Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 13/12/2013 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to holding that the date of possession is relevant for availing exemption u/s
2 Uday Kashinath Sathe ITA No.2343/Mum/2014 54 of the Income Tax Act, 1961 (hereinafter the Act) instead of date of registration.
During hearing of this appeal, the ld. DR, advanced the arguments which are identical to the ground raised by defending the conclusion drawn in the assessment order denying the claimed deduction/exemption. On the other hand, the ld. counsel for the assessee, defended the conclusion arrived at in the impugned order by placing reliance upon the decision from the Tribunal in the case of Shri Azad Zabarchand Bhandari vs ACIT (ITANo.7800/ Mum/2011) order dated 26/04/2013. This factual matrix was not controverted by the Revenue. Reliance was also placed upon the decision in CIT vs Ms Shahzada Begum (173 ITR 397) (AP).
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 26/04/2013 for ready reference:-
“This appeal by the assessee is directed against the order dated 16.08.2011 passed by CIT(A)-30, Mumbai and it pertains to A.Y. 2006-07.
The assessee is admittedly engaged in the activity of development of plots/houses as builder. Assessee entered into an agreement for selling the property at Caddle Road on 16.03.2005. According to the assessee possession was given to the developer on 20.09.2005 which falls in the accounting
3 Uday Kashinath Sathe ITA No.2343/Mum/2014 year relevant to A.Y. 2006-07 and going by the clauses in the agreement the assessee held the view that the transfer, within the meaning of section 2(47) of the Income Tax Act r.w.s. 53A of the Transfer of Property Act, took place in the financial year 2005-06 relevant to A.Y. 2006-07 and the assessee having invested a sum of Rs.25 lakhs in December, 2005, it claimed deduction thereof under section 54EC of the Act. The AO was, however, of the view that the assessee having entered into contract with the builder on 16.03.2005, the transfer is deemed to have taken place in the previous year relevant to A.Y. 2005-06 and hence assessee is not entitled to claim deduction under section 54EC of the Act in the year under consideration. In response to a show cause notice the assessee submitted that the assessee is entitled to invest the whole or any part of the capital, upon transfer of long term capital assets, within a period of six months after the date of such transfer. Reference was also made to cause 7 of the Articles of agreement to state that the owners, i.e. the assessee and another, deposited all the original title deeds and documents of the said property with M/s. ALN Khatri & Co. Advocates and Solicitors, who shall hold the same as escrow agents till the time of payment under clause 2(c) of the agreement and thereafter hand over the documents to M/s. Purnanand & Co., Advocates and Solicitors of the developer. Thus the property would remain with the assessee till the developer pays the entire consideration. In the instant case a sum of Rs.7,75,000/- to each owner is payable before execution of this agreement, i.e. before 16th March, 2005 and within three months from execution of the agreement a sum of Rs.10 lakhs is payable to Mr. Bharat V. Gada, one of the co-owners and Rs.40 lakhs in favour of Shri Azad Z. Bhandari, the assessee herein. Thereafter, within six month, a sum of Rs.50 lakhs is payable to Shri Bharat V. Gade and Rs.20 lakhs to Shri Azad Z. Bhandari. The balance consideration of Rs.10 lakhs each is payable to the owners simultaneously against completion of
4 Uday Kashinath Sathe ITA No.2343/Mum/2014 the sale and execution of Deed of Conveyance in favour of the nominees of the developer. Time for payment of the above consideration is the essence of the contract. It was therefore contended that till the payment is made the developer could not have taken possession. Unless both the conditions, i.e. execution of agreement and giving possession, are satisfied it cannot be treated as a transfer within the meaning of section 2(47) of the Act.
The AO rejected the contention of the assessee. He observed that clauses 9 and 10 of the agreement gives complete control to the developers on execution of the agreement and developers have authority to enter upon the said property, to put up their sign board on the said property, to negotiate and settle with the existing tenants and occupants, to apply for and obtain sanction of the building plans for development, to commence, carry on and complete construction of the building and all such things and matters as may be required to be done for development of the said property. According to the AO the terms of the agreement clearly implies that the assessee has transferred complete control over the property in favour of the developers on 16.03.2005 itself. He thereupon referred to the decision of the Hon'ble Bombay High Court in the case of Chatrubhuj Dwarkadas Kapadia vs. CIT 260 ITR 491 wherein the court observed that any transaction involving possession to be taken over or retained in part-performance of a contract would come within the ambit of section 2(47)(v) of the Act. In the instant case the transferee has the right to enter upon the property and hence it is deemed possession. The court further observed that developers agreement, per se, do not constitute transfer, in general law, but the Legislature introduced section 2(47)(v) r.w.s. 45 of the Income Tax Act to bring to tax capital gains in such cases in the year in which such transactions are entered into even if the transfer of immovable property is not
5 Uday Kashinath Sathe ITA No.2343/Mum/2014 effective or complete under the general law. According to the AO, on an application of the aforementioned principles, the transfer in the instant case can be deemed to have taken placed in March, 2005 and not in September, 2005.
It is not in dispute that the assessee offered the income for taxation in A.Y. 2006-07. According to the AO it has to be taxed in A.Y. 2005-06. In this regard he observed as under: -
“The income offered by the assessee is assessed protectively in A.Y. 2006-07 and consequently the substantive addition may be made in A.Y. 2005-06 as per law”.
Having observed that the transfer has taken place on 16.03.2005 the AO denied the claim of deduction under section 54EC of the Act on the ground that the investment is not made with six months from the date of transfer of the assets. Accordingly exemption of Rs.25 lakhs was denied. It may be noticed that the assessee offered the entire income received on transfer of the capital assets in A.Y. 2006-07 (page 93 or the paper book) and the AO admitted the taxability of the entire sale proceeds in the year under consideration.
It may be noticed that though the AO made protective assessment in A.Y. 2006-07, according to the learned counsel for the assessee no substantive addition was made in A.Y. 2005-06 till date and as on date the period of limitation has expired and the AO cannot reopen the assessment for 2005-06 to bring to tax any income. Thus the assessment for A.Y. 2006- 07 can be said to have become a substantive assessment which further implies that the AO admitted that the transfer took place in the year under consideration. To put it in other words, if the transfer had not taken place in this year there is no question of taxing the receipt in this year as it ought to have been taxed in the year in which effective transfer has taken place.
6 Uday Kashinath Sathe ITA No.2343/Mum/2014 7. Under these circumstances the assessee was aggrieved by the order of the AO and therefore preferred an appeal before the first appellate authority wherein it was contended that the assessee was a 50% joint owner of a plot of land at Caddle Road, Mahim. Assessee purchased the property on 31.03.1994. Vide agreement dated 16.03.2005 the assessee, with regard to his share, entered into a development agreement whereby he agreed to grant development rights to the developers as per the conditions stipulated therein. According to the assessee the transfer can be said to have taken place only after receiving the total consideration. It was also contended that the assessee transferred two distinct rights, i.e. development rights and right to conveyance whereas a consolidated price was agreed with regard to the said transfer. In the instant case, upon signing the development agreement the assessee did not transfer the title deeds to the developers, it was in fact kept with the escrow agent till such time the developers made the entire payment in terms of clause 2(c) of the agreement, though the developer was permitted to enter the premises under a licence. It was also contended that though the developer would insist upon possession even on signing the contract, in the interest of security/safety of the assessee, various conditions were provided in the agreement whereby the effective date of possession would be only upon payment of the entire consideration. In short, the case of the assessee before the first appellate authority was that the transfer took place on 20.09.2005 which falls in the previous year relevant to A.Y. 2006-07 and the assessee having invested within six months from the said date, he is entitled to exemption under section 54EC of the Act.
The learned CIT(A) rejected the contention of the assessee by observing as under: -
7 Uday Kashinath Sathe ITA No.2343/Mum/2014 “3.5 I have carefully gone through the assessment order and the submissions made by the AR of the appellant. The moot point is whether the date of agreement i.e. 16.03.2005 or the date of possession i.e. 20.09.2005 is the relevant date for computing the capital gains? The case of Chaturbhuj Dwarkadas Kapadia vs. CIT – 260 ITR 491 is applicable to the appellant’s case. Following the said judgement I hold that the date of agreement is the relevant date for computing capital gains in A.Y. 2005-06. For claiming exemption u/s. 54EC, the appellant should have invested the money within six months. The appellant had invested money in December, 2005 which is beyond six months. Therefore, the appellant is not entitled for exemption u/s. 54EC. These grounds of appeal are dismissed.”
Further aggrieved, assessee preferred second appeal before the Tribunal. The learned counsel for the assessee adverted our attention to the observations of the learned CIT(A) to submit that even the learned CIT(A) admitted that the date of possession of the property was 20.09.2005 whereas on 16.03.2005 an agreement was entered into with the developer. He relied upon an unreported decision of the Hon'ble Delhi High Court, in the case of CIT vs. Delhi Apartment Pvt. Ltd. (ITA 569/2012 dated 07.03.2013), to submit that in order to bring a transaction within the expression “Transfer”, under section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, two conditions are to be fulfilled, i.e. (a) execution of a written agreement, and (b) handing over of possession of the property. The Hon'ble Delhi High Court upheld the view taken by ITAT in the aforementioned case and held that execution of written agreement and handing over of possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) of the Act. By strongly relying on the aforementioned decision the learned counsel for the assessee submitted that in the instant case the assessee filed return of income for A.Y. 2006-07 only on the presumption that apart from execution of development
8 Uday Kashinath Sathe ITA No.2343/Mum/2014 agreement the transfer took place in the previous year relevant to A.Y. 2006-07. If the AO is of the opinion that the transfer took place on 16.03.2005 it would have been incorrect on the part of the AO to bring to tax the amount received by the assessee on the so called transfer of rights over the property. The very fact that the AO brought to tax the sale consideration implies that he had admitted that the transfer took place in this year. In fact the AO stated that he is only making a protective assessment in this year, which is not permissible in law because there is no concept of making protective assessment under Income Tax Act. Though traditionally protective assessments are made in the case of a particular assessee or in a particular year, with firm conviction that it is taxable in the case of another person or year, but in the instant case the AO has not made any effort to bring to tax the sale proceeds in A.Y. 2005-06 and now the proceedings, even if the AO intends to, would be barred by limitation. It is thus seen that the AO never had any intention to make a substantive assessment in A.Y. 2005-06. The learned counsel for the assessee also contended that the CIT(A) made an observation that the date of possession is 20.09.2005 against which the Revenue has not preferred any appeal and if the date of possession is taken as 20.09.2005, even by applying the decision of Hon'ble Bombay High Court in the case Chaturbhuj Dwarkadas Kapadia 260 ITR 491, the receipts on transfer of rights on immovable property are assessable to tax only in A.Y. 2006-07; The assessee having invested the money in December, 2005, which is within six month from the date of possession, is entitled to exemption under section 54EC of the Act. He has also taken us through various clauses of the agreement to contend that the title deeds and the documents were not handed over to the developer upon initial payment since the papers were in the custody of assessee’s counsel as escrow agents. Since the job of a developer is to develop the property, licence was granted
9 Uday Kashinath Sathe ITA No.2343/Mum/2014 to him to enter upon the premises but it cannot be equated to handing over possession of the premises since one of the clauses stipulates that in the event of nonpayment of the entire consideration the agreement could be revoked and the developer shall not be entitled to possession. He has also taken us through the decision of the Hon'ble Bombay High Court to submit that the Hon'ble Bombay High Court rested its decision on the peculiar facts of that case. The learned counsel adverted our attention to page No. 501 of the reported decision to highlight the observation of the Court i.e., “if one reads the contract as a whole, in the aforementioned case it can be seen that there is a dichotomy in the terms of the contract, since the developer was given irrevocable licence to enter the property after the developer obtains the requisite approvals of various authorities”. By reading the contract as a whole the Hon'ble High Court arrived at a conclusion that one should not goby the date of actual possession but has to appreciate the date on which irrevocable licence was given which would indicate passing or transferring of complete control over the property in favour of the developer and such a date can be taken as the date of transfer. He then strongly submitted that the AO as well as the CIT(A) did not appreciate the facts in its entirety before coming to the conclusion that the transfer has not taken place in the year under consideration and at the same time by arriving at a finding that the income offered to tax is assessable in A.Y. 2006-07 implying thereby that the transfer took place in this year.
On the other hand, the learned D.R. strongly relied upon the orders passed by the tax authorities. She admitted that there is nothing on record to suggest that the AO has made some efforts to make substantive assessment in A.Y. 2005-06. It may be necessary to note that the learned counsel for the assessee emphatically stated that to the best of his knowledge the assessee is not in receipt of any notice regarding
10 Uday Kashinath Sathe ITA No.2343/Mum/2014 reopening of assessment of A.Y. 2005-06. The learned D.R. submitted that in the light of the decision of the Hon'ble Bombay High Court (supra) the date of effective transfer is the date on which the developer is entitled to enter the premises and in the instant case also, despite clause 2(c) of the contract, the overall circumstances indicate that the developer is entitled to have complete possession of the property from the date first payment is made and agreement is entered into. She thus submitted that the date of possession, in the instant case, should be taken as 16.03.2005 in which event investment made in December, 2005 falls outside the period of six months, from the date of transfer, and hence the assessee is not entitled to exemption under section 54EC of the Act.
We have carefully considered the rival submissions and perused the record. At the outset it may be stated that there is dichotomy in the approach of the tax authorities; on one hand the sale proceeds are sought to be taxed in A.Y. 2006-07 implying thereby that the transfer took place in this year and not on 16.03.2005 but on the other hand, for the limited purpose of disallowing the claim of exemption under section 54EC of the Act, the AO as well as the CIT(A) proceeded on the presumption that16.03.2005 is the date of transfer and reckoned from that date the investment is to be made within six months and hence the investment made in December, 2005 cannot be considered for the purpose of seeking benefit under section 54EC of the Act. It is equally important to notice that the AO seeks to tax the income on sale of the property in the year under consideration on protective basis by observing that “consequently the substantive addition may be made in A.Y. 2005-06 as per the law”. The expression “may be made” in itself indicates that the AO is not sure as to whether the transfer took place in A.Y. 2005-06 or not and in fact his subsequent action/inaction of not initiating any proceeding in
11 Uday Kashinath Sathe ITA No.2343/Mum/2014 respect of A.Y. 2005-06 speaks volumes about the conduct of the AO. In fact it is a matter of serious concern.
