Income Tax Appellate Tribunal - Chandigarh
Mr. Manjit Singh, Chandigarh vs Ito, Chandigarh on 5 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'B', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.716/Chd/2017
(Assessment Year: 2013-14)
Mr. Manjit Singh Vs. The ITO
Plot No. 25/7, Industrial Area Ward 1(2)
Phase-2, Chandigarh Chandigarh
PAN: AIOPS1331G
(Appellant) (Respondent)
Assessee by : Shri Parikshit Aggarwal
Revenue by : : Shri Manjit Singh
Date of hearing : 08.11.2017
Date of Pronouncement : 05.02.2018
ORDER
PER ANNAPURNA GUPTA, A.M.:
The present appeal has been filed by the assessee against the order passed by the Commissioner of Income Tax (appeals)-1, Chandigarh dated 06. 03. 2017.
2. Briefly stated the facts of the case are that the assessee had sold 50% share in his House No. 779, sector 22 Chandigarh on 07.11.2012 for Rs.57,50,000/- and earned long-term capital gains of Rs.53,68,084/-. The assessee sought exemption of the capital gains u/s 54 of the Act, by showing that the funds were invested in flat No. 906, in Marvel Cerise Apartments in Pune. The Assessing Officer denied the exemption stating that it was a case of purchase of flat since the assessee had purchased it from his daughter and the agreement of purchase was between the assessee and daughter and 2 not the builder, and the said flat had been purchased beyond the specified period of 2 years from the date of sale of original asset since the registered deed for the new asset was dated 24-12-2014, while the original asset was sold on 07-11-12.
3. The matter was carried in appeal before the Ld. CIT(appeal), who after considering the submissions of the assessee and the facts of the case narrowed down the points of dispute to:
a) whether the new flat acquired should be taken as purchase or construction?
b) whether the date of acquisition of new flat be taken as 24.12.2014 being the date of deed of transfer/assignment and what was the period within which the investment in new flat/ house could have been made?
4. Thereafter after considering the provisions of section 54 of the Act and on examining the agreement between the builder and the daughter of the assessee, the MOU between the daughter and assessee, and the Deed of Transfer/ Assignment and the payment pattern , the CI T( appeal) held that it was a case of construction of the residential house and the assessee was entitled to exemption with respect to investment made in construction 3 years after the date of sale. He thereafter held that all investments made in the construction of the new asset or by way of deposit in any bank/institution or in any scheme specified or notified by the government 3 before 31. 07. 2013, i.e. the due date of filing of return under section 139(1) was eligible for deduction under section 54 of the Act. The Ld. CI T(appeal) on perusing the details of investments made by the assessee found that out of the total investment made by the assessee of Rs. 75,11,862/- only Rs.30,37,745/- had been invested after the date of sale of original asset and the balance of Rs. 44,74,117/- was made before the date of sale. He therefore held that the sum of Rs. 44, 74,117/- could not be allowed as deduction. Out of the remaining Rs.30,37,745/- the CI T(appeal) found that only Rs. 8,06,045/-was invested in construction after the date of transfer of the original asset up to the date of filing of return of income, i.e. 31/07/2013, while the remaining amount was invested after the due date of filing of return. He therefore restricted the deduction under section 54 to Rs. 8,06,045/- confirming the denial of deduction of the balance of Rs.45,62,039/-.
5. Aggrieved by the same the assessee has come up in appeal before as raising the following effective grounds:
1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 264/15-16 dated 06.03.2017 has erred in passing that order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961.
2. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) was unjustif ied in not allo wing complete deduction claimed u/s 54 out of long term capital gain arising f rom sale of a residential house and thereby partly conf irming the action of Ld. AO in respect of not allo wing deduction u/s 54 on 4 following items :
1) Aggregate payments of Rs. 19,51,950/-
made to builder for a residential f lat during the period of more than 1 year but less than 2 years prior to the date of sale of residential house f rom which taxable long capital gain arose.
1) Aggregate payments of Rs. 25,22,166/-
made to builder for a residential f lat during the period of 1 year prior to the date of sale of residential house.
