Income Tax Appellate Tribunal - Mumbai
Dy. Commissioner Of Income Tax vs Shri Uday S. Kotak, Kotak Mahindra Bank ... on 28 June, 2004
Equivalent citations: [2005]278ITR171(MUM), (2005)96TTJ(MUM)1018
ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by revenue and is directed against the order of CIT(A) dated 24th March 2000 for Assessment Year 1995-96. Grounds of appeal read as under :-
"On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in :
1) directing the assessing officer to adopt the cost of acquisition of half share in the property purchased by the assessee after taking into account the payments made by him to the tenants for acquiring the tenancy right, while computing the deduction admissible Under Section 54F of the I.T. Act;
2) holding that amounts paid to acquire the tenancy rights or to the tenant should be treated as the cost of acquisition;
3) failing to appreciate the plea taken by the assessing officer that the assessee has paid the full amount to the tenant for his one half share while other half owner has not paid any money to the tenant, though he has been benefited by the eviction of the tenant.
2. During the year under consideration, the assessee earned long term capital gain of Rs. 5,87,48,102/- on sale of shares. The assessee claimed exemption Under Section 54F for an amount of Rs. 3,54,86,459/- against the said long term capital gain. The benefit Under Section 54F is claimed in lieu of having invested the sale consideration of shares for acquisition of a residential house known as "Shaktivilla", 14 Laburnum road, Gamdevi, Mumbai. The said residential house was previously owned by the brother of assessee, Shri Suresh A. Kotak. The residential house comprised of ground floor plus two floors. The second floor was occupied by the brother of assessee, Shri Suresh A. Kotak. The ground and first floor were occupied by the tenants namely Shri Atul Chandrasing Seth and Smt Nirmala Merchant respectively. The assessee vide purchase Deed dated 30th March 1994 purchased 1/2 undivided share of the above mentioned residential house from his brother for a consideration of Rs. 6,00,000/-. After purchasing undivided 1/2 share, the assessee paid Rs. 1.60 Crore to Smt Nirmala Merchant and Rs. 2.85 Crores to Shri Atul Chandrasing Seth vide agreement made with them on 30th March 94 and 27th June 1994 respectively in lieu of tenancy rights owned by them in favour of assessee. Thus, exemption Under Section 54F was claimed in respect of purchase consideration of Rs. 6,00,000/- + Amounts of Rs. 1.60 Crores and Rs. 2.85 Crores paid to said Shri Atul Chandrasing Seth and Smt Nirmal Merchant. The A.O did not accept such claim of the assessee. According to A.O, the claim was to be restricted to Rs. 6,00,000/-, and that the assessee became legal owner of the house on 30th March 1994 and any payment made thereafter to the tenants, cannot be said to be acquisition or improvement cost and the tenancy right is a separate asset in itself, therefore, the benefit of Section 54F could not be extended to the payment made to tenants after the purchase of house. It is further observed by A.O. that according to Clause (10) of the sale agreement, the assessee has purchased the house on 'as is where is' basis and thus, there is no obligation on the part of seller to hand over the vacant possession to the assessee. A.O. further referred to the Deed of surrender dated 11.10.1994 wherein the assessee was referred to as full owner of the building along with his brother. Thus, the A.O held that the claim of assessee Under Section 54F was allowable only to the extent of Rs. 6,00,000/-. Aggrieved by the above, the assessee filed an appeal before CIT(A). Before CIT(A), it was pleaded that the amount paid by assessee to the tenants is cost of acquisition or improvement cost in relation to residential house purchased by the assessee. After considering the submissions made by assessee and after considering the case law relied upon by the assessee and A.O in this regard, the CIT(A) held that the A.O has wrongly assumed that the payments made by the assessee to tenants for acquiring tenancy right, which, was a separate asset itself was not cost of acquisition or improvement to residential house. The assessee by removing tenancy has improved his right/interest in the title of property, therefore, the cost incurred by assessee for clearing the encumbrance created by the tenancy should be considered as cost of acquisition or improvement cost. For this purpose, the CIT(A) relied on the decision of Madras High Court in the case of CIT v. A. Venkataraman and Ors., 147 ITR 846 and R.M. Arunachalam v. CIT, 227 ITR 222 (S.C). In the decision of Apex Court, the decision of Gujarat High Court in the case of CIT v. Daksha Ramanlal, 197 ITR 123 has been affirmed. The A.O. who was party before CIT(A) also took the alternative plea that in case the payment made to tenant is treated as cost of acquisition or improvement cost, the entire payment aggregating to Rs. 4.45 Crores made by the assessee should not be fully allowed as cost of asset as the Assessee is owner of 1/2 share and thus it was pleaded that proportionate payment to the extent of share of assessee should be considered. The CIT(A) did not accept such plea on the ground that 1/2 share in the property purchased by the assessee was not restricted to 1/2 share of built up area. The property encompasses within itself even the area on which there was no construction and there was some open area, where there could be construction at a future date. The assessee by virtue of 1/2 share in the property was entitled to such benefits attached to the said property. Therefore, the CIT(A) allowed the claim of assessee in full. The revenue is aggrieved, hence in appeal before us.
3. The Learned D.R. after narrating the above-mentioned facts contended that according to the provisions of Section 54F, the assessee is entitled to get exemption out of long term capital gain arising out of sale of an asset if the assessee invest the said amount either in purchase or construction of a residential house. He contended that in the present case, the claim of assessee is regarding purchase of a residential house. He further contended that the CIT(A) has granted the relief to the assessee on the ground that payments made by assessee to the tenants tantamount to "cost of acquisition" or "improvement". He contended that even if the payment made to the tenants is considered to be cost of acquisition or improvement, the same is not eligible for exemption Under Section 54F as in the terms of Section 54F the word "purchase" is a criteria. He contended that cost of acquisition of the asset and cost of any improvement thereto is a criteria only to compute income chargeable under the head "capital gains" as per provisions of Section 48. According to the Learned D.R, Section 48 provides that the following sums will be deducted out of full value of the consideration received or accrued as a result of transfer of capital asset while computing income chargeable under the head "capital gains" :-
(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.
Thus he pleaded the relevance of "cost of acquisition" is only for the purpose of Section 48 which cannot be extended while considering Section 54F which speaks of word "purchase". The payments made to tenants could be cost of acquisition of the asset and cost of any improvement thereto but in any case, it cannot be termed to be purchase price paid by the assessee for a residential house. He further contended that the term "purchase" as it finds place in Section 54F has not been defined in Act 1961, therefore, it should be construed in its general and popular sense. The purchase indicates a situation where a person pay an amount for purchase of a particular asset to the owner thereof. Thus, he pleaded that the CIT(A) has wrongly considered the payments made by assessee to tenants being eligible for exemption Under Section 54F.
4. In the alternative, the Learned D.R pleaded that assessee, as per purchase Deed, was the owner of 1/2 share of the residential house. The payment made by assessee was for the purpose of vacating ground floor + 1 floor, therefore, he pleaded that if the payments made by assessee to tenants are considered eligible for exemption Under Section 54F, the same should be restricted proportionately to 14 share pertaining to the assessee.
5. On the other hand, Shri F.V. Irani, Learned Counsel appearing on behalf of the assessee contended that according to the decisions in the case of CIT v. Daksha Ramanlal (Supra) and R.M. Arunachalam v. CIT (Supra), the amounts paid by assessee to tenants are cost of acquisition. He contended that by purchasing 14 share from his brother, the assessee had acquired the right of Landlord. Section 54F is a beneficial section, unless assessee got actual right of enjoyment of the property purchased, the purchase cannot be said to be completed. It was only after getting the property vacated from tenants, the assessee could enjoy the ownership of the house. Therefore, he contended that the payment made by assessee to tenants should be treated to be cost of acquisition or cost of improvement to the title of asset according to the above-mentioned two decisions and the same should be held eligible for claiming exemption Under Section 54 F. He further placed reliance on the following decisions of the Tribunal :
1. Smt Kalwanti D. Alreja v. Income Tax Officer, 54 TTJ (Bom) 593. In this case, the assessee was owner of 2/5th undivided share in his house. She purchased 1/5th share in the house from her son and exemption Under Section 54F was claimed. The Department disallowed the exemption on the ground that assessee was already owner of a residential house. Therefore, exemption Under Section 54F was not available. On facts, the Tribunal held that in order to exclude exemption Under Section 54F, the assessee must own an identifiable residential unit, therefore, the assessee was held eligible for exemption Under Section 54F of the Act.
2. Balvantram V. Chimna v. Income Tax Officer, 72 TTJ 451 (Ahd.). In this case, the assessee was owner of 1/8th share of the property which was used for self residence. Sale proceeds on long term capital asset transferred by the assessee were utilized for purchasing 5/18th share from other co-owners in same house property. It was held that exemption Under Section 54F could not be denied by invoking the proviso to Section 54F(1).
6. Relying on the above decision, he contended that Section 54F is a beneficial section, therefore, it should be liberally construed. He further pleaded that the term "purchase" is a bundle of rights, therefore, payments made by assessee to the tenants should be considered to be purchase price paid by assessee for proper enjoyment of the ownership of residential house. He, further, referred to the order of CIT(A) and contended that CIT(A) has rightly concluded that the payments made to tenants by the assessee are eligible for claiming exemption Under Section 54F.
7. We have carefully considered the rival submissions in the light of material placed before us.
8. The Learned CIT(A) has held that the payments made to tenants are cost, of acquisition of residential house, therefore, it qualifies for exemption Under Section 54F of the Act. For arriving at such conclusion, he has mainly relied on following decisions:
1. R.M. Arunachalam v. CIT, 227 ITR 222
2. CIT v. Daksha Ramanlal, 196 ITR 123
3. CIT v. A. Venkataraman and Ors., 147 ITR 846
9. Learned Counsel for the assessee also placed heavy reliance on these decisions to raise a contention that such payments constitute cost of acquisition of residential house.
10. In our opinion, the question that whether or not the payments made to tenants is "cost of acquisition" of residential house is irrelevant for deciding the controversy in the present appeal. The term "the cost of acquisition of asset and cost of any improvement" thereto finds place in Section 48(ii) which is reproduced below.
"48(ii) the cost of acquisition of the asset and the cost of any improvement thereto."
Section 48 describes the mode of computation of income chargeable under the head "capital gain". Thus, this term is relevant only for computation of income arising out of capital gain relating to any asset. In the present case, it is not the question that how to compute capital gain but the question is limited to the extent that whether payments made to tenants come within the ambit of word "purchased" as it finds place in Section 54F. Section 54F(1) is reproduced below.
"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,-"
Under Section 54F, the assessee, being an Individual or Hindu Undivided Family, for the purposes of claiming exemption under this Section from levy of long-term capital gain tax, required to purchase a residential house within a period of one year before or two years after the date on which the transfer took place. The exemption is also allowable in the case of construction of residential house. In the present case, it is the claim of assessee that it purchased a residential house within the specified period and thus, the question is limited only to "purchase". It is also the claim of assessee that payments made to tenants is payment of purchase price for a residential house, therefore, it qualifies for exemption Under Section 54-F. The word "purchase" is not defined in I.T. Act. Therefore, it has to be construed according to plain and natural meaning of it. We may point out that Hon'ble Supreme Court in the case of CIT v. T.N. Aravinda Reddy, 120 ITR 46, have observed that the word "purchase" within the meaning of Section 54(1) should be construed as it permits by an ordinary meaning. The relevant observations of Hon'ble Supreme Court as they appeared on page 48 of the report are as under :-
"We find no reason to divorce the ordinary meaning of the word "purchase" as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in Section 54(1). If you sell your house and make a profit, pay Caesar what is due to hi. But if you buy or build another subject to the conditions of Section 54(1) you are exempt The purpose is plain; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legslism. We see no stress in the section on "cash and carry". The point pressed must, therefore be negatived."
Coming to the argument of Learned Counsel of the assessee that Section 54F is a beneficial provision, therefore, should be construed liberally. In this regard even if a beneficial provision is to be liberally construed, then also its interpretation should be as per wordings of the Section. In the case of IPCA Laboratories v. DCIT, the Hon'ble Supreme Court while interpreting incentive provision observed as under at page 522 of the report :-
"11. We are unable to accept the submission of Mr. Dastur. Undoubtedly Section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wordings of this section. If the wordings of the section are clear then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section"
Thus, if the wordings of Section are clear, then benefits which are not available under the Section cannot be conferred by ignoring or mis-interpreting words in the section. The terms "cost of acquisition and cost of improvement are not mentioned in Section 54F, therefore, Section 54F cannot confer the benefit sought for by the assessee. Thus even by liberal interpretation , the benefit sought for by the assessee cannot be conferred upon.
