Income Tax Appellate Tribunal - Delhi
Jag Mohan Khanna, New Delhi vs Department Of Income Tax on 9 June, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A : NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
ITA No.4108/Del/2011
Assessment Year : 2006-07
ACIT, Vs. Jag Mohan Khanna,
Circle-46 (1), J-1/23, DLF City,
Room No.425A, Phase II,
4th Floor, Mayur Bhawan, Gurgaon.
New Delhi. PAN : AAIPK9623P
(Appellant) (Respondent)
Assessee by : Shri A.K. Srivastava, CA
Revenue by : Smt. Shumana Sen, Sr.DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER
This is an appeal filed by the department for Assessment Year 2006-07 against the order dated 09.06.2011 passed by the CIT (A)- XXX, New Delhi, contending that the Ld. CIT (A) has erred in holding that the assessee had obtained substantial domain over the flat and that he was entitled to Exemption u/s 54F on the entire capital gain of ` 41,98,599/- ignoring the facts that the agreement signed by the assessee with the company did not amount to transfer within the meaning of Section 54 (read with Section 2 (47) of the Act) whereas the assessee in the instant case had even after the payment of the consideration did not obtain any domain over the property let alone the substantial domain.
2. The facts are that the assessee received net consideration of ` 68,31,000/- on sale of a plot, resulting in long term capital gain of ` 41,98,599/-. The plot was sold vide Sale Deed dated 07.11.2005. The 2 ITA No.4108/Del/2011 assessee had also entered into an agreement (Apartment Buyers' Agreement) for purchase of flat bearing No.RT 0033 in DLF Royalton Towers, DLF City Phase V, Gurgaon on 17.11.2004, for an amount of ` 85,14,500/-. Total consideration of ` 85,93,765/- was paid upto 29.06.2005, i.e., even before the capital gains accrued to the assessee out of which ` 37,21,449/- was paid during A.Y. 2005-06 and ` 48,72,316/- during Assessment Year 2006-07. Exemption of ` 29,94,435/- was claimed u/s 54F of the Act on the amount paid during the Assessment Year 2006-07 for purchase of a flat. During the course of assessment proceedings, it was submitted that the entire Capital Gain of ` 41,89,599/- was exempt from tax as the cost of the new asset purchased is more than the net consideration received by the assessee and that the assessee had obtained substantial domain over the property. A copy of Apartment Buyers' Agreement, details of the payments made and correspondence with the builder were filed before the Assessing Officer.
3. The Assessing Officer, however, rejected the assessee's claim u/s 54F of the Act for the following reasons:-
(i) that the assessee had not acquired substantial domain on payment of consideration for the apartment;
(ii) that the provision of clause (iiia) in Section 2 (47) of the Act would apply and that ownership or transfer of ownership has to be determined in terms of acquiring of possession or part possession of the property and this is a pre-requisite for availing the benefit of exemption u/s 54F of the Act;
(iii) that in case of allotment of flats by DDA or Co-operative Societies and other institutions, having schemes similar to that of DDA, the allottee gets title to the property on issuance of allotment letter and payment of instalments is 3 ITA No.4108/Del/2011 only a follow up action and taking delivery of possession is only a formality;
(iv) that the assessee gets title to the property only after the company obtains Certificate of Occupation & Use from the competent authority and hands over the possession to the assessee;
(v) that the ownership of the apartment stands transferred only after (a) completion/occupation certificates are obtained by the company, and (b) the deed of declaration is registered and that both the conditions were not met; and
(vi) that in order to obtain deduction u/s 54F of the Act, the assessee must own and have legal title over the property.
4. By virtue of the impugned order, the Ld. CIT (A) held the assessee entitled to exemption u/s 54F of the Act on the entire Capital Gain of ` 41,98,599/-. Aggrieved, the Department is in appeal.
