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TMI Blog2014 (8) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... lly in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion - the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account - the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso - The word “purchase” is used in sub-section (2) and indicates that the word is not restricted or confined to registered sale deed or even possession but has a wider connotation. The proviso supports the interpretation and stipulates that the amount deposited but not utilized wholly or partly for purchase or construction of new asset within the specified period will be charged to tax u/s 45 in the previous year in which the period of three years from the date of transfer of original asset expired - The period of three years is stipulated as this is the longer period specified in the sub-section (1) to Section 54 - It is only the balance amount which is not utilized which is to be brought and charged to tax - The entire amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar before the sale of first property on 3rd June, 2005 or within two years from the date on which the transfer took place. The assessee had not constructed residential house within three years from 3rd June, 2005. Assessing Officer observed that legal ownership of the property never vested in the assessee within the aforesaid period and therefore, the purchase was not completed within two years which was the period stipulated and specified in Section 54 of the Act. He, accordingly, computed the long term capital gain, after granting benefit of indexation on cost of acquisition and cost of improvement, at ₹ 45,36,273/-. While examining the question of capital gains, the Assessing Officer also disallowed the claim of the assessee to the extent of ₹ 7,50,000/- as cost incurred for transfer. 4. On the second aspect, the finding of the tribunal is that the assessee had entered into an earlier agreement to sell for sale of the property at New Friends colony and had received ₹ 10,00,000/- from one Ashok K. Singhal. However, this agreement was cancelled to enable the assessee to enter into the transaction resulting in capital gains. ₹ 10,00,000/- was refunded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 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, then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,-- (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February, 2006. The said agreement mentions the apartment number and gives specific detail of the property. The payments were linked to stage of construction and that amount of ₹ 2,90,46,250/- was payable within 27 months of booking i.e. on or before 12th February, 2008 and the total cost of flat/apartment was ₹ 3,13,09,375/-. Thus, the consideration being paid by the respondent assessee was nearly 9 times income by way of capital gains which was earned by the assessee. 8. The word purchase can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. Purchase can also refer to payment of consideration or part consideration along with transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT Andhra Pradesh vs. T.N. Aravinda Reddy (1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the factual matrix, it was observed that the intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observations made in the said decision are also relevant on the question whether the payments made by the assessee to the person with whom he had entered into an earlier agreement to sell should be allowed to be set off as expenses incurred in relation to the sale deed which was executed. 10. More direct are the two decisions of Madhya Pradesh High Court in Shashi Verma (Smt.) vs. CIT [1997] 224 ITR 106 and Calcutta High Court in CIT vs. Smt. Bharati C. Kothari (2000) 244 ITR 352. In Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the intention of the Legislature from the language used. It is necessary to remember that language used is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meeting. 12. Moreover, in Bharati C. Kothari s Case (supra) it was stated as under:- The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against those sale considerations that capital gains tax arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party that does not make any difference. The basic requirement for the purpose of relief under section 54(1), is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Keeping in view the above observations and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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