Income Tax Appellate Tribunal - Mumbai
Smt. Bhavna Thanawala vs Ito on 17 April, 2007
ORDER
Sushma Chowla, Judicial Member
1. This is an appeal filed by the assessee against the Order of CIT(A)-XVIII, Mumbai dated 6-1-2003 relating to the assessment year 1997-98 against the order under Section 143(3) of the Income Tax Act, 1961.
2. The only issue in the present appeal raised by the assessee is as under:
On the facts and in the circumstances of the case the learned CIT(A) erred in upholding the action of assessing officer in denying the relief under Section 54F of the Income Tax Act, 1961 in respect of long-term capital gains invested in acquiring undivided share in residential ownership premises partly owned by your Appellant.
3. The brief facts of the case are that during the year under consideration, the assessee had shown income from long-term capital on sale of shares amounting to Rs. 23,93,305. The assessee claimed exemption under Section 54F of the Income Tax Act amounting to Rs. 22,08,275 on account of investment made in acquiring an additional share in the property in which the assessee was already residing. The assessee owned 1/4th share of the residential flat along with three other family members i.e., her husband and parents in law. The assessee along with her husband purchased shares of other two co-owners and accordingly paid Rs. 23,75,000. The balance sum of Rs. 7,50,000 was paid by her husband. The assessee became co-owner of the property along with her husband. The said additional investment in the flat was claimed as new investment made during the year under consideration for the purpose of claiming deduction under Section 54F of the Income Tax Act against income from long-term capital accounts on sale of shares.
4. The claim of the assessee was rejected by the assessing officer observing that as per proviso to Section 54F of Income Tax Act, the said exemption is not available, if the assessee owns on the date of transfer of the original asset, any other asset, in this case share in residential house, the income from which is chargeable to tax under the head 'Income from house property' other than the new asset. As the assessee was already owning a residential house being 1/4th share in Flat No. 505, 5th floor, Udyan Darshan, Sayani Road, Prabhadevi, Mumbai on the date of transfer of shares, the assessee was not entitled to any deduction under Section 54F of the Income Tax Act. The assessing officer further noted that apart from the abovesaid property, the assessee also owned another residential property being building consisting of grounds plus four floors at Jaibharat Co-operative Housing Society, Plot No. 24 (North), 3rd Road, Khar, Mumbai - 400 052 which was purchased in assessment year 1992-93. The said property at Khar was tenanted with the ground floor being used for commercial purpose and the upper floor being used for the residential purpose. The claim of the assessee that conveyance in respect of the Khar building was executed and registered in favour of the assessee on 11-3-1999, i.e., financial year 1998-99 was rejected as the assessee had been showing the income from the said property purchased in financial year 1992-93, which proved that the assessee was in possession of ownership of the said residential property during the year and also in the earlier years.
5. The CIT(A) applying the ratio of Hon'ble Supreme Court in CIT v. Podar Cement (P) Ltd. and Mysore Minerals Ltd. v. CIT held as under:
From the above judgments of the Apex Court also, it is very clear that the ownership is not to be governed by the fact that whether conveyance has been done or not. It is the possession and dominion over the property which are the determining factors for the ownership of the property.
6. The CIT(A) further observed that as the assessee had purchased the property at Khar in financial year 1992-93, took possession of the same and also received rent from the same and declared such income as income from property in the Income Tax Returns, it was sufficient to prove that though the conveyance deed was not issued till the date of sale of the shares, but the assessee was the owner of the property disentitling it from the exemption claimed under Section 54F of the Income Tax Act. The assessee was held to be not eligible for claiming the exemptions under Section 54F of the property on account of owning the Khar property as on the date of transfer of the shares. The issue of ownership of 1/4th share of house property in which assessee was residing for the purpose of disqualification for claiming exemption under Section 54F of the Income Tax Act was dismissed as infructuous as being an additional argument taken by the assessing officer.
