Income Tax Appellate Tribunal - Hyderabad
Pritam H. Dadlani vs Income-Tax Officer on 16 January, 1989
Equivalent citations: [1989]29ITD440(HYD)
ORDER
R.D. Agrawala, Judicial Member
1. In this appeal, preferred by the assessee, wherein 8 grounds have been taken, the controversy centres round the admissibility to the exemption under Section 54(1) of the Income-tax Act, 1961 (referred as Act for brief) in view of the fact that the residential flat sold by Mm with regard to the sale proceeds of which the exemption is claimed is situated at Bombay while he was carrying on his business and residing at Hyderabad and secondly, that the new flat annexed by the assessee from the sale proceeds of the Bombay flat was not registered in his name within the stipulated period of one year.
2. Relevant facts which are not disputed are these : The assessee together with his late mother purchased a flat at Bombay for Rs. 75,000 during the year 1968. The assessee's mother died during June 1978. This flat was sold by the assessee during January 1981 for a sum of Rs. 2,58,000. An agreement to purchase a flat at Hyderabad was entered into by the assessee during October 1980. Out of total consideration of Rs. 1,60,000 a sum of Rs. 1,47,500 was paid in instalments between October 1980 to November 1981. Last instalment of Rs. 12,500 was paid during November 1982 and the sale deed executed a year after, i.e., in November 1983. The Department computed the capital gain at Rs. 1,38,750 in respect of which the assessee claimed exemption under Section 54(1) of the Aot.
3. At the assessment stage, the Income-tax Officer disallowed the exemption on the sole ground that the Bombay flat was not occupied by the assessee continuously as during this very period he was carrying on his business as well residing at Hyderabad. The plea raised by the assessee that whenever he used to go to Bombay in connection with his business or meet relatives he stayed in this flat was not accepted by the Income-tax Officer to take the view that it could amount to continuous living of the assessee. The Income-tax Officer placed reliance on two decisions viz., M, Viswanathan v. CIT [1979] 117 ITR 244 (Mad.) and Smt. Vijayalakshmi v. CIT [1975] 100 ITR 648 (Kar.) in support of his finding1.
4. The assessee appealed. The, learned Commissioner (Appeals) assigned one another reason in negativing the assessee's plea of exemption by holding that the flat at Hyderabad was not purchased by him within one year of the date of the sale of the Bombay flat.
5. The assessee assails the impugned order on both the counts. Shri M. J. Swamy, appearing for the appellant, contended that it was not a precondition of law that the disposed of property must have been used by the assessee continuously for his own or his parents' residence for a continuous period of two years. Secondly, the facts and circumstances of the case went a long way to establish that whatever lay within the power of the assessee in purchasing or acquiring the new property at Hyderabad was done by him and the mere delay in the execution of the sale deed could not be taken to the disadvantage of the assessee to conclude that this acquisition was bad on the ground that it was made beyond the prescribed period of one year. Shri K.K. Viswanatham, learned departmental representative, on the first issue, contended that the view taken by the authorities below was fully in consonance with the decisions in M. Viswanathan''s case (supra) and Smt. Vijayalakshmi's case (supra) and needed to be upheld. On the second issue it was submitted that in view of the ratio of the Supreme Court in Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 and the decision of the Tribunal in ITO v. Chancier Mohan [1988] 31 TTJ (Delhi) 327, it could not be held that the assessee purchased the flat at Hyderabad within a year of the sale of his Bombay flat and as such liable to pay capital gains tax.
6. We have given our most anxious consideration to the various pleas raised before us.
7. Taking up the first issue as to whether continuous occupation of the disposed of property for the specified period is a condition precedent or not to the eligibility of the exemption envisaged by Section 54(1) of the Act, there is no dispute to the assessee's plea that the flat at Bombay even after his shifting to Hyderabad remained in his possession, was not rented out but used by him as and when he happened to be there in connection with his business or social obligations.
8. Wo now take up the cases on which reliance is placed on behalf of the revenue. In M. Viswanathan's case (supra) it was held by the High Court of Madras that the words "in the two years immediately preceding" coupled with the words "was being used clearly connote the user by the assessee which extends to the date of transfer and since in that case the house was not used for a continuous period of two years for residential purposes by the assessee, the benefit of Section 54 was not available to him. In S?nt. Vijayalakshmi's case (supra) before the High Court of Karnataka, where the assessee had leased out the flat to her husband despite her residing therein, it was held that the flat was not being used mainly for the purpose of the residence of the assessee as the tenant, though the husband, had the legal right to be in possession and use it, disentitling the assessee to the exemption under Section 54. The learned Departmental Representative also placed reliance on another decision of the Madras High Court in CIT v. K.N. Srinivasan [1987] 163 ITR 320 wherein the same view that the use by the assessee or his parents for an unbroken and continuous period of the two years as residence was taken to be a condition precedent for the exemption under Section 54 is taken.
9. As against this, the assessee placed reliance on the following three authorities :
(1) Smt. D. Rani v. ITO [1987] 20 ITD 57 (Hyd.) (2) S. Harnam Singh Suri v. CBDT [1984] 145 ITR 159 (Delhi) (3) M. Abdul Sattar v. CIT [1987] 163 ITR 642 (Kar.) In Smt. D. Rani's case (supra), Hyderabad Bench 'B' of the Tribunal took the view that the term "in the two years" appearing in Section 54 only meant at any time within two years. Further Section 54 did not stipulate that user should be for the continuous period of two years. Hence, in the facts of that case, where the assessee had used the building of her residence only for a period of seven months, it was held that she was entitled to the benefit under Section 54. It may also be stated that the ratio laid down by the Madras High Court in Viswanathan's case (supra) was very much taken note of by the Tribunal but following a case decided by the High Court of Delhi in S. Harnam Singh Suri's case (supra) and holding that where a taxing provision is ambiguous or capable of more meaning than one, the interpretation which is beneficial to the subject must be adopted, the Delhi view was preferred.
10. In addition, Shri Swamy also relied on a Karnataka High Court's decision in M. Abdul Sattar's case (supra) in which the words "in the two years immediately preceding the date of transfer" were interpreted to mean at any time within two years and not for a continuous period of two years. In the case before us, there being no controversy, to the assessee's claim that he did not let out the Bombay flat nor parted with its possession in any manner and that he used it as and when at Bombay, we follow this Tribunal's decision in Smt. D. Rani's case (supra) which is supported by the view, taken by the Delhi High Court in S. Harnam Singh Suri's case (supra) and the Karnataka High Court in M. Abdul Sattar's case (supra) to say that the Bombay flat was being used by the assessee in the two years immediately preceding its sale, within the meaning and for the benefit of the provisions of Section 54.
11. We now pass on to the other issue to ascertain as to whether in the facts and circumstances of the case, the assessee could be said to have acquired the new flat at Hyderabad within one year of the sale of the Bombay flat.
12. Pacts as they are, the Bombay flat sold by the assessee during January 1981 and having entered into an agreement to purchase a flat at Hyderabad on 14th October, 1980, for a consideration of Es. 1,60,000 out of which a substantial chunk of Es. 1,47,500 was paid by the assessee before November 1981, it could be safely said that the assessee paid almost the entire sale consideration within the prescribed period of one year to the builders except a paltry sum of Es. 12,500 constituting less than 8 % of the total value of the property. This instalment of Rs. 12,500 was made good by the assessee during Nov. '82 though the registration of the sale deed took place only in the month of November 1983.
13. In support of his contention that the agreement and the payment concluded the purchase, Shri Bwamy in the first instance placed reliance on a decision of this Tribunal to which one of us is a party in Rajaram v. ITO [1986] 19 ITD 141 (Hyd.). In this case, the assessee had sold his residential flat on 5-3-1981. On 26-6-1981. he entered into an agreement to purchase a residential flat from a Construction Co. which construction was completed and conveyance deed executed and registered in his favour only on 3-3-1983. In the meantime, the assessee had paid a sum of Rs. 5,000 at the time of agreement within one year from the date of sale of the flat by him. Remaining payments were ma.de only after expiry of one year. The flat was also not in existence at the time of execution of the agreement. The Tribunal held as follows:
The expression 'purchase' occurring in Section 54 is not synonymous with 'ownership' or. 'transfer of legal title' whereas in Sections 22 and 45, which .are the charging sections creating tax liability, the words used are 'owner' and 'transfer' and they connote legal title, these words are conspicuous by their absence in Section 54 which provides for exemption. Therefore, the date of purchase for purposes of Section 54 need not necessarily be the date on which the legal title is vested in the purchased. Construing Section 54 liberally in order to effectuate the object of the Legislature, the date on which the assessee had entered into the transaction of purchase which eventually resulted or crystallised into purchase under a duly registered conveyance deed, could be taken as the date of purchase. In fact, the Supreme Court in CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46, held that acquisition through release from other co-owners amounted to purchase within the meaning of Section 54(1), and found no reason to divorce the meaning of the word 'purchase' as buying for a price or the equivalent of price by payment in kind or adjustment towards old debt or for other monetary consideration, from the legal meaning of that word in Section 54(1). Further, the Supreme Court observed that there was no stress in the section on 'cash and carry'. In view of this, the date of the agreement of purchase should be taken as the date of purchase for purposes of Section 54. Also even though the major part of the consideration had not been paid within a period of one year the assessee was not disentitled from exemption, because there was nothing in Section 54 to suggest that the consideration should be paid in cash within one year. To conclude, the term 'purchase' should be construed liberally in terms of the dicta of the Supreme Court in the case cited (supra) and the date of agreement of purchase should be taken as the date of purchase even though conveyance was given after expiry of one year from the date of sale of residential flat, and the mere fact that the major part of the consideration was paid after the expiry of one year would not disentitle the assessee from exemption under Section 54. Accordingly the order of the Commissioner was vacated.
