Income Tax Appellate Tribunal - Pune
Ramesh Narhari Jakhadi vs Income-Tax Officer on 20 February, 1992
Equivalent citations: [1992]41ITD368(PUNE)
ORDER
T.V.K. Natarajachandran, Accountant Member
1. This is an appeal by the assessee which pertains to relief under Section 54B of the Income-tax Act, 1961. The assessee, an individual agriculturist, entered into an agreement to purchase agricultural land of 0.61 hectare in Anandwalli in survey No. 13/1 on 28-6-1982 on which dale the possession was also taken over by him. The deed of conveyance was executed on 12-7-1984. The assessee entered into an agreement for sale of the aforesaid land on 23-10-1984 to M/s IBP Co. Ltd. and the sale deed of conveyanee was executed on 17-2-1986 when possession was handed over for a consideration of Rs. 9 lakhs. The advance and instalments of sale consideration received by the assessee were utilised by the assessee in purchasing agricultural land in Ambad for Rs. 27,771 on 5-11 -1984. Another land at Mhasrul in survey No. 204 was agreed to be purchased on 10-12-1984 for Rs. 8,32,000 and possession was taken on 10-12-1984 of which the payments to the vendors of the land amounted to Rs. 7,14,700 up to 3-8-1987. Another land at Mhasrul in survey No. 32-2/4 & 2/2 was agreed ID be purchased on 9-4-1985 with possession on the same date for a cost of Rs. 16,000. Another agricultural land at survey No. 53 A/1 at Anandwalli was agreed to be purchased on 11 -2-1988 of which possession was taken on the same date for Rs. 2,27,500. It is pertinent to point out that except the land at Ambad purchased by the. assessee, conveyance deed has not been obtained by the assessee in respect of other three lands till the date on account of disputes and non-agreement among the family members of the vendors arid the dispute is pending in the Court on account of which the conveyance deeds of lands were not executed by the vendors.
2. In this context, the ITO passed a very short order treating the capital gains arising on the sale of Anandwalli land as short term capital gains on the basis that the land was a short term capital asset or it was held for not more than 36 months. Therefore, he assessed the entire capital gains arising on the sale of the land to short term capital gains.
3. On appeal, the CIT(A) considered the several objections raised on behalf of the assessee. A remand report was called for from the concerned ITO in which he has justified the assessment of short term capital gains on the basis of legal ownership with reference to sale deed or conveyance deed. This was communicated to the assessee and the assessee has raised objections before the CIT(A) and also filed written objections in defence of the claim that the agricultural land was held for more than 36 months and therefore, capital gains should be treated as long term capital gains. Further it was argued that Section 54B did not make any distinction between long term capital gains or short term capital gains for the purpose of relief envisaged by it. Emphasising the fact that the definition of short term capital asset speaks of capital asset "held" by the assessee and relying on the definition of the word "held" in Section 2( 1) of the Urban Land Ceiling Act which covers ownership or possession of property as an owner or tenant or a mortgagee or under an irrevocable power of attorney or under a purchase agreement, it was urged that the asset transferred was long term capital asset. Referring to the word "purchase" appearing in Section 54B, it was urged on behalf of the assessee that it should be considered broadly and it would undoubtedly connote the domain and control of the property. For this proposition, the decision of the Supreme Court in the case of CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 and the decision of the Andhra Pradesh High Court in the case of CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397' was relied upon by the assessee. Ultimately, the CIT(A) agreed that the property sale of which has given rise to capital gains was a long term capital asset. However, the CIT(A) relying on the judgment of the Bombay High Court in the case of CIT v. Smt. R.R. Sood [1986] 161 ITR 922 held that the land sold was a short term capital asset because it was purchased on 12-7-1984 as evidenced by the purchase deed and it was sold as per conveyance deed dt. 17-2-1986 and thus, the legal title was held for less than 36 months. As regards the investment made in other agricultural lands, though possessions have been taken over, registration of the conveyance deeds was not effected in order to acquire legal title over such lands. Therefore the CIT(A) concluded that in the light of the judgment of the Bombay High Court in the case of CIT v. Smt. R.R. Sood (supra) capital gains was short term capital gains and not long term capital gains as claimed by the assessee.