11. An asset (particularly immovable asset) can be sold by a person , who has legal title over the asset. Without having legal title, one cannot effect sale the immovable property. The legal title in the present case, undisputedly, was vested in the brother of assessee Shri Suresh A. Kotak, who had sold his 1/2 share in the residential house to the assessee on "as is where is" basis. Erstwhile tenants of the residential house did not have the ownership right in the residential house. Thus, any payment made to them after the completion of sale does not tantamount to purchase money paid for "purchase" of a residential house. Such payment may be cost of acquisition within the meaning of Section 48 which is relevant only for computing capital gain.
12. The term that "cost of acquisition or cost of improvement are wider terms" as compared to word "purchased". While computing income under the head "long-term capital gain", it is not only equitable but also necessary to give deduction as cost of the amount spent by assessee with regard to the asset on sale of which, the net capital gain is computed. Similar is the case with cost of improvement. Unless, these are allowed, one cannot arrive at net capital gain taxable under the Income-tax Act. Therefore, these terms find place in Section 48 which section is relevant for computing income under the head "capital gain".
13. As we have already pointed out that the controversy in the present case is limited to the word "purchased" and "cost of acquisition" as well as "cost of improvement" has no relevance for deciding the present case, the cases relied upon by CIT(A) have no application on the facts of present case.
14. Looking the matter from this aspect and having regard to the plain language of Section 54F, we find that there is no scope of extending the meaning of word "purchase" to "cost of acquisition". The specific word "purchased" is used by legislature in Section 54F. If the intention of the legislature would have been to allow exemption with regard to "cost of acquisition" and "cost of improvement", these terms could have been used in this section as well as the same have been used in Section 48. Thus, the word "purchased" found place in Section 54F cannot be interpreted in a manner to include within its ambit the term "cost of acquisition and cost of improvement. The case law relied upon by the Learned Counsel can have no application on the facts of present case as the same relates to computation of capital gain for the purpose of levy of income tax. In the present case, there is no dispute regarding computation of capital gain income.
15. The decisions of Tribunal relied upon by the Learned Counsel of assessee also do not have any relevance to the facts of present case for the reason that the amount claimed by assessee in the said cases Under Section 54F were the amounts given to the co-owners of the residential houses, who had legal title over the property. In the present case, payments are not made to the owners of the residential house but to the tenants of residential house.
16. In view of the above factual and legal position, we find that the A.O had rightly allowed exemption Under Section 54F for a sum of Rs. 6,00,000/-. The Learned CIT(A) is wrong in holding that payments made to tenants are also eligible for exemption Under Section 54F. We have decided the main ground in favour of revenue, therefore, though it is not necessary for us to adjudicate alternative plea as the same will be academic but yet on this also we do not see any sound reasoning in the order of CIT(A), whereby the alternate plea of A.O. has been rejected. The assessee had purchased 1/2 share from his brother. In no case, the assessee was entitled to more than 1/2undivided share on "as is where is basis". Entire payment to the erstwhile tenants is made by assessee which pertained to ground + first floor. The assessee did not dispute that the said area was more than 1/2 share of built up area. No material has been brought on record to show that what extra benefit was extended to the assessee by his brother for getting vacated the area falling to the share of assessee's brother. The payment made by assessee to tenant is not a petty sum. It is a large sum and if the transaction is viewed from the view point of a prudent man, nobody will make the payment of a huge sum for the part of an asset for which, he will not have legal title. In the absence of any material to suggest that the assessee by making payment to the erstwhile tenants in excess of his share to the property got some extra benefit in the property for which he was owner of 14 undivided share, it is unacceptable that the said portion of excess payment should also be considered as cost of acquisition of the assessee. Thus, the view taken by CIT(A) in this regard also does not appears to be a correct view and we are unable to endorse the same. Thus, the assessee will be entitled to proportionate relief only, in case if it is held in further appeal that the payments made by assessee to erstwhile tenants are eligible for deduction Under Section 54F of the Act.
17. Therefore, we set aside the order of CIT(A) and restore that of A.O in this regard.
18. In the result, the appeal is allowed.