Article 265 of the Constitution of India postulates that there cannot be levy of tax without authority of law. It is not in dispute that capital gains tax can be levied only in the year when the transfer of immovable property takes place. If the AO is of the firm view that the transfer had taken place on 16.03.2005, for capital gains tax purpose, then it is mandatory to bring to tax, the said income, in A.Y. 2005-06 in which event he ought to have excluded the income offered to tax in A.Y. 2006-07, having observed that reckoned from the date of transfer the assessee has not invested, within six months, the sale proceeds in the long term specified assets. The first appellate authority, in para 3.5, impliedly accepts that in the instant case the date of agreement is different from the date of possession; in his opinion the moot point is whether the date of agreement, i.e. 16.03.2005 or the date of possession, i.e. 20.09.2005 is the relevant date for computing capital gains tax. It is well settled that in order to bring the sale proceeds to tax under the head “Capital Gains” transfer of the property has to take place in the relevant previous year and in order to come to the conclusion that the transfer has taken place within section 2(47)(v) of Income Tax Act r.w.s. 53A of Transfer of Property Act twin conditions have to be satisfied, i.e. execution of the agreement and handing over of possession. It is not necessary that both conditions should be satisfied in one year but at the same time only upon satisfying the second condition also it would amount to transfer. In this case also there is no dispute that the agreement is dated 16.03.2005 whereas with regard to the date of possession the learned CIT(A) assumed that it took place on 20.09.2005, which falls in the financial year relevant to A.Y. 2006-07. In the peculiar nature of this case, if at all the plea of the AO has to be accepted, it would amount to holding that the transfer had
12 Uday Kashinath Sathe ITA No.2343/Mum/2014 not taken place in this year and consequently the sale proceeds cannot be assessed in this year, but the AO having not initiated any proceedings with respect to A.Y. 2005-06 till date the impugned income would escape taxability even in A.Y. 2005-06 and it would really be prejudicial to the interest of the Revenue. Under this peculiar circumstance we have to rationally interpret the findings of the AO as well as the CIT(A) in the backdrop of the clauses in the agreement. As rightly pointed out by the learned counsel for the assessee, the Hon'ble Bombay High Court in the case of Chatrubhuj Dwarkadas Kapadia (supra) has decided the issue by reading the terms of the contract as a whole and by specially taking note of the fact that in the guise of agreement of sale a development agreement was contemplated whereby the developer was held to have taken possession on account of the irrevocable licence granted to him to enter upon the property whereas in the instant case no such finding was given by the tax authorities. In fact the learned CIT(A) opined that the date of handing over of possession in the instant case was 20.09.2005, and based on this factual premise it has to be held that the transfer had taken place in the previous year relevant to A.Y. 2006-07. Reckoned from the date of possession, i.e., 20.09.2005, the assessee having invested the money within six months in long term specified asset, the benefit of exemption under section 54EC deserves to be extended to the assessee in the instant case. In substance, we hold that the assessee is entitled to exemption under section 54EC of the Act in the year under consideration and we direct the AO accordingly. This disposes of ground No. 1, 2 & 3 set, out in the Revised Grounds of Appeal.”
2.2. We are also reproducing hereunder, another decision of the Tribunal which is on identical fact in the case of V.M. Dujodwala vs ITO (ITA No.4554/Mum/1986): (1991) 036 ITD 130 (Mumbai Tribunal.):-
13 Uday Kashinath Sathe ITA No.2343/Mum/2014 2. The assessee is an individual and for the assessment year 1981-82. the relevant previous year ends on Diwali 1980. The assessee was the joint owner of Flat No. 26 in Meghdoot, Marine Drive, Bombay, purchased in 1952 for Rs. 38,000. He sold the said flat for Rs. 4,50,000 as per agreement dated 12-5-80. Possession was given on 15-5-80 to the buyer. The Income-tax Officer computed capital gains for the whole transaction at Rs. 4,12,800 and arrived assessee';s share therein at Rs. 2,06,000 which was treated as the income under the head ';Long Term Capital gains'; and allowed deduction under section 80-TTof the IT Act, 1961. The assessee submitted that he has purchased another house property being Flat No. 62, ';Rambha'; at Petit Hall, Bombay, vide agreement dated 22-10-77 for Rs. 2,80,000. In this property, the assessee';s share was 70% or Rs. 2,01,950. The assessee submitted his transactions in relation to purchase of new flat No. 62 in a serialised manner as under:
24-7-72 Agreement of original purchaser K.K. Gopaldas booking flat from Malabar Inds. P. Ltd. 22-10-77 Agreement to purchase from K.K. Gopaldas. 24-10-77 Date of payment of Rs. 42,780 7-12-77 Date of payment of Rs. 2,15,941 29-12-77 Letter from Builder agreeing to transfer from name of K.K. Gopaldas to the name of the assessee. 24-3-79 Date of payment of Rs. 20,780. 23-4-79 Pate of payment of last instalment. 16-5-79 Municipal conditional letter of NOC for occupation.
14 Uday Kashinath Sathe ITA No.2343/Mum/2014
24-11-79 Date of offer for possession. 9-4-80 Letter from Builder for readiness for completion certificate. 13-5-80 Date of possession.
Before the ITO, the assessee contended that though agreement for purchase of a flat was entered on 22-10-77 and payment was also made earlier, only the date when the new flat is ready for occupation should be taken as date of purchase by the assessee. The ITO rejected the above contention with the following observation in para 5 of his order: I have considered the assessee';s contention the agreement for purchase of a new flat was entered into in 1977, payments were made in 1977, and even the last instalment was made on 3-4-79 while the old flat was sold on 15-5-80 i.e. more than one year after that. The assessee has already acquired a right in the new flat more than 12 months before the date of sale of the old flat though he might have taken possession of the same much late on and this amounts to purchase of a flat, since this was done more than 12 months before the sale of the old flat section 54 exemption is not available to the assessee. His claim is therefore rejected." The Commissioner of Income-tax (Appeals) also confirmed the order of the ITO. 4. We have heard the counsels on both side. The Departmental Representative vehemently argued that the exemption under section 54 is not applicable to the assessee as he failed to buy any residential house property within a period of one year before/after the date of sale of the first house property. He submitted the reasons given by the ITO and the CIT(A) in their orders in support of his plea. He relied on the Supreme Court decision in CIT v. T.N. Aravinda Reddy (1979) 120 ITR 46, and the decision of the Tribunal in Sri Rajaram v. ITO (1986) 119 ITR 141(Hyd.). 5. The learned representative for the assessee submitted that the agreement for purchase of property on 22-10-1977 on which the reliance is placed by the Department as the relevant date of purchase was in respect of property under construction. The flat
15 Uday Kashinath Sathe ITA No.2343/Mum/2014 intended to be purchased by the assessee was not at all constructed on that date. He placed reliance in support of his contention, to the source of Articles of Agreement dated 22-10-77 which clearly spells out in the recital that the agreement was one in respect of a building still under construction. So he claimed that the Revenue';s interpretation that the building was purchased on 22-10-77 is not a reasonable finding, what the assessee must have purchased is just a right for purchase of a flat in a proposed construction. He submitted that the builder being out of fund and for such other reason, went on delaying the construction. Just to help the builder to fasten the construction, the payments were made in instalments much earlier to the actual possession of the property. This is very common in transaction in flats. The construction was completed at a later date and on 24-11-79, the builder expressed his desire to offer the possession of the flat. That is the first date when the property, at best, can be said to be a purchase of residential property. He stressed that even after construction of the building, the flat is not immediately available for residence to the assessee unless it is cleared by the municipal/corporation authorities. Therefore, he submitted that only when the flat construction was completed and available for residence and was actually allotted by the builder to the buyer in compliance with the agreement of sale entered upon by the builder earlier, it could be taken as ready for occupation and that was the date material for the purpose of counting period of one year within the meaning of section 54 of the IT Act, 1961. He finally submitted that 9-4-1980, on which date the builder agreed to give possession of the flat would be taken as the date on which the assessee has purchased the property for the purpose of residence within the meaning of section 54 of the IT Act, 1961. Till such time, he had only the right to purchase house property, he added. He relied on the following decisions: (1) CWT v. K.B. Pradhan (1981) 130 ITR 393(Ori.) (2) K.P. Varghese v. ITO (1981) 131 ITR 597(SC) (3) CIT v. Mrs. Shahzada Begum (1988)173 ITR 397/38 Taxman 31 (AP) (4) Purushottam Govind Bhat v. First ITO (1985) 13 ITD 939(Bom.) (5) Damodar Raheja v. Eighth ITO (1984) 10 ITD 75(Mad.). 6. We have carefully gone through the facts of the case and the rival contentions. The question before us, though it is simple, raises problems of importance in metropolitan cities where there exists lot
16 Uday Kashinath Sathe ITA No.2343/Mum/2014 of problems for meeting basis human needs ';house';. Just to encourage assessee, section 54 is enacted to give relief of exemption from capital gains in the case of assessees selling existing residential units and acquiring any other residential unit. This has to be done within a period of one year either before or after the date of sale of the first house property. If that is done so, capital gains arising on transfer of the first house property will be exempt to the extent of investment in the second house property as stipulated in section 54. The flat in cities is the most common and a peculiar feature. The builder has to take plans of construction in his own name and sometimes in the names of his vendors and start construction. He invites prospective customers, enters into agreement for sale of flats proposed to be