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TMI Blog2014 (1) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 54F of the Act - Decided against Revenue. - IT Appeal No. 417 of 2013 - - - Dated:- 28-10-2013 - N. KUMAR AND MRS. RATHNAKALA, JJ. For the Appellant : Sanmathi E.I. For the Respondent : Chythanya K.K. JUDGMENT :- N. Kumar, J. - This appeal is by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Bangalore holding that the capital gain claimed by the assessee is to be treated as a long term capital gain and consequently he is entitled to the benefit of exemption from levy of tax as a capital gain under Sections 54EC and 54F of the Income Tax Act, 1961 (hereinafter referred as 'the Act' for brevity). 2. For the purpose of convenience, parties are referred to as they are referred in the original proceedings. 3. The assessee is a chartered accountant. In the assessment year 2009 - 10, he filed the return of income on 29.09.2009 declaring income of Rs. 11,63,410/-. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and notice under Section 143 (2) of the Act was issued. The assessee appeared in pursuance of the notice, produced the details called for. The material produced disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Tribunal. 5. The Tribunal interpreting the word "held by the assessee" in Section 2 (42-A) of the Act, held that it does not mean vesting of legal title to the property in the assessee. He acquired a right to hold the property when allotment was made for the first time on 25.8.1988. Because of the disputes between the Bangalore Development Authority and the original owners of the site allotted to the assessee, he could not be conveyed a site without encumbrance and with clear title. Therefore, in the end, though the site was allotted on 15.2.2008 followed by a registered sale deed dated 27.2.2008, the claim of the assessee that he held the property from the year 1998 is to be accepted. As the sale has taken place beyond three years' period, the capital gains accrued on such transfer constitutes a long term capital gain and therefore, he is entitled for the exemption sought for. Accordingly, the appeal was allowed. The impugned order passed by the Assessing Authority as well as the Appellate Authority was set aside. Aggrieved by the said order, the Revenue has preferred this appeal. 6. In the light of the aforesaid facts, the substantial question of law that arises for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel have relied on several judgments of various courts apart from placing reliance on the statutory provisions, the circulars issued by the Department. 10. The word "capital gains" is not defined under the Act. However, Section 48 of the Act provides for computation of the capital gains. The Act defines what is the short-term capital asset" and what is the "short-term capital gain." Section 2(42A) of the Act defines "short-term capital asset" as under: "2(42A): "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer: Provided that in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of Section 10 or a zero coupon bond, the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted." Section 2(42B) of the Act defines what is the short-term capital gain. It reads as under: "2(42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 The existing definition of the word "transfer" in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member of or acquiring shares in a co-operative society, company, or association of persons or by way of any agreement or any arrangement whereby such person acquires any right in any building which is either being constructed or which is to be constructed.. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangement confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multistoreyed constructions in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of the Transfer of Property Act, 1882. New sub-clauses (v) and (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. 11.2 The newly inserted sub-clause (vi) of section 2(47) has brought into the amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession. 3. The. Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that true transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains." Section 48 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him by virtue of the transfer of capital asset. If the investment and subsequent transfer is after a period of three years of investment it becomes a long-term capital gain and then such gain would be entitled to the benefit of exemption as provided under Section 54EC and 54F of the Act. 12. The definition as contained in Section 2 (42A) of the Act, though uses the words, "a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer", for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered............... Courts should, whenever possible unless prevented by the express language of any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country." Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssess or question the title of the vendee." 15. All the aforesaid judgments relied on by the Revenue are cases arising prior to the amendment to Section 2(47) of the Act. The very same judgments show, in particular the judgment of the Full-Bench of the Gujarat High Court, the reasons for amendment i.e., even in the absence of a registered deed of transfer', if the transaction in question demonstrates the intention of the parties and after paying the entire consideration agreed upon, the purchaser enjoys the property. The fact that the transaction is not completed by execution of the registered sale deed makes no difference in the eye of law for the purpose of taxes. If the Revenue is entitled to collect tax on such capital gains, even in the absence of a registered document, on the same analogy, the assessee, who is liable to pay the capital gains, is also entitled to the exemption granted under the very Act on such capital gains. That is precisely what the Apex Court has said in Smt. Saroj Aggarwal's case (supra) that facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Too hyper technical or legalistic approach should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the asset was paid on 21.9.1988 and no cost was paid either on the date of allotment i.e., on 15.2.2008 or on the date of registered sale deed on 27.2.2008. For the purpose of computing the capital gains under Section 48 of the Act, it is the date of acquisition of the asset, which is to be taken into consideration and the said cost of acquisition is to be converted as the indexed cost of acquisition as defined in the Explanation to Section 48 of the Act and, the said amount is to be deducted out of the sale consideration to arrive at the capital gain. Accordingly, after deducting the cost of acquisition and the registration fee, the capital gain after the transfer of the said asset was Rs. 1,08,73,892/- as it was a long-term capital gain. He invested an amount of Rs.28 lakhs in Rural Electrification Corporation Limited and an amount of Rs.22 lakhs in the National Highways Authority of India in terms of Section 54EC of the Act. Similarly he purchased an apartment at Hebbal, Bangalore, for a sum of Rs.56,03,590/- in terms of Section 54F of the Act and sought an exemption. For the balance of Rs.2,70,296/-, he has paid the long-term capital gain. Therefore, the assessee has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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