Gauhati High Court
Rajesh Kumar Jalan vs Ito Vice-Versa on 18 April, 2001
Equivalent citations: (2004)86TTJ(GAU)955
ORDER
B.R. Mittal, J.M. These cross-appeals have been filed by the assessee as well as the department for the assessment year 1996-97 against the order of the learned Commissioner (Appeals) dated 24-9-1999.
2. The grounds of appeal in the appeal filed by the assessee are as under :
1. For that on the facts and in the circumstances of the case, the learned Commissioner (Appeals) was not justified in holding that only Rs. 14,43,254 will qualify for exemption under section 54 of the Income Tax Act, 1961 as against Rs. 29,73,048 claimed by the appellant.
2. For that on the facts and in the circumstances of the case, the learned Commissioner (Appeals) ought to have accepted the appellant's claim by holding that the entire longterm capital gain of Rs. 29,73,048 was eligible for exemption under section 54 of the Income Tax Act inasmuch as the appellant utilised the same for the acquiring a residential house within stipulated time."
The grounds of appeal filed by the department are as under
"1. For that the Commissioner (Appeals) erred in law and in facts in giving relief of Rs. 14,43,254 under section 54.
2. Without prejudice to the ground No. 1 above, the Commissioner (Appeals) is not justified in holding that the transaction made for the flat in Calcutta amounted to transfer and eligible for exemption under section 54 when the said transaction was made for sub-lease of the property and not purchase."
3. Since in both the appeals the issue involved is same and based on the same facts, we dispose of both these appeals by a common order for the sake of convenience.
4. The relevant facts giving rise to these appeals are that the assessee sold his one-fourth share in a residential property known as 'Jalan House' at Rehabari, Guwahati for a consideration of Rs, 40 lacs by sale deed dated 21-12-1995 to the Government of Meghalaya. The index cost of the property was worked out at Rs. 10,26,952 and thus there was a capital gain of Rs. 29,73,048. Since the assessee had no other residential house, he in order to enjoy exemption from the levy of capital gain tax within the provisions of section 54 of the Act, decided to purchase a residential flat No. 4B on the fourth floor of a multistoried building namely 'Bally-High' situated at 1, Ballygunge Park Road, Calcutta-19 having an area of 2875 sft. from Shri Radha Kishan Jalan and Smt. Anguri Devi Jalan vide two separate sale agreements dated 17-5-1996 and 9-5-1996 respectively for a total sum of Rs. 30 lacs payable at Rs. 15 lacs each to Shri Radha Kishan Jalan and Smt. Anguri Devi Jalan as both were joint owners of the above flat having 50 per cent each in the said premises.
4.2 The assessee claimed exemption under section 54 of the Income Tax Act, 1961 for the whole amount of Rs. 29,73,048 on the ground that he had purchased the said residential house before the due date of filing of return for the assessment year 1996-97 under section 139(1) i.e. within 31-8-1996.
4.3 The assessing officer considered that the sub-lease was executed on 17-1-1998 and he also considered the terms and conditions of the sub-lease deed and held that the said sub-lease deed could not be taken as clear purchase of the flat as per provisions of section 54(1) of the Act. In this regard, the assessing officer considered the fact that the plot of land on which the said multistoried building had come up was taken on lease on 7-12-1984 for 99 years by M/s Agarwal Co. Ltd. from one Dr. P. Charula. He further observed that by an agreement dated 20-1-1989 that flat was taken on sub-lease by one Santosh Electronics (P) Ltd. from lessor M/s Agarwal Co. Ltd. Further, by letter dated 8-2-1996, M/s Santosh Electronics (P) Ltd. nominated Sri Radha Kishan Jalan and Smt. Anguri Devi Jalan as its nominees to take the said flat No. 4B on sub-lease including the proportionate share in land. He further observed that by separate letter dated 28-8-1996, Sri Radha Krishan Jalan and Smt. Anguri Devi Jalan nominated Sri Rajesh Kumar Jalan, the assessee, as their nominees to take on sub-lease of the undivided said flat 4B. The assessing officer considered the terms and conditions of the lease dated 17-1-1998 and held that there was no transfer of property and it was merely sub-lease. He further observed that the assessee did not comply with the provisions of section 54(2) of the Act as the amount of capital gain which was not appropriated by the assessee towards purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase and construction of the new asset before the date of furnishing the return of income under section 139, under the deposit account in a Public Sector Bank in accordance with the Capital Gains Accounts Scheme, 1988. The assessing officer in the assessment order at pp. 4 and 5 has stated the amounts which according to him, was not appropriated by the assessee in accordance with the provisions of section 54(2) of the Act.
4.4 In view of the above, the assessing officer held that the assessee was not entitled to the benefit of exemption under section 54 of the Act. The assessing officer held that the entire amount of capital gain of Rs. 29,73,048, was taxable as long-term capital gains. Being aggrieved, the assessee filed appeal before the first appellate authority.
4.5 The assessee contended that the assessing officer had not properly understood 'the nature of the sub-lease dated 17-1-1998 which was executed by the assessee with M/s Agarwal Co. Ltd. who were the lessees of the land on which the entire super-structure was standing. He submitted that as per the requirement of law, the assessee entered into a long-term sub-lease with M/s Agarwal Co. Ltd. in respect of proportionate undivided share in the land attributable to the unexpired period of the lease and the lease rent and security etc. were attributable towards the land only and was not forming the cost of the flat in question for which the assessee had separately paid Rs. 30 lacs to Shri Radha Kishan Jalan and Smt. Anguri Devi Jalan. The assessee also contended that the assessee had purchased a residential flat for a consideration of Rs. 30 lacs within the stipulated period as the assessee was put into possession of the flat and was enjoying the possession of the property in question and, therefore, the same was undoubtedly a transfer of a capital asset within the meaning of section 45 of the Income Tax Act read with section 2(47)(v) of the Act and as such the assessing officer was entirely wrong to hold that transaction in question did not amount to a transfer. The learned Commissioner (Appeals) relying on the decisions of the Supreme Court in. the case of R.K. Palshikar v. CIT (1988) 172 TTR 311 (SC) and A.R. Krishnamurthi v. CIT (1989) 176 ITR 417 (SC) held that the grant of a lease also amounted to transfer in relation to the capital asset. The learned Commissioner (Appeals) agreed with the, assessee that the transfer in question was undoubtedly a transfer of capital asset within the provision of section 2(47)(v) of the Act. However, the learned Commissioner (Appeals) allowed the claim of the assessee in respect of purchase of the said flat to the extent of Rs. 14,43,254, the sum paid by the assessee upto 31-8-1996 to Sri Radha Kishan Jalan and Smt. Anguri Devi Jalan. In regard to the balance-amount of Rs. 16,29,794, the learned Commissioner (Appeals) held that the said amount was not deposited in a separate capital gain account with a Bank and, therefore, the benefit of deduction to that extent would not qualify for exemption under section 54 of the Act from levy of capital gain tax. Hence, the department as well as the assessee are in appeals before the Tribunal.
5. During the course of hearing of the appeal, the assessee submitted paper books marked pp. A-1 to I-1. The facts of the case were dealt with by the learned authorised representative of the assessee at length which we have already stated hereinabove. In addition to the above facts, we may further state that M/s Agarwal Co. Ltd. entered into an agreement with M/s Bally High Properties (P) Ltd. on 28-9-1987 for construction of eleven storied building containing four flats on each floor. For the sale of flats, two agreements were entered into simultaneously, one for undivided portion of the land with M/s Agarwal Co. Ltd. and another with M/s Bally High Properties (P) Ltd. for the construction of the flats by the prospective buyers of the flats. As mentioned hereinabove, flat No. 4B was first purchased by M/s Santosh Electronics Ltd. by entering into two separate agreements both dated 20-1-1989 with M/s Agarwal Co. Ltd. and M/s Bally High Properties (P) Ltd. M/s Santosh Electronics Ltd. got possession in the said constructed flat along with leasehold rights in respect of proportionate share in the land at the said premises and in this regard the learned authorised representative of the assessee referred to p. D-3 of the paper book. It was further submitted by the learned authorised representative of the assessee that M/s Santosh Electronics Ltd. entered into agreement dated 17-1-1996 with Sri Radha Kishan Jalan to transfer and assign the undivided 1/2 share of interest in the said flat with authority to transfer or assign his right, title, claim and interest in the said undivided 1/2 share together with undivided share in land. He further submitted that similarly M/s Santosh Electronics Ltd. entered into another agreement with Smt. Anguri Devi Jalan on 19-1-1996 to transfer and assign the undivided 1/2 share of interest in the said flat with the same rights as with Mr. Radha Kishan Jalan. Therefore, by virtue of the said two agreements Sri Radha Kishan Jalan and Smt. Anguri Devi Jalan became joint owners of the flat No. 4B along with the undivided share in the land. He submitted that by an agreement dated 9-5-1996, Sri Radha Krishan transferred his right, title and interest in the said flat to the assessee in respect of his share. Similarly, by another agreement dated 17-5-1996 Smt. Anguri Devi Jalan transferred her rights, title and interest in the said flat to the assessee. Thus, by virtue of the aforesaid two agreements the assessee became owner of the flat No. 4B along with the proportionate undivided share in the land attributable towards flat No. 4B. He further submitted that the possession of the flat was also handed over to the assessee by the vendors namely Sri Radha Kishan Jalan and Smt. Anguri Devi Jalan and referred to in support of his submission the copies of the agreement as placed at pp. C-1 to C-8 and D-1 to D-8 of the paper book. He further submitted that the assessee took possession of the flat from the aforesaid vendors on and from 9-5-1996 and 17-5-1996 and, therefore, the assessee purchased the property in May, 1996. He further submitted that the assessee purchased the new residential house at Calcutta in May, 1996 and therefore, complied with the provisions section 54 of the Income Tax Act.
6. In regard to the terms of conditions contained in the sub-lease on the basis of which the assessing officer held that there was no purchase of the flat, the learned authorised representative of the assessee submitted that sum of Rs. 3,000 was to be paid by way of lease rent for land. The assessee had acquired independent habitable residential unit for which it paid the consideration. He submitted that the conditions in the lease deed are related only to the beautification and maintenance of the outside decor of the multistoried building so that the beauty of the building could be maintained with the minimum disturbance to the other residents of the building. He submitted that there is no bar to make any changes inside the flat by the owner and the restricted conditions are only for the outside of the building premises and, therefore, the adverse inference drawn by the assessing officer for such restricted covenants is not relevant and material or a guiding factor to conclude the ownership.
7. The assessee further referred to section 54 of the Act and submitted that once the condition under section 54(1) is satisfied, i.e., the purchase of the flat within the stipulated period of one year before or two years after the date on which the transfer took place, then there is no requirement to rebut (sic) to section 54(2) of the Act. He further referred to a copy of the balance sheet as on 31-3-1996 at pp. B-1 to B-6 of the paper book and submitted that the assessee had shown in Schedule 'E' the investment in the properties of Rs. 30 lacs. He submitted that the balance amount payable to Sri Radha Kishan Jalan and Smt. Anguri Devi Jalan was shown as unsecured loan under Schedule 'B' as on 31-3-1997. He, submitted that the assessee had purchased the flat within the stipulated time and thus the amount of capital gains stood utilised within the stipulated period as laid down under section 54(1) of the Act. The learned authorised representative of the assessee placed reliance in support of his submission on the decision of the Kerala High Court in the case of Income Tax Officer v. K.C. Gopalan (2000) 162 CTR (Ker) 566 and submitted that the law does not insist that the sale consideration obtained by the assessee itself should be utilised for the purchase of the house property. He submitted that the assessee is entitled to exemption under section 64 even though for construction of the new house the amount that was received by way of sale of his old properties as such was not utilised. The learned authorised representative of the assessee also submitted that while interpreting a machinery section the benefit of language, if any, goes to the assessee rather than to the revenue and relied on the decision of the Karnataka High Court in the case of Kodiyal Foods & Fats (P) Ltd. v. CIT (1992) 193 ITR 411 (Karn) and the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC).