7. The learned authorised representative for the assessee pointed out that under the pre-amended provisions of Section 54F of the Income Tax Act no exemption is allowable to the assessee against investment in an immovable property if on the date of transfer of asset against which exemption is claimed, the assessee owns any other property. The learned authorised representative further pointed out that on the date of transfer, the assessee was holding 1 /4th share in the same flat and later by investing in the said property by way of purchase of share of father-in-law and mother-in-law along with her husband, she became 76 per cent of the property. The learned authorised representative further relied on the decision in ITO v. Smt. Varsha P. Thanawala [IT Appeal No. 625 (Mum.) of 2002] wherein the claim of deduction under Section 54F on similar facts was allowed though the assessee therein had resided in the same unit prior to the date of purchase. The learned authorised representative further clarified that though the assessee had also acquired another tenanted building in assessment year 1992-93, the same was registered on 11-3-1999 i.e., after the date of claim of exemption under Section 54F of the Act. The learned authorised representative thus stressed that technically the assessee was not the owner of Khar property during the year under consideration. The learned authorised representative further stressed that the ratio laid down in the case of Podar Cement (P.) Ltd. do not apply as the assessee was claiming deduction under Section 54F of the Income Tax Act. Reliance was also placed on the decision of Gujarat High Court in CIT v. Chandanben Maganlal .
8. The learned Departmental Representative for the revenue stressed that the assessee was not entitled to the claim of deduction under Section 54F of the Act, in cases where share in the property is ascertainable and the proviso to Section 54F of the Act applies. Placing reliance on the decision of Gujarat High Court in Chandanben Maganlal cited by the learned authorised representative, the learned Departmental Representative for the Revenue stated that the said decision works both ways if on the conversion date the assessee owns 50 per cent share. The learned authorised representative for the assessee in rejoinder submitted that the CIT was wrong in observing that the concept of Section 26(3) of the Income Tax Act is only in respect of Section 22 of the Income Tax Act.
9. We have heard the rival submissions and perused the records. The assessee during the year under consideration had claimed the exemption under Section 54F of the Income Tax Act by way of additional investment in the flat of which the assessee was part owner as on the date of transfer of assets. The assessee had earned income from long-term capital gains on sale of shares and on the date of transfer of shares, the assessee was owner of 1/4th share in the Flat No. 505, 5th floor, Udyan Darshan, Sayani Road, Prabhadevi, Mumbai. Thereafter, the assessee bought the share of her parents in law along with her husband and accordingly became owner of 76 per cent share in the profit. On the aforesaid investment the assessee claimed the deduction under Section 54F of the Income Tax Act.
10. The Section 54F of the Income Tax Act provides as under:
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,
(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;
(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:
Provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the original asset, or purchases, within the period of one year after such date, or contracts, within the period of three years after such date, any residential house, the income from which is chargeable under the head Income from house property' other than the new asset.
11. The Tribunal in Smt. Varsha P. Thanawala's case (supra) had after following the decision of Bombay Bench in Tribunal in Smt. Kalwanti D. Alreja v. ITO [1996] 54 TTJ (Bom) 593 quoted from the said decision, which held as under:
In the instant case it can be said that the assessee on the date of purchase of 1/5th share from her son in the flat did not have any other identifiable different unit. Consequent upon the purchase also assessee had only one identifiable residential unit. She simply got the bigger share in the said unit by making the purchase. The fact that the assessee had interest in the same unit prior to the date of purchase is not the condition aliunde to which deduction under Section 54F can be denied to the assessee. Section 54F was inserted in the statute with an indent to provide incentive to the house building activity. In a welfare State it is necessary to see that citizens get proper shelter. To facilitate the task the section was enacted. It is a benevolent provision, therefore should not be construed too technically. Take an example constructs a house on a plot owned by him. First year he sells shares and constructs ground floor of the house. Next year again he sells the shares and constructs first floor. Benefit under Section 54F cannot be denied just because in the first year owns ground floor of the house. The meaning of the word owns on the date of transfer of original asset is in relation to an identifiable different unit and not in respect of the same unit. Therefore, conditions precedent for availing the benefit of Section 54F did exist in the facts and circumstances of the case. The C assessing officer is directed to allow the benefit of Section 54F to the assessee CIT v. Aravinda Reddy and Shiv Narayan Chaudhan v. CWT relied on.
12. Reliance was placed on the decision of Hon'ble Supreme Court in CIT v. T.N. Aravinda Reddy by the Tribunal in Smt. Varsha P. Thanawala (supra), and the claim of the assessee for deduction under Section 54F of the IT Act was allowed.
13. In the fact of the present case before us though the assessee had also purchased additional share in the property being similar to that in the case of Smt. Varsha P. Thanawala (supra) but in addition the assessee was also in possession of property at Khar during the year under consideration and the claim of deduction under Section 54F of the Income Tax Act is to be considered from the angle of the possession of the Khar Property. The assessee acquired a tenanted property consisting of ground floor and four floors at Jaibharat Co-operative Housing Society, Plot No. 24 (North), 3rd Road, Khar, Mumbai-52. It is an admitted claim of the assessee that the payment for the purchase of aforesaid property was made in financial year 1992-93 and the rent in respect of the same was being offered for tax as income from house property since investment was made by her which proves that the possession of the property is with the assessee. The conveyance of the said property was executed and registered on 11-3-1999 and accordingly, the assessee claims that during the year under consideration which is falling before the date of conveyance i.e. 11-3-1999 the assessee was not the owner of any other property except her share in the property at Prabhadevi.
14. Their Lordships of Apex Court in Podar Cement (P.) Ltd's case (supra) had held as under:
Hence though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc. in the context of Section 22 of the Income Tax Act, 1961 having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted.
15. Their Lordships of Hon'ble Supreme Court in Mysore Mineral's case (supra) held as under:
Held, reversing the judgment of the High Court, that the finding of fact arrived at in the case at hand was that though a document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. The assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part payment of the consideration.
16. Their Lordships of Apex Court in Mysore Minerals Ltd.'s case (supra) had in turn relied on the decision of Apex Court in Podar Cement (P) Ltd.'s case (supra).
17. The provisions of the Income Tax Act are to be read in harmony though the decision of the Apex Court in Podar Cement (P) Ltd.'s case is for the purpose of taxation of income under the head 'Income from Property' but similar amendments were made in the definition of transfer by way of insertion of Clause (v) to Section 2(47) of the IT Act wherein the definition of transfer was amended.
18. The provisions of Section 2(47) of the Income Tax Act were amended w.e.f. 1-4-98 and Clause (v) was inserted thereafter which provides as under:
(v) "any transaction involving the allowing of the 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).
19. The provisions of Section 2(47)(v) of the Income Tax Act accordingly provides that where a person receives the possession of immovable property in part performance of the contract of the nature referred to in Section 53A of the Transfer of Property Act, such a person is treated to be the owner of the property as the transfer is deemed to be completed for the purpose of Income Tax Act, though the conveyance of the property by way of registration of the document may take place at a future date. In the facts of the case before us the assessee had paid the sale consideration A for the purchase of flat at Khar, possession of which was handed over to the assessee in financial year 1992-93. The assessee is occupying the said property through its tenants, income of which is being shown and accepted under the head 'Income from property'. Only such income is assessable under the head 'Income from property' where the same is received from such asset of which the assessee is the owner. Accordingly, the ownership of the Khar flat in the hands of the assessee stands established, though the conveyance deed of the property was executed and registered on much later dated i.e. 11-3-1999.
20. The proviso to Section 54F of the Income Tax Act clearly provides that no deduction under that section shall be allowed if the assessee owns on the date of transfer of the original asset, any residential house the income of which is chargeable under the head 'Income from house property', other than the new asset. On the date of transfer of assets i.e. the shares of the Indian Company in the present case, the assessee owned 1/4th share in the flat at Prabhadevi and also owned the property at Khar as the same was in the possession of assessee, income of which was being computed under the Income from house property'. The assessee does not fulfil the conditions laid down in the Proviso to Section 54F of the Income Tax Act and accordingly, is disentitled to claim of deduction under Section 54F of the Income Tax Act.
21. The issue of the ownership of 1/4th share of the house property though decided in favour of the assessee in the case of Smt. Varsha P. Thanawala has no relevance as the facts of the present case are different on account of the fact that the assessee owns another property on the date of transfer of the original asset. Accordingly, we confirm the order of the CIT(A) and dismiss the ground of appeal raised by the assessee.
22. In the result appeal filed by the Assessee is dismissed.