VISHWANTAH ACHARAYA,MUMBAI vs. ASST CIT 11(1), MUMBAI

Per Jason P. Boaz, A.M.

These are cross appeals, one by the assessee and the other by Revenue, directed against the order of the CIT(A)-3, Mumbai dated 22.09.2014 for A.Y. 2010-11. 2. The facts of the case, briefly, are as under: - 2.1 The assessee filed the return of income for A.Y. 2010-11 on 09.10.2010 declaring total income of `60,80,920/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the

2 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 11.03.2013, wherein the assessee’s income was determined at `2,41,41,920/- in view of the following additions/disallowances: - `3,86,890/- (i) Disallowance of 20% of Professional Expenses `5,77,205/- (ii) Disallowance out of interest expenditure `8,62,000/- (iii) Disallowance of 20% of film production expenses `1,69,318/- (iv) Addition on account of unreconciled income (v) Disallowance of exemption under section 54 `1,60,65,590/- 2.2 Aggrieved by the order of assessment dated 11.03.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT(A)-3, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 22.09.2014 allowing the assessee partial relief. In doing so, the learned CIT(A) allowed the assessee’s claim for exemption under section 54 of the Act, deleted the disallowance of 20% of professional expenses and allowed the assessee partial relief on the disallowances made by the Assessing Officer (AO) on account of interest expenses and film production expenses. 3. Both Revenue and the assessee are aggrieved by the impugned order of the CIT(A)-3, Mumbai dated 22.09.2014 for A.Y. 2010-11and have preferred appeals on issues that have been held against them. These cross appeals will be disposed off hereunder in seriatum. 4. Revenue’s appeal in ITA No. 7232/Mum/2014 for A.Y. 2010-11 4.1 In this appeal Revenue has raised the following grounds: - “1. Whether on facts and in circumstances of the case and in law, the Ld. CIT(A)-3 was justified in allowing the deduction u/s. 54 of the Income Tax Act when the property sold was in the sole name of the assessee and the property purchased was in the joint names of the assessee and his wife. 2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of Assessing Officer be restored.”

3 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya 4.2 In these grounds Revenue contends that the learned CIT(A) was not justified in allowing the assessee exemption under section 54 of the Act when the property sold was in the sole name of the assessee and the property purchased subsequently was in the joint name of the assessee and his wife. The learned D.R. was heard on the sole issue raised in these grounds (supra); in respect of the eligibility of the assessee for being allowed exemption under section 54 of the Act. Strong reliance was placed by the learned D.R. on the decision of the AO in holding that the assessee was not eligible for exemption under section 54 of the Act. 4.3 Per contra, the learned A.R. of the assessee supported the decision of the learned CIT(A) in the impugned order holding the assessee eligible to claim and be allowed exemption under section 54 of the Act. According to the learned A.R., the assessee had purchased flat No. 1303 and 1304 in Oshiwara Yashodeep CHS Ltd. for `42,73,360/- on 12.07.2004 and sold the same on 25.11.2009 for ` 2,16,08,967/- resulting in capital gains of `1,60,65,590/-. The assessee has purchased two flats No. 3205 and 3206 in Oberoi Springs on 05.08.2009 for `3,26,47,674/-, but claimed exemption of `1,63,25,027/- under section 54 of the Act in respect of one flat i.e. No. 3205, Oberoi Springs. The above flat was purchased in the joint names of the assessee and his wife, inter alia, with the loan of `1.25 crores taken from Kotak Mahindra Bank (details at pg. 138 and 139 of paper book) and claimed exemption under section 54 of the Act. It is submitted that the AO denied the assessee the exemption claimed under section 54 of the Act for the reasons that the said flat is not solely in the name of the assessee i.e. it was purchased in joint names of the assessee and wife and since the investment in the new property has not been made from out of the sale consideration of the original asset at Oshiwara. The learned A.R. of the assessee reiterated submissions put for before the learned CIT(A) that the provisions of section 54 of the Act do not prohibit the assessee from purchasing new asset in joint names or from out of borrowed funds. It is contended that on both these issues, the learned CIT(A) agreed with the assessee’s contentions and directed the AO to allow the assessee exemption under section 54 of the Act on facts and also by following the

4 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya decision of the Hon'ble Karnataka High Court in the case of DIT(IT) vs. Jennifer Bhide (2012) 349 ITR 80 (Kar). 4.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts of the matter as emanate from the record are that the assessee had purchased flats at Oshiwara, Mumbai on 12.07.2004 for total consideration of `42,73,300/- which he sold on 25.11.2009 for `2,16,08,967/-. The assessee had purchased two flats No. 3205 & 3206 at Oberoi Springs on 05.08.2009 for `3,26,47,674/- in joint names with his wife. Exemption of `1,60,65,590/- was claimed under section 54 of the Act with regard to one flat NO. 3205 at Oberio Springs having a purchase consideration of `1,63,25,037/-. In assessment proceedings, the AO denied the assessee’s claim for exemption under section 54 of the Act on the ground that the new asset was purchased in joint names and since the investment in the purchase of the new asset was not from out of the sale consideration for the original asset. On appeal the learned CIT(A) agreed with the assessee’s contentions directed the AO to allow the assessee exemption under section 54 of the Act; holding as under at paras 1.2 to 1.5: - “1.2 I have perused the facts of the matter, submissions of the appellant and the provisions of law, as also the order of the Assessing Officer. The brief facts of the matter are that the appellant had sold property located at 1303/1304 at Oshiwara, Mumbai on 25-11-2009 and shown a long term capital gain of `1,60,65,590/-. Against the said LTCG the appellant had claimed deduction u/s. 54 for the entire capital gains on the purchase of flat No., 3205 of Oberoi Springs., Andheri, on 05-082009, tin the joint name of ‘self’ and his wifre Vidhi Krishna Acharya. The Assessing Officer denied the deduction u/s. 54 on the following two grounds. I. The new property in Oberoi Springs is not solely in the name of the assessee. II. The investment has not been made in the new property from the sale consideration of the original asset. 1.3 It is the appellant's contention that the provisions of section 54 do not prohibit the assessee from purchasing the new asset in a joint name or from purchasing the new asset from borrowed funds. I am in agreement with the appellant that the provisions of section 54 lay

5 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya down no such embargo, as made out by the AO. For the sake of clarity the provisions are reproduced hereunder: "54. [(1)] Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset of***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain" 1.4 The above cited provisions nowhere specify that the new asset should have been purchased from the sale consideration of me original asset. In fact the new asset can be purchased even one year prior to the transfer of the original asset. This condition itself would mean that the new asset can be purchased from funds other than the sale consideration of the original asset. I find that similar issue came up before the Bombay High Court in the case of Dr. P.S. Pasricha, cited Supra. In that case the facts were that the assessee acquired a residential flat/property at cost of approximately Rs. 3 lakhs. During the previous year relevant to assessment year 2001-02, the assessee had sold the said property for Rs. 1.40 crores. After the sale of the said property, the assessee purchased a commercial property for a total consideration of Rs. 125.28 lakhs. Thereafter, within the period specified under section 54(1), the assessee purchased two adjoining

6 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya residential flats in one building for a total consideration of Rs. 104.78 lakhs and gave them on rent to two different tenants. The assessee worked out the capital gain arising on sale of the aforesaid flat approximately at Rs. 1.24 crores. The assessee further claimed deduction of Rs. 104.78 lakhs under section 54(1) and, thus, returned the taxable capital gain at Rs. 19.23 lakhs. The Assessing Officer denied the deduction under section 54 on the grounds that the sale proceeds from the original flat were not deployed fully in the new flats, and that the assessee had not purchased one single property, but two units. On appeal, the Commissioner (Appeals) held that the assessee was entitled to deduction under section 54 (1) even when the capital gain was invested in more than one flat and that the entire sale proceeds were utilized for purchase of both the flats in question. The Commissioner (Appeals), therefore, allowed the deduction under section 54(1) as claimed by the assessee. On second appeal, the revenue contended that the sale proceeds were utilized by the assessee for purchase of a commercial property and residential house was purchased out of the funds obtained from different sources and, as such, the identity of funds had been changed. The Jurisdictional High Court held: "The requirement of section 54 is that the assessee should acquire a residential house within the period of one year before or two years after the date on which transfer took place. Nowhere, it has been mentioned that the same funds must be utilized for the purchase of the another residential house. The requirement of the law is that the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant. [Para 9]" 1.4 With regard to the issue of purchase of new asset in joint name, the provisions of section 54 do not prohibit the same. This issue came up before the Karnataka High Court in the matter DIT vs. Mrs. Jennifer Bhide, (115 Taxman.com 82) (Kar.), In that case the facts were that the assessee sold her residential property and invested part of sale proceed on purchase of residential property and bonds. She claimed exemption under sections 54 and 54EC in respect of said investment. On verification, the Assessing Officer observed that aforesaid property and bonds were not purchased in the name of the assessee alone but were also in the name of her husband. He therefore, held that if the ownership of the property is shared with someone else, then the property cannot be said to be purchased by the assessee alone and, therefore, only 50 per cent of the investment was to be allowed as exempt in the hands of the assessee. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal, the Tribunal held that neither section 54 nor section 54EC mandates that the purchase of the property or investment in bonds should be exclusively in the name of the assessee. Though the name of the assessee's husband was shown in the sale deed as well as in the bonds, as the entire consideration for acquisition of the same was

7 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya flown from the assessee, in law the assessee's husband had no right. In that view of the matter, the Tribunal held that the assessee was entitled to benefit of deductions. The court held: "A careful reading of section 54 as well as section 54EC makes it clear that when capital gains arise from the transfer of long term capital asset to an assessee and the assessee has, within the period of one year before or two years after the date on which the transfer took place purchase or has, within the period of three years after the date of transfer, construct residential house, then instead of capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provisions made under the section which grants exemption from payment of capital gains as set out thereunder. Therefore, in the entire section 54, the purchase to be made or the construction to be put up by the assessee should be there in the name of the assessee, is not expressly stated. Similarly, even in respect of section 54EC, the assessee has at any time within a period of six months after the date of such transfer invested the whole or any part of the capital gains in the long term specified asset then she would be entitled to the benefit mentioned in the said section. There also, it is not expressly stated that the investment should be in the name of the assessee. Therefore, to attract section 54 and section 54EC what is material is the investment of the sale consideration in acquiring the residential premises or constructing a residential premises or invest the amounts in bonds set out in section 54EC. Once the sale consideration is invested in any of these manner, the assessee would be entitled to the benefit conferred under this provision. In the absence of an express provision contained in these section that the investment should be in the name of the assessee only, any such interpretation would amount to Court introducing the said word in the provision which is not there. It amounts the courts legislating when the Parliament has deliberately not used those words in the said section. [Para 7] In the instant case, the assessee has purchased the property jointly with her husband. She has invested the money in rural bonds jointly with her husband, it is nobody's case that her husband contributed any portion of the consideration for acquisition of the property as well as bonds. The source for acquisition of the property and the bonds is the sale consideration. It is not in dispute. Once the sale consideration is utilized for the purpose mentioned under sections 54 and 54EC, the assessee is entitled to the benefit of those provision. As the entire consideration has flown from the assessee and no - consideration has flown from her husband, merely because either in the sale deed or in the bond her husband’s name is also mentioned, in law he would not have any right. In that view of

8 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya the matter, the assessee cannot be denied the benefit of deduction of the aforesaid amount. The Tribunal, on proper appreciation of the material on record, has rightly allowed the appeal and set aside the order passed by the assessing authority as well as the Appellate Commissioner. [Para 8]" 1.5 In the instant case also there is no dispute that the entire purchase consideration for the new asset has come from the funds of the appellant. Even the loan from Kotak Mahindra Bank has been taken in the name the appellant. The property is also reflected in the balance- sheet of the appellant. In the circumstances the rebate of section 54 cannot be denied on the grounds that the new asset has been purchased in a joint name. Given the above facts of the matter and the ratio of the decisions cited supra, the AO is directed to allow the deduction u/s.54. This ground of appeal is therefore allowed.” 4.4.2 On a careful perusal of the orders of the authorities below and the judicial pronouncements cited (supra). In respect of the issue of purchase of the new asset (flat No. 3205 & 3206 at Oberoi Springs) in the joint names of the assessee and his wife, we find that the provisions of section 54 of the Act do not prohibit the same or mandate that the purchase of the property should be shown entirely in the assessee’s name. In the case on hand even though the wife is shown as joint owner in the sale deed, the AO has not doubted that the consideration for acquisition of the new asset has flown from the assessee; including the loan taken from Kotak Mahindra Bank. In fact, the property is admittedly reflected in the assessee’s Balance Sheet. In this factual matrix of the case, in our considered view, the assessee cannot be denied exemption under section 54 of the Act. This view was upheld, on similar facts, by the Hon'ble Karnataka High Court in the case of DIT (IT) vs. Mrs Jennifer Bhide (2012) 349 ITR 80 (Kar). In this factual and legal matrix of the case, drawing support from the ratio of the decision of the Hon'ble Karnataka High Court in the case of Mrs. Jennifer Bhide (supra), we uphold the decision of the learned CIT(A) in directing the AO to allow the assessee exemption under section 54 of the Act. Consequently, Revenue’s grounds of appeal, being bereft of merit, are dismissed. 5. In the result, Revenue’s appeal for A.Y. 2010-11 is dismissed.

9 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya 6. Assessee’s appeal in ITA No. 6872/Mum/2014 for A.Y. 2010-11 6.1 In this appeal, the assessee has raised the following grounds: - “1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming disallowance of interest to the extent of Rs.248,325/-. 2. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming disallowance of 1/20th of the following expenses of film production house (Pushpa Krishna Creations) except where payments have been made by cheques: - � Dress & Costumes Rs. 16,27,046/- � Dancers Wages Rs.1,38,08,200/- � Salary Rs. 16,32,000/- � Technical Remuneration Rs. 1,72,827/- 3. That the order of the Ld AO is bad in law and on facts. 4. The Appellant craves leave to add or amend the foregoing grounds of appeal. 5. Tat the orders of Ld CIT(A) and the Ld AO are bad in law and on facts. 6. The Appellant craves leave to add or amend the foregoing grounds of appeal.” 7. At the outset of the hearing, the learned A.R. of the assessee has submitted that all the grounds raised from Sr. No. 1 to 6 (supra) are not being pressed by the assessee. In that view of the matter, all the grounds raised by the assessee 8. In the result, the assessee’s appeal for A.Y. 2010-11 is dismissed. 9. To sum up, the cross appeals of both Revenue and the assessee for A.Y. 2010-11 are dismissed. Order pronounced in the open court on 4th November, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member

Mumbai, Dated: 4th November, 2016

10 ITA Nos. 6872 & 7232/Mum/2014 Shri Vishwanath Acharya Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -3, Mumbai 4. The CIT - 11, Mumbai 5. The DR, “F” Bench, ITAT, Mumbai By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.