8. On the other hand, the learned departmental Representative supported the order of the assessing officer and submitted that the assessee failed to comply with the conditions of section 54 and thus, the assessing officer was justified to hold that the assessee had not purchased the property by utilising the capital gain within the stipulated time. He further submitted that the learned Commissioner (Appeals) was also not justified to give even part relief of the assessee and in regard thereto the learned departmental Representative made his submissions by giving the reasonings as stated by the assessing officer in his order.
9. We have carefully considered the submissions of the learned representatives of the parties. We have also gone through the orders of the authorities below and the copies of the documents to which our attention was drawn by the learned representatives of the parties at the time of hearing of the appeals.
10. There is no dispute that the assessee entered into two separate agreements with Sri Radha Kishan Jalan dated 9-5-1996 and Smt. Anguri Devi Jalan dated 17-5-1996 for purchase of undivided 1/2 share of each in the said flat together with the said undivided share in the land for a consideration of Rs. 15 lacs each aggregating to Rs. 30 lacs. We also observe from the said agreement that the said vendors agreed to transfer and assign in favour of the assessee all their rights and interest in the said flat with the absolute ownership without any objection, obstruction and/or hinderance whatsoever on their part or any person claiming through, under or on their behalf. We also observe that the assessee was liable to pay all future maintenance charges, municipal rates and taxes and other outgoings in respect of the said flat. Not only this, there is no dispute that the assessee got the possession of the said flat in May, 1996. We further observe that in the balance sheet, a copy of which is placed at pp. B-1 to B-6 of the paper book the assessee had shown in the list of investments in Schedule E the total investment in the properties in respect of the said at flat Rs. 30 lacs and the balance amount payable to Shri Radha Kishan Jalan and Smt, Anguri Devi Jalan was shown as unsecured loans. Clause (v) of section 2(47) of the Act reads as under
"Any transfer involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) or ........."
11. Therefore, for the purpose of transfer the possession of the flat in part performance of the contract under section 53A of the Transfer of Property Act is essential. Further, under the provisions of section 54(1) of the Income Tax Act, it is stipulated that a person is entitled to take the benefit if the purchase has been made within the stipulated period of one year before or two years after the date on which the transfer took place. In the case before us, the assessee has undisputedly entered into agreement for purchase of the flat and took the possession within one year from the date of sale of the old residential house. Therefore, we agree with the learned authorised representative of the assessee that the assessee has complied with the requirements as laid down in section 54(1) of the Act by purchasing the flat at a cost of Rs. 30 lakhs as against the capital gain of Rs. 29,73,048. Therefore, we agree with the learned authorised representative of the assessee that there has been no necessity to comply with the conditions for availing the benefit from tax of the capital gain, as laid down under section 54(1) of the Act, i.e., to deposit the unpaid amount in a separate Bank account under the Capital Gain Account Scheme. We are of the view that the assessee had already appropriated the entire capital gain for purchase of the new asset within the stipulated time. In this regard, we find support from the decision of the Kerala High Court in the case of Income Tax Officer v. K.C. Gopalan (supra) wherein it was held that the assessee is entitled to exemption under section 54 even though for the construction of the new house, the amount that was received by way of sale of his old property as such was not utilised. It was held by the Kerala High Court that no provision is made by the statute that the assessee should utilise the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset. It was held that section 54 only provides that the assessee has to purchase a house property for the purpose of his own residence within a period of one year before or after the date on which the transfer of his property took place or he should have constructed a house property within a period of two years after the date of transfer. It was further held that entitlement of the exemption under section 54 relates to the cost of acquisition of a new estate in the nature of a house property for the purpose of his own residence within the specified period.
12. In the case before us, the ratio laid down by the Hon'ble Kerala High Court squarely applies to the case before us as the assessee had acquired the house at a cost more than the capital gains within the specified period.
13. Therefore, we hold that the assessee is entitled to the exemption under section 54 of the Act for the entire long-term capital gain of Rs. 29,73,048. Accordingly, we allow the ground of appeal of the assessee and reject the ground of appeal of the department.
14. In the result, the appeal filed by the assessee is allowed and the appeal filed by the department is dismissed.