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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ASHWANI TANEJA
1 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 आयकर अपीलीय अिधकरण “J” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J”, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER
ITA No. : 2235/Mum/2012 (Assessment year: 2008-09) ITO- 25(2)(2), Vs Shri Mehul J Dhabalia, C-11, Bldg., Room No. 106, 501/502, Alaknanda, B-Wing, Pratyakshkar Bhavan, TPS, III, 51st Road, Borivali(W), Bandra Kurla Complex, Mumbai -400 092 �थयी लेखा सं.:PAN: AAAPD 8419 J Bandra (East), Mumbai -400 051 अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri S. Senthil Kumaran : Respondent by : Shri Ketan L Vajani ITA No. : 2503/Mum/2012 (Assessment year: 2008-09) ITO 25(2)(1), Vs Shri Jagdish C Dhabalia, C-11, Bldg., Room No. 106, Ground Floor, Bhavsar Compound, Pratyakshkar Bhavan, M G Road, Borivali (East), Bandra Kurla Complex, Mumbai -400 066 �थयी लेखा सं.:PAN: AAAPD 8420 H Bandra (East), Mumbai -400 051 अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri S. Senthil Kumaran : Respondent by : Shri Ketan L Vajani सुनवाई क� तार�ख /Date of Hearing : 08-09-2015 घोषणा क� तार�ख /Date of Pronouncement : 30-11-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeals have been filed by the revenue against separate impugned orders of even date, 06.01.2012 passed by CIT(A)-35, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment year 2008-09. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed off by way of this consolidated order.
2 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 2. For the sake of convenience, we will take-up appeal in the case of Shri Mehul Jagdish Dhabalia in ITA No. 2235/Mum/2012 vide which following grounds have been raised :- “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer and allowing excess claim of exemption u/s 54EC of the Act without appreciating the fact that the capital gains worked out even after considering the value as per DVO’s report are much more than the investment made by the assessee in the long term specified asset.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition and allowing excess claim of exemption u/s 54EC of the Act without appreciating the fact that the provisions of section 50C are deeming provisions and not fictitious.
The appellant prays that the order of the CIT(A) on the above grounds to be set aside and that of the AO be restored”
Brief facts qua the issue involved are that, the assessee along with his father, Shri Jagdish C. Dhabalia is a Co-owner of a plot of land bearing CST No. 929 at Village Eksar, Taluka Borivali, Mumbai, having 25% undivided shares in the said plot. The assessee along with the co-owners transfer their undivided rights in these plots by executing conveyance deed dated 29th September, 2007 in favour of Romell Real Estate P Ltd. The assessee received sum of Rs. 25 lakhs as his part of his share, in terms of the said Deed. However, the stamp duty authority had determined the market value of plot for the purpose of levy of stamp duty at Rs. 3,04,70,810/-. Accordingly, market value of 25% of undivided share of the assessee in Plot no. 929 in terms of deeming provisions u/s 50C was arrived at Rs. 76,17,702/-. The assessee had invested the entire sum of Rs. 25 lakhs, which was actually realized as his share of consideration as per the Conveyance Deed in the specified long-term-asset i.e. in the bond of ‘Rural Electrification Corporation Ltd.’ as, specified u/s 54EC. During the previous year relevant to assessment year 2008-09, the assessee had declared the long-term-capital-gain on transfer of land at Rs. 21,19,344/-. Since, the entire consideration of Rs.25 lakhs was
3 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 invested in ‘Rural Electrification Corporation Ltd.’ i.e., in the specified bond, the entire capital gain was claimed as exempt u/s 54EC. Thus, capital gain was shown at “Nil”.
The AO during the course of the assessment proceedings had referred the matter to the DVO to determine the fair market value of the plot in terms of section 50C(2), however, till the passing of the assessment order, the said report could not be made available. The AO, accordingly, calculated long-term-capital-gain and exemption u/s 54EC in the following manner: -
Amount Rs. Sale consideration of the said plot(Assessee’s share Of 50% of municipal value of Rs. 1,52,36,000 in view Of provisions of section 50C of the I.T. act, 1961) 76,18,000 Indexed cost of acquisition (as claimed by the assessee) 1,80,656 Long Term Capital Gains 74,37,344 Exemption u/s 54EC for investment in Rural Electrification Bonds (As claimed by the assessee) 25,00,000 Taxable long-term-capital-gains 49,37,344 5. At the stage of the first appellate proceedings, the valuation report of the DVO was received, wherein the DVO has determined the fair market value of plot No. 929 at Rs. 1,93,38,000/- and assessee’s share being 25% was determined at Rs. 48,38,500/-. This value determined remained unchallenged.