2.3 Amount of Rs. 2,00,000/- deposited in capital gain scheme account on 27.09.2013 and subsequently util ized f or payment to builder f or a residential f lat, by erroneously interpreting that the amount in capital gain scheme account should have been deposited bef ore the due date of f iling of lTRu/s 139(1) and not u/s 139(4).
6. At the outset Ld.Counsel for the assessee pointed out that this issue has already been decided by the ITAT in the case of the assessee's wife who was the owner of the remaining 50% share of the original asset sold in ITA No. 717/Chandigarh/2017 vide their order dated 28.9.2017. Copy of the order was placed before us.
7. Ld. DR fairly admitted that the issue had been decided by the ITAT in favour of the assessee. Ld. DR however relied on the order of the CIT( appeal)
8. We have heard the rival contentions and perused the orders of the authorities below and the order of the ITAT referred to before us .
9. The sole issue to be decided before us is vis a vis the claim of deduction under section 54 of the Act on account of investment made in a new house from the capital gains earned by the assessee. The fact that the 5 capital gain earned by the assessee amounted to Rs.53,68,084/- and the fact that the assessee was eligible to claim deduction under section 54 on account of investment made in a new flat is not disputed. The findings of the Ld. CIT(appeal) that the investment made in the new flat tantamounted to construction has not been disputed by the revenue in appeal before us. The only issue for consideration is whether the investment made in construction of the new house prior to the date of sale of the original asset and the investment made after the due date of filing of return of income as specified under section 139(1) of the Act, is eligible for deduction under section 54 of the Act. The details of the investment made in the construction of the new house as reproduced in the order of the CI T(A)is as under:
P er i o d A m o unt ( in R s. ) Ti mi ng of p ay me nt s Pr i or to 1 9, 5 1, 9 5 0/ - Ear l ier t h en 1 ye ar 0 7. 1 1. 2 0 1 2 (B y Da u ght er ) 0 7. 1 1. 2 0 1 1 too 1 6, 6 9, 9 6 9/ - 1 y e ar bef or e d at e of 0 7. 1 1. 2 0 1 2 sa le ( By d a ught er )
- d o- 8, 5 2, 1 9 7/ - 1 y e ar bef or e d at e of sa le ( By A p p ell ant ) 0 7. 1 1. 2 0 1 2 to 2, 6 8, 8 9 2/ - Af t er d at e of s al e ( By 3 0. 1 0. 2 0 1 4 D a ught er )
- d o- 2 2, 8 4, 1 5 3/ - Af t er d at e of s al e ( By A p p ell ant ) D ec e m ber , 2 0 1 4 4, 8 4, 7 0 0/ - Af t er d at e of s al e ( By A p p ell ant ) T ot al 7 5, 1 1, 8 6 2/ -
10. It is an admitted and accepted fact that the flat was booked by the assessees daughter and initial payments made by her, on behalf of the assessee, her father, which was later transferred in the name of the assessee vide Deed of Transfer/Assignment Dated 24-12- 2014.Also it is an undisputed fact on record that the 6 assessee had returned money to his daughter by 18-11- 2014. Further, out of the above investment, the amount invested in the construction of the new house prior to the date of sale of original asset amounted to Rs. 44,74,117/-.The assessee has contended that out of the same, Rs.19,51,950/- was invested during the period of more than 1 year but less than 2 years prior to the date of sale of original asset ,while the balance Rs.25,22,166/- was invested during the period of 1 year prior to the date of sale of residential house. The Revenue has not disputed the aforesaid facts. Deduction u/s 54 has been denied on the same since as per the Revenue it is only investment made after the sale of the original asset which is allowed as per the section.
11. Further, the investment made in the new asset after the due date of filing of return, i.e. 31.07.2013 amounted to Rs.22,31,700/- and the same has been denied for the reason that the investments in the new house had to be made up to the due date specified under section 139(1) of the Act, i.e. 31/07/2013.
