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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 15/01/2014 of the Ld. First Appellate Authority, Mumbai. The only ground raised by the Revenue pertains to holding by the Ld. Commissioner of Income Tax (Appeal) that the purchase of property by the assessee is to be treated as construction following CBDT Circular No.471 dated 15/10/1986 and No.672 dated 16/12/1993, by ignoring that exemption to be allowed only if it fits into the specific scheme of allotment by way of self-financing i.e. an installments scheme, etc.
2. During hearing the ld. DR, Shri Mohammed Rizwan, advanced arguments, which is identical to the ground raised. None was present for the assessee in spite of issuance of registered AD notice. This appeal was adjourned on 28/09/2015 and both the parties were informed. Today, the assessee neither present herself nor moved any adjournment petition, therefore, it cannot be kept pending for indefinite period. Considering the facts, we have no option but to proceed ex-parte, qua the assessee, and tend to dispose of this appeal on the basis of material available on record.
2.1. We have considered the submissions of ld. DR and perused the material available on record. The facts and brief, are that the assessee is an individual declared total income of Rs.15,23,456/- in her return filed on 17/12/2010, which was processed u/s 143(1) of the Act. Subsequently, the case of the assessee was reopened by issuance of notice u/s 148 on the reasons stated in the assessment order. The assessee purchased a property in Juhu, Vile Parle, for a consideration of Rs.1,11,00,000/- on 13/07/2005 and sold on 02/04/2009 for Rs.3,01,00,000/-. The assessee earned long term capital gain on sale of asset after indexation amounting to Rs.1,59,84,909/-. The assessee deposited Rs.2,06,11,000/- in the capital gain account on 28/07/2010 and invested Rs. 2,94,13,720/- on 09/03/2012 in another property under construction. It is pertinent to mention here that while computing the long term capital gain inadvertently did not include the cost of acquisition/other components like stamp duty, registration and direct incidental cost. This mistake was rectified and thus the correct cost of acquisition was calculated at Rs.1,16,75,545/-. The assessee claimed deduction u/s 54 of the Act, which was denied by the Assessing Officer and he added the amount of Rs.1,59,84,909/- to the total income of the assessee.
2.2. On appeal before the Ld. Commissioner of Income Tax (Appeal), the assessee filed certain documents, which were remanded to the Assessing Officer. The ld. Assessing Officer vide letter dated 29/11/2013 responded to the documents as mentioned at page-5 of the impugned order. This copy of the remand report was also forwarded to the assessee for her comments. The assessee responded vide letter dated 10/01/2004. As per the communication between the assessee and the remand report of the Assessing Officer, it is clear that the assessee sold the property on 02/04/2009 on a consideration of Rs.3,01,00,000/- and the amount of Rs. 2 crores was invested in capital gain bonds on 29/07/2010. While closing the capital gain account, the assessee claimed to have made investment of Rs.2,94,13,720/- on 09/03/2012 in a residential house property, which was under construction. In the remand report, the Assessing Officer confirmed this fact by issuing notice u/s 133(6) of the Act to the Municipal Corporation, Pune, wherein, it was clarified that completion certificate was issued on 14/03/2012. The issue before us, whether the assessee was within the provision of the Act for making the investment and also whether construction of a residential house, by the builder, is to be considered as a purchase of residential flat/house. This issue has been clarified by CBDT Circular No.471 dated 15/10/1986 and Circular No.672 dated 16/12/1993. In the circular, it was clarified that in the cases of allotment of flats under the self- financing scheme of Delhi Development Authority should be treated as construction for the purposes of section 54 and 54F of the Act. It is also noted that while coming to a particular conclusion, the Ld. Commissioner of Income Tax (Appeal) has relied upon the decision from Bombay Tribunal in the case of ACIT vs Sunder Kaur Sajjan Singh Gadh 3 SOT 206, wherein, the Board Circular has been discussed. No contrary decision was brought to our notice by the Revenue.
Before adverting further, we are reproducing hereunder section 54 of the Act for ready reference and analysis:- “ 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, 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, one residential house in India], 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. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]”
In the aforesaid section, the legislature has provided a time frame within which the assessee has to invest the sale proceeds, subject to the provisions of sub-section (2), in a residential house. In the present case, the assessee invested the sale proceeds of the existing asset in the new property within the stipulated period. Thus, the assessee has established her bona fides by making the investment in the new property, which was already under construction, in our view, is a substantial compliance of the provisions of the Act. The ratio laid down by Hon'ble Bombay High Court in CIT vs Mrs. Hilla J.B. Wadia (216 ITR 376)(Bom.) holding that the assessee should have invested substantial amount within two years after the date of sale of the property supports the case of the assessee. As per the provision of Act, the assessee was either to construct the house or to invest the sale proceeds within the stipulated period of 2/3 years from the date of transfer of asset. The Hon'ble Calcutta High Court in CIT vs Bharati C. Kothari (244 ITR 352)(Cal.) held as under:-
“ 1. On an application under Section 256(1) of the Income-tax Act, 1961, the following question set out at page 2 of the application, has been referred by the Tribunal for our opinion : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to exemption under Section 54(1) since the agreement of purchase was made within one year from the date of sale and since substantial parts of instalments were paid within two years from the date of sale and thereby treating the date of agreement as the date of purchase ?"
The assessee had sold her flat at Rs. 1,40,000 on April 30, 1981. The asses-see thereupon entered into an agreement on April 29, 1982, for purchase of ownership flat from Akash Deep Corporation for a sum of Rs. 1,40,000. As per the agreement, she had to pay Rs. 10,000 on or before the execution of the agreement and the balance amount she has to pay as under : Date of payment Amount (Rs.) 22-4-1982 10,000 25-3-1983 10,000 25-4-1983 10,000 4-6-1983 10,000 5-7-1983 10,000 27-7-1983 10,000 14-11-1983 50,000 21-1-1984 20,000 3-3-1984 10,000 3. The assessee claimed the benefit of exemption under Section 54(1) of the Income-tax Act, 1961. According to the Assessing Officer, the assessee is entitled to only the benefit to the extent of Rs. 30,000 which she has invested during two years from the date of sale.
In appeal before the Deputy Commissioner of Income-tax (Appeals), the Deputy Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee.
In appeal before the Tribunal, the Tribunal has considered the decision of the Andhra Pradesh High Court in the case of CIT v. Mrs. Shahzada Begum , and also considered the decision of the apex court in the case of CIT v. J.H. Gotla and allowed the claim of the assessee. When the assessee has invested the entire amount within three years, she is entitled to exemption underSection 54(1) of the Act.
The facts are not in dispute that after sale of her flat on April 30, 1981, she entered into an agreement for purchase of an ownership flat on April 29, 1982, and the entire amount of the flat, that is, Rs. 1,40,000 has been paid within three years from the date of sale of her flat.
In Mrs. Shahzada Begum's case the Andhra Pradesh High Court has taken the view that the expression "purchased" would undoubtedly connote the domain and control of the property given into the assessee's hands. Therefore, registration is not necessary. If money is paid and possession has been taken within the stipulated period under Section 54(1), the assessee is entitled to benefit under Section 54(1).
The provisions of Section 54(1) of the Act provide that subject to the provisions of Sub-section (2), where capital gain arises from the transfer of a long-term capital asset, the income of which is chargeable under the head "Income from the house property" and the assessee has within a period of one year before or two years after the date on which a transfer took place purchased, or has within a period of three years after that date constructed a 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 in the section.
The admitted facts are that the assessee has entered into an agreement within two years for purchase of a residential flat and the flat was under construction. The amount was paid in instalments, but all the instalments are paid within three years from the date of sale of her flat, i.e., on April 30, 1981. The provisions of Section 54(1) permit the assessee in case the assessee invests the sale proceeds in the construction of a house within three years, the assessee is exempted from the capital gain tax arising out of the sale of the earlier house. Here no doubt, the assessee has not constructed herself the house, but she purchased the flat which was being constructed and within three years, she paid the entire amount against that flat which was being constructed. Therefore, the question does arise, whether the sale proceeds which she has invested in the flat which was under construction amounts to an investment of the sale proceeds underSection 54(1)--whether it is necessary that she should herself construct a house, then only she is entitled for exemption under Section 54(1) of the Act.
If the assessee has invested that sale proceeds in a house, which is being constructed by the third party for her, that in our considered view, entitles the assessee for the benefit or the exemption under Section 54(1). If the benefit is not given to the assessee, though she has invested the sale proceeds in the house which is being constructed for her, that view may not be in conformity with the object behind the provision. The purpose behind this exemption is that when the assessee sells her residential house and if she purchased any new house or acquired the new house from those sale proceeds, the assessee is exempted from the capital gain tax.
In J.H. Gotla's case , their Lordships at page 339 have observed as under : "Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning."
Keeping in view the above observations of the apex court, where the plain literal expression of the statutory provisions produces manifestly unjust result, which could never have been intended by the Legislature, the court can modify the language to achieve the intention of the Legislature and produce a rational construction.
The purpose behind the exemption under Section 54(1) is that if any assessee sells his residential house and purchases a new house against those sale considerations that capital gains tax arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party that does not make any difference. The basic requirement for the purpose of relief under Section 54(1), is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Keeping in view the above observations and reasons given by the Tribunal, no case is made out for interference.
In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.
The application is, thus, disposed of. As mentioned earlier, the CBDT vide Circular No.471, dated 15/10/1986, dealing with the investment in flats, under self financing scheme of Delhi Development Authority states that when allotment letter is issued to the allottee under the scheme on payment of first instalments of the cost of construction, the allotment is final, unless it is cancelled. The allottee, thereupon gets title of the property on the issuance of allotment letter and the payment of instalments is only a follow of action and taking delivery of possession is only a formality. Considering the intention of the legislature for this beneficial provision and the purpose behind u/s 54(1) is that if any assessee sells his/her residential house and purchases a new house against the sale consideration, the capital gain tax arising out of sale of earlier house property, it should not be taxed. The basic requirement for the purpose of relief u/s 54(1) is that assessee should invest the sale proceeds in the construction of the residential house. The expression “for the purpose of his own residence” in section 54(1) would suggest that the benefit of that provision is intended for the new asset, which is meant at the time of purchase or construction, to be used for the dwelling purpose by the assessee. The ratio laid down in CIT vs Smt. Sunita Agrawal (2006) 284 ITR 20 (Del.), CIT vs V. Narajan (2006) 287 ITR 271 (Mad.), DIT vs Ms. Jennifer Bhide (2012) 349 ITR 80 (Karn.) supports the case of the assessee. Keeping in view, the totality of facts and the foregoing discussion, the assessee has made substantial compliance of the provision by investing required amount within stipulated period, therefore, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal), it is affirmed. Finally, the appeal of the Revenue is dismissed. This Order was pronounced in the open court in the presence of ld. DR at the conclusion of the hearing on 26/10/2016.