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TMI Blog2021 (9) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that the transaction of transfer of the property in question was liable to be assessed in the hands of the Sajal Kar, HUF and not in the hands of the assessee before us. Deduction u/s 54 - Partial deduction - effect of Joint ownership - CIT(A) restricted the assessee‟s claim for deduction to 50% of the investment made by him towards purchase of the new property - claim of the ld. A.R that as the source of the investment in the new property was made to the last of paisa by the assessee, therefore, the CIT(A) had wrongly restricted the assessee‟s claim for deduction u/s 54 to 50% of the investment that was made by him towards purchase of the new residential house - HELD THAT:- No infirmity arises from the order of the CIT(A) who taking cognizance of the aforesaid fact of joint ownership of the new residential property had restricted the assessee‟s claim for deduction u/s 54 of the Act to 50% of the total investment therein made. On a perusal of Sec. 54 of the Act, we find that the same specifically contemplates the purchase/construction of the new residential house within a stipulated time period by the assessee - we concur with the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantifying his claim for deduction u/s 54 of the Act. Accordingly, not finding favor with the view taken by the CIT(A), we herein set-aside the same and direct the A.O to consider the brokerage expenses while computing the assessee‟s claim for deduction u/s 54. As the assessee‟s claim for deduction u/s 54 of the Act is to be restricted to the extent of 50% of the total investment, therefore, as a consequence thereto the entitlement of the assessee towards claim for deduction of the aforesaid amount of brokerage expense would also stand restricted to the said extent i.e 50%. Disallowing the cost as incurred by the assessee towards purchase of property, viz. VAT, Service tax and Extra work done - HELD THAT:- Aforesaid claim of the assessee cannot be safely gathered on a perusal of the aforementioned documents. Although, we are principally in agreement with the ld. A.R, and are of the considered view, that if the aforementioned amounts had been borne by the assessee qua the purchase of the new residential house, then, the same ought to have been considered as a part of the investment made by the assessee. Accordingly, in all fairness, we deem it fit to restore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Kar HUF instead of offered to tax by the appellant without appreciating that:- a) the HUF was partitioned and said properly was released in the hands of the appellant on 29.06.2002; b) the said property is since then in all the records including Society records held in the name of appellant including share certificate; c) no objection is raised by the third party purchaser in the registration authorities upon sale of the said property by the appellant; hence, the long term capital gains on the sale of the said property is correctly reflected in the return of income of the appellant, being the rightful owner of the property and die same may be accepted. B. Claim of sec.54 restricted to 50% of investment made 2. The Ld. CIT(A) erred in restricting the claim of deduction u/s.54 of the Act to 50% of the investment made without appreciating that:- a) the new property was purchased by the appellant by himself making the entire payment of the new property; b) the second name in the agreement is of appellant wife and was kept for security purpose only and no amount is contributed by appellant wife towards purchase of new property; c) the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in financial year 2003-04 towards making the property viable for residing and the same being capital expense incurred for improving the property and making it habitable, the same was correctly allowed by the A.O and the enhancement made by the CIT(A) by disallowing the cost of improvement of ₹ 11,87,418/- and indexed cost of improvement of ₹ 26,26,169/- is without any justification and liable to be deleted. 7. The appellant craves to add, alter, amend all or any of the above grounds of appeal. 2. Briefly stated, the asessee had e-filed his return of income for A.Y. 2015-16, declaring an income of ₹ 60,53,340/-. Original assessment was framed by the A.O vide his order passed u/s 143(3), dated 22.09.2017 at an income of ₹ 84,19,820/-. The A.O while framing the assessment had, inter alia, re-worked out the Long Term Capital Gain (LTCG) arising from the sale of a residential house property i.e Duplex house no. G-6, Building No. 9, Ganga Estate Co-operative Housing Society Limited, Chembur, Mumbai at an amount of ₹ 82,53,068/-, as against that reflected by the assessee in his return of income at ₹ 58,86,594/-. 3. Aggrieved, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the general body managing committee of the society the transfer of the property in question in favor of the assessee was approved w.e.f 29.12.2002 and the shares which were earlier held by the erstwhile owner, viz. Sajal Kar, HUF were transferred in the share register in the name of the assessee. It was further stated by the ld. A.R that even in the registered sale deed, dated 20.02.2015, the assessee was shown as the seller of the property and no objection was either raised by the purchaser nor by any third party. In the backdrop of the aforesaid facts, it was the claim of the ld. A.R that the assessee since 26.08.2002 pursuant to the declaration of release‟ was the owner of the property in his new capacity. Taking us through the genesis of the controversy in hand, it was submitted by the ld. A.R