12. We have also gone through the order of Mrs Paramjeet Kaur (supra) which was referred to by the Ld. Counsel for the assessee before us and we find that the issue in that case was also identical. As pointed out by Ld.Counsel for the assessee, the assessee in that case was co-owner of the house being owner of 50% share and had shown identical capital gains earned from the same, 7 of Rs.53,68,084/-. The assessee in that case had also been denied deduction under section 54 on the investments made in the construction of new house prior to the date of sale of original asset and the investment made after the due date of filing of return of income as specified in section 139 (1) of the Act. The I TAT in the said case had allowed both the deductions claimed by the assessee holding that the section does not place any condition on the date of commencement of construction of the new house and only specifies the period within which the construction should be completed from the date of sale of original asset i.e 3 years. Relying upon several decisions of the High Court, the tribunal held that even investment made in construction of new house prior to the date of sale of original asset was eligible for deduction under section 54. The relevant findings of the ITAT at para 18 to 21 of the order is as under:
18. The main argument of the Ld. counsel for assessee has been that having accepted the fact that the amount invested in new flat by virtue of agreement entered into with the builder tantamounted to construction of the residential house, the only limitation prescribed by section 54 of the Act was that the construction ought to have been completed within a period of three years and the said section did not prescribe any condition vis-a-vis the commencement of construction. The Ld. counsel for assessee has relied upon several case laws in this regard.
18. We have gone through the decisions relied upon by the Ld. counsel for assessee and find merit in the contention of the Ld. Counsel for the assessee. The Hon'ble Delhi High Court in the case of Bharati Mishra ((supra) has categorically held that the condition stipulated by section 54F which is identical to that in section 54 of constructing a residential house within three years for the purpose of claiming deduction 8 does not stipulate that the construction must have taken place after the date of sale of original or old asset. The relevant findings of the Hon'ble High Court are as under:
"12. Section 54F(1) if read carefully states that the assesseee being an individual or Hindu Undivided Family, who had earned capital gains from transfer of any long-term capital not being a residential house could claim benefit under the said Section provided, any one of the following three conditions were satisfied; (i) the assessee had within a period of one year before the sale, purchased a residential house; (ii) within two years after the date of transfer of the original capital asset, purchased a residential house and (Hi) within a period of three years after the date of sale of the original asset, constructed a residential house.
13. For the satisfaction of the third condition, it is not stipulated or indicated in the Section that the construction must begin after the date of sale of the original/old asset. There is no condition or reason for ambiguity and confusion which requires moderation or reading the words of the said sub-section in a different manner. The apprehension of the Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is ill-founded and misconceived. The requirement of sub-section (4) is that if consideration was not appropriated towards the purchase of the new asset one year before date of transfer of the original asset or it was not utilised for purchase or construction of the new asset before the date of filing of return under Section 139 of the Act, the balance amount shall be deposited in an authorized bank account under a scheme notified by the Central Government. Further, only the amount which was utilised in construction or purchase of the new asset within the specified time frame stand exempt and not the entire consideration received.
14. Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset inform of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Supreme Court in CCE versus Favourite Industries, (2012) 7 SCC 153 has succinctly observed:-
"21. Furthermore, this Court in Associated Cement Companies Ltd. v. State of Bihar [(2004) 7 SCC 642] , while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held: (SCC p. 648, para 12) 9 "12. Literally 'exemption' is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach offiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 : 1990 SCC (Tax) 422] and Mangalore Chemicals and Fertilisers Ltd. v. CCT [1992 Supp (1) SCC 21] to which reference has been made earlier.)"
22. In G.P. Ceramics (P) Ltd. v. CTT [(2009) 2 SCC 90] , this Court has held: (SCC pp. 101-02, para 29) "29. It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See CTT v. DSM Group of Industries[(2005) 1 SCC 657] (SCC para 26); Tisco Ltd. v. State of Jharkhand [(2005) 4 SCC 272] (SCC paras 42-45); State Level Committee v. Morgardshammar India Ltd. [(1996) 1 SCC 108] ; Novopan India Ltd. v. CCE & Customs [1994 Supp (3) SCC 606) ; A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala[(2007) 2 SCC 725] and Reiz Electrocontrols (P) Ltd. v. CCE. [(2006) 6 SCC 213]"
