ACIT, CIRCLE, SHIMLA vs. SHRI VINOD SHARMA, NEW DELHI
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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘B’, CHANDIGARH
Before: SHRI A.D. JAIN & DR KRINWANT SAHAY
आदेश/Order
Per Dr. Krinwant Sahay, A.M.:
Appeal in this case has been filed by the Revenue against the order dated 16.8.2019 of the ld. Commissioner of Income Tax (Appeals), Shimla [herein referred to as ‘CIT(A)’] on the following Grounds :
1449-Chd-2019 Vinod Sharma, New Delhi 2 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the case under consideration is of construction of house and not purchase of house, though the said construction made by the assessee is not regarding purchase of land or getting a house constructed on own land and the transaction is a simple transaction of purchase of villa.
On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the assessee is entitled for deduction u/s 54F of the Act, though the investment made by the assessee in the said property cannot qualify for deduction u/s 54F of the Act, as the date of investment in the said property is 30.03.2012, whereas the LTCG has accrued to the assessee on 04.04.2014 i.e. the assessee has made investment in the property more than a year before accrual of LTCG.
It is prayed that the order of the Ld. CIT(A) be set- aside and that of the AO be restored.
The appellant craves leave to add any other ground of appeal which may arise at the time of hearing.
Brief facts of the case are that the Assessee is an Executive President in M/s Jaiprakash Power Ventures Ltd. and is drawing salary from the said company. The Assessee has also declared Long Term Capital Gains from sale of shares, loss from house property and income from other sources. In this case, the Assessee filed his return of income declaring income at Rs. 89,59,650/- after claiming deduction of Rs.
1449-Chd-2019 Vinod Sharma, New Delhi 3 2,70,500/- under Chapter VIA of the Income Tax Act, 1961 (in short 'the Act').
The only issue on which the Department has filed this appeal is regarding the decision of the CIT(A) holding that the case under consideration is a construction of a house and not purchase of house though the said construction made by the Assessee is not regarding purchase of land or getting a house constructed on own land and the transaction is a simple transaction of purchase of ‘villa’. Relating to it, the CIT(A) also held that the Assessee is entitled to deduction u/s 54F of the Income Tax Act, 1961 though the investment made by the Assessee in the said property, according to the Department cannot qualify for deduction u/s 54F of the Act because the date of investment in the said property is 30.3.2012 whereas, the Long Term Capital Gain accrued to the Assessee on 14.4.2012 and thereby the Assessee made investment in the property more than a year before accrual of Long Term Capital Gain .
The ld. CIT(A) in his order has given findings as under:-
“5.3 Ground No. 2: In this ground of appeal, the appellant has challenged the disallowance of deduction u/s 54F of the Act. During the assessment proceedings, the A.O. noticed that Long Term Capital Gains at Rs.4,57,96,153/- have accrued to the assessee on account of sale of shares. The assessee has claimed a deduction u/s 54F of the Act
1449-Chd-2019 Vinod Sharma, New Delhi 4 amounting to Rs.4,51,34,894/- on account of investment in a residential house. The A.O. required the assessee to submit a detailed working of the capital gains alongwith evidence to support the claim of deduction u/s 54F of the I.T.Act, 1961. In response, the assessee filed reply before the A.O. The facts relevant as emerging from the submission of the appellant before the A.O. as reproduced in the assessment order are as under: -
The assessee has got purchased/constructed the residential house from "Jaypee Greens. He entered into an agreement on 27.03.2012 and paid a token amount Rs. 99 lakhs for the same. The provisional sale price was agreed to at Rs. 5,01,00,000/-. The balance amount as per the schedule of payment plan placed on record was Rs. 2,02,24,263/- each within 2 months and 12 months of the date of offer of possession
The offer of possession was made on 01.04.2014.
The possession was taken on 01.04.2014.
The payment of the balance amount of Rs.4,16 57,321/- was paid through RTGS on 04.04.2014.
A further amount of Rs.4,20,781/- was paid on 30.05.2014.
Application for OC to Greater Noida Authority was made on 16.05.2014.
The OC was granted on 28.12.2015.
The conveyance deed was executed on 05.07.2017.
1449-Chd-2019 Vinod Sharma, New Delhi 5 5.3.1 The long term capital gains on sale of shares accrued on 01.04.2014. The claim of the appellant for deduction u/s 54F was denied by the A.O. The detailed reasoning of the A.O. has already been reproduced supra.
5.3.2 I have perused the facts of the case, the action of the A.O. and the submission of the appellant. The chronology of events has already been reproduced supra and the same is not in dispute. The long term capital gains have accrued to the appellant on 04.04.2014. The payment of Rs.4,16,57,321/- was paid through RTGS on 04.04.2014 for investment in the house. The A.O. has not allowed the claim of the assessee u/s 54F on the capital gains which were invested on 04.04.2014. The whole dispute revolves around whether the transactions entered into by the appellant is "purchase of house" or "construction of a house". To decide the issue at hand, it is pertinent to take note of the documentary evidence on record. The offer letter issued by Jaypee Greens and the amount decided as is seen from the provisional allotment letter are both provisional and tentative to change. In this context, the relevant extracts from the allotment letter dated 30.03.2012 reveals the following :-
The Provisional Sale Price (PSP) is based on estimated construction cost of Rs. 2,90,00,000/-. The final sale price for the sports Villa shall be determined on completion of the Sports Villa, by adjusting the Provisional Sa's Price as under: -
" a) In case of increase in the Actual construction cost as compared to estimated construction cost, 1.15 times of difference between actual constructions cost as stated above shall be added to the PSP.
1449-Chd-2019 Vinod Sharma, New Delhi 6 b) In case of decrease in the Actual cost as compared to estimated cost ,1.15 times of difference between actual construction cost and estimated construction cost as stated above shall be reduced from PSP." The actual construction cost shall be as certified by the Company Auditors or a Chartered Accountant which shall be final and binding.
5.3.3 The provisional sales price was initially fixed at Rs. 5,01,00,000/- subject to the final determination of the final sales price after adjusting the above and also the cost of the same was also enhanced in accordance with the said agreement. The appellant has placed on record a copy of the receipt to show further amount of Rs.4,20,781/- which was paid on 30.05.2014. Even otherwise, the appellant has relied on the Circular issued by CBDT number 471 dated 15.10.1986 and 672 dated 16.12.1993. The facts of the case are identical to the case [2019] 106 taxmann.com 350 (Delhi -Trib.) in the case of Assistant Commissioner of Income-tax, Circle-50(1), New Delhi v. Seema Sobti wherein the facts were as under:-
The assessee had sold a property during the subject assessment year for a sum of Rs. 8 crores. As the said property was a long-term capital asset, the assessee claimed benefit of indexation whereby the indexed cost of acquisition was arrived at Rs. 83.34 lakhs resulting in capital gain of Rs. 7.16 crores. The assessee further entered into an agreement with a builder, namely, DLF for purchase of a semi finished/constructed flat. Against the same, the assessee claimed exemption under section 54 of Rs. 3 crores towards the amounts paid to DLF towards construction of house and further sum of
1449-Chd-2019 Vinod Sharma, New Delhi 7 Rs. 1.01 crores towards bank charges and cost of improvement on the same. The Assessing Officer made disallowance of claim under section 54 on the ground that the Assessee entered into an agreement dated 10-2-2006 and therefore the late of agreement be treated as the date of acquisition which falls beyond the period of one year prior to the date of transfer prescribed under section 54.
■ On appeal, the Commissioner (Appeals) deleted the additions in dispute and allowed the appeal of the assessee.
■ On revenue's appeal to the Tribunal:
■ On appeal, the Commissioner (Appeals) deleted the additions in dispute and allowed the appeal of the assessee.