that the CIT(A) had observed that the aforementioned property was purchased by the assessee HUF, viz. Sajal Kar, HUF vide a registered purchase agreement, dated 02.12.1985 and not by the assessee in his status as that of an individual. It was observed by the CIT(A) that though the assessee had claimed that pursuant to the declaration of release‟, dated 26.08.2002, the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. Alternatively, the CIT(A) also rejected the assessee‟s claim that the property in question was released in his favor on the basis of a family arrangement. It was observed by the CIT(A) that a partition flowing as a result of a family arrangement or settlement was also covered by the provisions of Sec. 171 of the Act. Backed by his aforesaid observations, the CIT(A) being of the view that the property in question was a HUF property and the assessee had no right to declare capital gains on the transfer of the same in his individual hands, therefore, directed the A.O to initiate the relevant proceedings in the hands of the right person i.e the HUF. It was submitted by the ld. A.R that the CIT(A) after observing as hereinabove, had concluded, that the assessment of the LTCG in the hands of the assessee would partake the character of an assessment on a protective basis till the issue was settled by a higher judicial forum. 6. Rebutting the aforesaid observations of the CIT(A), it was submitted by the ld. A.R that as the HUF had never been assessed under the Income-tax Act, therefore, the provisions of Sec. 171 of the Act could not have been invoked. In order to buttress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. (3) On the completion of the inquiry, the [Assessing] Officer shall record a finding as to whet her there has been a total or partial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place. (4) Where a finding of total or partial partition has been recorded by the [Assessing] Officer under this section, and the partition took place during the previous year, - (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and not withstanding any thing contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed. (5) Where a finding of total or partial partition has been recorded by the [Assessing] Officer under this section, and the partition took place after the expiry of the previous year, the total income of the previous year of that joint family shall be assessed as if no partition had taken place; and the provisions of clause (b) of sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. and the provisions of this Act shall apply accordingly.] Explanation. In this section, - (a) partition means - (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition, or (ii) Where the properly does not admit of a physical division, then such division as the property admits of, but a mere severance of status shall not be deemed to be a partition; (b) partial partition means a partition which is partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both. In our considered view, as stated by the ld. A.R, and rightly so, the provisions of sub-section (1) and sub-section (9) of Sec. 171 of the Act would stand invoked only in a case of a HUF hitherto assessed as undivided. Before us, it is the claim of the ld. A.R that as the HUF in question, viz. Sajal Kar, HUF had at no stage been assessed under the Act, therefore, the provisions of Sec. 171 of the Act as had been invoked by the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, it was, inter alia, observed by the A.O that while for the assessee had raised a claim for deduction u/s 54 of the Act amounting to ₹ 1,71,53,207/-, however, the investment in the new residential house was of ₹ 1,59,41,620/-. Accordingly, the A.O restricted the assessee‟s claim for deduction u/s 54 to the aforementioned amount of ₹ 1,59,41,620/-. 10. On appeal, the CIT(A) observed that as the new residential property viz. Flat No. 1204 and 1205, 12th Floor, Mamta Deep Height, H.P Nagar West, Chembur Mahul Road, Chembur, Mumbai 400 074, Maharashtra was jointly purchased by the assessee alongwith his wife Mrs. Manju Sajal Kar, therefore, he being only 50% owner of the new residential property would thus be eligible for claim of deduction u/s 54 of the Act only to the said extent. Accordingly, the CIT(A) restricted the assessee‟s claim for deduction u/s 54 of the Act to 50% of the investment made in the new residential property. As the CIT(A) had observed that the LTCG on the sale of the property was to be assessed in the hands of the HUF, therefore, backed by his aforesaid observation he directed the A.O to consider the said claim for deduction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses from the order of the CIT(A) who taking cognizance of the aforesaid fact of joint ownership of the new residential property had restricted the assessee‟s claim for deduction u/s 54 of the Act to 50% of the total investment therein made. On a perusal of Sec. 54 of the Act, we find that the same specifically contemplates the purchase/construction of the new residential house within a stipulated time period by the assessee. As such, we concur with the view taken by the CIT(A) that though the investment in the new residential property was made by the assessee, however, as the same was jointly purchased in the name of the assessee and his wife, therefore, the assessee‟s claim for deduction u/s 54 was liable to be restricted to the extent of his ownership in the property in question i.e 50% of the investment therein involved. Our aforesaid conviction is supported by the judgment of the Hon‟ble High Court of Bombay in the case of Prakash Vs. Income Tax Officer Ors. (2009) 312 ITR 40 (Bom). In the aforesaid case the following question of law was inter alia raised before the Hon‟ble High Court : 3. Whether for qualifying for exemption under s. 54F of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date of its purchase or, as the case may be, its construetion, the amount of capital gain arising from the transfer of the original asset not charged under s. 45 on the basis of the cost of such new asset as provided in cl. (a) or, as the case may be, cl. (b), of sub-s. (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. 9. The term assessee is defined in s. 2(7) of the IT Act, which is as under : assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act; 10. Sec. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain arising from the transfer of the original asset which was not charged to taxes shall be allowed to be income chargeable under the head capital gain relating to long-term capital assets of the previous year in which such residential house is so purchased or constructed. Furthermore, if an assessee transfers newly acquired residential house within three years of its purchase or construction, then the amount of capital gain arising from the transfer of original asset, which was not charged to tax, shall be deemed to be the income of the year in which the new asset is transferred and the said income shall be charged to tax under the head of capital gains relating to the long-term capital assets [(1982) 31 CTR (TLT) 12 : (1982) 138 ITR (St) 10)] (Departmental Circular No. 346, dt. 30th June, 1982). 12. It is, therefore, clear that the purpose is to give this benefit on the ownership of one residential house only by the assessee and to encourage to have one residential house of the assessee. Therefore, right from the sale of original asset till the purchase and/or construction of the residential house i.e., the new asset , the ownership and domain over the new asset is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sale and purchase makes no difference. The word assessee must be given a wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word assessee as that would frustrate the object of granting the exemption and what is more, in the instant case, the very same assessee immediately after the sale of the house, entered into an agreement for purchasing another house and paid a sum of ₹ 1,000 as earnest money and subsequently the legal representative completed the transaction within a period of one year from the date of the death of the deceased. The sale and purchase are two links in the same chain. We are fortified in this view by a decision of the Madras High Court in C.V. Ramanathan vs. CIT (1980) 17 CTR (Mad) 322 : (1980) 125 ITR 191 (Mad). We are not inclined to accept the liberal view to the word assessee in Late Mir Gulam Ali Khan (supra) for the reason already recorded in the above paras. The scheme of s. 54F is clear. The facts are different here. 15. The deceased assessee admittedly sold and purchased the property from the realisation but in the name of the adopted son, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as the beneficial owner of the new asset. The assessee has, therefore, not made the investment in this name. Therefore, he has rendered himself liable to pay tax on capital gains arising out of the transfer of a capital asset. 9......... 10. In all the above case, it will be significant to note that the issue was never regarding purchase of the new asset in the name of other person. Death during the period within which the new asset had to be acquired was an intervening event in some cases. The distinction between a legal heir and an heir apparent in law is very significant. An heir apparent succeeding to the estate of a prepositus is dependent on the fact of his surviving the prepositus. Death is a certain event but who will die first is not a certain event. This is the reason why law regards transfer by a heir apparent of his chance of succession as non-transferable under s. 6 of the Transfer of Property Act. 11. .....In the present case, the assessee has not made any such claim. In the affidavit filed before the AO he had admitted that his son is the beneficial owner of the property and the investment was made in his name in view of the fact that he is 86 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the CIT(A), who in our considered view had rightly restricted the assessee‟s claim for deduction u/s 54 to the extent of 50% of the investment mad by the assessee in the new residential property. The Ground of appeal No. 2 is dismissed. 14. We shall now take up the grievance of the assessee that the CIT(A) had erred in rejecting his claim of having incurred an additional cost of ₹ 1,50,000/- with respect to the aforesaid property, viz. Duplex house no. G-6, Building No. 9, Ganga Estate Co-operative Housing Society Limited, Chembur, Mumbai in the year 1985, and thus, had wrongly declined his resultant claim for deduction of the indexed cost of improvement‟ of ₹ 11,54,887/-.It was submitted by the ld. A.R that the assessee had incurred additional expenses for providing amenities in the Duplex Flat (including garden) which was duly substantiated before the lower authorities on the basis of a letter dated 5th December, 1985. Our attention was drawn by the ld. A.R to the aforesaid letter dated 5th, December, 1985 (copy placed at Page 24 of the APB). It was submitted by the ld. A.R, that as stated in the aforesaid letter, the assessee had incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the typed version but also is found to have been hand written. Although, the document is illegible, however, the same is claimed to have been notarised on 5th June, 1988. In the backdrop of the aforesaid serious doubts which are apparently glaring on the very face of the aforesaid document, we are of the considered view that the same would require verification on the part of the A.O. Accordingly, we herein direct the assessing officer to call for the original document and make necessary verifications as regards the authenticity of the same. In case the aforesaid document is found to be in order, then, as observed by us hereinabove the assessee would be entitled to claim deduction as regards the expenditure that was incurred towards the additions/improvements made to the property in question and thus, would be eligible for the consequential indexed cost of improvement‟ while computing of his income under the head LTCG. The Ground of appeal No. 3 is allowed for statistical purposes in terms of our aforesaid observations. 17. We shall now take up the claim of the assessee that the CIT(A) while quantifying the assessee‟s claim for deduction u/s 54 of the Act had e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for purchase of the aforesaid residential property and considered by him while quantifying his claim for deduction u/s 54 of the Act. 18. Per contra, the ld. D.R relied on the orders of the lower authorities. 19. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issue in question. As observed by us hereinabove, the fact that the assesse had paid brokerage charges of ₹ 1,91,012/- qua the purchase of the new residential property viz. Flat No. 1204 and 1205, 12th Floor, Mamta Deep Height H.P Nagar West, Chembur Mahul Road, Chembur, Mumbai 400 074, Maharashtra, stands substantiated to the hilt as per the Bill No. 5/2015, dated 05.05.2015, as well as the bank account of the assessee i.e a/c no. 10682010035940 with Oriental Bank of Commerce, Branch: Chembur, Mumbai. In our considered view, now when the aforesaid claim of the assessee of having incurred the aforementioned expenses in respect of purchase of the new residential property stands proved to the hilt, therefore, there was no justification on the part of the CIT(A) to have not considered the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration to the aforesaid claim of the assessee and are unable to persuade ourselves to accept the same. As per Sec. 54 of the Act, the deduction therein contemplated is to be determined considering the amount of the capital gain‟ arising from the sale of the old residential property that is utilized for purchase or construction of one residential house in India. In the case before us, the assessee had opted for availing the aforesaid deduction by purchasing a new residential property. As is discernible from the records, the new residential property, viz. Flat No. 1204 and 1205, 12th Floor, Mamta Deep Height H.P Nagar West, Chembur Mahul Road, Chembur, Mumbai 400 074, Maharashtra was purchased by the assessee vide registered purchase deed, dated 23.04.2015. In our considered view, the amount that would be eligible for claim of deduction in a case where the assessee has purchased the new residential house would the amount that was utilized for purchasing the same. As such, we hold a strong conviction that the amount utilized by the assessee after purchasing the new residential property would not fall within the realm of deduction contemplated u/s 54 of the Act. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the fact as it so remains is that the aforesaid claim of the assessee cannot be safely gathered on a perusal of the aforementioned documents. Although, we are principally in agreement with the ld. A.R, and are of the considered view, that if the aforementioned amounts had been borne by the assessee qua the purchase of the new residential house, then, the same ought to have been considered as a part of the investment made by the assessee. Accordingly, in all fairness, we deem it fit to restore the issue to the file of the A.O who shall after making necessary verifications readjudicate the aforesaid claim of the assessee. The Ground of appeal No. 5 is partly allowed for statistical purposes in terms of our aforesaid observations. 23. We shall now take up the claim of the assessee that the CIT(A) had erred in disallowing the assessee‟s claim towards cost of improvement‟ of the property that was incurred by him in the financial year 2003-04 for rendering it habitable. Before us, it was submitted by the ld. D.R that the assessee had in F.Y 2003-04 incurred expenses amounting to ₹ 11,87,418/- towards improvement of the property that was sold during the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A‟ in the case of Ms. Juveria Begum Ors. Vs. ITO, Ward 14(2), Hyderabad, ITA No. 2224/Hyd/2018. On the basis of his aforesaid contentions, it was submitted by the ld. A.R that the expenses incurred by the assessee towards improvement of the property were duly eligible for being considered while computing the LTCG on the sale of the said property. 24. Per contra, the ld. D.R relied on the orders of the lower authorities. 25. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issue in question. As is discernible from the order of the CIT(A), we find that it was the claim of the assessee that he had incurred the expenditure of ₹ 11,87,418/- both towards the property in question, and also towards certain items which though were not attached to the property but facilitated the convenient use of the same. Insofar, the claim of the assessee that the expenses incurred towards repair/renovation and/or additions to the property under consideration is concerned, viz. replacement of wooden fittings, door repairs, wooden flooring, bathroom fittings, sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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