M/S SRI, M. GEORGE JOSEPH,BANGALORE vs. DCIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “ A ” BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. No.13/Bang/2014 (Assessment Year : 2009-10) Sri M. George Joseph, Vs. Dy. Commissioner of Income Tax, No.534/30, 5th Cross, Circle 12(2), Bangalore. Mahalakshmi Layout, Bangalore-560 086 PAN AAMPJ 2734L Appellant Respondent.

Appellant By : Shri H.R. Suresh, F.C.A. Respondent By : Shri P. Dhivakar,JCIT (D.R) Date of Hearing : 30.12.2014. Date of Pronouncement : 13.2.2015. O R D E R Per Shri Jason P. Boaz, A.M. : This appeal by the assessee is preferred against the order of the Commissioner of Income Tax (Appeals)-III, Bangalore dt. 16.9.2013 for Assessment Year 2009-10. 2. The facts of the case, briefly, are as under :- 2.1 The assessee filed his return of income for Assessment Year 2009-10 on 31.7.2009 declaring income of Rs.28,39,63,455, comprising of income from salary, Long Term Capital Gains (LTCG) and income from other sources. The return was processed under Section 143(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under Section

2 ITA No.13 /Bang/2014 143(3) of the Act vide order dt.16.12.2011, wherein the income of the assessee was determined at Rs.29,37,88,709 in view of the following additions / disallowances :- i) Disallowance of claim for exemption u/s.54F of the Act : Rs.88,98,970. ii) Addition of income accrued on investments not offered to tax : Rs.9,26,284. 2.2 Aggrieved by the order of assessment for Assessment Year 2009-10 dt.16.12.2011, the assessee preferred an appeal before the CIT (Appeals) – III, Bangalore. The learned CIT(A) disposed off the assessee's appeal vide the impugned order dt.16.9.2013, dismissing the assessee's appeal on both the issues listed at (i) and (ii) of para 2.1 (supra). 3. Aggrieved by the order of the CIT (Appeals) – III, Bangalore for Assessment Year 2009-10 dt.16.9.2013, the assessee is in appeal before this Tribunal raising the following grounds :- “1. The CIT (Appeals) – III, Bangalore has erred in confirming the disallowances to the admitted income by the assessing authority by not deleting such additions in total. 2. Without prejudice, the CIT (Appeals) – III, Bangalore, ought not to have rejected the claim for deduction of Rs.88,98,970 under Section 54F of the Income Tax Act, in respect of purchase of residential property by the appellant. 3. The CIT (Appeals) – III, Bangalore ought to have considered the details submitted along with the documents in support of the claim for such deduction under Section 54F. 4. Without prejudice, the CIT (Appeals) – III, ought to have appreciated the evidences and documents furnished in support of the grounds of appeal. 5. On the facts, the additions to the admitted income as sustained by CIT (Appeals) – III, Bangalore, is excessive, arbitrary, unreasonable which ought to be reduced in total.” 4. The Grounds raised at S.Nos. 1, 4 & 5 (supra) being general in nature and not urged before us in appellate proceedings, are dismissed as infructuous.

3 ITA No.13 /Bang/2014 5. Ground Nos.2 and 3 – Disallowance of claim of Exemption u/s.54F : Rs.88,98,970. 5.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed exemption of Rs.88,98,970 u/s.54F of the Act, against the LTCG on Transfer of shares on 21.8.2008 amounting to Rs.28,27,33,919. The exemption claimed is in respect of investment in the purchase of a residential flat at Bangalore from M/s. Brigade Enterprises Pvt. Ltd. (‘BEPL’). On examination of the assessee's claim, the Assessing Officer found that a flat was booked in the name of one Anu Joseph, daughter of the assessee, vide Agreement to sell dt.30.12.2006 with Brigade Enterprises Pvt. Ltd. for a consideration of Rs.93,71,456. Out of this, amounts totaling Rs.88,98,970 had been paid till 3.6.2008 and the balance paid on 28th March, 2011 when the property was registered in the assessee's name. The Assessing Officer was of the view that the assessee had not satisfied the conditions laid down in section 54F of the Act i.e. that the residential property ought to have been purchased one year before or two years after the date on which the sale of the long term capital asset was sold on 21.8.2008. Since the purchase agreement was entered into on 30.12.2006; more than one year before the date of sale of the long term capital asset and was registered on 28.3.2011, which is more than two years after the date of sale of the long term capital asset, the Assessing Officer denied the assessee's claim for exemption under Section 54F of the Act entirely.