15. In view of the aforesaid position, we do not find any merit in the present appeal and the same is dismissed."
20. Similarly, the Hon'ble Allahabad High Court in the case of H.K. Kapoor (supra) has also reiterated the said proposition stating that the exemption of capital gain u/s 54 of the Act can be allowed not withstanding the fact that the construction of the new house had begun before the sale of the old house agreeing with the proposition laid down by the Hon'ble Karnataka High Court in the case of J.R. Subramanya Bhatt (supra) as under:
"5.There is no dispute that the building has been 10 constructed within two years from the date of sale of the old building. The old building was sold in February, 1977. The new building was completed in March, 1977, the construction of which had commenced in 1976. Sec. 54 of the IT Act so far as it is relevant provides:
"Where a capital gain arises from the transfer of a capital asset to which the provisions of s. 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house vroperty for the purposes of his own residence, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,.."
Under this section, if the assessee has within a period of one year after the date on which the transfer took place purchased or has within a period of two years after that date constructed a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the other provisions set out in the said section. The Tribunal on an appreciation of the evidence has firstly found that the building was used by the assessee mainly for his residential purpose. Taking into consideration the area of the building under the occupation of the assessee, it has stated that the ground floor occupied by the assessee including the garage was 1 ,330 sq. ft. The land appurtenant to the ground floor excluding the land occupied by the house was 4,795 sq. ft. That was also held to be under the occupation of the assessee. This building with the land has been sold. It was only the first floor that was let out. The Tribunal took into consideration the extent of the building used mainly for the residential purpose of the assessee and found that the major portion of the building was under the occupation of the assessee. The Tribunal, therefore, concluded that the first condition prescribed under s. 54 was satisfied. This finding, it may be seen, has been arrived at by the Tribunal upon appreciation of the evidence and the factual aspects of the case.
6. So too was the next conclusion reached bu the Tribunal. The date of the sale of the old building was 9th Feb., 1977. The completion of the construction of the new building was in March, 1977, although the 11 commencement of the construction started in 1976. It is immaterial, as the Tribunal, in our opinion, has rightly observed, about the date of commencement of the construction of the new building. Since the assessee has constructed the building within two uears from the date of sale of the old building, he was entitled to relief under s. 54 of the Act."
21. The Ld. DR has not brought any contrary decision to our notice in this regard, nor brought to our notice any distinguishing facts in the present case so as to distinguish the case laws relied upon by the Ld. counsel for assessee. In view of the same, we hold that the investments made by the assessee in the construction of the house prior to the sale of the original asset is also eligible for deduction u/s 54 of the Act. Thus we hold that the assessee is entitled to claim deduction u/s 54 of the Act of Rs. 18,52,650/- and Rs.25,40,389/- invested in the construction of new asset prior to the sale of original asset. Ground Nos. 2.1 and 2.2 raised by the assessee, therefore, stand allowed.
13. The ITAT also dealt with the issue of investment made in capital gains account scheme after the due date of filing of return as specified under section 139 (1) and held that investments made up to the date of filing of delayed return as specified under section 139 (4) were to be considered for the purpose of section 54. The ITAT therefore allowed the deduction claimed by the assessee since the entire investments had been made up to the date specified under section 139 (4) though after the due date of filing of return of income under section 139 (1). The relevant findings of the ITAT at para 22 and 23 of the order are as under:
"22. As far the amount invested in the capital gain account scheme, it is not disputed that the said amount was deposited after the due date of filing of the return of income u/s 139(1) of the Act. The assessment year in the impugned case being assessment year 2013-14 the date by which the delayed return could be filed u/s 139(4) is 31.5.2015 i.e. one year after the end of the relevant assessment year. The deposit in the capital gain account scheme has been made on 27.9.2013 which is well before the due date for filing the return of income u/s 139(4). The Hon'ble jurisdictional High Court in the case of Jagriti Aggarwal (supra), while dealing with an identical issue held that though section 54 12 stipulates deposit of amount in the capital gain account scheme before the due date specified u/s 139(1), section 139(4) which extends the date of filing of return of income was held to be a proviso to sub-section (1) of section 139 of the Act and not an independent provision and thus the Hon'ble Court held that the due date of furnishing of return of income as per section 139(1) was to be subjected to the extended period provided under subsection (4) of section 139 of the Act. The relevant findings of the Hon'ble Court are as under:
" 10. Having heard learned counsel for the parties, we are of the opinion that subs. (4) of s. 139 of the Act is, in fact, a proviso to sub-s. (1) of s. 139 of the Act. Sec. 139 of the Act fixes the different dates for filing the returns for different assessees. In the case of assessee as the respondent, it is 31st day of July of the assessment year in terms of cl. (c) of the Expln. 2 to sub-s. (l)ofs. 139 of the Act, whereas sub-s. (4) of s. 139 provides for extension in period of due date in certain circumstances. It reads as under:
"(4) Any person who has not furnished a return within the time allowed to him under sub-s. (1), or within the time allowed under a notice issued under sub-s. (1) of s.