5. Challenging the impugned order, the Ld. DR has contended that the Ld. CIT (A) has erred in holding that the assessee had obtained substantial domain over the flat and that he was entitled to Exemption u/s 54F on the entire capital gain of ` 41,98,599/- ignoring the facts that the agreement signed by the assessee with the company did not amount to transfer within the meaning of Section 54 (read with Section 2 (47) of the Act) whereas the assessee in the instant case had even after the payment of the consideration did not obtain any domain over the property, let alone the substantial domain. It has been contended that while wrongly holding the assessee entitled to exemption u/s 54 of the Act, the Ld. CIT (A) has gone wrong in not taking into consideration the categorical observations made in the assessment order to the effect that the assessee had not acquired substantial domain over the property on the payment of consideration for the same; that the 4 ITA No.4108/Del/2011 provisions of Section 2 (47) (iiia) of the Act are applicable and ownership or transfer of ownership has to be determined in terms of acquisition of possession or part possession of the property; that the title of the property would have got vested in the assessee only on obtaining of Certificate of Occupation and Use from the competent authority as well as possession, which has not come about in the present case; that the ownership stands transferred only on obtaining completion/occupation certificates and registration of Deed of Declaration, which has also not been done herein; that since the assessee neither owns, nor holds legal title over the property, deduction u/s 54F of the Act is not available to it.
6. The ld. counsel for the assessee, on the other hand, has placed strong reliance on the impugned order. It has been contended that as per the provisions of Section 54F (1) of the Act, purchase of the capital asset is the only requirement. Reliance has been placed on 'CIT vs. Aravinda Reddy', 120 ITR 46 (SC), to contend that the word 'purchase' in Section 54F (1) of the Act must be given its common meaning, i.e., buying for a price or payment in kind or adjustment towards an old debt, or for monetary consideration. It has been contended that ownership and possession nowhere form part of the provision and the concept of transfer is alien to it. It has been submitted that in the present case, undisputedly, the entire consideration stood already paid even before the capital gain had accrued to the assessee; that the Assessing Officer wrongly took recourse to the provisions of Section 2 (47) (iiia) of the Act, whereas the said provision is not at all applicable to the facts of the present case; that the Assessing Officer wrongly referred to the provisions of the Haryana Apartment Ownership Act, 1983, as the said Act also has no application hereto; and that pertinently, the possession of the property was duly taken by the assessee from the builder in March, 2008.
5 ITA No.4108/Del/20117. We have heard the parties and have perused the material on record. The provisions of Section 54F(1) of the Act read as follows:-
"54F.. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-- ........."
8. A bare perusal of Section 54F(1) (supra) shows that the requirement of the Section is, as relevant for the present case, 'purchase' of a residential house in accordance with the said Section. Ownership and possession thereof has nowhere been delineated in the Section. Now, ordinarily, 'purchase' would take in itself ownership as well as possession. However, the obtaining situation has been amply dealt with by the Hon'ble Supreme Court in 'Aravinda Reddy' (supra), wherein, it has been held that the word 'purchase' in Section 54F(1) of the Act must be given its common meaning as buying for a price or payment; and that in the Section there is no stress on cash and carry.
9. In the present case, once the assessee had admittedly paid the entire consideration for the purchase of the residential premises even before the capital gain accrued to him, the requirements of Section 54F(1), in our considered opinion, are amply met. For the deduction under the Section, nothing further is required.
10. The Ld. CIT (A) decided in favour of the assessee and in our opinion, correctly so, by holding that Section 54F of the Act is a beneficial provision designed to promote re-investment of sale proceeds of long-term capital assets in residential house properties; that its purpose is to give impetus to the house building activity in 6 ITA No.4108/Del/2011 order to meet the acute shortage of housing and for this purpose, providing an incentive to tax payers by exempting from tax long-term capital gains arising from the transfer of other assets where the net consideration is invested by the tax payer in residential house.
11. Besides, in 'Aravinda Reddy' (supra), the obtaining relevant legal position, as rightly noted by the Ld. CIT (A), is as follows:-
"II. In CIT Vs. Dr. Laxmichand Narpal Nagda (1995) 211 ITR804 (Bom), it has been held that taking into consideration the letter as well as the spirit of section 54 of the Act and the word "towards"
used before the word "purchase" in sub-section (2) of section 54, it is clear that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting section 54 of the Act.