14. The learned counsel then placed reliance on another decision of this Tribunal in Mrs. Shahzada Begum v. ITO [1983] 6 ITD 292 (Hyd.) wherein it was held that it was enough if the assessee is in a position to exercise rights in the property being acquired on his own rather than on behalf of vendor. In this case the assessee had paid major part of the sale consideration prior to the registration of the sale deed.
15. This case, on a, reference has since been affirmed by the High Court of Andhra Pradesh in CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397.
16. As against this, Shri K.K. Viswanatham, learned departmental representative, contended that in view of the law laid down by the Supreme Court in Nawab Sir Mir Osman Ali Khan's case (supra) and a recent decision of the Delhi Bench of this Tribunal in Chander Mohan's case (supra) the view taken by this Tribunal in Rajaram's case (supra) could no longer said to be good. That in Chander Mohan's case (supra) it was held that even where possession of residential flat had been passed on to the purchaser he did not become the purchaser in the eye of law or within the meaning of Section 54 of the Act since till before the execution of the conveyance deed, the flat in question was only agreed to be sold.
17. In reply, the learned counsel for the appellant contended that the ratio of Nawab Sir Mir Osman AH Khan's case (supra) was not applicable to the facts of the present case as therein, the apex Court was interpreting the words 'belonging to the assessee' appearing in Section 2(m) of the Wealth-tax Act, 1957. Shri Swamy reiterated that the appellant's case was fully covered by the decision of the Tribunal confirmed by the A.P. High Court in Smt. Shahsada Begum's case (supra).
18. We have considered the issue very carefully. We firstly take up Nawab Sir Mir Osman AH Khan's case (supra) wherein the Supreme Court held that where the sale deed was not executed and registered, the property continued to belong to the owner and it had to be included in the assessee's net wealth. The facts of the case are that the assessee, the Nizam of Hyderabad received full consideration in respect of certain properties owned by him from the purchasers but had not executed any registered sale deed in favour of the vendees. To the question of inclusion of the value of such properties, it was held by the apex Court that this had to be done as these properties continued to belong to the Nizam within the meaning of section 2(m) of the WT Act. We agree with the learned counsel for the appellant that the ratio of Nawab Sir Mir Osman Ali Khan's case (supra) evolved by the Supreme Court is applicable only in a particular contract, vis., in relation to a distinct set of words, namely, 'belonging to the assessee', as appearing in Section 2(m) of the WT Act and could not be applied to the wordings of Section 54 which are altogether different. That case is thus entirely distinguishable from the facts of the case before us.
19. We then take up Chander Mohan's case (supra) wherein the Delhi Bench of this Tribunal has taken the view that the transaction by which the new acquisition comes to the assessee must amount to a sale for which even payment coupled with delivery of possession was not enough as such delivery was a part of the scheme of the Transfer of Property Act envisaged by Section 53A which could be used only as a shield but not as a sword. It was thus held, that even the payment for the flat coupled with the delivery of possession would not make him the purchaser in the eyes of law for the purposes of Section 54 of the IT Act.
20. We have gone through the decision in Chander Mohan's case (supra) carefully. However, we cannot loss sight of the ratio of the decision in Mrs. Shahsada 'Begum's case (supra) which is binding for the State of Andhra Pradesh according to which wherein substantial sum had been paid towards the consideration of the new acquisition and vacant possession of the property was also delivered to the assessee, although sale deed not executed and registered after the expiry of the prescribed period, delay in registration of the "Bale deed was held to be immaterial and the assessee entitled to the benefits of Section 54(1). In the case before us, out of a total consideration of Rs. 1,60,000 a sum of Rs. 1,47,500 had been paid by the assessee to the builder. As regards possession, if we go through the agreement of sale, copy filed by the appellant, according to stipulation No. 4, the final payment had to be made by the purchaser after the premises are virtually completed and soon thereafter the purchaser will accept possession, meaning thereby that the maiden's possession of the flat was to be delivered only to the purchaser.
21. Applying Mrs. Shahzada Begum's case (supra), it is explicitly clear that the Lordships of the A.P. High Court visualised a situation wherein the property had not been acquired but was in the process of being acquired that they had to pronounce the law as to whether something less or something lacking in the completed transaction, i.e., execution of a registered sale deed could answer to the requirements of Section 54 of the Income-tax Act for claiming exemption from the exigibility of capital gains tax. In the circumstances of the case, to treat the payment of 92 % of the cost of the property by the assessee to the seller coupled with the factum of the delivery of maiden's possession, in our opinion, is sufficiently an overtact to overlook the delay caused in the registration of the sale deed and treat the last factor as immaterial. The transaction, as we view, shall entitle the assessee to claim exemption under Section 54.
22. In the result, appeal is allowed.