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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SANJAY GARG & SHRI RAMIT KOCHAR
आयकर अपील�य अ�धकरण “F” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 878/Mum/2014 (�नधा�रण वष� / Assessment Year : 2008-09) Vishal Dutt, बनाम/ Income Tax Officer, Ward 205, B-Wing, Big Splash, – 22(3)(4), v. Sector – 17,Vashi, 3 rd Floor, Tower No. 6, Navi Mumbai – 400703. Vashi Railway Station, Navi Mumbai – 400 703. �थायी लेखा सं./PAN : AAGPD 1553 M (अपीलाथ� /Appellant) .. (��यथ� / Respondent)
Assessee by Shri Neelesh Bajaj Revenue by : Shri Sanjeev Kashyap-(DR) सुनवाई क� तार�ख /Date of Hearing : 30-12-2015 घोषणा क� तार�ख /Date of Pronouncement : 16-03-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 878/Mum/2014, is directed against the appellate order dated 29-11-2013 passed by the learned Commissioner of Income Tax (Appeals)- 33, Mumbai (Hereinafter called “the CIT(A)”), the said appeal before the CIT(A) arising from the assessment order dated 27.12.2010 passed by the learned assessing officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act ,1961 (Hereinafter called “the Act”) for the assessment year 2008-09.
The ground raised by the assessee in the memo of appeal filed with the Tribunal reads as under:-
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“1. That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the action of the A.O. and denying the claim of the appellant u/ s 54F by holding that such exemption u/ s 54F is available for only one residential house purchased or constructed. 2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in denying the claim of the appellant u/s 54F amounting to Rs. 62,60,601/- in respect of residential house constructed at Parsik Hill Property on the contention that the said property was not in a habitable condition. 3. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in assessing the agricultural income earned by the appellant amounting to Rs. 1,82,390/-, as income under the head "Income from Other Sources".”
The brief facts of the case are that the assessee is an individual and derives income from business and long term capital gains on sale of plots. During the course of the assessment proceedings before the AO u/s 143(3) read with Section 143(2) of the Act, it was observed by the A.O. that assessee has sold two landed properties viz. 1) Nevali land and 2) Palidevad land for a consideration of Rs.42,51,000/- and Rs.45,00,000/- respectively and earned long term capital gains of Rs.40,13,551/- and Rs. 23,72,109/- respectively. The assessee has claimed benefit u/s. 54F of the Act in respect of the whole long term capital gains and has filed the details of investment made in new residential properties in support of claiming the benefit u/s 54F of the Act. On perusal of the details, it was observed by the AO that out of the net sale consideration received by the assessee from the sale of two plots of land, the assessee has claimed to have invested Rs. 62,60,601/ on construction of the new residential house at Parsik Hill,Belapur and made investment of Rs. 25,79,278/- in another residential flat at NRI complex, Nerul. Thus, the assessee has utilized the net consideration for investment in two residential properties. The assessee stated before the AO during the course of the
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assessment proceedings u/s 143(3) read with Section 143(2) of the Act that during the previous year, the assessee has sold two plots of land and invested in two residential properties and the assessee does not have a third residential property. The assessee stated that if at all the benefit u/s 54F of the Act is to be allowed only for one property, the same may be allowed in respect of residential house property constructed at Parsik Hills,Belapur. The A.O. observed that the provisions u/s. 54F of the Act provides for investment of sale proceeds in purchase or construction of "a residential house", therefore, the benefit u/s 54F of the Act is available for only one residential house purchased or constructed and hence benefit u/s 54F of the Act is allowed only in respect of one residential house. Thus the A.O. allowed benefit u/s 54F of the Act in respect of one residential property i.e. the residential house constructed at Parsik Hills,Belapur whereby the capital gain benefit u/s 54F of the Act was worked out by the AO at Rs. 45,24,618/- computed proportionately based on net consideration invested in the Parsik Hills residential property at Belapur and the balance long term capital gains of Rs.18,61,041/- was brought to tax vide assessment orders dated 27.12.2010 passed by the AO u/s 143(3) of the Act.