constructed by him and at times, demands the payment of price in one or more instalment. He may sometimes to finance his own construction activity, gives discounts and accepts lesser payment. The price paid before construction is complete, will be different from the price demanded by the vendors after the flat is constructed. The buyers even after having the agreement for purchase of the flat cannot exercise any right of ownership or their right cannot be traced to any part of the construction till such time the builder actually gives the possession of a particular flat to the buyer. After the completion of structure, it has to be inspected and cleared by the municipal authorities. Then the flat is ready for occupation which the builder normally intimates to the buyer. The buyer will then take possession and actually enjoy the house property to the exclusion of others. In this flat business, at times, the builder goes financially bad and delays the construction. Against this background of flat transaction, we are now faced with the provisions of section 54 for granting exemption to the assessee, who at one time, enters into purchase and at other times, takes possession and starts actual enjoyment of the flat. At what point of time he became owner of the house property will decide the fate of his exemption. 7. In identical issue in Purushottam Govind Bhat';s case (supra) the Tribunal held as under: The right the assessee has got is a peculiar type of right which certainly cannot be classified as ownership. To say, therefore, that the assessee. has purchased the property would in law be erroneous. On the contrary, that the assessee has an interest in this flat as much as that of a full owner cannot be denied. The purpose of the assessee getting the flat allotted was to have the benefit of residential accommodation entirely in his control as if he was the full owner. Except, therefore, for a few technical requirements, the assessee can be said to be the full owner of the property. As a matter of fact, if not in law, therefore, it would be
17 Uday Kashinath Sathe ITA No.2343/Mum/2014 correct to say that the assessee has purchased a residential property. If the meaning of the word ';purchase'; is pushed to its technical sense, perhaps, the owner of a flat as above would not get the benefit of section 54. Even so, it would be against the very object and purpose of section 54 if such a flat owner is denied the benefit. Practically in every big town in this country, the ownership flats are in fashion. In applying the provisions of section 54 to such a contingency, it would not be, as claimed by the learned counsel for the department, proper to deny the assessee the benefit of section 54. With the increase in the cost of buildings if the technical policy of denying the benefits of section 54 claimed by the learned departmental counsel is accepted, section 54 would almost be an unused section. Certainly that cannot be the purpose of the legislation especially when this covers a large number of assessees, in a peculiar transaction like flats. A reconciliation, therefore, between the provisions of section 54 and the peculiar law relating to the ownership flats in big cities where no ordinary person can purchase a house himself has to be made. In T.N. Aravinda Reddy';s case (supra), on which reliance has been placed by the Revenue, is in respect of division of the HUF property Whether the release by the other coparceners could be taken as ';purchase'; for the purpose of granting relief under section 54(1) of the Act to that coparcener in whose favour the release is effected. The Supreme Court answered this question in favour of the assessee in extending the benefit of section 54. In the case of Sri Rajaram (supra), the question for determination was whether the payment of consideration is relevant for the purpose of section 54, which the Tribunal rightly held that it is not so, considering the provisions of section 54. Therefore, the two cases cited above are not clearly applicable to the facts in the present case. 8. Left with the relevant date to decide in the facts of the case, the decision of the Tribunal in Purushottam Govind Bhat';s case (supra) really comes to favour the assessee. In the said case, the assessee joined the society in 1977. He was allotted a flat and occupied the same on l-l-1980. The Tribunal held, joining the society and paying the amounts cannot really amount to purchase of a house. On the contrary, allotment of the flat would certainly give the assessee certain specific obligations and rights. The manner in which the amounts are paid and the period over which they are paid may not
18 Uday Kashinath Sathe ITA No.2343/Mum/2014 be of much relevance. Considering the peculiar circumstances of that case, it was held that the benefit of section 54 should be extended by taking the date of allotment and occupation as the relevant date of purchase. Following the said decision, we are inclined to hold that in this case also, the assessee has, though, entered into agreement for purchase of flat on 22-10-77, paid the money during 1977 to 1979, but the relevant date to be taken for the purpose of applying of section 54 should be the date on which the flat was ready for occupation by the assessee. Taking that date as the date of purchase, is within the period of one year and therefore the capital gains are clearly exempt from tax applying the provisions of section 54. 9. In view of the above facts, we allow the assessee's appeal.”
