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TMI Blog2019 (5) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... HRA [ 2014 (1) TMI 446 - DELHI HIGH COURT eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally - Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house - Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted In the present case assessee has purchased a house property i.e. a new asset and is entitled to exemption u/s 54F of the act despite the fact that construction activities of the purchase of the new house has started before the date of sale of the original asset which resulted into capital gain chargeable to tax in the hands of the assessee. Accordingly we reverse the order of the lower authorities and direct the assessing officer to grant deduction under section 54F - Decided against Revenue. - ITA No. 2630/Del/2015 - - - Dated:- 30-4-2019 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a construction of a new house property. As the new asset is constructed in this case the time limit according to him of the date of sale of original asset till the expiry of 3 years thereafter applies. He therefore noted that the assessee has started investing in the new asset with effect from 18/8/2006 that is 3 years and 11 is months before the date of sale. He further noted that around 90% of the total investment in the new asset has been made before the date of sale of the original asset. He noted that assessee would have been eligible for deduction under Section 54F had the entire investment in the construction of the new asset had been made during 13/7/2010 to 12/7/2013. Therefore according to him in the sky case the condition is breached and therefore he denied that the eligible deduction under section 54F of the act to the assessee of ₹ 7985761/. Accordingly the income of the assessee was assessed at ₹ 22368350/ as per order u/s 143 (3) of the income tax Act dated 14/02/2014. 4. The assessee preferred an appeal before the learned CIT(A) who dismissed the appeal. Therefore, assessee has preferred this appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said acquisition of property is to be regarded as construction of property and that in case of construction of property the entire investment is to be made within a period of three years from the transfer of asset subject to capital gains i.e. between 13/07/10 - 12/07/13 which since did not happened therefore the assessee is not eligible for relief u/s 54F. In other words it is the view of the AO that in case of construction of property the construction cannot precede the date of transfer of original asset giving rise to capital gains. The AO relied upon two ITAT decisions noted at page 7 of AO order which are dealt extensively, infra. 4) View of CIT(A). The CIT(A) confirmed the view of AO. The CIT(A) relied upon two additional ITAT decisions as noted at page 12 of CIT(A) order which are dealt extensively in the ensuing paras. 5) Assessee s submissions 5.1 It is respectfully submitted that the AO is fundamentally misplaced in observing that in case of construction of property the construction cannot precede the date of transfer of original asset giving rise to capital gains It is now judicially ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from taking benefit of Section 54 II was immaterial when the construction commenced, the sole and important consideration as per the Section was that the construction should he completed within the specified period. It was accordingly held as under:- So too was the next conclusion reached by the Tribunal. The date of the sale of the old building was February 9. 1977. The completion of the construction of the new building was in March. 1977, although the commencement of the construction started in 1976. It is immaterial, as the Tribunal, in our opinion, has rightly observed, about the date of commencement of the construction of the new building. Since the assessee has constructed the building within two years from the date of sale of the old building, he was entitled to relief under section 54 of the Act. 7. The aforesaid judgment was pronounced on 9th June, 1986 and was followed by Allahabad High Court in hi.K. Kapoor (supra) and it has been held as under:- the question for consideration is whether exemption on capital gains could be refused to the assessee simply on the ground that the construction of the Surya Nagai: Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords of the said sub-section in a different manner. The apprehension of I he Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e.. residential house, is ill-founded and misconceived' Thus, in a very clear and precise manner it has been held by the Delhi High Court that that there can be no denial of deduction I exemption u/s 54F for commencing construction of new house before the sale of original asset. Also it has been clearly held by the Delhi High Court that apprehension of the Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is illfounded and misconceived , ii) Decision of Karnataka High Court in the case of CIT Vs J.R.Subramanya Bhat 165 ITR 571 (Kar ); iii) Decision of Allahabad High Court in the case of CIT Vs H.K.Kapoor 234 ITR 753 (AM.); iv) Decision of Madras High Court in the case of C.Aryama Sundaram Vs CIT (2018) 97 taxmann.com 74 (Madras). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act. Principles laid down in aforesaid decision has been followed in various ITAT decisions being the following: v) Decision of Co-ordinate Bench of ITAT in the case of DCIT Vs Dr. Chalasani Mallikarjuna Rao (2016) 75 taxmann.com 270; vi) Decision of Co-ordinate Bench of ITAT in the case of ITO, Japiur Vs Smt. Saroj Devi Agarwal (2017) 87 taxmann.com 23; vii) Decision of Co-ordinate Bench of ITAT in the case of Mustansir I Tehsildar Vs ITO, Mumbai (2017) 88 taxmann.com 275; viii) Decision of Ahmedabad ITAT in the case of ACIT Vs Subhash Sevaram Bhavnani 23 taxmann.com 94. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to he charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act. 5.3 WITHOUT PREJUDICE TO OTHER ARGUMENTS IT IS ALSO SUBMITTED THAT DELHI HIGH COURT VIDE AFORESAID DECISION IN CASE OF KU LD EEP SINGH CATEGQRIZED THE ACQUISITION OF AN APARTMENT UNDER A BUILDER BUYERS AGREEMENT WHEREIN J IE BUILDER GETS CONSTRUCTION DONE IN A PHASED_MANNER AND THE PAYMENTS ARE LINKED TO CONSTRUCTION AS A CASE OF_ PURCHASE AND NOT CONSTRUCTION . JDENTICAL ARE _ THE FACTS OF ^PRESENT CASE WHEREIN ASSESSEE IS MAKING CONSTRUCTION LINKED PAYMENT TO BUILDER AS PER THE PAYMENT SCHEDULE OUTLINED IN AO ORDER AND THE BUILDER GETS THE CONSTRUCTION DONE. UNDER THIS SCENARIO THE ASSESSEE WILL BE DEFINITELY ENTITLED FOR BENEFIT OF^PAYMENT MADE WITHIN ONE YEAR PRIOR TO THE DATE OF SALE OF SHARES TILL THE DATE OF FILING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sodhan before Ahmedabad ITAT exemption was denied u/s 54F on the ground that the entire construction including possession had materialized prior to the sale of property subject to capital gains. This is not at all the fact situation in the present case. In the present case of assessee the construction as is evident from the payment scheduled is happening in a phased manner and is continuing uptill 21/08/12. The AO himself admits on the facts of present case that construction was not completed until sale of shares subject to capital gains. In fact the very same Bench of ITAT i.e. Ahmedabad ITAT vide its another decision in the case of ACIT Vs Subhash Sevaram Bhavnani 23 taxmann.com 94 categorically distinguished the above view taken in the case of Smt. Ushaben Jayantilal Sodhan on the ground that benefit of section 54F cannot be denied where the construction got completed after the sale of asset subject to capital gains. ii) Secondly the aforesaid decision is from ITAT rendered prior to the decision of Kuldeep Singh from Delhi High Court which is being heavily relied upon; iii) The other ITAT Hyderabad decision in case of Smt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 167 (Delhi)/[2014] 226 Taxman 133 (Delhi)/[2014] 270 CTR 561 (Delhi) wherein the honourable High Court has held as under:- 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 v. T.N. Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541, 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'. It was observed that the word 'purchase' used in Section 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that 'purchase' primarily meant acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (Kar). These two cases deal with interpretation of Section 54 of the Act. The said Section is pari materia to Section 54F. The only distinction being that Section 54 applies to investment in a new house where the original asset sold was/is residential property and provisions of Section 54F were/are applicable to all other assets, not being a residential house. In J.R. Subramanya Bhat (supra), Karnataka High Court noticed language of Section 54 which stipulated that the assessee should within one year from the date of transfer purchase, or within a period of two years thereafter, construct a residential house to avail of concession under the said Section. The contention of the Revenue that construction of the new building had commenced earlier to the sale of the original asset, it was observed, cannot bar or prevent the assessee from taking benefit of Section 54. It was immaterial when the construction commenced, the sole and important consideration as per the Section was that the construction should be completed within the specified period. It was accordingly held as under:- So too was the next conclusion reached by the Tribunal. The date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the construction of the house. The cost of investment in land and the cost of expenditure towards the construction of the houses is not in dispute. The one and only ground on which the Assessing Officer has non-suited the assessees for the claim of exemption was that the houses have not been completed. There remains some more construction to be made. 4. The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have also constructed residential houses. In order to establish the same, the assessees submitted before the Commissioner of Income-tax(Appeals) several material evidence, viz., invitation card printed for the house-warming ceremony to be held on July 12, 2003. The assessees have also produced the completion certificates from the municipal authority on January 30, 2004. On the basis of the above documents, the Commissioner of Income-tax(Appeals) concluded that the requirement of the statutory prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al'.' The aforesaid observations are equally, if not more important and relevant to tax matters. 11. Even otherwise, we find that Section 54F(4) is misread and misunderstood by the Revenue. Section 54-F reads as under:- 54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house- (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 assets not 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 (hereinafter 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 new asset is not less than the net consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under Section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (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. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of Section 139 in an account in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... begin after the date of sale of the original/old asset. There is no condition or reason for ambiguity and confusion which requires moderation or reading the words of the said sub-section in a different manner. The apprehension of the Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is ill-founded and misconceived. The requirement of sub-section (4) is that if consideration was not appropriated towards the purchase of the new asset one year before date of transfer of the original asset or it was not utilised for purchase or construction of the new asset before the date of filing of return under Section 139 of the Act, the balance amount shall be deposited in an authorized bank account under a scheme notified by the Central Government. Further, only the amount which was utilised in construction or purchase of the new asset within the specified time frame stand exempt and not the entire consideration received. 14. Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is repla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 272] (SCC paras 42- 45); State Level Committee v. Morgardshammar India Ltd. [(1996) 1 SCC 108] ; Novopan India Ltd. v. CCE Customs [1994 Supp (3) SCC 606] ; A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala [(2007) 2 SCC 725] and Reiz Electrocontrols (P.) Ltd. v. CCE. [(2006) 6 SCC 213]' 15. In view of the aforesaid position, we do not find any merit in the present appeal and the same is dismissed. 11. As the impugned issue is squarely covered in favour of the assessee by the above decision of the honourable High Court, we hold that assessee has purchased a house property i.e. a new asset and is entitled to exemption u/s 54F of the act despite the fact that construction activities of the purchase of the new house has started before the date of sale of the original asset which resulted into capital gain chargeable to tax in the hands of the assessee. Accordingly we reverse the order of the lower authorities and direct the assessing officer to grant deduction under section 54F of ₹ 7985761/ to the assessee. 12. Accordingly, appeal of the assessee is allowed. Order pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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