Income Tax Appellate Tribunal - Pune
Shirish Vinayak Godble, Pune vs Assessee on 7 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA NO. 1320/PN/2010
(Asstt.Year : 2007-08)
Shirish Vinayak Godbole,
33/10 Prabhat Road,
Lane No.5, Pune - 411 004 .. Appellant
PAN No. AAXPG 6592Q
Vs.
Income Tax Officer,
Ward 1(3), Pune. .. Respondent
Appellant by : Sri Sunil Pathak
Respondent by : Sri Rajib Jain
Date of Hearing : 07-02-2013
Date of Pronouncement : 13-02-2013
ORDER
Per R.K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 31-08- 2010 of the CIT(A)-II, Pune relating to Assessment Year 2007-08.
2. This appeal was earlier dismissed by the Tribunal for non-appearance. Subsequently, the Tribunal vide order dated 20-01-2012 recalled the earlier order. Therefore, this is a recalled matter.
3. Facts of the case, in brief, are that the assessee, an individual, filed his return of income declaring total income of `4,71,923. During the course of assessment proceedings the Assessing Officer noted that the assessee has sold the property situated at Survey No.33/10, Plot No.10/31, Santan Cooperative Housing Society, Erandwane, Pune - 411004. He noted that while computing the capital gain the assessee has deducted an amount of `29,60,000 as cost of selling. The Assessing Officer noted that the assessee has computed the capital gains at NIL which is as under :
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Sale of flat 50,00,000/-
Less : Cost & selling 29,60,000/-
Net sale consideration 20,40,000/-
Less indexed cost & acquisition
375000-12/2/1991 with indexation @519/182 10,69,368/-
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9,70,632/-
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Less investment of Rs.18,80,000
u/s. 54(2) towards new residential house
restricted to 9,70,632/-
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NIL
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4. On being questioned by the Assessing Officer to give the full details and computation of capital gains it was submitted by the assessee that the flat was sold for a consideration of `50 lakhs to Shri Nitin Waghmare and Smt. Aparna Waghmare vide Deed of Assignment dated 08-05-2006. The flat was purchased on 12-02-1991 and the indexed cost of the said flat was `10,69,368. It was submitted that an amount of `29,60,000 has been spent towards purchase of a flat for the residence of his wife and daughter who have been separated from him as per mutual understanding. It was argued that the expenditure had to be incurred without which his separated wife would not have allowed him to sale the flat in question. It was claimed that just like business expenditure u/s.37(1) deduction u/s.48 was claimed treating the same as an expenditure incurred wholly and exclusively in connection with the transfer of the old property.
5. However, the Assessing Officer did not accept the arguments advanced by the assessee. He noted that the expenditure of `29,60,000 incurred by the assessee towards purchase of flat for the residence of his separated wife as a compensation to her does not fit in any of the deduction specified u/s.48 of the Act. According to him compensation payable to separated wife is entirely different from the issue which cannot be considered while deciding the capital gain. He accordingly rejected the claim of the assessee and computed the capital gain by deducting the amount of `10 lakhs as investment in the new residential property in the name of 3 the assessee and the indexed cost of acquisition and determined the taxable capital gain at `29,30,632/-.
6. Before the CIT(A) the assessee filed a copy of the agreement of sale and relied on the following decisions :
1. CIT Vs. Shakuntala Kantilal reported in 190 ITR 56 (Bombay)
2. CIT Vs. Abrar Ali reported in 247 ITR 312 I(Bom.)
3. Hardiallia Chemicals Ltd. Vs. CIT reported in 218 ITR 598 (Bom.)
4. CIT Vs. Miss Proja C. Patel reported in 242 ITR 582 (Bom.)
5. Sitalpur Sugar Works Ltd. Vs. CIT reported in 49 ITR 160 (SC)
7. However, the learned CIT(A) also was not convinced with the arguments advanced by the assessee. He noted that the various decisions relied on by the assessee are distinguishable and not applicable to the facts of the present case. Further, nothing has been brought on record to prove that the assessee had purchased a separate flat for his wife and daughter due to some legal battle going on. He noted that the dispute between the husband and wife is entirely a family matter and cannot be treated akin to encroachment or suit filed by wife to stop the sale etc. He noted that the assessee has claimed deduction u/s.54 for a residential house purchased for himself and in effect he has also claimed deduction separately for another flat bought for his wife and daughter for an amount of `28 lakhs under the pretext that it was to be treated as an expenditure incurred wholly and exclusively in connection with the transfer as provided u/s.48(i) of the Income Tax Act. He accordingly held that this claim of the assessee was not entertainable in law and the Assessing Officer had rightly disallowed the same. He accordingly upheld the order of the Assessing Officer.
8. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
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"On facts and in law, . The learned CIT(A) erred in confirming the disallowance from the capital gains on sale of the residential flat of deduction u/s.48 of `29,60,000 which was the cost of the flat which the assessee was required to provide to his wife who had separated from him.
2. The learned CIT(A) failed to appreciate that :
(a) The assessee's wife had separated from him in 1997 and since then, they were staying separately. She was staying in the house which was sold and she had to be provided a separate house and accordingly, providing a residence to her was an obligation on the assessee.
(b) It was only after the residence was provided to her. She agreed to vacate the assessee's house and therefore this cost of a new flat for her was an encumbrance on the house which was sold by the assessee and hence, the cost of the new house to be provided to her was an allowable deduction u/s.48.
(c) This liability of providing her a separate house arose out of the separation of the assessee from her and accordingly, unless that liability was discharged, the assessee would not have been able to sell the house. Hence, it was allowable as a deduction u/s.48.
3. The appellant prays for deduction of `29,60,000 from the capital gains chargeable on the residential house sold.
9. The assessee has also filed an additional ground which reads as under :
"On the facts and in law, the appellant be allowed deduction u/s.54 in respect of the flat purchased in the name of appellant's wife".
10. After hearing both the sides, the additional ground filed by the assessee is admitted for adjudication.
11. The learned counsel for the assessee submitted that due to some dispute the wife of the assessee was staying separately with their daughter. Keeping the interest of the daughter in mind both of them have decided not to file any divorce petition or fight before the court. The assessee sold the house property for a consideration of `50 lakhs and purchased a small flat for himself for a consideration of `10 lakhs and another flat for the residence of his wife and daughter for a consideration of `29,60,000.
12. Referring to the provisions of section 18 of Hindu Adoptions and Maintenance Act, 1956 he submitted that a Hindu wife shall be entitled to be maintained by her husband till her life time. He submitted that without agreeing to 5 purchase a residence for the wife and daughter the assessee would not have been able to sell the property in question. Therefore, the amount of `29,60,000 spent by the assessee towards purchase of the flat for the residence of separated wife is an allowable expenditure being compensation to her. In his second alternate contention he submitted that the assessee can purchase two flats and will get the benefit u/s.54 of the Income Tax Act. For this proposition, he relied on CBDT Letter F.No.207/24/76-IT(A-II) dated 25-03-1977. In his third alternate contention, the learned counsel for the assessee submitted that the property purchased in the name of the wife of the assessee being higher in value should be allowed for the purpose of computation of capital gain as against the house property in the name of the assessee. In other words, he submitted that the property purchased in the name of the wife also qualifies for deduction u/s.54/54F. For this proposition, he relied on the decision of Hon'ble Karnataka High Court in the case of Director of IT, International Taxation Vs. Mrs. Jennifer Bhide reported in 252 CTR 444.
13. The learned Departmental Representative on the other hand heavily relied on the order of the Assessing Officer and CIT(A). He submitted that the amount spent for the purchase of flat for the wife to settle the family dispute is not an allowable expenditure. Referring to the decision of Hon'ble Delhi High Court in the case of Ashok Soi Vs CIT reported in 273 ITR 165 he submitted that where the assessee was absolute owner of property and some amount was paid to the father of the assessee in terms of earlier compromise agreement it was held that there is no diminution in gains of assessee and no relinquishment of interest in property. It was accordingly held that the amount paid to the father of the assessee was not deductible u/s.48 of the Income Tax Act.
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14. Referring to the decision in the case of CIT Vs. Radio Talkies reported in 238 ITR 872 he submitted that retrenchment compensation at closure of business was held to be not an allowable expenditure. He submitted that there is no legal decree or encumbrance on the property by the wife of the assessee. Therefore, the amount paid for purchase of flat for the wife and daughter of the assessee is not an allowable expenditure. He accordingly submitted that the order of learned CIT(A) be upheld.
15. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case, the assessee sold his residential property for a consideration of `50 lakhs and purchased two flats, one flat for his self occupation and another flat for a consideration of `29,60,000 in the name of his wife for the residence of his wife and daughter.
15.1 It is the submission of the learned counsel for the assessee that the amount incurred for purchasing the flat for the wife of the assessee at `29,60,000 should be allowed as an expenditure being encumbrance on the property. The alternate contention of the learned counsel for the assessee that since the property is purchased in the name of the wife, therefore, in view of the decision of Hon'ble Karnataka High Court in the case of DIT (International Taxation) Vs. Mrs. Jennifer Bhide (Supra), benefit of deduction u/s.54(2) should be allowed to the assessee in respect of the said flat instead of the flat purchased in the name of the assessee. 15.2 Since the flat purchased in the name of the wife is higher and it is beneficial to the assessee we find the alternate contention of the learned counsel for the assessee is acceptable.
715.3 The Hon'ble Karnataka High Court in the case of DIT (International Taxation) Vs. Mrs. Jennifer Bhide (Supra) at Para 7 of the order observed as under:
"7. On careful reading of s. 54 as well as s. 54EC on which reliance is placed makes it clear that when capital gains arise from the transfer of long term capital asset to an assessee and the assessee has within the period of one year before or two years after the date on which the transfer took place purchase or has within the period of three years after the date of construction of residential house then instead of capital gain being charged to income- tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provision made under the section which grants exemption from payment of capital gains as set out thereunder. Therefore, in the entire s. 54, the purchase to be made or the construction to be put up by the assessee, should be there in the name of the assessee, in not expressly stated. Similarly even in respect of s. 54EC, 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 the capital gains in the long-term specified asset then she would be entitled to the benefit mentioned in the said section. There also it is not expressly stated that the investment should be in the name of the assessee. Therefore, to attract s. 54 and s. 54EC of the Act, what is material is the investment of the sale consideration in acquiring the residential premises or constructing a residential premises or investing the amounts in bonds set out in s. 54EC. Once the sale consideration is invested in any of these manner the assessee would be entitled to the benefit conferred under this provision. In the absence of an express provision contained in these sections that the investment should be in the name of the assessee only any such interpretation were to be placed, it amounts to Court introducing the said word in the provision which is not there. It amounts Court legislating when the Parliament has deliberately not used those words in the said section. That is the view taken by the Hon'ble Madras High Court and Hon'ble Punjab & Haryana High Court and we respectfully agree with the view expressed in the aforesaid judgment."
15.4 Respectfully following the decision of the Hon'ble Karnataka high Court cited (Supra), we are of the considered opinion that the flat purchased by the assessee in the name of his wife out of the sale consideration of flat in the name of the assessee should be considered as allowable deduction u/s.54(2) of the Income Tax Act. Since in the instant case the flat in the name of the assessee was sold on 08-05-2006 for `50 lakhs and since flat in the name of the wife and daughter has been purchased on 22-03-2006 for a consideration of `28 lakhs, plus registration expenses etc, therefore, the assessee is entitled to benefit of deduction u/s.54(2) in respect of the property purchased in the name of his wife. However, since the total cost of the property including stamp duty and registration expenses is not verifiable, we deem it proper to restore the issue to the file of the AO with a direction to verify the details and allow the deduction accordingly in respect of the flat purchased by the assessee in the name of his wife instead of the flat purchased in his name. We hold & direct accordingly.
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16. In the result, the appeal filed by the assessee is partly-allowed for statistical purposes.
Pronounced in the Open court on this the 13th day of February 2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated the 13th February 2013
satish
Copy of the order is forwarded to :
1. The assessee
2. The Department
3. The CIT(A)-II, Pune
4. CIT-II, Pune
5. D.R. "B" Bench, Pune
6. Guard File
By order
// True Copy //
Senior Private Secretary,
Income Tax Appellate Tribunal, Pune