“Aaykar Bhavan”,Patto, Panaji Goa v. Shri Girish L. Ragha,2[Nd] Floor, M/S Ashraya Construction,Landscape Shire,Caranzalem Goa

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 66 OF 2015 The Commissioner of Income Tax, “Aaykar Bhavan”,Patto, Panaji Goa. ... Appellant Versus Shri Girish L. Ragha,2[nd] Floor, M/s Ashraya Construction,Landscape Shire,Caranzalem Goa.PAN : AFAPRO792K ... Respondent Ms. Asha A. Desai, Advocate for the appellant. Mr. P. Rao, Advocate for the respondent. -Coram:F. M. REIS &K. L. WADANE, JJ.Date:-17th March, 2016 ORAL ORDER : Upon hearing the learned counsel appearing for the respective parties, the only contention which arise for consideration iswhether the Income Tax Appellate Tribunal was justified to come to theconclusion that merely purchasing a flat for the purpose of seekingexemption of capital gain taking within a period of two years wouldimply taking the actual possession and also completion certificate of such premises within such period. 2.On perusal of the records, we find that the fact findingauthorities below have concurrently come to the conclusion that theconsideration amount was in fact paid for the purpose of purchasing theflat to the Developer M/s Ashraya Real Estate Developers. It is also notdisputed that the construction was incomplete as there was a disputebetween a Bank and the original owner in respect of the subjectproperty. Only after the injunction was vacated, the developers couldcomplete the premises and hand over possession to the respondentwhich admittedly is beyond the period of two years. On the basis ofsuch fact, as the payment of the total consideration was paid by therespondent, merely because the residential premises were not occupied,as the possession was not delivered to the respondent by the Developerand the deed of conveyance was not executed within such periodwould not by itself be a ground to deprive the respondent from availingthe exemption of payment of capital gain under Section 54 of theIncome Tax Act. Our view also takes support of the judgment of theDelhi High Court reported in 2014 SCC OnLine Del 4087 in the caseof the Commissioner of Income Tax II V/s Kuldeep Singh wherein it has been observed at paras 6, 8, 9, 10, 11, 12 and 13 thus : “6. This brings us to the other question whetherthe assessee had "purchased" the second propertyand, therefore, payment made of Rs.37,86,273/-was entitled to exemption under Section 54 ofthe Act. Section 54 of the Act as applicable toassessment year 2006-07 reads as under:- "54. Profit on sale of property used forresidence.-- (1) Subject to the provisions ofsub-section (2), where, in the case of anassessee being an individual or a Hinduundivided family the capital gain arises fromthe transfer of a long-term capital asset beingbuildings or lands appurtenant thereto, andbeing a residential house, the income ofwhich is chargeable under the head "Incomefrom house property" (hereafter in this sectionreferred to as the original asset), and theassessee has within a period of one yearbefore or two years after the date on whichthe transfer took place purchased, or haswithin a period of three years after that dateconstructed, a residential house, then insteadof the capital gain being charged to income-tax as income of the previous year in whichthe transfer took place, it shall be dealt within accordance with the following provisionsof this section, that is to say,-- (i) if the amount of the capital gain is greaterthan the cost of the residential house sopurchased or constructed (hereafter in thissection referred to as the new asset), thedifference between the amount of the capitalgain and the cost of the new asset shall becharged under section 45 as the income of theprevious year; and for the purpose ofcomputing in respect of the new asset anycapital gain arising from its transfer within aperiod of three years of its purchase or construction, as the case may be, the costshall be nil; or (i) if the amount of the capital gain is greaterthan the cost of the residential house sopurchased or constructed (hereafter in thissection referred to as the new asset), thedifference between the amount of the capitalgain and the cost of the new asset shall becharged under section 45 as the income of theprevious year; and for the purpose ofcomputing in respect of the new asset anycapital gain arising from its transfer within aperiod of three years of its purchase or construction, as the case may be, the costshall be nil; or (ii) if the amount of the capital gain is equalto or less than the cost of the new asset, thecapital gain shall not be charged under section45; and for the purpose of computing inrespect of the new asset any capital gainarising from its transfer within a period ofthree years of its purchase or construction, asthe case may be, the cost shall be reduced bythe amount of the capital gain. Explanation.--Omitted by FA 87 wef 1-4-88. (2) The amount of the capital gain which isnot appropriated by the assessee towards thepurchase of the new assets made within oneyear before the date on which the transfer ofthe original asset took place, or which is notutilised by him for the purchase orconstruction of the new asset before the dateof furnishing the return of income undersection 139, shall be deposited by him beforefurnishing such return such deposit beingmade in any case not later than the due dateapplicable in the case of the assessee forfurnishing the return of income under sub-section (1) of section 139 in an account in anysuch bank or institution as may be specifiedin, and utilised in accordance with, anyscheme which the Central Government may,by notification in the Official Gazette, framein this behalf and such return shall beaccompanied by proof of such deposit ; and,for the purposes of sub- section (1), theamount, if any, already utilised by theassessee for the purchase or construction ofthe new asset together with the amount sodeposited shall be deemed to be the cost ofthe new asset: Provided that if the amount deposited underthis sub-section is not utilised wholly orpartly for the purchase or construction of thenew asset within the period specified in sub-section (1), then,-- (i) the amount not so utilised shall be chargedunder section 45 as the income of theprevious year in which the period of threeyears from the date of the transfer of theoriginal asset expires ; and (ii) the assessee shall be entitled to withdrawsuch amount in accordance with the schemeaforesaid. Explanation.--Omitted by Finance Act, 1992,wef 1- 4-1993." Provided that if the amount deposited underthis sub-section is not utilised wholly orpartly for the purchase or construction of thenew asset within the period specified in sub-section (1), then,-- (i) the amount not so utilised shall be chargedunder section 45 as the income of theprevious year in which the period of threeyears from the date of the transfer of theoriginal asset expires ; and (ii) the assessee shall be entitled to withdrawsuch amount in accordance with the schemeaforesaid. Explanation.--Omitted by Finance Act, 1992,wef 1- 4-1993." 8. The word “purchase” can be given bothrestrictive and wider meaning. A restrictivemeaning would mean transactions by whichlegal title is finally transferred, like executionof the sale deed or any other document oftitle. “Purchase can also refer to payment of‟consideration or part consideration along withtransfer of possession under Section 53A ofthe Transfer of Property Act, 1882. SupremeCourt way back in 1979 in CIT AndhraPradesh vs. T.N. Aravinda Reddy (1979) 4SCC 721, however, gave it a wider meaningand it was held that the payment made forexecution of release deed by the brotherthereby joint ownership became separateownership for price paid would be covered bythe word “purchase”. It was observed that theword “purchase used in ‟Section 54 of the Actshould be interpreted pragmatically in apractical manner and legalism shall not beallowed to play and create confusion orlinguistic distortion. The argument that“purchase” primarily meant acquisition formoney paid and not adjustment, was rejectedobserving that it need not be restricted toconveyance of land for a price consistingwholly or partly of money s worth. The word‟“purchase”, it was observed was of a pluralsemantic shades and would include buyingfor a price or equivalent of price by paymentof kind or adjustment of old debt or othermonetary considerations. It was observed thatif you sell a house and make profit, payCaesar (State) but if you buy a house or build another and thereby satisfy the conditions ofSection 54, you were exempt. The purposewas plain; the symmetry was simple; thelanguage was plain. 9. Recently Supreme Court in Civil AppealNos. 5899-5900/2014 titled Sh. Sanjeev LalEtc. vs. CIT, Chandigarh & Anr., decided on01/07/2014, 2014 (8) SCALE 432 againexamined Section 54 in a case where theassessee had entered into an agreement to sella house to a third party on 27th December,2002 and had received Rs.15 lacs by way ofearnest money and subsequently received thebalance sale consideration of Rs.1.17 crores(total being Rs.1.32 crores) when the saledeed was executed on 24th September, 2004.In the meanwhile, the assessee had purchasedanother house on 30th April, 2003. Benefitunder Section 54 was denied by the HighCourt observing that the new house had beenpurchased prior to execution of the sale andnot within one year prior to sale of originalasset i.e. new house has been purchased on30th April, 2003 whereas the earlier asset wassold only on 24th September, 2004. TheSupreme Court allowing the appeal noticedthat the agreement to sell was executed on27th December, 2002 but the sale deed couldnot be executed because of inter-se litigationbetween the legal heirs, as one of them hadchallenged the will under which the assesseehad inherited the property. The agreement tosell, it was held had given some rights to thevendor and reduced or extinguished rights ofthe assessee. This, it was observed wassufficient for the purpose of Section 2(47),which defines the term transfer in relation toa capital asset. In the light of the factualmatrix, it was observed that the intentionbehind Section 54 was to give relief to aperson who had transferred his residentialhouse and had purchased another residentialhouse within two years of transfer or hadpurchased a residential house one year beforetransfer. It was only the excess amount not used for making purchase or construction ofthe property within the stipulated period,which was taxable as long term capital gainwhile on the amount spent, relief should begranted. Principle of purposive interpretationshould be applied to subserve the object andmore particularly when one was concernedwith exemption from payment of tax. Theassessee, therefore, succeeded. Theobservations made in the said decision arealso relevant on the question whether thepayments made by the assessee to the personwith whom he had entered into an earlieragreement to sell should be allowed to be setoff as expenses incurred in relation to the saledeed which was executed. 10.More direct are the two decisions ofMadhya Pradesh High Court in Shashi Verma(Smt.) vs. CIT [1997] 224 ITR 106 andCalcutta High Court in CIT vs. Smt. BharatiC. Kothari (2000) 244 ITR 352. In ShashiVerma (supra), the assessee had invested thesale consideration for purchase of a flat fromDelhi Development Authority and had paidpart installments. Reversing the decision ofthe Tribunal and allowing the appeal of theassessee, the High Court observed that theTribunal had adopted a pedantic approachwithout noticing the fact that the capital gainwas Rs.31,980/- whereas the installmentspaid were Rs.71,256/-, i.e. much more thanthe amount of capital gain. Reference wasmade to Circular No. 471 dated 15th October,1986 [1986] 162 ITR (Stat.) 41. It wasobserved that Section 54 of the Act says thatassessee could have constructed the houseand not that the construction should havenecessarily been completed. Noticing that itwas not easy to construct a house within thetime limit of three years and under theGovernment schemes, construction takesyears. When substantial investment was madein the construction and it should be deemedthat sufficient steps had been taken and itsatisfied requirement of Section 54. 11. What has been stated in the judgment ofthe Madhya Pradesh High Court in 1997, inpractical terms and in reality still holds good.This is a matter of common knowledge thatflats or apartments being constructed bybuilders take time. The Government HousingBoards also take time and seldom adhere tothe promised date. Similar view has beentaken in Bharati C. Kothari (supra) whereinreference was made to the decision of AndhraPradesh High Court in CIT vs. ShahzadaBegum (Mrs.) [1988] 173 ITR 397 and it wasobserved that assessee had entered into anagreement within two years for purchase of aflat which was under construction. Paymentfor the said flat was made within three yearsfrom the date of sale of the first property. Nodoubt the assessee was not constructing thenew asset herself but she had purchased theflat. Reference was made to the decision ofthe Supreme Court in CIT vs. J.H. Gotla[1985] 156 ITR 323 (SC), wherein it has beenobserved: "Where the plain literal interpretation ofa statutory provision produces amanifestly unjust result which couldnever have been intended by theLegislature, the court might modify thelanguage used by the Legislature so as toachieve the intention of the Legislatureand produce a rational construction. Thetask of interpretation of a statutoryprovision is an attempt to discover theintention of the Legislature from thelanguage used. It is necessary toremember that language used is at best animperfect instrument for the expressionof human intention. It is well toremember the warning administered byJudge Learned Hand that one should notmake a fortress out of the dictionary butremember that statutes always have somepurpose or object to accomplish andsympathetic and imaginative discovery isthe surest guide to their meeting." 12. Moreover, in Bharati C. Kothari's Case (supra) it was stated as under:- 12. Moreover, in Bharati C. Kothari's Case (supra) it was stated as under:- "The purpose behind the exemptionunder section 54(1) is that if any assesseesells his residential house and purchases anew house against those saleconsiderations that capital gains taxarising out of the sale of the earlier houseshould not be taxed. Whether the assesseehimself constructs the house or he gets itconstructed by a contractor or a thirdparty that does not make any difference.The basic requirement for the purpose ofrelief under section 54(1), is that theassessee should invest the sale proceedsin the construction of a residential house,which has been constructed for theassessee. Keeping in view the aboveobservations and reasons given by theTribunal, no case is made out forinterference." It was observed that the basic purposebehind Section 54 is to ensure that theassessee is not taxed on the capital gains,if he replaces his house with anotherhouse and spends money earned on thecapital gains within the stipulated period. 13. The view we have taken gets supportfrom sub-section (2) to Section 54. Theaforesaid sub-section requires the assesseeto deposit unspent amount not utilized bythe assessee for purchase or constructionof a new asset before the date offurnishing of return, in a specifiedaccount. It further states that the amount,if already utilized for purchase orconstruction of the new asset with theamount so deposited will be deemed to becost of a new asset subject to the proviso.The word “purchase” is used in sub-section (2) and indicates that the saidword is not restricted or confined toregistered sale deed or even possession but has a wider connotation. The provisosupports the aforesaid interpretation andstipulates that the amount deposited butnot utilized wholly or partly for purchaseor construction of new asset within thespecified period will be charged to taxunder Section 45 in the previous year inwhich the period of three years from thedate of transfer of original asset expired.The period of three years is stipulated asthis is the longer period specified in thesub-section (1) to Section 54. It is only thebalance amount which is not utilizedwhich is to be brought and charged to tax.The entire amount of sale consideration orthe capital gains is not to be brought totax, but the unspent amount/figure istaxed.” 3.We are in respectful agreement with the view taken by the Delhi High Court to come to the conclusion that the purchase would becomputed when the consideration is duly paid by the assessee for thepurpose of purchasing the premises and the construction had alreadycommenced by the builder which remained to be completed on accountof the litigation. In the present case, the learned Tribunal has noted thatthe assessee has sold the property on 01.12.2009 and the assessee hasmade the payment on 16.03.2010. The assessee was required to get thehouse and occupancy certificate on or before 01.12.2011. But however,the assessee got the occupancy certificate of the property on 17.01.2014.The learned Tribunal further noted that the assessee submitted thedocumentary evidence to show that after purchasing the property there Delhi High Court to come to the conclusion that the purchase would becomputed when the consideration is duly paid by the assessee for thepurpose of purchasing the premises and the construction had alreadycommenced by the builder which remained to be completed on accountof the litigation. In the present case, the learned Tribunal has noted thatthe assessee has sold the property on 01.12.2009 and the assessee hasmade the payment on 16.03.2010. The assessee was required to get thehouse and occupancy certificate on or before 01.12.2011. But however,the assessee got the occupancy certificate of the property on 17.01.2014.The learned Tribunal further noted that the assessee submitted thedocumentary evidence to show that after purchasing the property there was a civil suit filed by the other parties and the assessee could notcomplete the construction and the licence for constructing the house wasaccordingly delayed. The learned Tribunal further noted that CIT (A) inhis order relied upon the decision of the Madras High Court in the caseof CIT V/s Sadarmal Kothani, 302 ITR 286 (Chennai) wherein, it isheld that in order to get the benefit under Section 54 of the Income Tax,the assessee need not complete the construction of the house and occupythe same. It is further noted that the assessee has invested the moneyand the occupancy certificate is delayed which is beyond the control ofthe assessee then the assessee is entitled for deduction under Section 54of the Act. The learned Tribunal as such found that the assessee wasentitled for deduction under Section 54 of the Act and consequently,dismissed the appeal of the Revenue. Considering the said facts and theratio of the judgment referred to herein above, we find that there is nosubstantial question of law which arises for consideration in the presentappeal under Section 260A of the Income Tax Act, 1961. Hence, nocase is made out bythe appellant for interference in the order passed bythe Income Tax Appellate Tribunal. The appeal stands accordinglyrejected.