Income Tax Appellate Tribunal - Pune
Major D.M. Purandare vs Income-Tax Officer on 29 January, 1990
Equivalent citations: [2000]72ITD55(PUNE)
ORDER
K.C. Singhal, Judicial Member
1. The only issue arising out of this appeal relates to the manner of computation of the deduction provided in Section 48(2) of the Income-tax Act, 1961.
2. The brief facts of the case are these. The assessee had sold his land against consideration of Rs. 15,00,000 in the year under consideration. The cost of land as on 1-4-1974 was taken at Rs. 3,20,000 while the total expenditure on the transfer of the assets including the travel expenses o,f-Rs. 9,000 amounted to Rs. 32,000. In order to claim exemption under Section 54E, the assessee invested the sum of Rs. 5,99,900 in the specified asset as mentioned in the aforesaid section. There is no dispute to the computation of such deduction except for minor adjustment. The deduction under Section 48(2) was computed by the assessee at Rs. 5,79,000 with reference to the amount of capital gain of Rs. 11,48,000 which was arrived at after excluding the cost of the land and the cost of transfer. The net capital gain chargeable to tax was computed at Rs. 99,868. The Assessing Officer accepted the computation so made by the assessee. However, the Commissioner of Income-tax invoked the provisions of Section 263 inasmuch as the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue. According to the CIT, the deduction under Section 48(2) should have been allowed with reference to the amount of capital gain arrived at under Section 48(1)(a) after excluding the amount of exemption under Section 54E. After considering the explanation of the assessee, the CIT computed the net capital gain chargeable to tax at Rs. 3,38,500. In order to appreciate the factual aspects better, the computation made by the assessee as well as CIT are being reproduced as under:
As per' A' As per' CIT'
---------- -------------
Sale consideration (Gross) 15,00,000 15,00,000
Less : Cost of Transfer
(including travelling
expenses of Rs. 9,000) 32,000 23,000
--------- ---------
14,68,000 14,77,000
Less: Cost of asset as on
1-4-1974 3,20,000 3,20,000
--------- ---------
11,48,000 11,57,000
Exemption under Section 54E
As per assessee
Investment 5,99,900
5,99,000 X 11,48,000
-------------------- = 4,69,132
14,68,000
As per CIT
5,99,000 X 11,57,000 = 4,70,000
-------------------- -------- ----------
14,77,000 6,88,868 6,87,000
Deduction under Section 48(2)
As per Assessee
10,000 + 5096 of 11,38,000 = 5,79,000
As per CIT
10,000 + 50% of 6,77,000 = 3,48,500
---------
Net Capital gain ---------
chargeable to tax = Rs. 99,868 3,38,500
--------- ---------
3. Both the parties have been heard. The learned counsel for the assessee Mr. Inamdar has fairly admitted that only decision available on this issue is of the Kerala High Court in the case of CIT v. V.V. George [1997] 227 ITR 893/93 Taxman 257, which is against the assessee. However, according to him, the conclusion arrived at by the Hon'ble Kerala High Court is incorrect. It was contended by him that Section 48(2) clearly provides for deduction with reference to the capital gain arrived at after making the deduction under Clause (a) of Sub-section (1). It nowhere provides that the capital gain arrived at in Section 48(1)(a) has further to be adjusted by the amount of exemption computed in Section 54E. Therefore, the computation made by the assessee should be accepted. According to him, this aspect of the matter has not been looked into by the Kerala High Court. On the other hand, the learned senior D.R. has realied on the decision of Kerala High Court. According to him, if the contention of the counsel for the assessee is accepted, then it would amount to allowing deduction under Section 48(2) with reference to the amount of capital gain which is not chargeable to tax. According to him, such is not the intention of the Legislature. The object of the enactment is to augment savings and the same can be achieved only in the manner in which the computation has been made by the CIT.
4. Rival contentions of the parties have been considered carefully. The question to be considered is how to compute the deduction under Section 48(2). We have gone through the scheme of the Act relating to charging of capital gains to lax. The relevant portions of the provisions falling within Chapter 1V-E are being reproduced for the benefit of the order :-
Section 45(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B, 54D, 54E, 54F and 54G be chargeable to income-tax under the head "Capital gains," and shall be deemed to be the income of the previous year in which the transfer took place.
Section 48 (1)(a)(b), (2)(a), (b)(i)(A)2(B)
48. (1) The income chargeable under the head "Capital gains" shall be computed, -
(a) by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-
(i) expenditure incurred wholly and exclusively in connection with such transfer,
(ii) the cost of acquisition of the asset and the cost of any improvement thereto;
(b) Where the capital gain arises from the transfer of a long-term capital asset (hereafter in this section referred to, respectively, as long-term capital gain and long-term capital asset) by making the further deductions specified in Sub-section (2).
(2) The deductions referred to Clause (b) of Sub-section (1) are the following, namely:-
(a) where the amount of long-term capital gain arrived at after making the deductions under Clause (a) of Sub-section (1) does not exceed ten thousand rupees, the whole of such amount;
(b) in any other case, ten thousand rupees as increased by a sum equal to,-
(i) in respect of long-term capital gain so arrived at relating to capital assets, being buildings or lands or any right in buildings or lands or gold, bullion or jewellery,-
(A) in the case of a company, ten per cent of the amount of such gain in excess of ten thousand rupees;
(B) in the case of any other assessee, fifty per cent of the amount of such gain in excess of ten thousand rupees;
Section 53 - Explanation Explanation: In this section and in Sections 54,54B, 54D, 54E, 54F and 54G references to capital gain shall be construed as references to the amount of capital gain as computed under Clause (a) of Sub-section (1) of Section 48.
Section 54(E)(1) Where the capital gain arises from the transfer of a long-term capital asset, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the whole or any part of the net consideration in any specified asset (such specified asset being 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 acquisition of the new asset bears to the net consideration shall not be charged under Section 45.
5. The scheme of the Act is like this -
Section 45 is the charging section but is subject to the provisions of various other sections enumerated therein including Section 54E. The words "save as otherwise provided in the Sections... 54E ..." are significant. Section 54E provides that the long-term capital gain or any portion thereof attributable to the investment made by the assessee in the specified assets out of net consideration shall not be charged to tax. By implications, it means, whatever the amount of capital gain is computed under Section 54E shall not form part of capital gain chargeable to tax under Section 45.
6. The words 'capital gain' appearing in Section 54E are to be understood in accordance with the provisions of Explanation to Section 53 which provides that capital gain in Section 54E shall be the amount of capital gain as computed under Clause (a) of Sub-section (1) of Section 48. Section 48(1)(a) provides the manner in which capital gain is to be computed. It provides the deduction in respect of expenditure incurred wholly and exclusively in connection with the transfer of capital asset and also the cost of acquisition of the asset and the cost of any improvement thereto. The net balance after allowing the deductions mentioned above, has to be considered as capital gain for the purpose of Section 54E. Section 48(2) provides further deductions in respect of long-term capital gains equal to Rs. 10,000 + 5096 of the balance capital gain as arrived at under Section 48(1)(a). After considering the scheme of these provisions as a whole, we are of the view that provisions of Section 48(1)(a) cannot be read in isolation, but are to be read along with the sections regarding exemptions mentioned in Section 45. The rule of harmonious construction as recognised by the Apex Court in various judgments compel us to take such a view. If so construed, the income of capital gain referred to under Section 48 (1)(a) would be that amount which is arrived at after excluding the amount not chargeable to lax under various sections including suction 54E enumerated in Section 45. The amount so arrived at, in our opinion, then has to be considered for the purpose of deduction under Section 48(2). The interpretation which we have made will achieve the object of the Act. The object of the Act is to augment the savings by way of investment in various securities, fixed deposit in Banks, etc. Full exemption has been granted if the entire net consideration is invested and proportionate deduction is allowed where the investment is made partly. If the contention of the learned counsel for the assessee is accepted, then it would amount to allowing deduction even against the income which is not chargeable to tax. Hence, the contention of assessee cannot be accepted. The view which we have taken is also fortified by two decisions in the case of Capt. K. C. Saigal v. ITO [1995] 54 ITD 488 (Delhi) and in the case of Mrs. Pushpa B. Sheth v. Asstt. CIT [1994] 50 ITD 314 (Bom.).
7. In view of the above discussions, the order of CIT(A) is upheld. The appeal of assessee is, therefore, dismissed.