4 ITA No.13 /Bang/2014 5.2.1 On appeal, before the learned CIT(A), the assessee claimed the exemption u/s.54F of the Act was to be allowed to the extent of Rs.88,98,970 which was paid up to 3.6.2008 towards purchase of the said flat from Brigade Enterprises Pvt. Ltd.. Submitting that since payment of a substantial amount in terms of the Agreement indicated that he has acquired substantial domain over the new flat one year before the sale of the long term capital asset on 21.8.2008, the assessee contended that exemption under Section 54F of the Act cannot be denied to him for failure on the part of the Brigade Enterprises Pvt. Ltd. to hand over possession and register the flat in his name within a period of two years from the sale of the capital asset. The assessee cited judicial decisions to support his claim. 5.2.2 The learned CIT(A) on examination of the assessee's submission, being of the view that the judicial decisions cited were factually and legally distinguishable from the case on hand, proceeded to deny the assessee's claim for exemption u/s.54F of the Act, holding as under at para 3.3 and 3.4 of the impugned order :- “ This is not merely a case where the property has not been registered within the time limit allowed u/s.54F. Even the incidence of entering into the purchase agreement for acquisition of a residential house is well before the period of 1 year from the date of sale of the long term capital asset. Further, the agreement has been entered into in the name of the appellant’s daughter and the registration of the flat has taken place only on 28.3.2011. It is thus clear that the appellant has not adhered to the time frame contemplated by the provisions of section 54F. What has transpired is that an amount of Rs.67,15,910 has been paid to the builder before one year from the date of sale and after two years from the date of sale of long term capital asset for acquiring a flat in the name of the daughter and this has with the time frame laid down in section 54F. It is incorrect to say that the appellant has obtained a substantial domain over the new residential flat as the flat

5 ITA No.13 /Bang/2014 has been booked in the name of the appellant’s daughter. Even what the appellant’s daughter had obtained by making such payment is only an enforceable right. This does not tantamount to acquisition of a new residential house as contemplated in 54F. 3.4 Further, it is very clear that investment in a new asset should be in a name of the assessee and not in the name of a family member. The subsequent transfer of the flat in the name of the assessee after a period of two years from the date of sale does not fulfill the requirements of the provisions of section 54F. The fact that the investment in the new asset should be in the name of the assessee has been reiterated by the judicial pronouncements laid down in the following decisions. Jai Narayan Vs. ITO 306 ITR 335 (P&H) Prakash Vs. ITO 312 ITR 40 (Mum) Vipin Malik (HUF) Vs. CIT 330 ITR 309 (Del) Considering the facts and the legal propositions laid down above these grounds are dismissed.” 5.3.1 Before us, the learned Authorised Representative of the assessee filed written submissions vide letter dt.24.12.2014, virtually reiterating the written submissions made before the learned CIT(A) and citing the same judicial pronouncements in support of the assessee's claim for being granted exemption under Section 54F of the Act. The relevant portions of the same are extracted hereunder :- “ .....Out of the said long term capital gains from sale of shares of Rs.28,27,33,919, the appellant claimed exemption under Section 54EC for having invested Rs.50,00,000 in REC Bonds and Rs.88,98,970 as exemption under Section 54F for having purchased residential flat in Brigade Gateway, Bangalore under agreements dt.30.12.2006. The appellant had entered into an agreement for purchase of residential flat in Brigade Gateway promoted and developed by Brigade Enterprises Ltd., Bangalore, first in the name of his daughter Mrs. Anu Joseph, vide purchase agreement dt.30.12.2006 for a total consideration of Rs.93,71,456. The purchase consideration for the purchase of flat is entirely paid by the appellant himself as per schedule of payment in terms of the agreement, out of the amount realized from sale of shares. The agreement for purchase of property was transferred to the name of M. George Joseph, the appellant vide letter dt.18 March 2009 issued by the Builder Company i.e. Brigade Enterprises Ltd.. Therefore, the transfer of