4.Aggrieved by the orders of A.O. dated 27.12.2010 passed u/s 143(3) of the Act, the assessee preferred an appeal before the CIT(A).
The assessee reiterated the submissions before the CIT(A) as were made before the A.O. and submitted that the assessee had invested a sum of Rs.62,60,601/- on construction of new residential house at Parsik Hill,Belapur and also made an investment of Rs.25,79,278/- in another residential flat at N.R.l Complex, Nerul and, thus, he utilized the net consideration for investment in two residential properties. The assessee submitted that the A.O. wrongly interpreted that benefit u/s 54F of the Act is available for one residential house whereby the AO erroneously allowed
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deduction for only one residential house , whereas Section 54F of the Act uses a term “a residential house” which could be equivalent to word ‘any’: In his support the assessee relied upon the following judicial decisions:-
i) CIT v. Smt. K.G. Rukuminiamma, (2011)196 Taxman 87 (Kar) ii) CIT v. Gita Duggal (2013)30 taxmann.com 230 (Delhi HC) iii) K.G. Vyas, 16 ITD 195(Bom-Trib) iv) Shiv Narayan Choudhari, (1981)108 ITR 104 (All) v) B.B. Sarkar, 132 ITR 150 (Cal) vi) Col. H.H. Sir Harinder Singh, 83 ITR 416 vii) Fulwanti C. Rathod v. ITO, Mumbai Tribunal.
The CIT(A) observed that the assessee is claiming benefit u/s 54F of the Act in respect of two independent residential house situated at different locations, one is in Parsik Hills at Belapur and the other is at N.R.I. Complex, Nerul, Navi Mumbai. The CIT(A) referred to the decision of Special Bench of the Mumbai-Tribunal in the case of ITO v. Sushila M. Jhaveri(2007) 107 ITD 327(Mum-Trib) whereby the Special Bench of Mumbai-Tribunal observed that the tax-payer had purchased two residential houses against sale consideration of one residential flat at ‘Gulistan' situated at Bhulabhai Desai Road, Mumbai. One residential property was at Varun Apartments at Versova and the other property was at Erlyn Apartments, Bandra, and it was held by the Special Bench of the Mumbai-Tribunal in the aforementioned case that the tax-payer is entitled to get exemption only in respect of one residential house of her choice. Therefore, the CIT(A) held that the decision of Special Bench of Mumbai-Tribunal is fully applicable to the present case and the assessee in the instant appeal can avail benefit u/s 54F of the Act in respect of one residential house property only. The CIT(A) also relied on the decision of Hon’ble Punjab & Haryana High Court in the case of Pawan Arya v. CIT, 49 DTR 123 which upheld the view of Special Bench of Mumbai Tribunal in the
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case of Sushila M. Jhaveri(supra). The CIT(A) held that the reliance of the assessee in the case of CIT v. Smt. K.G. Rukuminiamma 196 Taxman 87 (Kar) would also not come to his rescue as in that case the assessee had four residential units, but all of them were in the same building acquired in pursuance of a development agreement. In the case of Shiv Narayan Choudhari v. CWT 108 ITR 104, the Hon’ble High Court held that where a house consisted of more than one self contained dwelling unit and if there is a unity of structure, mere fact that such self contained dwelling units were occupied by different persons, will not make that house, into several houses. Thus, the reasoning behind the High Court's judgment was the unity of structure. In the case of K.G. Vyas v. ITO 16 ITD 195 (Bom), the Mumbai- Tribunal allowed exemption in respect of investments in four flats where the tax-payer purchased four flats in same building; two flats were on 1st floor and one flat each on 2nd and 3rd floor and the tax-payer was living in these flats with his big family with a common kitchen and common ration card, thus, the reasoning behind Tribunal's decision was common use of several flats.