4. The CIT(A) was satisfied that the distinction between short term capital gains and long term capital gains has no significance and the lands, possession of which was taken over by the assessee were used for agricultural purposes only. However, the condition that the new agricultural lands should have been purchased within a period of 2 years after the date of sale for being used for agricultural purposes was not satisfied by the assessee. According to him, certain amounts were invested by the assessee in the new lands even prior to the date of transfer, i.e. on 17-2-1986, though the requirement of Section 54B 'is that the investment should be made within a period of 2 years after the date of transfer. In fact even the investment of Rs. 6.06 lakhs made by the assessee after the date of conveyance deed for Anandwalli property, namely, 17-2-1986, the condition of Section 54B was not satisfied, because the sale deeds for those lands were not registered yet, and therefore, it could not be said that the assessee has got any legal ownership of the land and therefore the question of holding such land without ownership did not arise. The sole reason for this decision is that these lands were not yet registered by effecting conveyance deed which is the criterion for granting relief under Section 54B. Consequently, he declined to grant relief claimed by the assessee in respect of the new lands held by the assessee.
5. At the time of hearing, the learned counsel for the assessee has been heard at great length. A paper compilation has been filed showing the complete details of advances and instalments received from M/s IBP Co. Ltd. in respect of sale of agricultural land at Anandwalli. The Board's Circular No. 359 in F. 207/8/82-IT (A-II), dt. 10-5-1983 issued in connection with relief under Section 54E has been cited in support of his contention that the earnest money or advances received for sale is part of sale consideration and investment of such money in some other specified asset before the dated of transfer of the asset would qualify for exemption under Section 54E of the Income Tax Act, 1961. The Board has issued the aforesaid circular keeping in view the purpose and spirit of Section 54E. It is the contention of the learned counsel for the assessee that the same logic which applies to Section 54E as per Board's Circular, dt. 10-5-1983 should also apply with equal force to the relief under Section 54B claimed by the assessee. Referring to the interpretation given by the CIT(A) of the word "purchase" appearing in Section 54B, the learned counsel for the assessee cited the decision of the Andhra Pradesh High Court in the case of Mrs. Shazada Begum (supra) for the proposition that obtaining of full domain and control over the property within the specified period is material for the purpose of relief under Section 54( 1) and the delay in registration of sale deed was immaterial. In that case, the assessee was owner of a self-occupied property which was sold on 12-8-1975. An agreement was entered into on 27-6-1976 for purchase of another property for self-occupation. Substantial amount was paid towards consideration on the date of agreement. Another instalment was paid on 10-8-1976 when vacant possession of the property was delivered to the assessee. Sale deed was registered on 28-2-1977. Going by the fact of substantial amount paid till the date of possession of the house property and the delay in registration was immaterial, the Andhra Pradesh High Court held that the assessee was entitled to exemption from capital gains under Section 54(1) of the Income-tax Act, 1961. Applying the aforesaid decision to the case of the assessee, it was contended that the assessee also invested substantial portion of the capital gains arising out of the transfer of the land on several new lands, possessions of which have been taken over by the assessee on the date of entering into agreements in respect of these lands. The learned counsel for the assessee also relied on the decision of the Bombay Bench 'D' of the Income-tax Appellate Tribunal in the case of V.M. Dujodwala. ITO [1991] 36 UD 130 wherein similar view has been taken. Referring to the paper compilation, he pointed out that from the details of payments made by the assessee in respect of new lands an amount of Rs. 2,15,471 was invested up to 16-2-1986, i.e., before the sale deed of Anandwalli property was registered on 17-2-1986 and therefore, in accordance with the spirit of the Circular No. 359, dt. 10-5-1983 cited earlier, the learned counsel for the assessee urged that this amount should also be considered as eligible for relief under Section 54B. At the time of hearing, the learned counsel for the assessee made a statement in the Bar that the dispute pending in the Court has been settled and now the members of the family of the vendors are agreeable to execute the sale deeds of the lands in which investments were made by the assessee out of sale proceeds of Anandwalli land.
6. In reply, the learned departmental representative, heavily relied on the ratio of the Bombay High Court in the case of Smt. R.R. Sood (supra) for the proposition that legal ownership or title is the criterion for granting relief under sec tion54B. As the assessee had not obtained conveyance deeds in respect of the lands in which advances or earnest money was invested, no legal title has been obtained by the assessee and therefore, it could not be said that the assessee has purchased those lands. According to her, all the conditions stipulated in Section 54B should be satisfied cumulatively and hence, the assessee was not entitled to relief under Section 54B. Accordingly, she justified the orders of the authorities,
7. In reply, the learned counsel for the assessee, pointed out that Section 54B applied both to long term capital gains and short term capital gains. He pointed out that even the CIT(A) agrees to his proposition but he only rejected the relief under Section 54B solely relying on the fact that the legal title has been obtained by the assessee in respect of the new lands in which advances were invested by him.
8. We have duly considered the rival submissions and the paper compilation filed by the learned counsel for the assessee. In our view, too much of emphasis was given or attention has been paid by the authorities to the aspect of legal title which is conveyed by registration of sale deed. It is well-known that a person cannot convey legal title in respect of immovable property, except by executing conveyance deed which is duly registered. The definition of short term capital asset refers to capital assets held for not more than 36 months preceding the date of transfer. Therefore, the word "held" is significant and comprehensive and comprise of physical domain and control of the property which is obtained by way of possession. It is said that possession is nine points in law. Even Section 54B is concerned with transfer of capital asset being land which was being used for agricultural purposes in the two years preceding the date of transfer and therefore it contemplates assets held for less than 36 months as well as assets held above 36 months. Therefore, it is clear that this section contemplates capital gains arising on transfer of both short term as well as long term capital assets. In any case, the CIT(Appeals) has conceded this point in his appellate order and therefore, it is academic to go into the question.
9. Another aspect that is required to be considered is that the section contemplates user of agricultural land in the two years immediately preceding the date of transfer and therefore, the reference is to the years and not during the whole period of two years as viewed by the authorities. 'In other words, if the asset has been used for the whole of the immediately preceding year and some days of the year earlier to the preceding year, still the requirement of Section 54B would be satisfied. Applying the definition of short term capital asset with reference to the word "held", it could be said that any asset held in the two years immediately preceding the date of transfer would be eligible for relief under Section 54B on the capital gains arising on its sale. Since it is common practice to obtain earnest money or advance or instalments before a property is conveyed by registering sale deed, the investment made would amount to investment out of sale consideration. For this conclusion, the Circular No. 359, dated 10-5-1983 issued by the Board in connection with relief under Section 54E is relied upon. In other words, the logic in the aforesaid circular issued in connection with 54E would apply with equal force to relief under Section 54B also. Inasmuch as the above circular has been issued by the Board keeping in view the purpose and spirit of Section 54E, same consideration would apply for relief under Section 54B also, because if an agriculturist is dispossessed of his agricultural land and obtains possession of another agricultural land for the purpose of being used for agricultural purposes, the same benefit available under the Board's circular should be extended to the assessee governed by Section 54B also. In this connection, it is also necessary to consider the question whether the investment should be made in new agricultural land necessarily within a period of two years after the date of transfer or not. Applying the spirit of the circular of the Board, it could be said that the investment made prior to the date of transfer would also be eligible and should be considered as investment made out of sale proceeds. The limit of two years' period after transfer is an outer limit, while the investments made earlier to the date of transfer out of the earnest money or advances should be considered to fall within two years' time limit period and which would be the inner limit, so to say. The Andhra Pradesh High Court had occasion to consider the significance of the word "purchase" in the case of Mrs. Shahzada Begum cited. The Andhra Pradesh High Court held connection with relief under Section 54(1) that obtaining of full domain and control over a new property within the period of one year would be material or relevant and the delay in getting the property registered would be immaterial. It is significant to point out that Section 54(1) also contemplates purchase within a period of one year before or two years after the date of transfer of the residential property in order to claim the benefit of Section 54( 1). The same word is used in Section 54B also. Therefore, the ratio of the Andhra Pradesh High Court in the case of Mrs. Shahzada Be gum would apply with equal force to the assessee's case also. Applying the ratio of the Andhra Pradesh High Court, it could be reasonably held that the assessee has purchased the lands in respect of which he has obtained domain and control and on which he has invested Rs. 2,15,471 up to 16-2-1986 and Rs. 6,06,000 from 17-2-1986 to 16-2-1988. All these amounts were invested by the assessee out of the advances received from M/s IBP Co. Ltd. during the period 23-10-1984 and 25-10-1986. In view of the judgment of the Andhra Pradesh High Court in the case of Mrs. Shahzada Begum, the obtaining of domain and control is relevant and the delay in obtaining registration deed is not relevant for the purpose of relief under Section 54(1). The reason for the delay in getting the registration of purchase deed is said to be dispute among the family members of the vendors and now that the Court case has been settled, registration would be effected in favour of the assessee by the vendors of the land. Even ignoring the fact of registration of sale deed to be effected later on, we hold that the assessee is entitled to the benefit of Section 54B in respect of the total amount invested in the new agricultural lands up to 16-2-1988 totalling to Rs. 8,21,471. Accordingly, we hold that the benefit of Section 54B should be worked out by the ITO with reference to this investment of Rs. 8,21,471. In the case of ITO v. Chimanlal Thakordas [1991] 39 ITD 159, the Ahmedabad Bench held that where the assessee had paid full price of new residential house to vendor and has also obtained possession thereof before the expiry of the period mentioned under Section 54, the relief under that section could not be denied merely on the ground that the registered sale deed in respect of the property was executed beyond the time limit prescribed under Section 54. Accordingly, we reverse the order of the CIT(Appeals) and direct the ITO to grant consequential relief to the assessee as directed above.
10. In the result, the appeal is allowed.