■ On revenue's appeal to the Tribunal:
5.3.4 The Hon'ble Tribunal while deciding the issue, held as under:-
We have heard both the parties and perused the records, Paper Book filed by the assessee; submissions of both the parties, case laws cited by the Ld. counsel for the assessee and especially the impugned order passed by the Ld. CIT(A). With regard to ground no. 1 relating to disallowance of deduction u/s. 54 of the Act is concerned, we find that the assessee declared long term capital Rs.6,00,00,000/-from the sale of property at 146, 1st floor Jorbagh, New Delhi on 28.12.2011 on which he claimed deduction
1449-Chd-2019 Vinod Sharma, New Delhi 8 u/s 54 amounting to Rs.4,00,97,217/-. However, the AO disallowed the claim on the grounds that the assessee had entered into an agreement dated 10.02.2006 and therefore the date of agreement be treated as the date of acquisition, which falls beyond the period of one year prior to the date of transfer prescribed under section 54 of the Income-tax Act, owing the judgment of Honorable Delhi High Court in the case of Gulshan Malik (supra) and R.L. Sood (supra), he disallowed the claim of the assessee. According to Assessing officer, the assessee could have purchased a house property between 28.12.2010 to 28.10.2011 in order to claim deduction under section 54. Since the assessee invested in the residential House property namely DLF Magnolia way back in F.Y. 2005-06 which is clearly outside the time period mentioned in section 54 of the Income-tax Act, it does not fit in case of exemption under section 54 of the Act. The Assessing officer placed reliance on the judgement of Honorable High Court at Delhi in the case of Gulshan Malik (supra) and R. L. Sood (supra). However, the assessee submitted that in order to avail the benefit under section 54 of Income-tax Act he is required to purchase a residential house property either one year before or within two year after the date of transfer of original asset; or within a period of three years after that date he is required to construct a residential house. We note that it has been clarified by the CBDT in Circular No. 672 dated 16.12.1993 in which it has been made clear that the earlier circular No. 471 dated 15.10.1986 in which it was stated that
1449-Chd-2019 Vinod Sharma, New Delhi 9 acquisition of flat through allotment by DDA has to be treated as a construction of flat would apply to co-operative societies and other institutions. The builder would fall in the category of other institutions as held by Mumbai Bench of Tribunal in the case Smt. Sunder Kaur Sujan Singh Gadh and therefore booking of the flat with the builder has to be treated as construction of flat by the assessee. Thus, in the present case, the period of three years would apply for construction of new from the date of transfer of the original asset. The above circulars are binding on revenue authorities under s. 119 of the Act. He referred the decision rendered by Honorable High Court of Bombay in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376. wherein the Honorable High Court has held that it is a case of "Construction". Reliance was placed on the judgment of Honorable Karnataka High Court in the case of CIT v. J.R. Subramanya Bhatt [1986] 28 Taxman 578/[1987] 165 ITR 571. wherein it has been held at it is immaterial whether the construction of the new house was started before the date of transfer, it should be completed after the date of transfer of the original house. In the present case, he had booked a semi finished flat with the builder, namely DLF Universal Limited in the residential group housing complex named as Magnolias DLF Golf Links) and as per agreement, he was to make payment in installments and the builder was to construct the unfinished bare shell of flat for finishing by the buyers on their own to make it live-able (having specifications set out in Annexure-V) as per clause 10.1 of the said
1449-Chd-2019 Vinod Sharma, New Delhi 10 agreement. It is also noted that Builder Company offered vide letter dated 30.12.2011 that the Occupation certificate has been received from the Competent Authorities and the six months period for completing the interiors, in terms of agreement shall commence from 01.01.2012 and is to be completed before 30.06.2012. Builder Company's letter dated 20.03.2012 and 20.01.2012 offered to finalise the details of interiors and extended the time for completion of interior to 30.09.2012 and finally possession was granted on 30.10.2013. It has therefore to be considered as a case of construction of new residential house and not purchase of a flat. Since the flat has been allotted to the assessee by the builder who would fall in the category of other institutions mentioned in the circulars, it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat. Therefore, he