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TMI Blog2008 (6) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. on different dates and earned capital gains. The details of dates of the sale of shares and the amount of sale considerations are as follows :-- Sale Date Amount in Rs. 13-5-1995 6,49,025 25-5-1995 5,00,000 3-6-1995 5,99,000 15-7-1995 4,99,250 25-9-1995 6,98,950 13-1-1996 74,850 Total Sale Consideration 30,21,075 The long-term capital gains computed on the said sale proceeds long-term capital assets worked out to Rs. 27,01,204. The assessee entered into an agreement with Harshad Rai Poonamchand Doshi, the Builder of Row houses in Shanti Park vide the Articles of Agreement dated 26-8-1996 and paid Rs. 30.50 lakhs for purchase of a Row House No. 30 consisting of Ground plus First Floor, Shanti Vidya Nagari or Shanti Park at Meera Road, Distt. Thane. The details of payments are as follows : Date of payment Amount in Rs. 3-8-1996 6,00,000 8-8-1996 8,00,000 14-8-1996 9,50,000 20-8-1996 4,50,000 26-8-1996 2,50,000 Total 30,50,000 Assessee cancelled the above purchase of Row house vide the Articles of Agreement for Cancellation for the reasons relating to demolition drive by the Thane District Authorities as mentioned the said agreement and cancelled o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rual of long-term capital gains on 3-1-1996 (last payment), investment of the same capital gains first in the row house in August 1996, cancellation of the proposed purchase of row house and receiving of the refund of amounts in June 1997, reinvestment of the refunded capital gains in the Flat at Abhijit on 28-3-1998. He held that the exemption under section 54F is, inter alia, is available where the assessee has, within 2 years, purchased or, within period of three years constructed a residential house. He further held that in the light of the cancellation of agreement for purchase of row house, there is nothing to show either purchase or construction of a new asset has been made by the assessee till 28-3-1998. He further held taking 13-1-1996, i.e., last date on which the capital gain arose, the last date for investment in the purchase of new asset under section 54F falls in January 1998, whereas the assessee invested only in March 1998, i.e., after the expiry of two years. Thus, CIT(A) held that the assessee's case is the case of purchase of new asset and not the construction of new asset and, accordingly, the applicable time-limit is of two years and not three years, hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me during the interregnum. 7. The ld. DR for revenue relied on the orders of the lower authorities and argued that the investment of the long-term capital gains vide the can-celled agreement in respect of purchase of the row house, should be considered as the purchase of a new asset as per sub-section (1) of section 54F. The cancellation of the relevant agreement and receiving the refund during the period of 3 years from the date of the purchase agreement dated 26-8-1996, attracts the provisions of sub-section (3). The same should be treated as the transfer of new asset, which is prevented within a period of three years from the date of its purchase under said sub-section (3). Therefore, the withdrawal of exemption by the Assessing Officer under section 54F is proper. Notwithstanding the above, Sr. DR argued that, if the cancellation of purchase of row house is to be ignored and investment in flat in Abhijit is only to be considered, the assessee becomes defaulter under the sub-section (4) of the section 54F in respect of the condition of depositing the long-term capital gains in the Capital Gain Scheme before filing the return of income under section 139 of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead as under : "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 )and (b)****** Provided : ****** (a )****** (i )to (iii)****** (b )****** Explanation.--****** (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to examine the assessee's case in the light of the conditions specified in various sub-sections of section 54F. 11. Sub-section (1) of section 54F mentions to the eligible long-term capital assets, i.e., any long-term capital asset not being the residential house, eligible new asset and modes of investment of such capital gains in the new asset and time limitations when the new asset is purchased or constructed apart from others. We find that there is no dispute on the eligibility of the long-term capital gains and there is dispute on the eligible new asset, mode of investment of such gains and applicable time limitations for such investment of the same. The assessee holds that the investment of gains on 28-3-1998 in the construction of Flat No. 5 in under construction building called 'Abhijit' is the investment in eligible new asset for the purpose of sub-section (1) and, therefore, the assessee's case is the case of construc-tion and in turn, the applicable time limitation is the period of three for investing the long-term capital gains. Whereas, the revenue contends that the assessee's investment of capital gains in the Row House No. 30 is the eligible new asset and not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al legalese' and word 'purchase' should be understood as in the sense of 'plainspoken people'. Further the decision of Jodhpur Bench of the ITAT in the case of Jagan Nath Singh Lodha (supra) is relevant for the proposition that exemption under section 54F is available to the assessee, if the intention of the assessee from the very beginning is to invest in the new asset, though certain conditions are not met for genuine facts and circumstances. Therefore, we have no confusion in our minds in favour of ignoring the whole issue of investment of capital gains in the purchase of Row House No. 30 and in not ignoring the assessee's investment of said capital gains in the Flat No. 5 in Abhijit Building. 13. Now we shall undertake to discuss the conditions specified in sub-section (3) of section 54F applying to the facts of the case. As seen from the above, the said sub-section stipulates that the 'new asset' purchased or constructed must not be transferred within the lock in period of 3 years from the date of such purchase or construction of 'new asset'. Assessing Officer denied the claim of exemption under section 54F for the reason of violation of said condition considering the 'Row Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-sections (1), (3) and (4) of section 54F to the facts of the case, the issue for consideration is whether the investment of capital gains in the Flat No. 5 in Abhijit Building entitles the assessee to the exemption under the said section. It is already mentioned above that the assessee entered into an agreement with M/s. Sonzol Finance and Investment (P.) Ltd., which is engaged in the construction of building called 'Abhijit'. The assessee paid Rs. 30.50 lakhs on 28-3-1998 and purchased the 'block of shares' of the company and got them transferred to his name under respective Agreements to Sell Shares from the respective Share Holders of M/s. Sonzol Finance and Investment (P.) Ltd. and became entitled to an allotment of Flat No. 5 (2550 SFT) 5th Floor of the proposed under construction building. The said building was constructed and the assessee got occupancy certificate from Municipal Corporation of Greater Mumbai (MCGM) on 4-12-1998. Assessee gave possession letter dated 5-12-1998 to the builder. When examined the above facts ignoring the events involving the surrendered row house, the assessee's investment of capital gains on 28-3-1998 in the purchase of block of shares of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian v. Asstt. CIT [1996] 56 TTJ 417 too. Therefore, the investment of the long-term capital gains in the Flat No. 5 in Abhijit Building is the case of construction and applicable time limitation is three years and not two years as held in the impugned order. 17. To sum up, we find that the assessee has not violated the provisions of sub-sections (3) and (4) of section 54F relating transfer of new asset during lock-in-period and depositing the capital gains before the due date for filing the return of income in view of the peculiar circumstances specific to the assessee. Further, we also find that the investment in the flat at 'Abhijit' building is the case of construction and therefore 3 years time limitation is applicable. Accordingly, the assessee has complied with the condition of 3 years specified in sub-section (1) of section 54F. The abovesaid interpretation is necessary to the given case and factual matrix of the assessee. We have taken the same interpretation to avoid any absurdness in application of law relating to the provisions of section 54F keeping in view the purpose of this legislation. In this regard, the Apex Court's judgment in the case of K.P. Varghese v. ITO [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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