Gujarat High Court
Pr.Commissioner Of Income Tax-4 vs Shri Prakash Bhagchand ... on 29 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/177/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 177 of 2016
With
TAX APPEAL NO. 178 of 2016
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PR.COMMISSIONER OF INCOME TAX-4....Appellant(s)
Versus
SHRI PRAKASH BHAGCHAND KHATRI....Opponent(s)
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Appearance:
MR NITIN K MEHTA, ADVOCATE for the Appellant.
MR S.N.Soparkar, Senior Advocate with Mr. B S SOPARKAR,
Advocate for the Opponent.
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 29/06/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) These appeals arise in common background. Central issue being common, we may peruse facts from Tax Appeal No. 177 of 2016 in which the department has challenged the judgment of the Income Tax Appellate Tribunal dated 30.4.2015. Following questions have been presented for our consideration:
"(A) Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Page 1 of 6 HC-NIC Page 1 of 6 Created On Fri Jul 01 02:49:24 IST 2016 O/TAXAP/177/2016 ORDER Officer even through the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT ?
(B) Whether the Tribunal is right in law and on facts in not accepting the long term capital gain treated as "business income" although transaction was in the nature of business in line with the past history of the assessee ?"
2. The respondent assessee, for the assessment year 2010-11 had filed a return of income in which he had shown long term capital gain of Rs. 1.68 crores (rounded off) for sale of landed property situated at Sevasi, Vadodara. He had also claimed deduction under section 54F of the Income Tax Act, 1961 ("the Act" for short). Out of such capital gain, the Assessing Officer passed the order of assessment on 11.3.2013 computing total income of the assessee at Rs. 3.43 crores. He however made no disallowance on the assessee's claim of deduction under section 54F of the Act.
3. The Commissioner of Income Tax took such order of assessment in revision under section 263 of the Act. He was prima facie of the opinion that the sale of land would not give rise to a long term capital gain, but a business income. After putting the assessee to notice, the Commissioner in his order dated 2.12.2013 observed that the cost of improvement was part financed by borrowed funds which itself would show the intent of the assessee even in the year 2008 was to develop and sell the same to make profit. However, the subsequent turn of event showed that the assessee was able to get better offers from other parties and therefore, decided to cancel development agreement by paying off huge cost of Rs. 1.30 crores by way of damages and sold the land. He was of the Page 2 of 6 HC-NIC Page 2 of 6 Created On Fri Jul 01 02:49:24 IST 2016 O/TAXAP/177/2016 ORDER opinion that the Assessing Officer had failed to call for and consider said facts before finalising the assessment without making proper queries. He therefore, concluded that income from sale of the land would be business income and consequently the assessee's claim of deduction under section 54F of the Act would be denied.
4. Against such order, the assessee preferred appeal before the Tribunal. The Tribunal by the impugned judgment allowed the assessee's appeal primarily on the ground that two views were possible and in which case, the Commissioner could not have exercised the revisional powers. By the time, the Tribunal gave this judgment, the Assessing Officer had already given effect to the revisional order passed by the Commissioner which proceedings had also travelled before the Tribunal and the Tribunal therefore set aside the order also. It is therefore that the Revenue has filed two appeals before us arising out of the same judgment of the Tribunal.
5. Having heard learned counsel for the parties and having perused documents on record, we notice that though in the order of assessment, the Assessing Officer has not discussed the claim of the assessee of long term capital gain and deduction under section 54F of the Act out of such capital gain, he had raised multiple queries about said aspects. In the order sheet, the Assessment Officer had called upon the assessee to furnish various details including "the details of fixed assets and details of sale of land". Thus, details the assessee had provided under a communication made in October, 2012 in which he had provided details of fixed assets and details of sale of land. On 28.2.2012, the assessee had Page 3 of 6 HC-NIC Page 3 of 6 Created On Fri Jul 01 02:49:24 IST 2016 O/TAXAP/177/2016 ORDER written to the Assessing Officer as under:
"This is with reference to the date of Construction of new Asset for the purpose section 54/54F within a period of three years we would like to mention as follows:
1. Section 54F of the Income-tax Act provides for exemption from tax on long term capital gains arising from transfer of a capital asset other than a residential house property, provided the net consideration is invested in a new asset being a residential house property. For availing of the exemption, the assesssee is required to do following acts in addition to satisfying other conditions:
* Purchase the residential house property within a period of one year before or two years after * Construct the residential house property within a period of three years after the date of transfer of the asset.
2. Section 54 of the Income Tax Act dealing with exemption from tax for long term gains on transfer of a long term capital asset other than a residential house provides as under (relevant extracts only):
"Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
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 Page 4 of 6 HC-NIC Page 4 of 6 Created On Fri Jul 01 02:49:24 IST 2016 O/TAXAP/177/2016 ORDER 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,--
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect 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 the new asset bears to the net consideration, shall not be charged under section 45:
3. The major points to be noted on the issue are as under:
* Section 54F of the Income Tax Act is a beneficial provision which is to be interpreted liberally for achieving the purpose for which it was inserted. The purpose of the section is to encourage construction of the houses.
* For the purpose of interpretation of the word "purchased" or "constructed" what is essential is the investment of the capital gain in the residential house. The capital gain should be parted with by the assessee and invested in either purchasing or constructing the house.
4. One of the conditions for getting benefit of section 54/54Fis that on sale or transfer of the old house, the assessee should either purchase a new house within one year before sale or within 2 years after sale or should construct a new house within 3 years of the sale of old house by investing therein the nest amount of capital gain arising from the sale or transfer of the old house."
6. It can thus be seen that though final order of assessment was silent on this aspect, the Assessing Officer Page 5 of 6 HC-NIC Page 5 of 6 Created On Fri Jul 01 02:49:24 IST 2016 O/TAXAP/177/2016 ORDER had carried out inquiries about the nature of sale of land and about the validity of the assessee's claim of deduction under section 54F of the Act. Learned counsel for the Revenue however submitted that these inquiries were confined to the claim of deduction under section 54F of the Act in the context of fulfilling conditions contained therein and may possibly have no relevance to the question whether the sale of land gave rise to a long term capital gain. Looking to the tenor of queries by the Assessing Office and details supplied by the assessee, we are unable to accept such a condition. In that view of the matter, the observation of the Tribunal that the Assessing Officer having made inquiries and when two views are possible, revisional powers could not be exercised, called for no interference. Since with respect to computation and assertions of other aspects of deduction under section 54F of the Act, the Tribunal has remanded the proceedings, nothing stated in this order would affect either side in considerations of such claim.
7. No question of law arises. Tax Appeals are dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 6 of 6 HC-NIC Page 6 of 6 Created On Fri Jul 01 02:49:24 IST 2016