III. In CIT Vs. Mrs. Hilla J B Wadia (1995) 216 ITR 376 (Bom.), the assessee was found entitled to relief under section 54 where she entered into an agreement with Co-operative Housing Society for purchase of residential flats and paid almost entire consideration within two years and that she had acquired substantial domain over the flat under the agreement with the Society coupled with the payment of almost the entire cost within the specified period.
IV. In Smt. Shashi Varma Vs. CIT (1997) 224 ITR 106 (MP) it was held that 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 completed within two years. What it means is that the construction of the house should be completed as far as possible within two years. In 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 to 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 the 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 54.
V. In CIT vs. R L Sood (2000) 245 ITR 127 (Del.), the assessee had entered into an agreement of sale and made payments towards purchase consideration within one year of sale of his old flat. Relief u/s 54 was found admissible though registration of sale deed was made subsequently. The Tribunal held that exemption 7 ITA No.4108/Del/2011 under section 54 was available as substantial amount of cost of new house was paid within a year, acquiring substantial control and domain during the period. The High Court, therefore, held that no referable question of law arises.
VI. In Balraj Vs. CIT (2002) 254 ITR 22 (Del.) it was held that for claiming exemption under section 54, it is not necessary that the assessee should become the owner of the property purchased by registration of the document as provided under section 17 of the Registration Act. It was further held that section 54 speaks of purchase. This case has been relied upon by the Indore Bench of Madhya Pradesh High Court in CIT vs. Ajit Singh Khajanchi (2008) 297 ITR 95 (MP).
VII. In P K Datta Vs. ITO (2006) 100 TTJ (Pune) 133, the assessee entered into an agreement with a builder/ developer to acquire a row house in the blocks to be built by the latter. The assessee was required to pay various sums under a fixed time schedule. The developer was entitled to terminate the agreement and sell the row house to any other person in case of any default by the assessee. It was held that it was not an agreement for construction but an agreement for construction and sale of one row house to the assessee. Substantial portion of the consideration was paid by the assessee within the period of two years from the date of sale of old property. It was held that substantial domain and control over the property had passed to the assessee, within the period of two years though possession was given later. The assessee was held to be entitled to exemption under section 54.- Para 5 of the order."
12. Therefore, the Ld. CIT (A) has correctly held that since the assessee had paid the entire purchase price of the residential premises, he had obtained substantial domain over it and he was, so, entitled to exemption u/s 54F of the Act on the entire consideration appropriated for purchase of the flat.
13. Apropos the contention of the Ld. DR that the Ld. CIT (A) has not taken into consideration the aspects dealt with by the Assessing Officer, we see that the finding of the Ld. CIT (A) in this regard is that the Assessing Officer erred in referring to the various clauses in the agreement, as they have no application and that the observations of the Assessing Officer qua legal ownership were not relevant to decide the applicability of Section 54F of the Act. Here also, we do not find 8 ITA No.4108/Del/2011 any error in the order of the Ld. CIT (A). The assessment order is based on the reasoning that the assessee did not have either legal ownership or possession of the flat purchased and towards this, the Assessing Officer made reference to the various clauses of the agreement, Section 2 (47) (iiia) of the Act, the schemes of allotment governing the DDA and co-operative societies, Certificate of Occupation and Use, completion/occupation certificates and registration of Deed of Declaration. However, this approach, evidently, was incorrect, in view of the plain requirement of the provisions of Section 54F(1), as discussed hereinabove. To reiterate, the condition of this Section was fully met by the assessee since he had purchased the residential flat on full payment even before the capital gain accrued to him. Hence, there was nothing barring the assessee from being entitled to the claim u/s 54F of the Act and the Ld. CIT (A) was perfectly justified in rectifying the error committed by the Assessing Officer.
14. In view of the above discussion, finding no error whatsoever therewith, the order under appeal is hereby confirmed. The grievance of the Department by way of the ground of appeal raised is, accordingly, rejected.
15. In the result, the appeal filed by the Department is dismissed.
The order pronounced in the open court on 26.04.2013.
Sd/- Sd/-
[SHAMIM YAHYA] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 26.04.2013.
dk
9 ITA No.4108/Del/2011
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches