Income Tax Appellate Tribunal - Pune
Chandrashekhar S Bagade,, Pune vs Income Tax Officer,, on 29 June, 2018
आयकर अऩीऱीय अधधकरण "बी" न्यायऩीठ ऩण
ु े में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
श्री डी. करुणाकरा राव, ऱेखा सदस्य, एवं श्री ववकास अवस्थी, न्याययक सदस्य के समक्ष ।
BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM
आयकर अऩीऱ सं. / ITA No.46/PUN/2017
यनधाारण वषा / Assessment Year : 2013-14
Chandrashekhar S. Bagade,
Chaitraban, S. No. 662/42,
Pune - 411037
PAN : AMXPB8229M
.......अऩीऱाथी / Appellant
बनाम / V/s.
Income Tax Officer,
Ward - 5(1), Pune
......प्रत्यथी / Respondent
Assessee by : Shri Sharad A Vaze
Revenue by : Shri Mukesh Jha
सन
ु वाई की तारीख / Date of Hearing : 25-06-2018
घोषणा की तारीख / Date of Pronouncement : 29-06-2018
आदे श / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-8, Pune dated 28-10-2016 for the assessment year 2013-14.
2. The brief facts of the case as emanating from records are : The assessee is an individual. The assessee filed return of income for the 2 ITA No. 46/PUN/2017, A.Y. 2013-14 impugned assessment year on 28-06-2013 declaring total income of Rs.5,96,090/-. The case of the assessee was selected for scrutiny through CASS and accordingly, statutory notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued to the assessee on 01-09-2014. During the course of scrutiny assessment proceedings, the Assessing Officer observed that the assessee has sold two row houses on 14-08-2012 against consideration of Rs.1,78,82,500/-. After claiming deduction for construction and Indexed cost of acquisition, the assessee declared Capital Gains of Rs.92,58,014/-. The assessee claimed exemption u/s. 54 of the Act in respect of Capital Gains declared and thus has shown Nil income under the head Capital Gains. The Assessing Officer concluded that the assessee has failed to show purchase of new residential house within the stipulated time of two years as envisaged u/s. 54/54F and hence, disallowed assessee's claim of exemption. The Assessing Officer made addition of Rs.92,58,014/- claimed by the assessee u/s. 54 of the Act.
Aggrieved by the assessment order dated 10-02-2016, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) after rejecting the contentions of assessee not only upheld the findings of Assessing Officer in rejecting exemption claimed u/s. 54/54F of the Act but went a step ahead in holding Long Term Capital Gain declared by assessee on sale of land as Short Term Capital Gain. The Assessing Officer during assessment had accepted Long Term Capital Gain declared by assessee on sale of land. Now, the assessee is in second appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals). The assessee in appeal has raised following grounds :
3ITA No. 46/PUN/2017, A.Y. 2013-14
"1. In the facts and circumstances of the case, the Commissioner of Income Tax (A) VIII, has erred in law in deciding the long term capital gain as short term capital gain in deference to the Assessing Officer holding the same as long term capital gains.
2. Without prejudice to Ground No 1 above, in the facts and circumstances of the case, the Commissioner of Income Tax (A) VIII passed the order u/s 251 (2) on the grounds not appealed against by the assessee.
3. Without prejudice to Ground No 1 & 2 above the Commissioner of Income Tax (A) VIII, passed the order of enhancement u/s 251 (2) without giving an opportunity of being heard to the assessee.
4. In the facts and circumstances of the case, the lower authorities have erred in law as well as in fact in rejecting the claim of exemption u/s 54 of the Income Tax Act 1961.
5. In the facts and circumstances of the case, without prejudice to Ground No 4 above, the lower authorities have erred in law as well as in fact in rejecting the claim of exemption u/s 54F of the Inc Tax Act 1961.
6. Your petitioner prays further, if required, to add, amend, modify or withdraw any other document, evidence or grounds of appeal."
3. Shri Sharad A Vaze appearing on behalf of the assessee submitted at the outset that he is withdrawing ground No. 4 raised in the appeal. 3.1 The ld. AR further submitted that the Commissioner of Income Tax (Appeals) has erred in coming to the conclusion that the assessee has earned Short Term Capital Gain on sale of land. The ld. AR clarified that the assessee had purchased plot of land in the year 2001. The assessee started construction of house on the said plot in the year 2010. The completion certificate in respect of house was received in March, 2012. The assessee sold the house in August, 2012. In the return of income, the assessee declared Capital Gain on sale of building as Short Term Capital Gain. However, in respect of gain on sale of land, the same was claimed as Long Term Capital Gains. The assessee had claimed exemption u/s. 54/54F in respect of Long Term Capital Gains arising on sale of land. The 4 ITA No. 46/PUN/2017, A.Y. 2013-14 ld. AR submitted that the assessee had bifurcated capital gain on building and land and had claimed Long Term Capital Gains in respect of sale of land in accordance with the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Hindustan Hotels Ltd. & Anr. reported as 335 ITR 60. To support his contentions that the land was purchased in the year 2002 the ld. AR referred to purchase deed at page 24 of the paper book.
3.2 The ld. AR asserted that the Commissioner of Income Tax (Appeals) has travelled beyond the issue raised in the first appeal by the assessee. The assessee in appeal before Commissioner of Income Tax (Appeals) had assailed the action of Assessing Officer in denying exemptions u/s. 54/54F of the Act only. The assessee had purchased new residential property vide agreement dated 19-01-2013 from Lodha Developers in housing project "Lodha Belmond". The developers of the project could not obtain completion certificate till the date of assessment. The assessee had already paid substantial amount i.e. Rs.75,52,828/- (approximately 78% of the total consideration) upto the due date of filing of return of income. The assessee had made total payment of Rs.90,38,002/- within two years from the date of transfer of original asset. The assessee had invested more than 97% of the Capital Gains for acquiring new asset i.e. residential flat. The Assessing Officer denied the benefit of exemption u/s. 54/54F only on the ground that the new asset acquired by the assessee is incomplete. The ld. AR submitted that the Hon'ble Supreme Court of India in the case of Sh. Sanjeev Lal Etc. Vs. Commissioner of Income Tax reported as 365 ITR 389 has held that where the assessee has purchased another residential house within one year from the sale of original asset, even if the sale deed could not be executed on account of litigation, the assessee was entitled to seek 5 ITA No. 46/PUN/2017, A.Y. 2013-14 benefit of section 54 in respect of Long Term Capital Gains which was already invested for acquiring new asset/residential house.
4. Shri Mukesh Jha representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR submitted that the powers of Commissioner of Income Tax (Appeals) are co-terminus with that of the Assessing Officer. The Commissioner of Income Tax (Appeals) can adjudicate the issue which has been overlooked by the Assessing Officer.
5. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered the decisions on which the ld. AR has placed reliance in support his contentions. The ground Nos. 1 to 3 raised in the appeal are co-related and hence taken up together for adjudication. The assessee has assailed the findings of Commissioner of Income Tax (Appeals) in treating Long Term Capital Gain arising from sale of land as Short Term Capital Gain. The contention of the assessee is that only issue that was raised before the Commissioner of Income Tax (Appeals) in appeal was with respect to disallowance of exemption u/s. 54/54F of the Act.
In assessment proceedings the Assessing Officer has accepted the bifurcation of Capital Gains on sale of land and sale of building as Long Term Capital Gains and Short Term Capital Gains, respectively. The Assessing Officer denied exemption u/s. 54 claimed by assessee against Long Term Capital Gains on the ground that the new asset purchased by the assessee is still under construction and the possession has not been received by the assessee. Against denial of exemption u/s. 54F the assessee carried the matter in appeal before the Commissioner of Income 6 ITA No. 46/PUN/2017, A.Y. 2013-14 Tax (Appeals). We observe that the Commissioner of Income Tax (Appeals) has misunderstood the facts as narrated by the Assessing Officer in the assessment order. The Commissioner of Income Tax (Appeals) mistook the holding period of land, the same as that of building. The Commissioner of Income Tax (Appeals) failed to consider the principle of bifurcation of value of land and building for determination of Capital Gains.
6. The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Hindustan Hotels Ltd. & Anr. (supra) has affirmed the concept of bifurcating Capital Gains arising on sale of land and building. The relevant extract of the findings of Hon'ble High Court are as under :
"11. In our view whether the construction of the building has been completed or not would also not make any difference. It is well-settled by now that, unlike in England, in India, the concept of dual ownership is recognised in the sense that the land may belong to one person and the building standing thereon may belong to another. Reference may be made in that connection to the decision of the Supreme Court in Dr. K.A. Dhairyawan vs. J.R. Thakur AIR 1958 SC 789 and a decision of the Division Bench of this Court in CIT vs. Fazalbhoy Investment Co. (P) Ltd. (1977) 109 ITR 802 (Bom). Once the concept of dual ownership is accepted it matters not whether the construction of a building is completed or not. It also matters not whether the building is constructed by the owner of the land or by somebody else. In case of a leasehold land, the leasehold right would also be a capital asset under s. 2(14) of the IT Act in the hands of the lessee. In a given case the owner of the land and the owner of the building may be same person but that does not mean that two assets merge merely because they are owned by the same person. The capital gain arising out of sale of the land of the building can and would be required to be bifurcated, a gain arising out of the sale of land and a gain arising out of superstructure whether the building is complete or not. Consequently, we are of the view that the Tribunal was right in holding that the capital gain arising out of the sale of the leasehold interest in the land in incomplete building will have required to be bifurcated into the gain arising out of a sale of leasehold interest in the land and the sale of the incomplete building. Question (A) is therefore answered in favour of the assessee and against the Revenue."
7. The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Citibank N.A. reported as 261 ITR 570 has taken a similar view. The facts of the case are; the assessee had purchased plot of land in 7 ITA No. 46/PUN/2017, A.Y. 2013-14 December, 1975, constructed residential bungalow in 1976 and in August, 1978 the assessee sold the entire property. In the return of income the assessee offered Capital Gains on sale of bungalow as Short Term Capital Gains and on sale of land as Long Term Capital Gains. The Tribunal accepted the bifurcation of Capital Gains on sale of land and sale of bungalow as Long Term Capital Gains and Short Term Capital Gains, respectively. The Revenue carried the mater in appeal before the Hon'ble High Court. The substantial question of law which arose before the Hon'ble High Court was :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the surplus realised on the sale of land shall be treated as long-term capital gains and the surplus on sale of building shall be treated as short-term capital gain ?"
The Hon'ble High Court answered the above question in affirmative upholding the findings of Tribunal as under :
"It is well settled that in the matter of capital gains, the charging s. 45 and the computation provisions under ss. 48 and 50 constitute one integrated code. That, the character of computation provisions bear direct relationship to the nature of the charge under s. 45 of the IT Act. This point is important to decide the point at issue in this case because, without the computation provisions, the charge by itself under s. 45 cannot stand. Hence, bifurcation is necessary between the site and the building for the purposes of capital gains. Therefore, profits arising from sale of site is required to be treated separately from profits arising from sale of building. Now, in the present case, the assessee received Rs. 14,00,000 for land under the above conveyance as against the cost of Rs. 9,20,530 resulting in the capital gain of Rs. 4,79,470. According to the Department, this working is correct (see p. 82 of the paper book). However, according to the Department, since land was a part of the superstructure, the said amount of Rs. 4,79,470 was not a long- term capital gain but it was to be treated as short-term capital gain. This is the only issue which arises in this case. As stated above, this view of the Department is erroneous for two reasons. Firstly, under s. 32(1), no depreciation is admissible for land [see judgment of the Supreme Court in the case of Alps Theatre (supra)]. Secondly, the Department can assess the company to short-term capital gains only qua depreciable assets which in the present case is the superstructure erected on the site [see s. 41(2) of the IT Act as it stood at the relevant time]. For both the above reasons, we hold that in the present case, on sale of land married to the building vide conveyance, dt. 7th Aug., 1978, the gain which accrued to the assessee was long-term capital gain and the Department was wrong in treating such gain as short-8 ITA No. 46/PUN/2017, A.Y. 2013-14
term capital gain. Our view is supported by the judgment of the Madras High Court in the case of CIT vs. Dr. Ramachandra Rao (supra), which has taken the view that if the lands are held by the assessee for a period more than the period prescribed under s. 2(42A) of the IT Act, 1961, viz., 36 months then, it is not possible to say that by construction of the building thereon, the land which was a long-term capital asset ceases to be such long-term capital asset. This is because, the land is an independent and identifiable capital asset, and it continues to remain so even after construction of the building thereon. We respectfully agree with the view taken by the Madras High Court in the above judgment."
8. Thus, in view of the facts of the case and the decisions discussed above, we are of considered view that the Commissioner of Income Tax (Appeals) has erred in treating the Capital Gains on sale of land as Short Term Capital Gains. Accordingly, ground Nos. 1 to 3 raised in the appeal by the assessee are allowed.
9. As regards ground No. 4 of the appeal, the ld. AR of the assessee made statement at the Bar to withdraw ground No. 4 raised in the appeal. Accordingly, the same is dismissed as withdrawn.
10. In ground No. 5 the assessee has assailed rejection of assessee's claim of exemption u/s. 54F of the Act. We find that this issue has not been adjudicated by the Commissioner of Income Tax (Appeals). Accordingly, we deem it appropriate to remit this issue back to the file of Commissioner of Income Tax (Appeals) for adjudicating assessee's claim of exemption u/s. 54F of the Act in the light of various judicial pronouncements on the eligibility of assessee for claiming exemption u/s. 54F of the Act and the provisions of section 54F. Needless to say before adjudicating this issue afresh, the Commissioner of Income Tax (Appeals) shall grant reasonable opportunity of hearing to the assessee, in 9 ITA No. 46/PUN/2017, A.Y. 2013-14 accordance with law. Accordingly, ground No. 5 raised in the appeal is allowed for statistical purpose.
11. The ground No. 6 raised in the appeal is general in nature, hence, requires no adjudication.
12. In the result, the appeal of assessee is partly allowed in the terms aforesaid.
Order pronounced on Friday, the 29th day of June, 2018.
Sd/- Sd/-
(डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक / Dated : 29th June, 2018
RK
आदे श की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to :
1. अऩीऱाथी / The Appellant.
2. प्रत्यथी / The Respondent.
3. आयकर आयुक्त (अऩीऱ) / The CIT(A)-8, Pune
4. The Pr. Commissioner of Income Tax-3, Pune
5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, "बी" बेंच, ऩण ु े / DR, ITAT, "B" Bench, Pune.
6. गाडड फ़ाइऱ / Guard File.
//सत्यावऩत प्रयत // True Copy// आदे शानस ु ार / BY ORDER, यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune