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TMI Blog2013 (1) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, provisions of sections 45, 48, 50C and 54F suggest that there is nothing to bar benefits of exemption u/s 54F in respect of the capital gains relatable to the FVC as per the deemed fiction u/s 50C. Clause (a) of section 54F(1) specifies that if the cost of the new asset is not less than the net consideration in respect of the original asset, there is no chargeable capital gains u/s 45. In the instant case, the cost of the new asset is Rs. 17,65,752/- and 'net consideration' as defined is '..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' i.e. Rs. 16,87,000 as per sec 50C and Rs. 8 lakhs as per the sale deed. The said clause (a) refers to the provisions of section 45. In the given facts of the instant case, no chargeable capital gains arises u/s 45, thus, in this case, with investment of Rs. 17,65,752/- in new asset, the cost of the new asset is not less than the net consideration (NC) in respect of the original asset. Of course, the 'net consideration' has two variants depending on FVC adopted and in this case, the NCs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been received as adopted by the Assessing Officer u/s 50C of the Income Tax Act. 2. The said CIT (A) erred in not appreciating that the appellant had invested Rs. 17,65,752/- for construction of two additional floors over the existing residential house within the stipulated period u/s 54F and the appellant was not the owner of more than one residential house and therefore, deduction of Rs. 14,71,837/- being the Capital Gain as computed by the assessing Officer was allowable u/s 54F. 3. The said CIT (A) also erred in holding that the appellant was entitled to deduction u/s 54F in respect of construction of only one of the two floors constructed above the existing residential house when the appellant explained that both the floors constituted one house only. 4. The said CIT (A) on the above grounds, erred in holding that the appellant was entitled to deduction of only Rs. 5,84,837/- claimed by the appellant." 3. There is a preliminary issue to be attended by us and it relates to the condonation of delay of 13 days in filing the appeal before the Tribunal. In this regard, assessee filed an affidavit dated 27.7.2012. According to the assessee, the CIT (A) order dated 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to service and recomputed the long term capital gains at Rs. 14,71,837/- against the assessee claim of Rs. 5,84,837/-. Further, AO noticed that assessee claimed exemption u/s 54F of the Act in respect of the capital gains as he applied the gains in construction of a residential property. In toto, the assessee spent Rs. 33 lakhs in respect of the property. There is no dispute about the invoking the provision of section 50C between the parties. The dispute is restricted to the claiming of deduction u/s 54F of the Act. As per the AO, assessee also owns a house, therefore, as per section 54F(1)(a), assessee is not entitled for deduction. AO also noted that assessee invested the said capital gains prior to two years before the transfer of asset. Accordingly, the deduction claim was rejected and the assessment was completed determining the total income of Rs. 36,66,250/-. Aggrieved with the same, assessee filed an appeal before the CIT (A). 6. During the first appeal proceedings, assessee informed that the sale proceeds were utilized in the construction of additional two floors on the existing only residential Bungalow at 20, Nepathy Gulmohar Road, Ville Parle (W), Mumbai. A sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37/- of long term capital gains u/s 54F of the Act is allowable to the appellant." 7. On considering the above submissions of the assessee, CIT (A) partly allowed the appeal of the assessee and confirmed the AO's finding on the applicability of the provisions of section 50C of the Act and computation of long term capital gains of Rs. 14,71,837/-. However, he held that the assessee is eligible for exemption only on the capital gains of Rs. 5,84,837/-. Thus, CIT (A) denied exemption on the balance. CIT (A) is of the view that the provisions of section 50C creates a fiction in the provisions for computing the capital gains only whereas, actual consideration received is Rs. 8 lakhs which is computed as per the provisions of section 50C r.w.s 48 and section 54F(1) of the Act. The long term capital gains relatable to the increased market value as per the ready reckoner of SRO should not be available for deduction u/s 54F(1) of the Act. Accordingly, AO directed to allow exemption only on the capital gains of Rs. 5,84,837/-. In the process, he has taken the strength from the decision of ITAT, Bangalore Bench in the case of Gouli Mahadevappa v. ITO [2011] 49 DTR 207 (Bang) which is releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the period from July 2006-March 2008. Ld Counsel argued that the when Rs. 17,65,752/- is not less than the 'net consideration' of Rs. 16,87,000/- (as per SRO), in view of the provisions of clause (a) of 54F(1) of the Act, the assessee is not chargeable to capital gains on this property. For this relied on various decisions of the Tribunal. As per the said clause (a), Ld Counsel mentioned that as the net consideration as per the sale deed (Rs. 8 lakhs) and as per the FVC of the 50C (Rs. 16,87,000/-) falls short of the 17,65,752/-, the assessee is not chargeable to capital gains. It is submitted that the CIT (A) is incorrect in denying exemption u/s 54F in respect of full value of consideration of Rs. 8.87 lakhs (Rs. 16.87 lakhs - Rs. 8 lakhs). Ld Counsel mentioned that the decision of the Tribunal in the case of Gouli Mahadevappa, supra has not discussed the said clause (a), which stipulates the chargeability of capital gains u/s 45 of the Act. Further, Ld Assessee relied on the decisions of the Tribunal in the cases of Gouli Mahadevappa 128 ITD 503 (para 8) and Jaipur bench decision in the case of Gyan Chand Batra 133 TTJ 482. 9. On the other hand, Ld DR for the revenue heavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gains 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 assert 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: Provided .. ** ** ** Explanation,- for the purpose of this section,- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 of the Act. Thus, in this case, with investment of Rs. 17,65,752/- in new asset, the cost of the new asset is not less than the net consideration (NC) in respect of the original asset. Of course, the 'net consideration' has two variants depending on FVC adopted and in this case, the NCs are quantitatively lesser than the cost of the new asset leaving no chargeable capital gains u/s 45 of the Act. Therefore, in our opinion, the assessee is not chargeable to any capital gains considering the given facts of the case and also the said clause (a) of section 54F(1). 12. We shall now take up the orders of the Tribunal cited by the parties. First, we shall take up the decision in the case of Sri Gouli Mahadevappa 128 ITD 503 (Bang) dt 16.07.2010. Facts are that the assessee sold plot for Rs. 20 lakhs. The consideration as per the SRO is Rs. 36 lakhs. Assessee purchased new asset for Rs. 24 lakhs and invested entire sale proceeds. AO calculated capital gains at Rs. 14,06,494 and allowed exemption to the extent of FVC of Rs. 20 lakhs and not on FVC of Rs. 36 lakhs. On these facts, the Tribunal held that the deeming fiction on FVC given in section 50C cannot be extended to section 54F (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout application of 50C is lesser than the investment in the new asset. Further, we have examined the decision of the Tribunal in the case of Gyan Chand Batra 133 TTJ 482 dated 13.08.2011. Relevant facts of this case are that the assessee sold property for Rs. 10.81 lakhs and full value consideration as per the SRO is 19,24,987/-. Assessee purchased flat for Rs. 16.74 lakhs. It was held that in view of the provisions of section 54F(1), the assessee is entitled to deduction. The conclusions reads that the "deeming fiction s provided in section 50C in respect of the words 'full value of consideration' (FVC) is to be applied only to section 48 and, therefore, meaning of full value of consideration as referred to in Explanation to section 54F(1) is not governed by the meaning of the words 'full value of consideration' as mentioned in section 50C'' 15. Thus, the gist of the above decisions suggest that the deeming fictional meaning of section 50C cannot be imported for the purpose of explaining the meaning of the 'net consideration' mentioned in Explanation u/s 54F(1) of the Act. In effect, for working out the exempt income also, the deeming fiction does not have any effect in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and 4th floor: 3bed rooms. Thus, the said details which are disputed by the revenue suggest that functionally, the assessee's house in question constitutes one residential house only. Therefore, the assessee's claim is in tune with the said SB decision in the case of Sushila M Jhavery (supra). CIT(A) restricting the exemption of capital gains to Rs. 5,84,837 is not proper. 17. Therefore, based on the factual matrix of the present case, where the assessee invested total full value consideration of Rs. 16,87,000/- (as per the SRO) in the residential house, which is one house only as it has only one kitchen, and these FVC is less than the invested amounts of 17,65,752/-, during the specified period, the assessee is not chargeable to tax on the capital gains u/s 45 of the Act. Whether we compute the capital gains apply FVC as pr the sale deed or the deemed FVC as per the section 50C, the net consideration is less than the investment in one residential house. None of the decisions of the Tribunal cited above are against such interpretation. Therefore, considering the provisions of section 54F(1)(a) of the Act, we are of the opinion that the order of the CIT(A) is not proper in deny ..... X X X X Extracts X X X X X X X X Extracts X X X X
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