had time window of three years period available to him commencing from 21.12.2011 till 21.12.2014 to construct a house property. Having come to this conclusion that it is case of construction it is now to be seen if the assessee fulfils the conditions laid down under s. 54(1) of the Act. In the instant case, the assessee has occupied the house property during 2013 vide letter dated 30.10.2013 offering occupation of House property. Further, the assessee has claimed the deduction on amount invested till the due date of filing of return under section 139(1) of the Income Tax Act. Further, the reliance placed by the Assessing officer on the judgment of Honorable Delhi High Court in the case of Gulshan Malik (supra) is not relevant to the facts of the case under appeal, since the issue involved in the case
1449-Chd-2019 Vinod Sharma, New Delhi 11 of Gulshan Malik (supra) was pertaining to the period of holding of an asset for the purpose of establishing whether resultant gain is long term capital gain or is short term capital gain. It was held a light or interest in an immovable property can accrue only by way of an agreement embodying consensus ad idem as against the confirmation letter that does confer any right to claim title. Similarly in the case of R.L. Sood (supra), the Honorable High Court has declined request of the revenue to call for reference on the proposed question. It has further been clarified at realizing the practical difficulties faced by the assessee in such situations, the CBDT issued a circular No. 471, dt. 15th Oct,. 1986. The relief extending instructions of the CBDT, in wake of realization of practical difficulties faced by the assessees, by way of circular extending relief to even marginally non compliant assessees in its literal sense of hyper technicalities, cannot be used as a tool to interpreted instructions of the board or decision of the law Courts, to deny the very relief to the otherwise compliant assessees. In a recent reference to Honorable Delhi High Court, in the case of CIT v. Kuldeep Singh [2014] 49 taxmann.com 167/226 Taxman 133, the Honorable Court has observed and discussed various decision of the other Honorable High Courts and Honorable Supreme Court; as follows;
A. CIT v. T.N. Aravind Reddy (1979) 2 Taxman 541/120 ITR 46 (SO):
B. Civil Appeal Nos. 5899-5900/2014 titled Sanjeev Lai v. CIT (20141 46 taxmann.com 300/225 Taxman 239/365 ITR 389 (SC)
1449-Chd-2019 Vinod Sharma, New Delhi 12
C Reference was made to the decision of Supreme court in CIT V. J.H. Gotla (19851 156 ITR 323/23 Taxman 14J (SC)
D Moreover in CIT v. Bharati C Kothari (20001 244 ITR 352/(2001) 117 Taxman 538 (Cal.)
In the instant case, since the assessee entered into an agreement for construction of a bare shell of a house by periodic payment of instalments and he had to carry the internal fit-outs to make it liveable as per Annexure- V of the agreement with the Builder Company, within Six months from the date of certificate of occupation from the competent Authorities, this is to be treated as the case of construction. Further, the construction has been completed within three years of the sale of original asset, which is accepted by the Assessing Officer, the relief under section 54 is genuinely claimed by him and therefore, disallowance made under section 54 amounting to Rs. 4,00,97,217/- needs to be deleted. It is it is clear that the facts of the present case that it was a case of construction of flat and not purchase of flat as held by the AO. Since, the case pertains to construction, benefit of section 54 of the Act are available to assessee. In view of above, the booking of bare shell of a flat is a construction of house property and not purchase, therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the I. T. Act., therefore, the Ld. CIT (A), has rightly directed the AO to allow benefit to the assessee as claimed u/s. 54 of the IT. Act, which does not require any interference on our part, hence,
1449-Chd-2019 Vinod Sharma, New Delhi 13 we uphold the action of the Id. CIT(A) on the issue in dispute and reject the ground raised by the Revenue.
5.3.5 It has been held by the ITAT Delhi Bench in the case of ACIT Vs. Mohinder Kumar Jain 84 Taxmann.Com 141, capital gain on sale of house properties can be invested more than once for the same new property if cost of property is within capital gains that arose to the assessee. The contention of the A.O. that the assessee has invested in the said property in the previous year i.e. A.Y. 2012-13 and the assessee has also claimed benefit of deduction u/s 54F in the A.Y. 2012 -13 is not barred by law. The law does not debar the capital gains investments in the same property in different years so long as it satisfied the other condition lays down in the Act.