In the course of appellate proceedings before the CIT(A), the assessee was asked to furnish the appropriate evidences that residential house property at Parsik Hill , Belapur constructed by him was in livable condition. The assessee submitted that merely because the construction was not complete in all respect and it was not in a fit condition to be occupied within the period stipulated would not disentitle him for claiming the benefit u/s. 54F of the Act. It is also submitted that once the assessee demonstrates that the consideration received on transfer has been invested even though the transactions are not complete in all respect and as required by law that would not disentitle the assessee from availing benefits u/s 54F of the Act. In support of assessee’s contention, he relied on the decision of the Hyderabad Tribunal in the case of Narasimha Raju Rudra Raju v. ACIT (2013) 35
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taxmann.com 90(Hyd. Trib.) and also decisions of Hon’ble Karnatka High Court in the case of CIT v. Sri Sambandam Udaykumar (2012) 19 taxmann.com 17(Kar.HC), decision of Hon’ble Delhi High Court in the case of Balraj v. CIT (2002) 123 taxman 290(Del.HC) and CIT v. T.N. Aravinda Reddy (1979) 120 ITR 46 (SC). It was the contention of the assessee that the Courts have taken liberal interpretation that the construction may not be completed in all respects and the residential property may not be useable but still benefit u/s 54F of the Act is available being beneficial provisions. The CIT(A) after considering the submission of the assessee, by relying upon the decision of Mumbai-Tribunal in the case of Salim Fazelbhoy vs. DCIT, 291 ITR 169 whereby it was held that inhabitable premises cannot be equated with the residential house and hence the claim of the assessee for benefit u/s 54F of the Act was rejected as the assessee with respect to investment in construction of residential house at Parsik Hill, Belapur was not able to bring on record and furnish the details as to the impugned property being in livable condition and the assessee was not able to furnish any evidence with regard to basic amenities like place for cooking/kitchen/toilet, bathroom, approach road within the plot etc. and hence, the CIT(A) directed the A.O. to allow the benefit u/s 54F of the Act for investment of Rs. 25,79,278/- in a residential flat at NRI Complex, Nerul instead of residential house at Parsik Hill, Belapur, vide orders dated 29-11-2013.
6.Aggrieved by the orders dated 29-11-2013 of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the assessee has been denied benefit u/s 54F of the Act with respect to one residential house. The assessee had made investment in residential house property at Parsik Hills, Belapur as well as NRI Complex, Nerul while two landed properties viz. Merali Land and Palidevad land were sold. The A.O. had allowed benefit u/s 54F of
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the Act with respect to investment made in the construction of new residential house at Parsik Hills, Belapur while denied the benefit u/s 54F of the Act with respect to investment made in NRI Complex, Nerul. On the other hand, the CIT(A) has allowed the benefit u/s 54F of the Act with respect to the investment made by the assessee in NRI Complex, Nerul while denied benefit u/s 54F of the Act with respect to the investment made in construction of residential house at Parsik Hills, Belapur on the ground that construction is not yet completed. The assessee submitted that before the sale of two properties, the assessee did not own any residential house. The assessee’s contention that construction of Parsik Hills, Belapur were completed within three years as required u/s 54F of the Act and in November, 2007, the second residential property at NRI Complex, Nerul was purchased. The assessee stated before us that the he did not own any other residential property prior to acquisition of the afore-stated two new residential properties. The assessee also reiterated the submissions as was made before the authorities below and the same are not repeated for the sake of brevity. The ld. Counsel for the assessee relied upon the following decisions:
i) Rajesh Keshav Pillai v. ITO( Mumbai-Tribunal in ITA No.6661/M/2009. ii) CIT v. Dr R Balaji (Hon’ble High Court of Karnatka in ITA No 109/2013) iii) CIT v. Late Khoobchand M Makhija (Hon’ble High Court of Karnatka in ITA No. 496 of 2007)
The ld. D.R., on the other hand, relied upon the orders of authorities below.
We have considered the rival submissions and perused the material on record including case laws relied upon by both the parties. We have observed
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that the assessee sold two landed properties viz. Merali Land and Palidevad land for a total consideration of Rs. 42,51,000/- and Rs. 45,00,000/- respectively and earned capital gain of Rs. 40,13,551/- and Rs. 23,72,109/- respectively. The assessee has made investment of Rs.62,60,601/- in the construction of residential house at Parsik Hills, Belapur and investment of Rs. 25,79,278/- in the residential flat at NRI Complex, Nerul. The assessee has claimed benefit u/s 54F of the Act in respect of the entire long term capital gains earned by him on the sale of both the plots of land. However, the Revenue has allowed benefit u/s 54F of the Act with respect to one property on the ground that section 54F of the Act contemplates purchase or construction of one residential house , hence, benefit u/s 54F of the Act can be allowed for only one residential house. The AO allowed the benefit u/s 54F of the Act amounting to Rs.45,24,618/- with respect to the investment of the assessee in construction of new residential house at Parsik Hills at Belapur while the CIT(A) allowed benefit u/s 54F of the Act amounting to Rs.25,79,278/- with respect of investment of the assessee in residential flat at NRI complex at Nerul instead of allowing benefit u/s 54F of the Act with respect to investment of the assessee in new residential house at Parsik Hills, Belapur on the grounds that the new residential house at Parsik Hills, Belapur is not in a livable condition. The assessee, on the other hand, contended that he is entitled for benefit u/s 54F of the Act on both the new residential properties and the law provides that the assessee can invest in any number of properties. The assessee also drew our attention to amendment made in the section 54F of the Act by the Finance Act, 2014 w.e.f. 01-04- 2015 , whereby the word “a” has been substituted with the word “one” residential house. The assessee relied upon various case laws. We have observed that the case laws relied by the assessee whereby allowing investments in more than one residential flat/house relate to the benefit availed by the tax-payer u/s 54 of the Act and not to section 54F of the Act. On careful perusal of Section 54F of the Act vis-à-vis Section 54 of the Act
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reveals that there are marked difference between the requirements stipulated under both the afore-stated Sections for availing benefit. We have analysed section 54 and 54F of the Act and observed that there are marked differences in both the sections 54 and 54F of the Act , whereby Section 54F of the Act stipulates additional conditions to be met for availing the exemption , which inter-alia, provides as under and these conditions are not existing in Section 54 of the Act:
a) Investing net consideration on transfer of capital asset in acquiring or constructing new asset instead of investing capital gains.
b) the tax-payer should not own more than one residential house , other than new asset , on the date of transfer of the original asset or
c) the tax-payer should not purchase any residential house, other than new asset , within a period of one year after the date of transfer of the original asset or
d) constructs any residential house , other than the new asset , within a period of three years after the date of transfer of the original assets
Section 54F of the Act is re-produced hereunder:
“[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.6 54F. (1) 7[Subject to the provisions 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 7aresidential house (hereafter in this section referred to as the
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original asset), and the assessee has, within a period of one year before or 8[two years] after the date on which the transfer took place 7apurchased, or has within a period of three years after that date 9[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 capital 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 under section 45: 10[Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,— (i) owns7a more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original
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asset, is chargeable under the head "Income from house property".] Explanation.—For the purposes of this section,—
11[***] 12[***] "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of 13[two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.]
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14[(4) The amount of the net consideration 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 scheme15 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 by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), Exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of
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the new asset, shall be charged under section 45 as 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 the unutilised amount in accordance with the scheme aforesaid. Explanation.—16[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]]”
As is observed from the perusal of the provisions of Section 54F of the Act that there exists additional conditions in Section 54F of the Act for availing benefit such as that the tax-payer should not own more than one residential house other than the new asset purchase/constructed on the date of transfer of original asset , that the tax-payer will not purchase any residential house other than the new asset within a period of one year after the date of transfer of the original asset or construct any residential house other than the new asset within a period of three years after the date of transfer of the original asset and any such conditions does not exist in section 54 of the Act for availing the benefit. Thus, it is clear that assessee shall be entitled for benefit u/s 54F of the Act with respect to only one residential house property and if the assessee purchase or construct another residential house apart from new asset, income of which is chargeable to tax under the head ‘income from house property’ , then on acquisition/purchase of the another residential house within time stipulated under the provisions of Section 54F of the Act, the benefit earlier so granted shall stand withdrawn as per provisions of Section 54F(2) of the Act and the capital gain arising from transfer of the original asset not charged to capital gains u/s 45 of the Act on the basis of cost of such new asset as provided under clause (a) or (b) of Section 54F(1) of the Act shall be deemed to be the income chargeable under the head ‘Capital Gains’ relating to long-term capital asset of previous year in which such new
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asset is transferred. Hence, the assessee will be entitled for benefit u/s 54F of the Act with respect to investment in only one residential house property at Parsik Hills, Belapur as the said residential house property is completed at later point of time vis-à-vis acquisition of the residential flat at NRI Complex, Nerul in November 2007 and the provisions of Section 54F(2) of the Act will get invoked and be applicable with respect to residential flat at NRI Complex, Nerul being acquired in November 2007 i.e. prior to completion of investment in residential house property at Parsik Hills, Belapur, and the investment of Rs.62,60,601/- in construction of residential house property at Parsik Hills, Belapur shall be entitled for benefit u/s 54F of the Act as the assessee has sold two plots of land and the AO has rightly allowed the exemption u/s 54F of the Act with respect of investment of Rs.62,60,601/- made by the assessee in the construction of the residential house property at Parsik Hills , Belapur.
With respect to the decision of the CIT(A) whereby he denied the benefit u/s 54F of the Act of the investment in construction of residential house property at Parsik Hills, Belapur on the ground that the property was not in livable condition to occupy owing to non-production of evidence with regard to basic amenities like place for cooking/kitchen/toilet, bathroom, approach road within the plot etc. and non production of evidences regarding any electricity or telephone or tap water connection having been granted to the structure at Parsik Hill, Belapur, considering the fact that the assessee has made investment in the property being construction of new residential house at Parsik Hill, Belapur and invested an amount of Rs. 62,60,601/- on construction of a new residential house at Parsik Hills and section 54F of the Act being a beneficial provision of promoting the construction of residential houses , the provisions of Section 54F of the Act are to be liberally construed 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
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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 provision 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.Thus, benefit u/s 54F of the Act cannot be denied to the assessee during the year ending March, 2008 merely because the assessee has not yet completed the entire residential house at Parsik Hills, Belapur while the assessee can complete the house with a stipulated period of three years from the date of transfer of original asset, the deduction cannot be denied merely on the ground that construction is not completed . Our decision is fortified by the decision of Hyderabad- Tribunal in the case of Narsimha Raju Rudra Raju v. ACIT (2013) 35 taxmann.com 90(Hyd. Trib.) , decisions of Hon’ble Karnatka High Court in the case of CIT v. Sri Sambandam Udaykumar (2012) 19 taxmann.com 17(Kar.HC) and decision of Hon’ble Karnataka High Court in the case of CIT v. B S Shantakumari (2015) 60 taxmann.com 74(Kar.). The relevant extract from the decision of Hon’ble Karnatka High Court in the case of Mr Sambandam Udaykumar (supra) are reproduced hereunder:
“9. Section 54F of the Act provides for exemption from payment of capital gain on transfer of certain capital assets in case the consideration for transfer is invested in acquiring the residential house. It reads as under: 54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.—(1) Subject to the provisions 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, a residential
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house (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 capital 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 under section 45: Provided that nothing contained in this sub-section shall apply where (a) the assessee,- (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property." Explanation : For the purposes of this section, "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
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
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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.
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
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residential 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 requited under the law, that would not disentitle the assessee from the said benefit.
In fact, Madras High Court had an occasion to consider this aspect in the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 where it has been held as under: "4. The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have also constructed residential houses. In order to establish the same, the assessees submitted before the CIT(A) several material evidences, viz., invitation card printed for the house warming ceremony to be held on 12th July, 2003. The assessees have also produced the completion certificates from the municipal authority on 30th Jan., 2004. On the basis of the above documents, the CIT(A) concluded that the requirement of the statutory provision has been complied with by the assessees and that was reconfirmed by the Tribunal in the orders impugned."
The said Judgment of the Madras High Court has been affirmed by the Apex Court and the appeal was dismissed at the stage of preliminary hearing in CC Nos.3953-3954/2009 decided on 6.4.2009.
In the instant case, the material on record discloses that the assessee had invested Rs. 2,16,61,670/- as on 31.10.2006 within twelve months from the date of realization of sale proceeds of shares. The developer acknowledging the said amount has given particulars of the stage of construction. According to him, only minor fittings like window shutters and some electrical work were required to be made. In fact, the report of the inquiry conducted by the Department also discloses the flooring work, electrical work, fitting of door and window shutters were still pending. The assessee has produced before the authorities the registered sale deed dated 7.11.2009 showing the transfer of the property in his favour.
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The said document discloses marble tiles flooring has been done, electricity, water and sanitary connections have been given, wood used is teak in respect of doors and windows. The assessee has been put in possession of the property and he is in occupation. Therefore, the assessee has invested the sale consideration in acquiring a residential premises and has taken possession of the residential building and is living in the said premises. The object of enacting section 54 of the Act i.e., to encourage investment in a residential building is completely fulfilled.
In that view of the matter, the Tribunal was justified in extending the benefit of section 54F of the Act to the assessee and the said order does not suffer from any infirmity which calls for interference.
Therefore, the substantial question of law is answered in favour of the assessee and against the revenue.”
Thus, in our considered view, the assessee shall be entitled for benefit u/s 54F of the Act with respect to investment of Rs.62,60,601/- made by the assessee in construction of residential house property at Parsil Hills,Belapur amounting to Rs.45,24,618/- as allowed by the AO and we set aside the orders of the CIT(A) in this regard and restore the orders of the AO. We order accordingly.
In the next ground of appeal, the assessee has challenged the action of the CIT(A) in confirming the action of the A.O. in assessing the agricultural income earned by the assessee amounting to Rs. 1,89,548/- as income under the head “income from other sources”. The A.O. noticed that the assessee has shown agricultural income of Rs. 1,89,548/- but the assessee did not produce any positive proof showing that the assessee has received the agricultural income of Rs. 1,89,548/- during the year. Moreover, the assessee could not produce any proof regarding the basic activities such as
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ploughing, weeding, harvesting etc carried out to claim agricultural income, hence, the A.O. treated the said income of Rs.1,89,548/- as income from other sources instead of treating the same as agricultural income , vide assessment order dated 27.12.2010 passed by the AO u/s 143(3) of the Act.
Aggrieved by the orders dated 27.12.2010 passed by the A.O. u/s 143(3) of the Act, the assessee preferred first appeal before the CIT(A).
