Income Tax Appellate Tribunal - Agra
Subhash Chand Kapoor, Agra vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND
SHRI P.K. BANSAL, ACCOUNTANT MEMBER
ITA No.663/Agr/2008
Asst. Year: 2004-05
Shri Subhash Chand Kapoor, Vs. The Income-tax Officer-1(1),
402, Pushpanjali Tower Extension, Agra.
Agra.
(PAN : ACNPK 8844 M).
ITA No.19/Agr/2009
Asst. Year: 2004-05
Shri Rajendra Kapoor, Vs. The Income-tax Officer-1(3),
Prop. M/s. Mahindra Diesels, Agra.
2-3, Rachna Fauzdar Market,
Freeganj, Agra.
(PAN : AKBPK 6492 P).
(Appellants) (Respondents)
Appellants by : Shri Sahib P. Satsangee, C.A.
Respondents by : Shri R.C. Sharma, Jr. D.R.
ORDER
PER P.K. BANSAL, A.M.:
These two appeals have been filed by two different assessees. As the facts involved in both the appeals are common, therefore, both these appeals are disposed of by this common order. ITA No.663/Agr/2008 has been filed by the assessee against the order of the CIT(A) dated 10.09.2008 by taking the following effective grounds of appeal:-
"(1) Because the leaned authorities below have erred on facts and in law in working out the cost of acquisition excluding the fair market value of the 2 residential building which existed on the date of transfer of the long term capital asset.
(2) Because the learned authorities below have erred on facts and in law in disallowing the exemption claimed under section 54 on sale of residential house on the basis that as per the sale deed the assessee had sold plot of land. They have ignored the submissions and the affidavit filed by the assessee that to facilitate the sale, plot of land was mentioned, but in fact what was sold was residential house which is fully proved and established with reference to -
- Report of approved valuer
- Receipt for payment of municipal taxes
- Letter of discontinuance of electric connection
- Affidavit of the assessee"
2. The brief facts of the case are that the A.O. noted from the return filed by the assessee at nil income that the assessee has claimed to have sold residential house in which the assessee was having 1/3rd share on 15.10.2003 and 26.12.2003 for Rs.29,40,000/- and Rs.46,00,000/-
respectively. On 15.10.2003, the assessee sold land appurtenant to the house. The 1/3rd share of the assessee in the sale consideration of both the properties worked out to Rs.25,13,333/-. Cost of acquisition for both the sale was claimed by the assessee on the basis of valuation report of approved valuer at Rs.6,42,000/-, 1/3rd share thereof amounting to Rs.2,14,000/-. The assessee has worked out the indexed cost at Rs.9,90,820/- relating to his share for both the sales and the capital gain was arrived at Rs.15,22,513/- after claiming the exemption under section 54 and 54EC, Long Term Capital Gain (LTCG) was worked out at nil. From the perusal of the copy of the sale deed dated 26.12.2003, the A.O. and the CIT(A) came to the conclusion that the assessee has sold the plot of land after dismantling the construction thereon and not the house property. Therefore, the exemption claimed by the assessee under section 54 of the Act was disallowed but the exemption under section 54F was allowed only on the purchase cost at Rs.7,50,000/- excluding the cost of stamp duty apparently by mistake by the A.O. The A.O. has also, on the basis of the approved valuer, taken the cost of the land only at Rs.3,99,825/-. 1/3rd share thereof 3 at Rs.1,33,275/- since the property was devolved on the assessee and others from late Shri Hans Raj Kapoor. During the year 1999-2000, the A.O. has not allowed the indexed cost of acquisition from 01.04.1981 but allowed indexation from the year 1999-2000. The claim of the assessee in respect of the exemption under section 54EC for Rs.7,00,000/- was duly accepted by the AO. The A.O. thus worked out the net income of the assessee at Rs.11,80,111/- including Rs.11,63,218/- from the LTCG. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the action of the A.O. taking the cost of acquisition at Rs.1,33,275/- against Rs.2,14,000/- claimed by the assessee. The CIT(A) also confirmed the finding of the A.O. that the assessee has not sold the house property but sold the plot of land after quoting the relevant paragraph from the copy of the sale deed. He also confirmed the action of the A.O. not allowing exemption under section 54 of the Act. The CIT(A) allowed the contention of the assessee that the indexation has to be done on the fair market value as on 01.04.1981 when the property was devolved to the assessee after the death of his father. The CIT(A) also directed the A.O. to allow exemption to the assessee under section 54F of the Act.
3. The ld. A.R. before us vehemently contended that the assessee has sold the two capital assets land appurtenant to the residential and residential house on 15.10.2003 and 26.12.2003 respectively. On 15.10.2003, land appurtenant to residential house was sold while on 26.12.2003, the property was sold. In the sale deed dt. 26.12.03, it has wrongly been mentioned that the assessee has sold the land. He contended that the residential property was in existence on the impugned land when the land appurtenant to property was sold. For this, he submitted various evidences before the Authorities below including the appellate order passed by the ACIT-II, Agra for the A.Y. 1972-73 in the case of his father late Shri Hans Raj Kapoor, copy of 4 certificate issued by Lajpat Kunj Association in the name of the assessee's father late Shri Hansraj Kapoor, copy of the certificate issued by Lajpat Kunj Association issued in the name of the assessee, photocopy of the gas connection in assessee's name showing the address as 32, Khandari Road, Agra, photocopy of the receipt dated 09.02.2004 for the payment of municipal tax for the same property. The photocopies of all these documents were filed before us also. This all proves that there was residential building. The said property was sold in two parts. Land appurtenant of the property was sold vide sale deed dated 15.10.2003 and the other part was sold vide sale deed dated 22.06.2003. Merely the assessee mentioned in the sale deed that the assessee has sold the vacant plot of land, it cannot be said that there was no structure on the other part of the building. Since the assessee has sold the residential property, therefore, the assessee was entitled for exemption under section 54 of the Act in respect of capital gains arising out of the sale through both the sale deeds. It was also contended that the A.O. was not correct in law in taking cost of acquisition at Rs.1,33,275/- i.e. only cost relating to land. Even if the Tribunal agrees with the A.O. that the assessee has sold the land, the cost of acquisition should be taken fair market value of the property as on 01.04.1981. The approved valuer has valued the property as on 01.04.1981 at Rs.6,42,000/-. This fact has not been denied by the A.O. Referring to section 48 of the Act, it was contended that this section laid down the mode of computation of capital gain. The cost of the acquisition of the asset and cost of any improvement thereon has to be deducted. The cost of any improvement will include all the expenditure which has been incurred by the assessee for making or altering the capital asset to the present situation. In this regard, reference was made to section 55(1) of the Act. This is a fact on record that the assessee as well as his father from whom the assessee devolved the property was putting up in the same very property. The second sale deed only talks of that the old construction has been dismantled 5 by the assessee and converted the property into the land. The expenses incurred by the assessee in construction and reconverting the said property into land tantamount to cost of improvement of capital asset. The A.O. and the CIT(A) has not looked into this aspect and has taken only the cost of the land as estimated by the approved valuer to be the cost of acquisition of the assessee while computing the capital gain. Thus, it was contended that the cost of acquisition and the cost of improvement has to be considered for computing capital gain. It should be taken to be Rs.2,14,000/- and the assessee should be allowed indexation on the same value. It was also contended as an alternate contention that in case this Tribunal did not agree to allow the exemption under section 54, the A.O. be directed to allow exemption under section 54F and the same may be computed in accordance with the provisions of section 54F. The assessee has invested a sum of Rs.8,30,000/- in the new flat being No.402, Pushpanjali Tower Extension, Agra and not Rs.7,50,000/-. For this, our attention was drawn to the copy of purchase deed of the said residential property available in the paper Book.
4. Ld. D.R., on the other hand, vehemently contended that the assessee has sold the land through both the sale deed and this fact cannot be denied. The second sale deed executed by the assessee clearly states that the assessee has sold the vacant plots without any structure after dismantling the structure. This sale deed has been executed by the assessee and has duly been signed by him. Once the assessee has dismantled the structure and sold the vacant plots, one cannot say that the assessee has sold the residential house. This fact is also clear from the fact that the assessee has applied for the disconnection of the electricity on the same very plot. In case the assessee would have sold the house property, the assessee need not to apply for electricity disconnection. There may be a residential building on the plot prior to the entry of the 6 transaction but there was no house property when the second sale took place between the buyer and the assessee. This fact has been mentioned in the sale deed at various places and for this, our attention was drawn towards the order of the CIT(A), especially page 3, which contained the finding of the CIT(A). As there was no structure on the land, the Revenue was correct in law in taking the fair market value of the land as on 01.04.1981 for the purpose of computing the capital gain.
5. We have carefully considered the rival submissions and perused the material on record. We noted that there is a clear cut finding given by the CIT(A) as reproduced at page no.3 of his order that in both the sale deeds dated 15.10.2003 & 26.12.2003 by which the property was sold by the assessee and his brother for Rs.29,40,000/- and Rs.46,00,000/-, it was clearly mentioned that the assessee has sold the vacant land. The CIT(A) even reproduced the relevant paras of the sale deed. This fact has not been denied by the ld. A.R. but the ld. A.R. vehemently contended that this has wrongly been mentioned in the second sale deed. In fact, the assessee first sold land appurtenant and subsequently sold the house property. No doubt, the assessee has submitted the evidences showing that the assessee was having the gas connection, power connection and paying the municipal tax in respect of the said property which was sold by the assessee. This even though proves that there had been property on the plot, but we have to see the situation as on the date of transaction. There had been two transactions. First for the sale of land appurtenant and second, as is apparent from the sale deed, for the sale of the land after dismantling the property thereon. This fact has been stated on 3 pages of the sale deed dated 26.12.2003. This is not the case that this fact has been mentioned only once by mistake. The sale deeds itself proves that the assessee has sold the plot not the property. We do agree with the 7 plea of the ld. D.R. that in case the assessee would have sold the house property, the assessee need not to apply for the disconnection of electrical connection. This also proves that the property was in existence on the land.
6. Now, therefore, first we will examine whether the assessee is entitled for exemption u/s. 54 on the capital asset sold on 15.10.2003 and also for exemption on the capital asset sold vide sale deed dated 26.12.2003.
7. In this regard, the relevant provisions of section 54 lays down as under :-
"Section 54 Profit on sale of property used for residence.
54. [(1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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, 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,--
(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of 8 three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,--
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid."
8. From the perusal of section 54, it is apparent that in case the capital gain arises from the transfer of Long Term Capital Asset being building or land appurtenant thereto and being residential house, the income of which is chargeable under the head "income from house property", the assessee is entitled for exemption under section 54 in case he complies with the conditions stipulated under section 54 of the Act. The claim of the assessee is that the assessee has sold first land appurtenant to residential house vide sale deed dated 15.10.2003. There are evidences on record which prove that there was residential building on the land and is used as such even by the father of the assessee, in the A.Y. 1972-73, Late Shri Hans Raj Kapoor. The 9 Lajpat Kunj Association has issued the certificate at that time about the property being occupied by Hans Raj Kapoor. There was gas connection at the same address. The Municipal tax has been levied and is being paid. Even in the subsequent sale deed dated 26.12.2003 also confirms that on the land sold by the assessee the residential building was in existence and the same was dismantled by the assessee when the land was sold vide sale deed dated 26.12.2003. The land appurtenant to the building, in our opinion, if sold separately, the assessee will be entitled for the exemption under section 54 provided the assessee had made the investment of capital gain within the stipulated time by way of purchase or construction in the new residential property. The assessee has purchased Flat No.402, Pushpanjali Tower Extension, Agra on 14.10.2003 i.e. within the stipulated time from the date of sale of the land appurtenant thereto. Therefore, the capital gain arises on the sale of the land appurtenant will be entitled for exemption under section 54 of the Act. The flat has been purchased for Rs.7,50,000/- and the assessee has incurred a sum of Rs.80,000/- by way of stamp duty and registration which is apparent from the copy of the sale deed which is available at page 99 to 105 of the paper Book. Similar view has been taken by the Allahabad High Court in the case of P.K. Lahiri vs. CIT, 275 ITR 17 (Alld) in which it was held that a perusal of section 54 of the I.T. Act makes it clear that the exemption under the provision is available only where a building or land appurtenant thereto is sold and within 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 purpose of his own or the parent's or 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 the date constructed, a house property for the purpose of his own residence. Land appurtenant to the building implies that the ownership of the building and the land appurtenant should be of the same person. If the building is owned by one person and the 10 land is owned by another person then it will be the case of the land adjoining the building. In the case before us also the assessee was having 1/3rd share in the whole property consisting of the residential house where the assessee's father used to live and the land was appurtenant thereto which was sold by the assessee on 15.10.2003. We accordingly direct the assessing officer to allow exemption to the assessee u/s 54 on the capital gain arising on the sale of land appurtenant sold vide sale deed dated 15.10.2003.
9. Now coming to the question of the capital gain arising as per the sale deed dated 26.12.2003, we noted that the assessee has sold the land where the building was in existence after dismantling the building. This fact is apparent from the copy of the sale deed filed before us. Once the assessee has dismantled the building, the building had been converted into the land and the sales made will be regarded to be the sale of land not of a residential property nor of land appurtenant to a residential property. The assessee, therefore, in our opinion, will not be entitled for the exemption under section 54 of the Act on the capital gain arising on the sale of the land which has been sold after dismantling the building vide sale deed dated 26.12.2003. The assessee can get the exemption on the capital gain arising thereon either under section 54F provided he complies with the conditions stated therein or under section 54EC. There is no dispute to the fact that the assessee has invested a sum of Rs.7,00,000/- in the eligible investment entitled for deduction under section 54EC and accordingly the assessee was allowed deduction under section 54EC by the A.O.
10. The other dispute before us relates to the computation of the capital gain. Section 48 of the Act states that the income chargeable under the head "capital gain" shall be computed while 11 deducting from the full value of the consideration received or accrued as a result of transaction of the capital assets, the following amounts namely :-
i) Expenditure incurred wholly and exclusively in connection with the transaction.
ii) The cost of acquisition of the asset and cost of any improvement thereto.
11. The cost of acquisition has been defined under section 55(2) of the Act. Section 55(2)(b)(ii) states where the capital assets became the property of the assessee by any of the mode specified under sub-section-1 of section 49 and the capital asset became the property of the previous owner before 01.04.1981, the cost of acquisition will mean the cost of capital assets to the previous owner or the fair market value of the asset on first day of April, 1981 at the option of the assessee. The capital assets transferred by the assessee has been devolved on the assessee from his father i.e. one of the mode specified under section 49(1)(iii). Father was the previous owner. Prior to his death, he was owning the property prior to 01.04.1981. The CIT(A) has already held that the assessee will be entitled for the indexed cost on the fair market value as on 01.04.1981. The Revenue has not come in appeal against this finding of the CIT(A). Therefore, the fair market value of the property as on 01.04.1981 has to be seen. As on 01.04.1981, it is not disputed that the capital asset sold through both the sale deeds was a constructed property along with the land appurtenant thereto. No doubt the assessee has sold the land after dismantling the construction as per second sale deed but the assessee has to incur the cost for the construction as well as dismantling the same. The cost of improvement has been defined under section 55(1)(b) in relation to other capital assets to mean all the expenditure of capital nature incurred in making any addition or alternation to the capital assets on or after the said date by the previous owner or 12 by the assessee. It does not include any expenditure deductible in computing the income chargeable under the head income from house property, profit and gain of the business or profession or income from other sources. The property was charged to municipal tax and this fact is clearly mentioned in the sale deed that the assessee has dismantled the construction. Therefore, in our opinion, whatever expenses have been incurred by the assessee or by the previous owner in constructing the property or in dismantling the property that will be part of the cost of improvement over the land. The assessee has not claimed the expenses incurred in dismantling the construction. As on 01.04.1981, the building was in existence over the plot. Therefore, in our opinion fair market value of the capital assets for the purpose of computation of the capital gain should be taken to be the fair market value of the land as well as the construction thereon. The A.O. was not correct in taking the fair market value only of the land. The fair market value of the constructed property including land appurtenant as on 01.04.1981 was Rs.6,42,000/-, 1/3rd share of which thereof was Rs.2,14,000/-, the indexed cost has to be applied to Rs.2,14,000/-. We, accordingly, set aside the order of the CIT(A) and direct the A.O. to recompute the capital gain after taking the indexed cost on Rs.2,14,000/-. The indexed cost so arrived be allocated between the two transaction on the basis of the area of the land. The assessee should be allowed exemption under section 54 out of the capital gain so computed on the sale of the land appurtenant vide sale deed dated 15.10.2003 and exemption under section 54EC should be allowed out of the capital gain so computed on the sale of the land vide sale deed dated 26.12.2003.