In this regard, the findings of Madhya Pradesh High Court in the case of Smt. Shashi Varma vs Commissioner of Income-Tax 1997 224 ITR 107 MP are relevant and are reproduced as under-
We have heard counsel and perused the record. In fact, the Tribunal has taken a very pedantic approach while construing the provisions of Section 54 of the Income- tax Act. In the present case, in fact, the capital gain is Rs. 51,980; whereas the first instalment towards the flat from the Delhi Development Authority was Rs. 71,256, i.e., much more than the capital gains. The Central Board of Direct Taxes also issued Circular No. 471 (see [1986] 162 ITR (St.) 41), dated October 15, 1986, and has clarified as under:
" Therefore, for the purpose of capital gains tax, the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect
1449-Chd-2019 Vinod Sharma, New Delhi 14 the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the self-financing scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains."
This clinches the matter and it was not proper for the Tribunal to have ignored the circular because it has a persuasive value and it was in the nature of granting relief. Therefore, the Tribunal should have considered the circular sympathetically and granted the relief. More so, Section 54 of the Act of 1961 only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, construction takes years and years, Therefore, confining to two years' period for construction and handing over possession thereof is impossible and unworkable under Section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of Section Therefore, the view taken by the Tribunal is not correct. Hence, we answer the question in favour of the assessee and against the Revenue.
Accordingly, in view of the facts of the case, and the findings of the Hon'ble ITAT in the case reproduced supra, it is held that the case under consideration is of construction of house
1449-Chd-2019 Vinod Sharma, New Delhi 15 and not purchase of house and is thus eligible for deduction 54F of the Act as claimed by the appellant.”
The ld. DR relied on the order of the Assessing Officer. The ld. DR vehemently argued denial of Long-Term Capital Gain and as well as for rejection of claim for deduction u/s 54F. For factual details, she relied mostly on the findings of the Assessing Officer.
We have considered the findings of the Assessing Officer in the assessment order and the arguments put forth by the ld. DR during the proceedings before us. We have also considered the findings of the ld. CIT(A) on this issue in his order and the arguments put forth by the ld. Counsel for the Assessee in support and in defense of the findings of the ld. CIT(A).
Regarding the issue of construction of house or purchase of the house, we find that the CBDT Circular No. 672 dated 16.12.1993 in which it has been made clear that the earlier Circulars No. 471 dated 15.10.1986, in which it was stated that acquisition of flat through allotment by DDA, has to be treated as a construction of flat, would apply to Co-operative Societies and other institutions The builders would fall in the category of other institutions as held by the Mumbai Bench of the Tribunal in the case of Smt. Sunder Kaur Sujan Singh Gandh and therefore, booking of a flat with the builder has to be treated as
1449-Chd-2019 Vinod Sharma, New Delhi 16 construction of flat by the Assessee. Thus, in the present case, period of three years would apply for the construction of new flat from the date of transfer of the original asset. Accordingly, Revenue’s appeal that the house purchased by the Assessee should not be considered as construction of a house is not acceptable and thus, Revenue’s appeal on this issue is dismissed.
Regarding entitlement of deduction u/s 54F, the ld. Counsel of the Assessee has brought it on record the findings given by the ld. CIT(A) that the Delhi Bench of the ITAT in the case of ‘ACIT vs. Mohinder Kumar Jain’ , 84 taxmann.com 141 has held that the capital gain on sale of house properties can be invested more than once for the same new property if cost of property is within capital gains that arose to the Assessee. The contention of the Assessing Officer that the Assessee has invested in the said property in the previous year , i.e. A.Y. 2012-13 and the Assessee has also claimed benefit of deduction u/s 54 F of the Act in the A.Y. 2012-13 is not barred by law. The law does not debar the capital gains investment in the same property in two different years so long it is satisfied that the other conditions laid down in the Act are adhered to.
We find that findings of the ld. CIT(A) is very clear and needs no interference. Accordingly, Revenue’s appeal for denial of deduction u/s
1449-Chd-2019 Vinod Sharma, New Delhi 17 54F of the Act through the investment made by the Assessee is also not acceptable. Accordingly, appeal on this issue is also dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on 09.07.2024
Sd/- Sd/- (A.D. JAIN) (DR KRINWANT SAHAY) Vice President Accountant Member “rkk” 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/ CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar
