the benefit under Section 54F, the Appellate Authority held that the sale deeds were executed in respect of 2 flats in favour of the assessee on 10.09.2008 and 20.11.2008 respectively, wherein the assessee had purchased undivided share in the land over which the apartment building is being constructed. Further, the Appellate Authority also observed that the entire consideration amount was paid and the said apartments were purchased on the date of sale deeds, therefore, the assessee is entitled for benefit under Section 54F of the Act. 4. The revenue, aggrieved by the order of the Appellate Authority and the findings therein, filed appeal before the Tribunal in ITA No.1431(Bang)2012. The Tribunal confirmed the order passed by the Appellate Authority holding that the
ITA.No.456/2017
- 5 - date 01.04.1981 opted by the assessee is in accordance with law. Furthermore, with regard to deduction allowable under Section 54F of the Act, the Tribunal held that the issue is covered by the decision of this Court rendered in Commissioner of Income Tax vs. Sri. Sambandam Udaykumar : (2012) 206 Taxman 150 (Kar). 5. Being aggrieved by the order of the Tribunal, the revenue is before this Court urging the following substantial questions of law: 1. Whether, on the facts and in the circumstances of the case, the assessee is eligible for indexation of cost of acquisition of an asset received by way if Will for the period, it was held by the testator. This involves interpretation of Section 48(iii), 49(1) and 2(42A) and Explanation 1(b) of Section 2(42A) of the Act. The case of the Revenue is that the said Explanation refers to the definition of short term capital asset and cannot be extended for computation of indexation of cost of acquisition which only arises in case of long term capital gain?
Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that while computing the capital gain arising on transfer of Capital Assets which was acquired by the assessee under a Will, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the assets and not the year in which the assessee became the owner of the assets?
ITA.No.456/2017
- 6 - 3. Whether, on the facts and in the circumstances of the case and in law, the Tribunal has failed to appreciate the fact that the indexed cost of acquisition has been defined by explanation (iii) of Section 48 which means an amount which bears to the cost of acquisition the same proportion as the Cost inflation Index for the year in which assets is transferred bears to the Cost inflation Index for the first year in which the assets was held by the assessee of the year beginning on the first day of April 1981 whichever is later?
Whether, on the facts and in the circumstances of the case and in law, the Tribunal has failed to appreciate the fact that the capital asset was acquired by the assessee under a Will on 30.10.2006 and therefore the cost inflation index for the year 2006 would be applicable in determining the cost of acquisition?
Whether, on the facts and in the circumstances of the case and in law, the Tribunal is right in law in allowing claim of assessee under section 54F of the Act by following the decision of this Hon’ble Court in case of CIT V/s Sambandam Udaykumar even when the assessee has not satisfied all the conditions prescribed under the said section to avail benefit of 54F and Tribunal without appreciating that the decision of this Hon’ble Court was not challenged before Apex Court as the tax effect was low?
The appellants-revenue urged that while arriving at FMV, the cost inflation index of the year 2006 would be applicable as the assessee acquired the property in the year 2006; and the Tribunal erred in holding that index cost of acquisition has to be computed with reference to the year in which, the previous owner acquired the property. To appreciate the said
ITA.No.456/2017
- 7 - contention, it is necessary to refer to Section 49(1) of the Act, which is extracted below: “49. Cost with reference to certain modes of acquisition. (1) Where the capital asset became the property of the assessee – (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) (a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (viab) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vicc) or clause (xiii) or clause (xiiib) or clause (xiv) of section 47.
(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,
the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by
ITA.No.456/2017
- 8 - the cost of any improvement of the assets incurred or borne by the previous owner or the assessee as the case may be.”
From the above provision, it could be made out that cost of acquisition of asset be calculated on the basis of the cost of acquisition by previous owner.
In the case on hand, the assessee acquired the property through the Will, which was probated on 30.10.2006. The Will was executed by the husband of the assessee, who died on 22.02.2006. The husband of the assessee had acquired the property prior to 01.04.1981, as such, the assessee had opted 01.04.1981 for arriving at the cost of acquisition. This issue is answered by this Court in the case of Commissioner of Income-Tax, Mysore vs. Smt. Daisy Devaiah: (2014) 227 Taxmann 153 (Karnataka), wherein at paragraphs 8 and 9 this Court has held as follows: “8. Section 49 deals with the cost with reference to certain modes of acquisition. One such mode is, if the assessee acquires a capital asset by way of succession, inheritance or devolution, then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Therefore, when an asset is acquired by way of inheritance, the cost of
ITA.No.456/2017
- 9 - acquisition of the asset should be calculated on the basis of the cost of acquisition by the previous owner and the said cost of acquisition of the previous owner has to be calculated on the basis of indexed cost of acquisition as provided in explanation (3) to Section 48.
Though in the definition of ‘indexed cost of acquisition’, the word used are, “in which the asset was held by the assessee” a harmonious reading of Sections 48 and 49 makes it clear that, for the purpose of ‘Indexed Cost of Acquisition’, it has to be understood as the first year in which the previous owner held the said property. Otherwise, if the date of inheritance is taken into consideration, then the cost of acquisition of the asset on that date corresponding to the market value is to be taken into consideration. Otherwise, take the cost of acquisition on the day the previous owner acquired it and apply the “Indexed Cost of Acquisition” and then calculate the capital gains and the tax payable. That is precisely what has been held by the Bombay High Court in the aforesaid Judgment which in our view is the correct legal decision.”
The next contention urged by the appellants-revenue is that the Tribunal has erred in allowing the claim of the assessee under Section 54F of the Act by following the decision of this Court in Sambandam Udaykumar (supra). The assessee has purchased two apartments under the sale deeds dated 10.09.2008 and 20.11.2008 respectively. As on the date of execution of the sale deeds, the assessee had paid the entire sale consideration to the vendor. But the flats were handed over to the assessee, on its completion, only on
ITA.No.456/2017
- 10 - 23.03.2011. The contention of the revenue that the possession of the flats is not taken by the assessee within the period of three years and as such, the assessee is not entitled for the benefit under Section 54F of the Act cannot be appreciated since the requirement of law is that one should invest the money received from sale of any capital asset within the period required under law. In the case on hand, the assessee has invested the amount within the specified period and the sale deeds are executed in her favour on 10.09.2008 and 20.11.2008. This aspect of the matter is also dealt with in Sambandam Udaykumar (supra), wherein at paragraphs 10 and 11, this Court has held as follows:
“10. A reading of the aforesaid provision makes it very clear that if a capital gain arises from the transfer of any long term capital asset, not being a residential house and the assessee has within the period of one year before or two years after the date on which transfer took place purchased or has within a period of three years after that date constructed a residential house, if the cost of the new asset is not less than the net consideration in respect of the original asset the whole such capital gain shall not be charged under section 45 of the Act. However, if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to be whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration shall not be charged under section 45 of the Act.
ITA.No.456/2017
- 11 -
Section 45 of the Act makes it very clear that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save or otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H is chargeable to income tax under the head ‘capital gains’ and shall be deemed to be income of the previous year in which the transfer took place. The aforesaid sections which form part of section 54 of the Act are cases where capital gain on transfer of capital asset not to be charged in those cases. Section 54F of the Act is a beneficial provision of promoting the construction of residential house. Therefore, the said provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said prevision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential
ITA.No.456/2017
- 12 - house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee form the said benefit.”
From the above decision it is clear that, if one has invested the amount received on sale of capital asset either in purchasing a residential house or in construction of a residential house, even though the transactions are not complete in all respects, the assessee would be entitled to benefit under Section 54F of the Act.
In view of the discussion above, we are unable to find any error in the impugned order, which may give raise to any substantial questions of law.
Accordingly, the appeal is dismissed.
Sd/- CHIEF JUSTICE
Sd/- JUDGE
mpk/-*CT:SK