2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel and the conclusion drawn by the Tribunal (supra), if kept in juxtaposition and analyzed, the facts, in brief, are that the assessee is a salaried person, made investment of long term capital gains from sale of residential flat in another residential flat and claimed exemption u/s 54 of the Act. Before coming to any conclusion, there are certain relevant dates which need to be mentioned. The assessee purchased the residential flat vide agreement dated 26/02/2007 and took the possession on 15/06/2007. The assessee sold another flat for a consideration of Rs.32 lakh vide agreement dated 02/05/2008 and possession was on 12/06/2008. The assessee purchased this flat on 02/03/2000 on a consideration of Rs.8,57,440/-, thus, the indexed cost of acquisition is Rs.12,82,854/-. The long term capital gain was calculated at Rs.19,17,146/-. The
19 Uday Kashinath Sathe ITA No.2343/Mum/2014 assessee, in view of the provision of section 54 of the Act i.e. one year before or two years after accrual of long term capital gain, the assessee invested the accrued amount in another residential flat on a consideration of Rs.47,72,320/-. The assessee took the possession of the new flat on 15th June, 2007. The copy of the possession letter, issued by the builder, was produced by the assessee during assessment proceedings. Before us, the crux of argument is that the date of possession is falling within the provision of section 54 of the Act as the assessee has fulfilled the conditions. The only issue to be adjudicated by us is whether the assessee is entitled to exemption u/s 54 of the Act. In such a situation, the ratio laid down by the Tribunal in the aforesaid order dated 26/04/2013 favours the assessee, more specifically, when the Bench duly considered the decision from Hon’ble jurisdictional High Court, in the case of Chatrubhuj Dwarkadas Kapadia vs CIT 260 ITR 491 (Bom.), wherein the Hon’ble High Court observed that any transaction involving possession to be taken over or retained in part performance of a contract would come within the ambit of section 2(47)(V) of the Act. The Hon’ble Andhra Pradesh High Court in CIT vs Ms. Shahzada Begum (173 ITR 397) (supra) held that date of taking over possession of the property purchased and not the date of registration of the sale in favour of the assessee is relevant for computing the prescribed time limit. The Tribunal in the case of Shri V.M. Dujodwala vs ITO (reproduced hereinabove) held that benefit of section 54 of the Act should be extended by taking the date of allotment and occupation as the relevant date of purchase.
20 Uday Kashinath Sathe ITA No.2343/Mum/2014 No contrary decision was brought to our notice by the Revenue, therefore, respectfully, following the ratio laid down by the Co-ordinate Bench in which decision from Hon’ble jurisdictional High Court was considered and further the decision from Hon’ble Andhra Pradesh High Court (supra), we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). The appeal of the Revenue is dismissed. Finally, the appeal of the Revenue is dismissed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 30/09/2015.
Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 21/10/2015 f{x~{tÜ? P.S/.�न.स. 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, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 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