142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier:
Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1988 or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year."
11. A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub-s. (1) i.e., before 31st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year.
12. The sale of the asset having taken place on 13th Jan., 2006, falling in the previous (sic--assessment) year 2006-07, the return could be filed before the end of relevant asst. yr. 2007-08 (2006-07) Le. 31st March, 2007. Thus, sub-s. (4) of s. 139 provides extended period of limitation as an exception to sub-s. (1) of s. 139 of the Act. Sub-s. (4) is in relation to the time allowed to an assessee under sub-s. (1) to file return.
Therefore, such provision is not an independent provision, but relates to time contemplated under sub-s.
(1) of s. 139. Therefore, such sub-s. (4) has to be read 13 along with sub-s. (1). Similar is the view taken by the Division Bench of Karnataka and Gauhati High Courts in Fatima Bai and Rajesh Kumar Jalan cases (supra) respectively.
13. In view of the above, we find that due date for furnishing the return of income as per s. 139(1) of the Act is subject to the extended period provided under sub-s. (4) of s. 139 of the Act"
23. In view of the proposition laid down by the Hon'ble jurisdictional High Court in this regard we hold that the assessee in the present case having deposited the amount in the capital gain scheme before the due date specified u/s 139(4), was entitled to claim deduction of the same u/s 54 of the Act. Thus the disallowance of deduction made by the Ld.CIT(Appeals) to the extent of Rs.2 lacs on this account is deleted. Ground No.2.3 raised by the assessee is, therefore, allowed.
14. Thus the I.T.A.T. has held that the assessee is entitled to exemption under section 54 on investment made in cost of new house both prior to the date of sale of original asset and to the amount invested in Capital Gains Account Scheme up to the date of filing of return under section 139(4) of the Act.
15. In the present case before us ,the assessee by way of its grounds of appeal in Ground No.2.1 & 2.2, has sought deduction u/s 54 on the amount invested in new asset prior to the date of sale of original asset ,to the extent of Rs.44,74,117/-, which following the aforesaid decision of the ITAT, we hold that the assessee is entitled to, having made the investment within a reasonable period prior to the date of sale of original asset.
Grounds of appeal raised by the assessee in Ground No.2.1 & 2.2 therefore are allowed.
16. Further the assessee has sought deduction u/s 54 on account of the amount invested in Capital Gains Account Scheme on 27-09-2013, i.e after the due date of filing of return as per 14 section 139(1) of the Act, but before the due date as per section 139(4) of the Act, being 31.03.2015 in the present case, and amounting to Rs.2,00,000/-. In this regard we find that the facts before us are contradictory, with the Ld.CIT(A) giving a finding that no investment was made in the Capital Gain Account Scheme, while the assessee has claimed otherwise. We therefore consider it fit to restore the matter back to the Assessing Officer to re-examine the claim of the assessee of deduction u/s 54 to the extent of the balance amount of Rs.2,00,000/- after duly verifying the facts relating to it. We may add that the assessee be granted due opportunity of hearing and the issue thereafter be decided in accordance with law.
17. In view of the above Ground No.2.3 stands allowed for statistical purposes.
18. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court.
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 05 February, 2018
*Rati*/AG
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)s
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh