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TMI Blog2019 (7) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. Deduction u/s 54B - land in question was non-agricultural and the exemption u/s 54B is available only to an agricultural land - HELD THAT:- Agreement to sell was invalid on account of breach of Section 63 of the Bombay Tenancy Act, but it is a settled position of law that an invalid transaction would remain valid unless it is declared to be invalid by the competent authority under the provisions of the Bombay Tenancy Act. It is axiomatic under the Bombay Tenancy and Agricultural Lands Act that when permission is granted by the authorities concerned for sale of agricultural land to a non-agriculturist, the land does not cease to be an agricultural land merely because of such permission being granted. If the conditions of the permission are not complied with, the land in respect of which permission was granted u/s 63 would revert to its original character of agricultural land. On one hand, the Revenue authorities say that the agreement to sell was invalid as it was between an agriculturist and a non-agriculturist and such agreement could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the section was only available to agricultural land? 3. We proceed to consider the first question as regards the deduction of ₹ 40,74,793/- under Section 54F of the Act. 4. The Assessing Officer, while disallowing the exemption claimed by the assessee under Section 54F of the Act, observed as under : The reply furnished by the assessee has been considered. The same is not acceptable. As stated hereinabove that for claiming exemption u/s.54F, the assessee has to purchase within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer [or from the date of receipt of compensation in the case of compulsory acquisition], one residential house. In the case of the assessee, the transfer of the land took place on 03/07/2012 and as such the residential house should have been purchased within preceding one year i.e. on or after 04/07/2011. However, the assessee has purchased the residential house on 22/04/2010 i.e. beyond the time allowed as per the provisions of section 54F of the Act. As such the exemption claimed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because of the fact that the will, by virtue of which he had inherited the house, had been challenged in the Court by another person and only after the decision in that case, the assessee could execute the sale deed. During the pendency of proceedings relating to challenge of the will, the Court had restrained the assessee from the dealing with the house property. Meanwhile the assessee had purchased another house on 30.04.2003 whereas the sale deed of the original house could be executed only on September 24, 2004. Under such peculiar circumstances, the Hon'ble Supreme Court held as follows: In view of the aforestated peculiar facts of the case and looking at the definition of the term 'transfer as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. In the present case also a peculiar fact was involved, but it was entirely d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l held as under : We have heard the rival contentions and perused the material on record. The assesse has claimed exemption u/s. 54 of the act of ₹ 40,74,793/-. The assessing officer has noticed that according to the provisions of section 54F of the act, the said exemption is available if the assessee has purchased within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer (or from the date of receipt of compensation in the case of compulsory acquisition) one residential house. In the light to the above provision, the assessing officer has observed that the transfer of the land was taken placed on 03/07/2012, however, the assessee had purchased the residential house on 22/04/2010 beyond the stipulated conditions laid down in section 54F of the act. The asssessee claimed that he has executed an agreement to sell the agricultural land to Smt. Aneetben M.Patel on 13-08- 2010 and the conveyance deed was executed on 03-07-2012. The assessee contended that he has entered into sale agreement with the buyer on 13-08- 2010 and the new house was purchased on 22/04/2010 which was wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order of a competent court, which they could not have violated. 25. In view of the aforestated peculiar facts of the case and looking at the definition of the term transfer as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. 26. The appeals are, therefore, allowed with no order as to costs. The impugned judgments are quashed and set aside and the Authorities are directed to re-assess the income of the appellants for the Assessment Year 2005-2006, after taking into account the fact that the appellants were entitled to the relief, subject to fulfillment of other conditions. It is crystal clear that the decision in the case of Sanjeevlal was delivered after taking into account the peculiar facts of the case that the sale deed could not be executed because of the pending litigation and the competent court has prohibited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,74,793=00 came to be disallowed. I. SUBMISSIONS ON BEHALF OF THE ASSESSEE : 7. Mr.B.S.Soparkar, the learned counsel appearing for the assessee, vehemently submitted that the Tribunal committed a serious error in concurring with the findings recorded by the Assessing Officer as well as the CIT(A). According to Mr.Soparkar, the law on the subject is well-settled. He submitted that the decision of the Supreme Court, in the case of Sanjeev Lal v. Commissioner of Income-tax, Chandigarh, (2014)46 taxmann.com 300 (SC), clinches the issue. He vehemently submitted that the Revenue authorities committed a serious error in distinguishing the decision of the Supreme Court in the case of Sanjeev Lal (supra) on facts while completely ignoring the principle of law, or rather the statement of law, that the date of agreement to sell should be taken as the date of transfer of the original asset in terms of Section 2(47) of the Act, 1961. Mr.Soparkar brought to our notice the following events : Date Event 03.11.1989 The Appellant Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns is a beneficial piece of legislation, whereby certain benefits in taxation are given to the assessee on fulfillment of certain conditions. Every such legislation should be construed liberally in favour of the assessee as it is for the benefit of the assessee. In such circumstances referred to above, Mr.Soparkar prays that there being merit in the first question of law, which has been proposed, the same be answered in favour of the assessee. II. SUBMISSIONS ON BEHALF OF THE REVENUE : 10. Mr.Varun Patel, the learned standing counsel appearing for the Revenue, on the other hand, has vehemently opposed this Tax Appeal. According to Mr.Patel, none of the two questions formulated could be termed as the substantial questions of law. According to Mr.Patel, no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in taking the view that the assessee is not entitled to claim any exemption under Section 54F of the Act, 1961. Mr.Patel submitted that the reliance placed by the learned counsel appearing for the assessee on the decision of the Supreme Court in the case of Sanjeev Lal (supra) is completely mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 269UA. Explanation 2.- For the removal of doubts, it is hereby clarified that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India; 12. Section 54F of the Act, 1961, reads as follows : 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], the capital gain arises fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 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 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 residential house is purchased or constructed. ( 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong term capital asset not being a residential house and the assessee has, within a period of one year before or two years after the date on which the transfer takes place, purchased, or within a period of three years after the date, constructs a residential house, then the capital gain shall be dealt with in accordance with the other provisions of Section 54F of the Act. 14. To put it in other words, it is very clear that relief under Section 54F of the Act in respect of the long term capital gain can be availed only if a residential house, i.e. a new asset is purchased within one year before or within two years after the date on which the transfer of the residential house/original asset takes place. In the instant case, the new residential house was purchased by the appellant on 22nd April 2010, whereas the agreement to sell the agricultural land at ₹ 4 crore was entered into on 13th August 2010. An amount of ₹ 10 lakh towards the earnest money was received by the appellant as part of the agreement. On 15th October 2011, the possession of the land was handed over by the appellant to the purchasers of the land. On 3rd July 2012, the sale-deed came to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one year before the transfer. 17. The Supreme Court in the case of Sanjeev Lal (supra) as follows : 20. The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December, 2002 can be considered as a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personam had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid ₹ 15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand. 22. In addition to the fact that the term transfer has been defined under Section 2(47) of the Act, even if looked at the provisions of Section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been executed. 24. Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. 25. In view of the aforestated peculiar facts of the case and looking at the definition of the term 'transfer as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. 18. Thus, the Supreme Court took the view that although the agreement to sell ordinarily would not confer any right, title or interest yet, having regard to the definition of the term 'transfer' under Section 2(47)(ii), the agreement to sell would extinguish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring a suit for specific performance by demonstrating that he was and had always been ready and willing to perform his part of the obligations arising out of the agreement. Under an agreement to sale, thus, the seller binds himself to do or not to do certain things in reciprocation of the purchaser performing his part of the obligations. Correspondingly, it may be stated that the seller s right to freely deal in the property in question gets curtailed. It may, therefore, also be possible to argue that upon execution of such an agreement, there was extinguishment of certain rights of the owner and to that extent, there was a transfer of capital asset. The crucial question, however, still begs the answer is can it be stated that the agreement to sale transfers the property in question within the meaning of Section 2(47) of the Act ? 17. In our opinion, the answer has to be in the negative. As discussed earlier, the agreement to sale an immovable property is in the nature of bilateral contract between the seller and the buyer. Under such agreement, the seller agrees to transfer the title in the property to the buyer, upon the buyer performing his part of the obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement to sale. Before the sale deed could be executed, the validity of the Will under which the assessee had received the property was called in question by another son of the deceased testator by filing a Civil Suit. The trial Court granted interim injunction restraining the assessee from dealing with the property. However, during the pendency of the suit, the plaintiff died leaving behind no heirs and the suit was dismissed in May 2004. It was due to the interim injunction that the assessee could not execute the sale deed. Upon dismissal of the suit, the sale deed was executed on 24.09.2004. 19.1 In this context, the assessee s claim for deduction of capital gain arose. The Revenue argued that the assessee was not entitled to benefit of Section 54 of the Act since the transfer of the capital asset took place on 24.09.2004 whereas, the assessee had purchased another residential house on 30.04.2003, i.e. more than 01 year prior to the sale of the asset. The Supreme Court noted that Section 54 of the Act clearly provides that in order to avail benefit under the said Section, one must purchase a residential house or a new asset, within 01 year prior to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in question, itself stands transferred. Main thrust in the said case was that the assessee, after having executed an agreement to sale the property, was prevented from executing the sale deed by an injunction of the Court. In the meantime, he had already purchased the new property. These were the peculiar facts of that case. 21. We take notice that once again the coordinate bench went into the facts of Sanjeev Lal's case (supra) and took the view that in the peculiar facts and circumstances, Sanjeev Lal was not able to execute the sale-deed. With profound respect to the decision of the coordinate bench, we are of the view that the fundamental principle of law explained by the Supreme Court in Sanjeev Lal's case (supra) could be said to have been overlooked. The Income Tax Act gives a precise definition to the term 'transfer'. Section 2(47)(ii) of the Act talks about extinguishment of rights. The Supreme Court, in Sanjeev Lal's case (supra), is very clear that an agreement to sell would extinguish the rights and the same would amount to transfer within the meaning of Section 2(47) of the Act, 1961. This definition of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court held that when an agreement to sell in respect of immovable property is executed, a right in personam is created in favour of the vendee and when such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee gets a legitimate right to enforce a specific performance of the agreement. The Supreme Court, while considering the provisions of Section 2(47) (ii) of the Act held that if a right in respect of any capital asset is extinguished and that right is transferred to someone else, it would amount to transfer of a capital asset. The Supreme Court held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished. 25. A Division Bench of the Delhi High Court in the case of Commissioner of Income Tax II v. Kuldeep Singh, reported in 2014 (226) Taxman 133, while examining Section 54 of the Act, had the occasion to consider Sanjeev Lal (supra). Sanjiv Khanna, J. (as His Lordship then was), speaking for the bench, observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in relation to the sale deed which was executed. 26. A Division Bench of the Bombay High Court (Panaji Bench), in the case of Commissioner of Income Tax, Aaykar Bhavan, Patto, Panaji Goa v. Girish L.Ragha, reported in 2016 (239) Taxman 449, also had the occasion to consider Sanjeev Lal (supra). While examining the question whether the Income Tax Appellate Tribunal was justified to come to the conclusion that merely purchasing a flat for the purpose of seeking exemption of capital gain within a period of two years would imply taking the actual possession and also completion certificate of such premises within such period. The bench observed as under : 9. Recently Supreme Court in Civil Appeal Nos. 5899- 5900/2014 titled Sh. Sanjeev Lal Etc. v. CIT, Chandigarh Anr., decided on 01/07/2014, 2014 (8) SCALE 432 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received ₹ 15 lacs by way of earnest money and subsequently received the balance sale consideration of ₹ 1.17 crores (total being ₹ 1.32 crores) when the sale dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains when the assessee had entered into an agreement to sell on 1.4.1995 and had paid a substantial advance of ₹ 40.00 lakhs even though the sale deed may have been executed on 5.12.2002 on payment of further sum of ₹ 1.00 lakh? Vineet Saran, J. (as His Lordship then was), speaking for the bench, observed as under : 9. In the case of Sanjeev lal (supra), the Apex Court was considering a case where an agreement to sell his property was entered into by the assessee therein on 27.12.2002 for a consideration of ₹ 1.32 crores, out of which only ₹ 15.00 lakhs had been paid to the assessee as earnest money. The assessee therein then purchased another house on 30.04.2003. However, since there was litigation initiated with regard to the property after the assessee had entered into an agreement to sell it, the sale deed could not be executed by him till the matter was settled, and ultimately the sale deed was executed by the assessee only on 24.09.2004. The assessee therein claimed the benefit of Section 54 on the ground that the property had been purchased by him within two years of the agreement to sell his propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that the land in question was not transferred within the stipulated period as provided under Section 54F of the Act. 29. 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 the form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Supreme Court in the case of CCE v. Favourite Industries, [2012]7 SCC 153, has succinctly observed thus : 21. Furthermore, this Court in Associated Cement Companies Ltd. v. State of Bihar [(2004) 7 SCC 642], while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held: (SCC p. 648, para 12) 12. Literally 'exemption' is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose for a period of 2 years, immediately preceding the date of transfer, are exempt from tax if the assessee has purchased another land for agricultural purpose within a period of 2 years from the date of such transfer. In this case, on perusal of the sale deed dated 3.7.2012, it was noticed that the land sold by the assessee along with other is a 'non agricultural land'. There is no ambiguity in the matter that the land sold by the assessee and other was a non agricultural land. It was the contention of the assessee that as per the agreement to sale, it was clear that the assessee has entered into sale transaction of agriculture land only and as a matter of convenience and just to expedite the conversion process, on the request of the buyer, the assessee got converted the agricultural land into non agricultural one and all the expenditure has been borne by the buyer only. As per section 63 of the Gujarat Tenancy and Agricultural Lands Act, 1948 a non agriculturist cannot purchase agricultural land. In this case, if the purchaser is an agriculturist, she would have purchased the same in her name. Simply mentioning in the agreement to sale that the liability of making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond one year from the date of handing over the possession, the appellant was not entitled for deduction under section 54F. Further to this, from the registered sale deed executed on 3.7.2012, it is seen that the deed clearly mentions that it is in respect of sale of non agricultural open land. This fact has been clearly mentioned in Schedule. Thus, on the date of sale, the land was not in the nature of agricultural land and it was only due to this fact that the appellant was able to sell the land to a non agriculturist. Thus, it was only by virtue of the registered sale deed, the legal right of the purchaser was created in this land and hence, the legal transfer within the meaning of section 2(47) of the Act took place. It may be mentioned here that the sale deed itself mentions that the permission of converting the land into non agricultural land was by the appropriate authority on 16.5.2012. Due to this 10.5.1983 issued by the Board in connection with relief under section 54E would apply with equal force to relief under section 54B also. Inasmuch as the above circular has been issued by the Board keeping in view the purpose and spirit of section 54, same cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions stipulated in the said Section. Further as elaborated above in this order the decision of Honourable Supreme Court in the case of Sanjeevlal (supra) is distinguishable from the facts of the case of the assessee as delay in sale of land was occurred because of prohibition imposed by the order of the court. The Learned CIT(A) has also placed reliance on the decision of the Honourable High Court of Bombay in the case of V.A. Trivedia 1998, 38 Taxman 102 (Bom) as elaborated supra in the findings of the Learned CIT(A) wherein, it is held that when the land was conveyed to the buyer in the character of non agricultural it was not entitled for exemption given to agricultural land. After considering the above facts and findings, we uphold the decision of Learned CIT(A) that the assessee is not entitled for deduction under section 54B of the Act. Therefore, the appeal of the assessee is dismissed. 33. The issue as regards the deduction under Section 54B of the Act, in our opinion, has not been considered properly or rather legally. The legal position as to when land can be said to be agricultural land has been considered in several decisions of this High Court and by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt pointed out that although the land might have the potential nonagricultural value, yet that factor by itself did not mean that the land had ceased to be agricultural land or that it had lost the character of agricultural land. 37. In Manilal Somnath (supra), at page-929 of the Report, it has been pointed out : Under section 63 of the Tenancy Act, no sale of any land or interest therein shall be valid in favour of a person who is not an agriculturist unless the Collector or an officer authorized by the State Government in this behalf grants permission for such sale on such conditions as may be prescribed. Under section 2, sub-section (8) of the Tenancy Act, land means land which is used for agricultural purposes and it is, therefore, obvious that it was for the sale of land used for agricultural purpose for which the City Deputy Collector acting under section 63 of the Bombay Tenancy and Agricultural Lands Act granted permission. There is nothing to show that between the date of the permission, namely, March 24, 1967, and April 7, 1967, that is, the execution of the sale deed by the assessee in favour of Tarakkunj Co-operative Housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue authorities took the view that the date of agreement to sell cannot be taken into consideration as the same would not amount to 'transfer' within Section 2(47) of the Act and also took the view that the agreement to sell was in breach of Section 43 of the Bombay Tenancy and Agricultural Lands Act. We may clarify that an agricultural land can be of two types. There is something called, 'old tenure land' and 'new tenure land'. If it is a new tenure land, then the transaction would be governed by Section 43 of the Bombay Tenancy Act, whereas if it is an old tenure land but still an agricultural land, then the transaction would be governed by Section 63 of the Bombay Tenancy Act. There is nothing on record to indicate that the land in the case on hand was a new tenure land. We are unable to understand why Section 43 has been quoted and discussed by the Revenue authorities. Let us assume for the time being that the agreement to sell was invalid on account of breach of Section 63 of the Bombay Tenancy Act, but it is a settled position of law that an invalid transaction would remain valid unless it is declared to be invalid by the competent authority under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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