The CIT(A) by following the decision of his predecessor for the assessment year 2007-08 in assessee’s own case confirmed the addition made by the A.O. vide orders dated 29-11-2013. The CIT(A) while adjudicating appeal for assessment year 2007-08 had held as under:-
“·I have carefully considered the facts of the case, the submissions of the appellant and assessment order. It is not in dispute that assessee is the owner of agricultural land. The contention that the A.O. has raised that the appellant has not produced any evidence to show that the income earned is out of agriculture activity. At the time of appellate proceedings, the appellant has once again not produced any substantiating documents to show that on the agricultural land he is carrying agriculture operation. No evidence has been produced to show that any expense is incurred by him on procurement of seeds or labour or water for carrying out the agriculture operations claimed by him. No certificate from revenue authority, ie. Tahsildar is filed to corroborate the fact that the assessee is earning income from its agriculture land. In absence of any substantiating documents produced by the appellant to show that the income earned is out of agriculture activity, the order of the A.O. is upheld in treating the income of Rs. 1,82,390/· as Income from other sources. Ground is dismissed."
As the facts remained same and unchanged in the impugned assessment year as compared to preceding year’s as per the CIT(A), the CIT(A) , therefore , upheld the action of the AO in treating the income of Rs.1,89,548/- as ‘income from other sources’ instead of agriculture income vide orders dated 29-11-2013.
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Aggrieved by the orders dated 29-11-2013 of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the assessee own a small agricultural land which is given to the caretaker who do agricultural work and in turn give rent to the assessee. It is a small piece of land and the income earned is only Rs. 2 lacs (approx.) . In the assessment year 2005-06, the Tribunal in ITA No. 6614/Mum/2009 has set aside and restored the matter to the file of the A.O. and it is stated before us by the ld. Counsel for the assessee that the A.O. in his further proceedings pursuant to Mumbai- Tribunal directions in second round of litigation, again held the said income to be ‘income from other sources’ in the assessment order framed pursuant to the order’s of the Mumbai-Tribunal and the assessee in the second round of litigation has not challenged the said assessment order of the A.O. before the appellate authorities. The ld. D.R. submitted that the assesse has not challenged the findings of the A.O. for the assessment year 2005-06 whereby the A.O. did not allow the said income as agricultural income, hence, the said finding has become final. The ld. DR stated that the said income cannot be considered as agricultural income as no evidence has been produced by the assessee to show that on the said agricultural land , the assessee is carrying out agricultural operations directly or through care-taker. No certificate from the revenue authorities to corroborate that the assessee is earning agricultural income from its agricultural land has been filed.
We have considered the rival contention and also perused the material available on record. Considering the peculiar facts and circumstances of the issue, we are of the considered opinion that the assessee has failed to bring on record any evidence even in this second round of litigation with respect to the agricultural operations being actually carried out at the agricultural land
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owned by the assessee. No details regarding procurement of seeds or labour or water for carrying out the agricultural operations has been produced by the assessee even in the second round of litigation. No details were produced with respect to the crop cultivated or produced from the agricultural land even by the caretaker. The Tribunal in ITA No. 6614/Mum/2009 has set- aside and restored the matter to the file of the A.O. for de-novo determination of the matter and it is stated before us by the ld counsel of the assessee that the A.O. in compliance to the direction of the Mumbai-Tribunal in second round of litigation has observed that the assessee once again failed to bring on record any evidence/proof to substantiate his claim that the land has been actually utilized for agricultural operations. In view of the above and keeping in view the peculiar facts and circumstances of the case, we are of the considered view that in the absence of any cogent material/evidence brought on record by the assessee with respect to the actual carrying on the agricultural activity in the said land stated to be agriculture land, the said income of Rs.1,89,548/-cannot be assessed to tax as ‘agricultural income’ and the same shall be charged to tax as ‘income from other sources’ , hence this ground of appeal raised by the assessee is dismissed and the findings of the authorities below are confirmed. We order accordingly.
In the result, the appeal filed by the assessee in ITA N0. 878/Mum/2014 for the assessment year 2008-09 is partly allowed.
Order pronounced in the open court on 16th March, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 16-03-2016 को क� गई ।
Sd/- sd/- (SANJAY GARG) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated [
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व.�न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु�त / CIT- Concerned, Mumbai �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai “F” Bench 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai