Madras High Court
The Commissioner Of Income Tax vs Saroja Naidu on 22 June, 2021
Author: M.Duraiswamy
Bench: M.Duraiswamy, R.Hemalatha
T.C.A.Nos.300 & 301 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 22.06.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
T.C.A.Nos.300 & 301 of 2021
The Commissioner of Income Tax,
Chennai. ... Appellant in both TCAs
Vs.
Saroja Naidu ... Respondent in both TCAs
Appeals preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Madras,
"B" Bench, dated 02.11.2016 in I.TA.Nos.375 & 281/Mds/2015 for
Assessment Year 2010-11.
For Appellant : Mr.Karthik Ranganathan,
(in both TCAs) Senior Standing Counsel
For Respondent : Mr.Kaushik
(in both TCAs) for Mr.S.Sridhar
Page 1/19
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T.C.A.Nos.300 & 301 of 2021
COMMON JUDGMENT
(Judgment was delivered by M.DURAISWAMY, J.) Challenging the orders passed in I.T.A.Nos.375 & 281/Mds/2015 in respect of the Assessment Year 2010-11 on the file of the Income Tax Appellate Tribunal, "B" Bench, Chennai, the Revenue has filed the above appeals.
2.The assessee filed return of income for the Assessment Year 2010-11 on 26.07.2010 admitting a total income of Rs.7,568/-. The case was selected for scrutiny and notice dated 23.08.2011 was issued under Section 143 (2). Thereafter, notice under Section 142(1) was issued. The assessee is a non-resident and sold her property for a consideration of Rs.3,15,00,000/- vide Sale Deed dated 03.06.2009. The guide line for the property for the purpose of stamp duty was Rs.4,36,52,800/-. The assessee had computed the long term capital gains on the sale of house property and claimed exemption under Section 54. The Assessing Officer had raised various queries with regard to the disallowance of exemptions and the assessee had explained the claim. The assessee has claimed Page 2/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 deduction under Section 54 amounting to Rs.2,05,92,000/-. The Assessing Officer has rejected the claim of deduction made by the assessee under Section 54. The Assessing Officer disallowed the claim made under Section 54 and arrived at a total income of Rs.4,17,67,626/-.
Aggrieved over the same, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Appellate Authority, partly allowed the appeal and confirmed the disallowance made in respect of the investment under Section 54. Aggrieved by the said order, the assessee as well as the Revenue preferred appeals before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal filed by the Revenue and allowed the appeal filed by the assessee. Challenging the same, the Revenue has filed the above two appeals.
3.The Revenue has raised the following substantial questions of law in the appeal in T.C.A.No.300 of 2021:
“(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the base year to be taken as 01.04.1981 and not the year in which the assessee became the owner of the assets by way of Page 3/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 inheritance for the purpose of calculating indexed cost of acquisition?
(ii)Is not the finding of the Tribunal bad by granting relief to the assessee which is against the provision of when Explanation (iii) of Section 48 of the Income Tax Act?
(iii)Whether the reasoning and finding of the Tribunal is proper by placing reliance of the decision of the Bombay High Court in the case of Manjula J Shah which has not attained finality since the SLP is pending before the Hon'ble Apex Court?
4.The Revenue has raised the following substantial question of law in the appeal in T.C.A.No.301 of 2021:
“(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee was entitled to exemption u/s.54 of the Act even in respect of property purchased outside India which the statue did not provide for and in the case of construction of the flat booked by the assessee which was beyond the time limit prescribed by the statute?Page 4/19
https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021
5.When the appeals are taken up for hearing, Mr.Karthik Ranganathan, learned senior standing counsel appearing the appellant-
Revenue fairly submitted that the 1st question of law in T.C.A.No.300 of 2021 has already been decided against the Revenue and in favour of the assessee in the judgment of the High Court of Bombay reported in [2011] 16 taxmann.com 42 (Bombay) [Commissioner of Income-tax-
12 Vs. Manjula J. Shah] wherein the Division Bench of the High Court of Bombay held as follows:
“...
13.In the present case, the capital asset in question (Flat No.1202-A) was originally acquired by the previous owner (daughter) on 29/1/1993 and the same was acquired by the assessee under a gift deed dated 2/1/2003 without incurring any cost. The assessee sold the capital asset on 30/6/2003 for Rs.1,10,00,000/-. Since the assessee held the capital asset for less than thirty six months (2/1/2003 to 30/6/2003) in the ordinary course, as per Section 2(42A) of the Act the assessee would have held the asset as a short term capital asset and accordingly liable for short term capital gains tax. However, in view of Explanation 1(i)(b) to Section 2(42A) of the Act which provides that in determining the period for which any asset is held by an Page 5/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 assessee under a gift, the period for which the said asset was held by the previous owner shall be included, the assessee is deemed to have held the asset as a long term capital asset and accordingly,liable for long term capital gains tax. Thus, by applying the deeming provision contained in the Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the asset from 29/1/2003 to 30/6/2003 (by including the period for which the said asset was held by the previous owner) and accordingly held liable for long term capital gains tax.
14.It is not disputed by the revenue that the assessee must be deemed to have held the capital asset from 29/1/1993 (though actually held from ½/2003) by applying the Explanation 1(i)(b) to Section 2(42A) of the Act and hence liable for long term capital gains tax. However, the revenue disputes the applicability of the deemed date of holding the asset from 29/1/1993 while determining the indexed cost of acquisition under Clause (iii) of the Explanation to Section 48 of the Act.
15. For better appreciation of the dispute, we quote the relevant part of Section 48 herein :
“Mode of Computation.
48. The income chargeable under the head "capital gains"
shall be computed, by deducting from the full value of the Page 6/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 consideration received or accruing as a result of the result of the transfer of the capital asset the following amounts, namely:
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto;
Provided that ........
Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted:
Provided also ........
Provided also ........
[Provided also........] Explanation - For the purposes of this Section, -
(i) and (ii) ** ** **
(iii)"indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Page 7/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later;
(iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asst took place;
(v) 'Cost Inflation Index', in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.”
16. It is the contention of the revenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to Section 48 of the Act has to be determined with reference to the Cost Inflation Index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect Page 8/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 from 1/2/2003, the first year of holding the asset would be FY 2002-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition.
17. We see no merit in the above contention. As rightly contended by Mr. Rai, Learned Counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 of the Act by treating that the assessee held the capital Page 9/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 asset from 29/1/1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition.”
6.The learned senior standing counsel further fairly submitted that the question of law that has been raised in T.C.A.No.301 of 2021 has already been decided against the Revenue and in favour of the assessee in the following judgments:
(i)[2019] 105 taxmann.com 151 (Madras) [Tilokchand & Sons Vs. Income-tax Officer, Ward-II (4), Madurai], wherein a Division Bench of this Court held as follows:
“...
18.It would be of interest to refer to the Explanatory notes along with the Finance Bill by which the said amendment was incorporated in Section 54, which is quoted below for ready reference:
"20.Capital gains exemption in case of investment in a residential house property 20.1.The provisions contained in sub-section (1) of Page 10/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 Section 54 of the Income Tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of long term capital asset, being buildings or land appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act.
20.2. The provisions contained in sub-section(1) of section 54F of the Income-tax Act, before its amendment by Act, inter-alia, provided that where capital tains arises from transfer of a 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 within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.
20.3.Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-section Page 11/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 (1) of Section 54 of the Income-tax Act has been amended to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.
20.4.Similarly, sub-section (1) of Section 54F of the Income-tax Act has been amended to provide that the exemption is available if the investment is made in one residential house situated in India.
20.5.Applicability:-These amendments take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years."
19.A closer and bare reading of the aforesaid Explanatory Notes to the provisions of the said Act, clearly shows that the said amendment was intended to be specifically applied only prospectively with effect from A.Y.2015-2016. It took note of the judicial precedents for the period prior to 01.04.2015, giving a different and contra interpretation. Therefore this amendment cannot be held to be mere clarificatory so as to be applied retrospectively for A.Y.2005-2006 in the present case.
20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only Page 12/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D.Ananda Basappa case stated (supra), two flats in question were admitedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M.Makhija (supra), two door nos are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word 'a residential house' to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential house in the given circumstances of availability of such residential houses as per the requirement of the HUF will not alter the position of interpretation.
21.In our understanding, if the word 'a' as employed under Section 54 prior to its amendment and substitution by the words 'one' with effect from 01.04.2015 could not include plural units of residential houses, there was no need Page 13/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y.2015- 2016. Once we can hold that the word 'a' employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case. So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. If that be so, the Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the Page 14/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in CIT Vs.D.Ananda Basappa ((2009) 309 ITR 329 (Karn)) & Khoobchand M.Makhija (supra) cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case.
22.The decision of Punjab and Haryana High Court relied upon by the learned counsel for the Revenue, in which the Division Bench of the said Court finding a distinction with D.Ananda Basapaa's case (supra) on facts, without expressing contrary opinion in detail, held that no Substantial Questions of Law arose, renders little help to the arguments advanced by the learned counsel for the Revenue.
23.Therefore, we are of the considered opinion that the present Appeal filed by the Assessee deserves to be allowed and the same is accordingly allowed and the questions of law framed above are aswered in favour of the Assessee and as against the Revenue. No order as to costs.”
(ii)[2020] 121 taxmann.com 243 (Karnataka) [Commissioner of Income Tax Vs. Vinay Mishra], wherein a Division Bench of the High Court of Karnataka held as follows:
“...Page 15/19
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8.The relevant extract of CBDT Circular No.1/2015 dated 21.01.2015 reads as under:
20.5 Applicability: These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years.
Thus, it is axiomatic that residential property, for which investment is made needs to be situated in India for the purpose of claiming exemption under Section 54F from Assessment year 2015-16 only and not prior to that period. In the instant case, the investment in a residential house was made in USA prior to 01.04.2015, whereas, the requirement of making an investment in a residential house, which was incorporated by way of amendment, came into force w.e.f. 01.04.2015. In the light of aforesaid well settled legal principles as well as the memorandum of objects of Finance Act, 2014, which clearly provide that amendments will take effect from 01.04.2015 and will apply to Assessment year 2015-16 onwards as well as the CBDT's Circular dated 21.01.2015, it is evident that amendment incorporated in Section 54F(1) of the Act is prospective in nature. Similar view has been taken in Leena Jugalkishor Shah vs. Asstt, CIT, [2016] 72 taxmann.com 185/[2017] 392 ITR 18 (Guj), Dipankar Mohan Ghosh, in re [2018 89 taxmann.com Page 16/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 218/401 ITR 129 (AAR – New Delhi) and CIT vs. Anurag Pandit in I.T.A.No.1169/2018 dated 14.05.2019 (New Del). We concur with the view taken by Delhi, Gujarat and Madras High Courts.
In view of preceding analysis, the substantial question of law framed by this court is answered in the affirmative and against the revenue.
In the result, the appeal fails and the same is hereby dismissed.”
7.Mr.Kaushik appearing on behalf of Mr.S.Sridhar, learned counsel for the respondent-assessee submitted that in view of the judgments reported in [2011] 16 taxmann.com 42 (Bombay) [Commissioner of Income-tax-12 Vs. Manjula J. Shah], [2019] 105 taxmann.com 151 (Madras) [Tilokchand & Sons Vs. Income-tax Officer, Ward-II (4), Madurai] and [2020] 121 taxmann.com 243 (Karnataka) [Commissioner of Income Tax Vs. Vinay Mishra], both the appeals may be dismissed.
8.Having regard to the submissions made by the learned counsel on either side, following the ratio laid down in the judgments reported in Page 17/19 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 [2011] 16 taxmann.com 42 (Bombay) [Commissioner of Income-tax-
12 Vs. Manjula J. Shah], [2019] 105 taxmann.com 151 (Madras) [Tilokchand & Sons Vs. Income-tax Officer, Ward-II (4), Madurai] and [2020] 121 taxmann.com 243 (Karnataka) [Commissioner of Income Tax Vs. Vinay Mishra], the 1st question of law in T.C.A.No.300 of 2021 is decided against the Revenue and in favour of the assessee. The questions of law (ii) and (iii) raised by the Revenue are left open and may be decided in an appropriate appeal. The question of law in T.C.A.No.301 of 2021 is also decided against the Revenue and in favour of the assessee. Accordingly, both the appeals are dismissed. No costs.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes 22.06.2021
va
To
The Income Tax Appellate Tribunal, Chennai, "B" Bench M.DURAISWAMY, J.
and R.HEMALATHA, J.
Page 18/19https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.300 & 301 of 2021 va T.C.A.Nos.300 & 301 of 2021 22.06.2021 Page 19/19 https://www.mhc.tn.gov.in/judis/