Before the CIT (A), the assessee submitted that, since the assessee had invested Rs. 25 lakhs in bonds specified u/s 54EC and had claimed exemption on entire capital gain, therefore, now the enhanced capital gain amount should be regarded as exempt u/s 54EC. In support of such a contention, the assessee had relied upon the decision of ITAT Jaipur Bench in the case of Gyan Chand Batra vs ITO [2010] 133 TTJ (Jp) 482 and decision of ITAT Mumbai Bench in the case of Dr. (Mrs.) Sudha S. Trivedi vs ITO [2009] 125 TTJ (Mumbai) 42. The Ld. CIT(A) after considering the said decisions of the Tribunal, agreed with the contention of the assessee and held that, whole of the capital gain is to be treated as
4 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 exempt u/s 54EC. The relevant observation and finding of the CIT(A) are as under :- “Above two decisions are relevant in the present case. According to Sec. 54EC, in the case where cost of specified asset is not less than the capital gain arising from transfer of original asset, the whole of such capital gain shall not be charged under section 45. Provisions of Sec. 54EC are benevolent provisions aimed at prompting investment in desired sectors of the economy and also to provide incentive by way of exemption from tax liability to assess making specified investments. The section requires actual investment to be made in specified assets. The assessee can make investment out of capital gain which he has realized or is capable of being realized. Assessee cannot be expected to make investment of fictitious amount such as deemed consideration based on market value adopted by stamp duty authority or DVO, specially when valuation in subject matter of estimation and both the values significantly defer form each other and also from agreement value. In the present case, the appellant has invested Rs. 25,00,000/- being entire consideration received / receivable as per Conveyance Deed in the specified bonds and therefore it can be construed that the he has invested entire Capital Gains in the specified bonds as required u/s 54EC and therefore he is entitled to exemption of entire Capital Gains arising on sale of plots u/s 54EC. Once whole of capital gain is out of purview of Sec. 45, by virtue of operation of Sec. 54EC, one need not travel to the computation provisions under section 48 or to the deeming fiction of Sec. 50C.
Therefore, I am inclined to accept the contention of the AR that the appellant is eligible for exemption of entire gain under section 54EC irrespective of the determination of market value under the provisions of section 50C. I therefore delete the addition of Rs. 49,37,444/- made by the AO, on account of capital gains on sale of land. Accordingly, ground no. 7 raised by the appellant is hereby accepted”.
Before us, Ld. DR submitted that the exemption u/s 54EC would be available only on actual investment in the bond and not on deemed amount determined under the deeming provisions of section 50C. In support of his contention, he strongly relied upon the decision of ITAT Mumbai Bench in the case of Mrs. Neela V Shah vs CIT, reported in [2012] 51 SOT 461, wherein the Tribunal after considering the provisions of section 50C and 54EC held that the deeming provisions of section 50C cannot be imported into section 54EC and decided this issue in favour of department.
5 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 8. On the other hand, the Ld. Counsel for the assessee, submitted that, if the plain reading of the language used in section 54EC(1) is to be seen, then it clearly provides that if the capital gain arising from transfer of a capital asset has been invested in the long-term-capital-asset then whole of capital gain shall not be charged u/s 45. Further, in the decision of Neela V Shah (supra), the Tribunal has held that deeming fiction as provided u/s 50C cannot be imported in section 54EC, this inter-alia means that provision of section 50C has to be kept separate and if the assessee has invested the entire capital gains in section 54EC then exemption has to be given and if the capital gain has been increased then whole of the amount has to be exempted. He further submitted that, the Tribunal has not taken into consideration the decision of Co-ordinate Bench in the case of Prakash Kurnavat vs ITO [2012] 40 SOT 160 as relied upon by the CIT(A) in the impugned order, which was already available. In the said case the Tribunal held that provisions of section 50C are for the purpose of computation u/s 48 only and not applicable for section 54EC and hence, the assessee would be entitled to complete exemption of long-term-capital-gain even on the enhanced capital gain. The assessee cannot be asked to pay the extra capital gain tax simply because of the deeming provision and when the assessee had invested the whole of the amount for claiming exemption. The assessee cannot be asked to do the impossible i.e. to invest the amount in accordance with section 50C for claiming the exemption u/s 54EC. He further submitted that, section 45 provides for the charging of capital gains, but has provided certain exceptions from taxing of capital gains, which includes sections 54 to 54H. However, 54EC has not been mentioned, because it was brought into the statute w.e.f. 01.04.2001, but such an exception provided in section 54EC has to be read into the said provision because it has been brought in place of 54EA & 54EB. Therefore, the chargeability of capital gains will not apply if the assessee is saved by the saving clause of section 54EC. Thus, he submitted that the assessee is entitled for
6 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 complete exemption of long-term-capital-gain for sums aggregating to Rs. 48,34,500/- in the case of Mehul Jagdish Dhabalia and sum of Rs. 86,76,500/- in the case of Jagdish C. Dhabalia, which have been arrived at in terms of section 50C(2), that is, determined in pursuance of DVO’s report.