6 ITA No.13 /Bang/2014 agreement to purchase the residential property to the name of the appellant is well before the end of previous year relevant to A.Y. 2009-10 which is the subject matter of the appeal. The appellant paid Rs.88,98,970 commencing form 23.11.2006 till 3.6.2008 and paid balance consideration of Rs.4,72,486 on 28.3.2011, and the absolute sale deed dt.28.3.2011 is registered in the name of appellant by paying stamp duty of Rs.348,400 and registration fee and other charges of Rs.52,540. Thus the total investment in purchase of the property by the appellant is Rs.97,72,396. The break of the investment for purchase of property period wise is as under :- S.No. Date Amount Rs. 1. 23.11.2006 12,65,000 2. 24.11.2006 1,68,360 3. 27.12.2006 7,49,700 4. 24.3.2006 7,88,630 5. 02.05.2007 8,45,581 6. 9.7.2007 8,52,309 7. 11.9.2007 8,45,878 8. 6.11.2007 8,45,878 9. 21.1.2008 8,45,878 10 14.3.2008 8,45,878 11. 3.6.2008 8,45,878 12. 28.3.2011 4,72,4386 13. 28.3.2011 4,00,940 Total: 97,72,396 “

In support of this proposition, the assessee reiterated its reliance on the following judicial pronouncements; viz. CIT V R.L.Sood (2000) 245 ITR 727 (Del) and Balraj V CIT (2002) 123 taxmann.com 290. 5.3.2 The learned Authorised Representative further contended that – “ In the instant case, the appellant had invested a sum of Rs.93,71,456 for the purchase of house property from a builder, it is a case of construction of flat and not a case of purchase of residential flat for the purpose of application of prescribed time limit under Section 54F. Thus, on payment of a substantial amount in terms of the agreement, the assessee acquired substantial domain over the new

7 ITA No.13 /Bang/2014 residential flat within the specified period of three years as provided in section 54F as the sale deed is registered on 28 March, 2011, which is within 3 years from the date of transfer of shares i.e. ;21 August 2008 and therefore the appellant has complied with requirements of section 54F of the Act.” In support of this proposition, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench of the ITAT, Bangalore Bench in the case of V.P. Rakhra V ACIT in ITA No.573/Bang/2012; Kishore H Galaiyavs V ITO (2012) 24 taxman.com 11 (Mum); ACIT V Sudhakar Ram (2011) 16 taxmann.com 175 (Mum ITAT), etc. It was submitted by the learned Authorised Representative that as per the facts on record, the assessee is entitled to be allowed the exemption as claimed under Section 54F of the Act. 5.4 Per contra, the learned Departmental Representative strongly supported the impugned order of the learned CIT(A). It was submitted that the learned CIT(A) has factually established that the assessee was not entitled to the deduction claimed u/s.54F of the Act and therefore the impugned order ought to be upheld. 5.5.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited and placed reliance upon. The facts of the matter as emanate from the record are that the assessee sold shares on 21.8.2008 resulting in capital gains of Rs.28,27,33,919 against which exemption of Rs.50,00,000 was claimed under Section 54EC of the Act for investment in REC Bonds and Rs.88,98,970 under Section 54F of the Act for having purchased a residential flat C-605, ‘C’ Wing Corona, Brigade Gateway, Bangalore from M/s. Brigade Enterprises Pvt. Ltd. vide

8 ITA No.13 /Bang/2014 Agreement dt.30.12.2006. The total investment in the purchase of this property was Rs.97,72,396 and the break-up of these payments as furnished by the assessee are as under :- S.No. Date Amount Rs. 1. 23.11.2006 12,65,000 2. 24.11.2006 1,68,360 3. 27.12.2006 7,49,700 4. 24.3.2006 7,88,630 5. 02.05.2007 8,45,581 6. 9.7.2007 8,52,309 7. 11.9.2007 8,45,878 8. 6.11.2007 8,45,878 9. 21.1.2008 8,45,878 10 14.3.2008 8,45,878 11. 3.6.2008 8,45,878 12. 28.3.2011 4,72,4386 13. 28.3.2011 4,00,940 Total: 97,72,396

5.5.2 According to the assessee, he entered into an agreement with M/s. Brigade Enterprises Pvt. Ltd. on 30.12.2006 for purchase of the said property. On perusal of the material on record, we find that as observed by the authorities below, admittedly the said Agreement dt.30.12.2006 is not entered into by the assessee, but by Mrs. Anu Joseph. While the transfer of sale of shares, in respect of which capital gains is computed, was carried out on 21.8.2008, we find from a perusal of the payment schedule above, that the payments at S.Nos.1 to 6 made up to 9.7.2007 aggregating to Rs.46,67,580 were made in the period of more than one year prior to the sale of shares on 21.8.2008 and therefore would not qualify for exemption under Section 54F of the Act. Even otherwise, as per the

9 ITA No.13 /Bang/2014 factual material on record, the assessee has not entered into any agreement with M/s. Brigade Enterprises Ltd. On 30.12.2006. In fact, as per the material on record there was no agreement to purchase / sale by the assessee with BEPL. In this view of the matter, the payments up to 3.6.2008, listed at S.Nos.7 to 11 aggregating Rs.42,29,390 (i.e. Rs.8,95,878 x 5) are also not eligible to qualify for exemption under Section 54F as the assessee till one year after that date has not entered into any agreement for purchase of any property from BEPL. In the above factual and legal matrix, the assessee's claim that he is entitled to exemption to Rs.88,98,970 (i.e. Rs.46,69,580 + Rs.42,29,390) under Section 54F of the Act is not tenable. 5.5.3 As rightly observed by the learned CIT(A), this is not a case where only the property has not been registered within the time specified under Section 54F of the Act. We also find, from an appreciation of the facts on record, that the assessee's claim that he has obtained a substantial claim over the residential flat, as it has been booked in his daughter’s name is not correct, as the assessee does not have even an enforceable right in the matter vis-a-vis Brigade Enterprises Ltd. The provisions of law in this regard are very clear, in that the investment in the purchase / acquisition of a new property should necessarily be in the name of the assessee and not in the name of another person and the subsequent intimation of change of the booking of the flat in the name of the assessee by a mere letter of Brigade Enterprises Ltd., does not fulfill the requirements of the provisions of section 54F of the Act. As held by the learned CIT(A), the fact that the

10 ITA No.13 /Bang/2014 investment in the purchase of the new flat should be in the name of the assessee has been laid down in the following decisions of the Hon'ble High Courts :- i) Jai Narayan V ITO in 306 ITR 335 (P & H) ii) Prakash V ITO in 312 ITR 40 (Mum) iii) Vipin Malik (HUF) V CIT in 330 ITR 309 (Delhi). The judicial pronouncements, relied on by the assessee have been considered carefully and we find that these have been already cited before the learned CIT(A) and are distinguished in the impugned order. We concur with the views of the learned CIT(A) in this matter that the cited cases are factually and legally distinguishable from the case on hand. 5.5.4 In view of the facts and circumstances of the case as discussed above, we are of the considered view that in the factual and legal matrix of the case as laid out in paras 5.5.1 to 5.5.3 of this order, the authorities below have correctly rejected the assessee's claim for exemption of Rs.88,98,970 under Section 54F of the Act. We, therefore, uphold the impugned order of the learned CIT(A) in denying the assessee exemption under Section 54F of the Act. Consequently, the grounds raised by the assessee at S.Nos.2 and 3 are dismissed. 6. In the result, the assessee's appeal for Assessment Year 2009-10 is dismissed. Order pronounced in the open court on 13th Feb., 2015. Sd/- Sd/- (N.V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp

11 ITA No.13 /Bang/2014

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, - B Bench. 6. Guard File. (True copy) By Order

Asst. Registrar, ITAT, Bangalore