12. In the result, ITA No.663/Agr/2008 filed by the assessee is partly allowed. 13 ITA No.19/Agr/2009
13. This appeal arise out of the order of the CIT(A) dated 27.11.2008.
14. The Grounds no.4 & 7, since not pressed, stand dismissed as not pressed. Ground no.8 is general in nature. The effective grounds which remain for disposal read as under :-
"(1) Because the authorities below have not correctly calculated the amount of Capital Gain and there is no justification to discard the calculation of capital gain at Rs.15,22,213/- of entire house property on which exemption from capital gain was claimed by the appellant.
(2) Because the appellant sold one residential house property in two installments on which relief u/s 54 ought to have been allowed in the circumstances of the case and law on the subject. The reasons given for disallowance of exemption u/s 54 are not correct, proper and justified.
(3) Because in the circumstances of the case and evidence on record the authorities below have erred to hold that the property sold was vacant plots of land and not a residential house.
(5) Because in any view land appurtenant to residential house was "a residential house" and exemption u/s 54 ought to have been allowed.
(6) Because the authorities below have erred in not allowing the exemption u/s 54F in the circumstances of the case and law on the subject."
15. At the time of hearing, it was pointed out that in this case also the assessee has sold 1/3rd share in the residential house along with his brother Shri Subhash Chand Kapoor vide sale deed dated 15.10.2003 and 26.12.2003. The assessee has sold the land appurtenant thereto vide sale deed dated 15.10.20003 and subsequently the other part of property vide sale deed dated 26.12.2003 in respect of the capital gain arising on the sale of the land appurtenant thereto. The assessee claimed exemption under section 54 of the Act which was not allowed. Against which the assessee has come in appeal by taking the grounds no.1 to 3 & 5. It was pointed out that the 14 assessee has also bought Flat No.504, Pushpanjali Tower Extension, Agra on 15.10.2003 by investing a sum of Rs.8,30,000/- for which the assessee claimed exemption under section 54. The assessee has also claimed exemption under section 54F against the capital gain arising on sale of the asset vide sale deed dated 26.12.2003 in respect of investment made in flat No.104, Friends Paradise, Agra on 31.03.2004. So far the issue about the claim of exemption under section 54 is concerned, both the ld. A.R. and ld. D.R. has agreed that whatever view this Tribunal may take in the case of assessee's brother Shri Subhash Chand Kapoor, the same view may be taken in the case of the assessee. We have already dealt with this issue in the case of assessee's brother Shri Subhash Chand Kapoor in ITA No.663/Agr/2008. In that case, we have held in the preceding paragraphs that the assessee is entitled for the deduction under section 54 of the Act on the sale of land appurtenant in respect of the investment made in the purchase of the residential flat in Pushpanjali Tower. We have also, in that case, directed the A.O. to take the fair market value of the constructed property including the land appurtenant thereto as on 01.04.1981 at Rs.2,14,000/- for applying the indexed cost therein. We have also directed that the indexed cost so arises should be divided while computing the capital gain in respect of the land sold vide sale deed dated 15.10.2003 and 26.12.2003 in proportion to the area of the land involved in both the transactions. We, accordingly, direct the A.O. to recompute the capital gain on the sale of land appurtenant vide sale deed dated 15.10.2003 and allow the exemption to the assessee under section 54 in the same manner. Thus, grounds no.1, 2, 3 & 5 stand allowed.
16. The only issue remains about the claim of exemption on the assessee under section 54 F of the Act.
15
17. In this case also, the assessee claims that he sold the constructed property vide sale deed dated 26.12.2003 along with his brother Shri Subahsh Chand Kapoor in which the assessee was having 1/3rd share. In the case of Sahri Subhash Chand Kapoor, we have already held on appreciation of the facts that the assessee has sold the land after dismantling the building. Therefore, the question before us remains whether the assessee is entitled for deduction under section 54F in respect of the investment made in Flat No.104, Friends Paradise, Agra on 31.03.2004.
18. We have heard the rival submissions and carefully considered the same. Section 54F lays down as under :-
"Section 54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
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 section 45 ;
(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 45:16
Provided that nothing contained in this sub-section shall apply where--
(a) the assessee,--
(i)owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii)purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii)constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".
Explanation.--For the purposes of this section,--
"net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, 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, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be 17 specified in, and utilised in accordance with, any scheme37 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,--
(i) the amount by which--
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid."
19. We noted that, on the basis of the interpretation of section 54F(2), the CIT(A) took the view that the assessee is not eligible for exemption under section 54F. According to him, the assessee purchased the residential property at Pushpanjali Tower Extension, Agra on 15.10.2003 for Rs.7,50,000/- within the same F.Y. on 31.03.2004. The assessee purchased the other residential property being Flat No.104, Friends Paradise for Rs.1120,000/-. As both the properties are residential properties for which the assessee claimed exemption under section 54/54F both of which are allowable only if the transferee invested the sale proceeds of the original asset in a residential property.
18
20. From the perusal of the section 54F it is apparent that the assessee being an individual or HUF is entitled for the exemption if capital gain arises to him from the transfer of any Long Term Capital Asset not being a residential house and the assessee within a period of one year before or two years after the date of transfer purchases or had within a period of three years after the date of transfer constructed a residential house, the whole of the net consideration is invested in the residential house (referred subsequently as new asset), the whole of the capital gain shall be exempt. In case 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, same proportion as the case of the new asset bears to the net consideration be exempt. The proviso to section 54F denies the exemption to the assessee in case the assessee owns more than one residential house other than the original asset on the date of the transfer of the original asset or purchases any residential house other than the new asset within a period of one year after the date of transfer of the original asset or constructed any residential house other than the new residence within a period of three years after the date of transfer of the original asset. The assessee is claiming exemption in respect of the land sold vide sale deed dated 26.12.2003 which is an independent asset that will be regarded to be original asset within the provisions of section 54F. The assessee has claimed exemption in respect of the investment made in Flat No.104, Friends Paradise, Agra which was purchased on 31.03.2004. This asset in respect of which exemption is claimed is regarded to be 'new asset'. In our opinion the proviso to section 54F(1) is not applicable in the case of the assessee. The assessee did not own more than one residential house other than the new asset on the date of transfer of the original asset. On the date of the transfer of original asset the assessee was owning only flat no.405, Pushpanjali Tower Extension 19 as the property sold vide sale deed dt. 26.10.03 (original asset) got converted into a plot as held by us and by the department.
21. The ld. A.R. vehemently pointed out that the assessee has not purchased any residential house other than the new asset within a period of one year after the date of transfer of the original asset. In our opinion, purchase of flat no.405, Pushpanjali Tower Extension on 15.10.2003 will not disentitle the assessee for exemption as per proviso to section 54F(1) as this house has been purchased prior to the transfer of the original asset. The assessee has also not constructed any residential house other than the new asset within a period of three years after the date of transfer of the original asset. There is difference in the construction and purchase of residential house. The purchase of flat no.405, Pushpanjali Tower Extension cannot be regarded to be construction of the residential house by the assessee. We have also gone through section 54F(2). This section also, in our opinion, will not debar the assessee from claiming the exemption under section 54F. The assessee has not purchased within the period of two years after the date of transfer of the original asset or constructed within the period of three years, after such date, any residential house the income from which chargeable under the head income from house property other than the new asset. The asset in respect of which the assessee claimed exemption under section 54F has been sold on 26.12.2003. The assessee has purchased flat no.405, Pushpanjali Tower Extension, Agra on 15.10.2003 i.e. prior to 26.12.2003. Had the assessee purchased this flat within two years from 26.12.2003, the provisions of section 54F(2) would have debarred the assessee from claiming exemption under section 54F(1). We therefore, set aside the order of the CIT(A) and direct the A.O. to allow deduction to the assessee under section 54F in respect of investment made in Flat No.104, Friends Paradise, Agra in accordance 20 ITA No.663/Agr/2008 & ITA No.19/Agr/2009 Asst. Year: 2004-05 with the provisions of section 54F(1)(b) in respect of the capital gain arises on the sale of the capital asset vide sale deed dated 26.12.2003. Thus, this appeal is also partly allowed.
22. In the result, both the appeals filed by the assessee are partly allowed.
(Order pronounced in the open Court on 23.07.2010).
Sd/- Sd/-
(R.K. GUPTA) (P.K. BANSAL)
Judicial Member Accountant Member
Place: Agra
Date: 23rd July, 2010.
PBN/*
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1. Appellant
2. Respondent By Order
3. CIT concerned
4. CIT (Appeals) concerned
5. DR, ITAT, Agra Bench, Agra
6. Guard File Assistant Registrar
Income-tax Appellate Tribunal, Agra
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