We have carefully considered the rival submissions and also perused the relevant finding given in the impugned order. It is an undisputed fact that the assessee had received his share consideration on transfer of an asset as per the conveyance deed dated 29.09.2007 of Rs. 25 lakhs. The said amount was invested in the specified long-term asset, that is, bonds as prescribed u/s 54EC and thereby the assessee claimed exemption of long-term- capital-gain of this entire sum. Later on, in terms of section 50C(2) the fair market value of the assessee’s share from the transfer of plot was determined by the DVO at Rs. 48,34,500/-. The assessee’s contention before the first appellate authority had been that, since the assessee was entitled for complete exemption u/s 54EC(1), therefore, the assessee should be entitled for exemption on such enhanced capital gain. Such a contention of the assessee has been accepted by the Ld. CIT(A) following the two decisions of the Tribunal as discussed above.
First of all, lets examine the relevant provisions of section 45, which provides for charging of profits or gains arising from a transfer of capital asset. Exception has been carved out in section itself about the chargeability of capital gain, which are subject to sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G & 54H. However, section 54EC has not been mentioned despite it is analogous with similar sections like 54E, 54EA & 54EB which had a sunset clause. The exemption from taxability of capital gains as provided in these provisions are in the form of investments made under certain period and under certain conditions out of the capital gains arising from a transfer of long-term asset. Even if we
7 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 agree with the contention of the Ld. Counsel that section 54EC should be read into section 45(1), which though Tribunal cannot read into, then also it does not make any difference on the issue involved here, because there cannot not be any quarrel that if the assessee has fulfilled the conditions prescribed under section 54EC, then the assessee is entitled or eligible for exemption from long-term-capital-gains. Section 48 prescribes for the mode of computation i.e., how the income chargeable under the head capital gain shall be computed. Section 50C on the other hand is a special provision which has been brought into the statute w.e.f. 01.04.2003 for valuing the consideration received as a result of transfer of capital asset in certain cases. It is a deeming provision whereby the value of the consideration received or accruing as a result of transfer of a capital asset is deemed to be on the basis of value adopted or assessed by Stamp Valuation Authority or as per the valuation done by the Valuation Officer in terms of sub-sec. (2) to section 50C. The deemed value of sale consideration has the effect on the computation of long-term-capital-gain in terms of section 48. In other words, the sale value/consideration as determined is a deemed consideration of fair market value in terms of section 50C, which has to be adopted for the purpose of computation of capital gain for the purpose of section 48. Whereas, section 54EC is an exception whereby the capital gain is not charged to tax like similar other provisions as enumerated in sections 54 to 54H. Sub-section (1) of section 54EC read with proviso reads as under: -
“1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section as the original asset) and 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 capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with following provisions of this section, that is to say, —
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
8 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer 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 acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45:
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed 50 lakh rupees”. 11. From the plain reading of aforesaid provisions, it is quite evident that it provides for exemption from a capital gain arising from the transfer of a long-term-capital asset if the assessee invests whole or any part of the capital gain in the long-term specified asset, that is, Bonds as specified in Explanation (b) below sub-section (3). The condition for exemption under this section are, firstly, if the cost of specified Bond is not less than the capital gain arising from the transfer of the long-term original asset, then the whole of such capital gain shall not be charged, in other words, the investment in the bond should be of the same amount or more amount than the capital gain. For example, if the capital gain is Rs.1000, then the investment in the specified bond must be for Rs.1000 or more, then only the assessee can claim exemption of whole amount of capital gain of Rs.1000; and Secondly, if the cost of specified Bond is less than the capital gain arising from the transfer of the original asset then the proportionate amount is not charged to tax as provided in clause (b) of sub-section (1), that is, exemption is only to the extent of amount invested in the Bond. Proviso carves out a very important limitation that investment made on or after 1st Day of April, 2007 in the long-term specified asset by an assessee during any financial year, the same should not exceed Rupees fifty lakh. In other words, a monetary limit has been fixed for making the investment and claiming the exemption amount. If the assessee has earned more capital gain than the amount of Rs. 50 lakhs, then it shall be restricted to Rs.50 lakhs only because a cap has been put whereby assessee can make
9 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 investment in long-term specified assets up to 50 lakhs only and hence, exemption has been put to limitation.
The section 54EC thus, provides for exemption from charging of capital gain if the assessee makes the investment of whole or part of the capital gains in the long-term specified assets i.e. bonds specified therein. What has been envisaged in section 54EC is the actual amount of investment and not the deeming amount determined in the terms of section 50C r.w.s. 48. The fair market value as determined in terms of section 50C and resultant computation of capital-gain as per section 48 has to be confined and restricted for computation of tax and cannot be imported in section 54EC for the purpose of granting exemption because, firstly, section 54EC read with proviso thereto provides for exemption when the amount is invested in a specified bond, that is, there has to be specific quantum of amount which needs to be invested in the bond, which carries certain maturity value; secondly, the amount invested in the bond is only treated as exempt and not any notional or fictional amount which can be deemed to have been invested for the purpose of getting the exemption from chargeability of capital gains. We are unable to appreciate the contentions put forth by the Ld. Counsel that, if the assessee had invested the entire amount of actual capital gain arisen to the assessee in the long term specified asset and if subsequently the amount of capital gain has been enhanced due to deeming fiction of the other provisions, then such an exemption should be extended to the enhanced amount. How can there be deemed or notional investment u/s 54EC. True purport of the section 54EC is to grant exemption from the capital gain tax in a limited manner restricted to the amount of the capital gain invested. Here invested is to be reckoned as actual investment. The proviso to section 50C(1) also clarifies and clinches the issue, as discussed above.
10 Shri Mehul J Dhabalia ITA No. 2235/Mum/2012 Shri Jagdish C Dhabalia ITA No.2503/Mum/2012 13. The ITAT Mumbai Bench in the case of Nila V Shah (supra) held that, section 54EC speaks of actual capital gain which arises out of transfer of LTCG and deeming amount. Whereas section 50C provides for deeming fiction where value of consideration is adopted as per Stamp Valuation Authorities. Even if the property has been sold at a lesser price, but, under the deeming fiction of section 50C, the value adopted by the Stamp Valuation Authorities is taken as sale consideration. Such a deeming fiction cannot be imported into section 54EC and hence, the deemed value cannot be considered for exemption u/s 54EC. The Ld. Counsel has heavily relied upon the ITAT Jaipur Bench decision in the case of Gayan Chand Batra (supra) wherein the Tribunal while adjudicating the case with regard to exemption u/s 54F, held that value adopted for stamp duty is to be considered as full value of consideration for the purpose of computing the capital gains u/s 48. Here in this case also, the Tribunal held that deeming provision as mentioned in section 50C will not be applicable to section 54F so far as the meaning of “full value of consideration” is concerned. The relevant observation of the Tribunal reads as under:- “In Explanation to s. 54F(1), it is mentioned that net consideration means the full value of 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. The meaning of full value of consideration in Explanation to s. 54F(1) will not be governed by meaning of words ‘full value of consideration’ as mentioned in s. 50G. The value adopted for stamp duty is to be considered as full value of consideration for the purpose of computing the capital gains under s. 48. Sec. 54F(1) says that capital gains is to be dealt with in accordance with the provisions of sub-ss. (a) and (b) of s. 54F(1) of the Act In the instant case, the cost of new asset is not less than the net consideration thus the whole of the capital gains will not be charged even if the capital gains has been computed by adopting the value adopted by stamp registration authority. It is clearly mentioned in s. 54F(4) also that net consideration which is not appropriated towards the purchase of new asset then the same, is to be taxed in case such net consideration not appropriated is not deposited in the capital gain account. It is not necessary that the new asset should be got registered before filing of the return. The requirement of law is