Ita/1147/2006 Of The Commissioner Of Income Tax v. Smt Padmavathy

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATEKD THIS THE 16[‘T]DAY OF AUGUST 2012 PRESENT THR HON BLE MR.JUSTICE K.SREEDHAR RAO AN THR HON'BLB MR. JUSTICK B. MANOHAR ITA.NO.1147/2006 BBRITWRE 1.THE COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE,C.R.BUILDING, QUEENS ROAD,BANGALORE. a2THERE ASSISTANT COMMISSIONBR INCOME TAX,CIRCLE — 6(1) C.R.BUILDING,QUEENS ROAD, BANGALORE, .. APPELLAN (BY SRI.M.THIRUMALESH, ADV) AN): SMT.PADMAVATHY,202-203, PADMASHREE APARTMENTS,I] MAIN, SESHADRIPURAM,BANGALORE — 560 O20. RBSPONDENT (BY SRI.S.PARTHASARATHI, ADV) ITA FILED U/S. 260-A OF I.T.ACT, 1961 ARISINGOUT OF ORDER DATED 17-04-2006 PASSED INITA.NO.1473/BANG/2003|RORTHEASSHSSMBNTYHAR.1999-00,PRAYINGTO.FORMULATE.THESUBSTANTIAL QUESTIONS OF LAW STATED THEREINAND TO ALLOW THR APPBAL AND SBT ASIDB THRORDERS PASSED BY THE ITAT, BANGALORE INITA.NO.1473/BANG/2003 DATED 17-04-2006 ANDCONFIRMINGTHEORDEROFTHEAPPBRLLATCOMMISSIONBR AND CONFIRM THR ORDER PASSB)BY THE ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE - 6 (1), BANGALORE IN THE INTEREST OFJUSTICE AND EQUITY. THIS ITA HAVING BEBN HBARD AND RBSEBERVAN 1COMING|ON|FKFOPRONOUNCEMBEB OFJUDGEMENT THIS DAY,B.MANOHAR J.,MADETHR FOLLOWING: JUDGMENT The Revenue has filed this appeal challenging the Orderdated17-04-2006|made.InITANo.1473/Bang/2003passedby theIncomeTaxAppellate Tribunal, Bangalore Bench-B dismissing theappeal and confirming the order dated 11-09-2003passed by the Commissioner of Income Tax (Appeals),Bangalore (‘CIT (Appeals) for short) in ITA No.14/W6(3)|CIT(A) III/2002-03 for the assessment year 1999-2000. a2The respondent-assessee filed return of income on28-06-1999{Ortheassessment|YCal>1999-9000declaring the income of Rs.4,66,200/-. Subsequently,the assessee filed revised returns on 11-11-1999declaring the income of Rs.13,83,616/-. The incomedeclared consists of income from property, capital gainand income from other sources. The Assessing Officerselected the returns filed by the assessee for scrutiny.The assessee has claimed deduction under Sectiono4EA of the Income Tax Act (hereinafter referred to as‘the Act’) in respect of sum of Rs.41,13,000/- invested inspecified securities out of total consideration receivedfrom the sale of tlats owned by the assessee. It is thecase of the assessee that she has entered into a jointdevelopmentagreementwithM/s.|SoundharyaConstructions on 6-7-1994 in respect of propertybearing No.94 — 97 situated at II Main Road, Link Road,seshadripuram, Bangalore. As per the said agreement,the assessee has to transfer the said land in favour of the Developer and the Developer in turn has toconstruct 16 multistoried apartment, out of which, theassessee is entitled to receive 6 flats with car parkingSpace in the basement by way of consideration fortransfer of the said property. As per the jointdevelopment agreement, the Developer has to demolishthe old structure and develop the property byconstructing multistoried apartment. The Developerhas to bear the entire cost of the construction of themultistoried apartment. As per the agreement, aiterconstruction of the apartment, six flats equivalent toRs.45,00,000/- were to be given to the assessee. Out ofsix flats received as sale consideration, three flats weresold for the total sale consideration of Rs.41,13,000/-retaining the other three flats. Out of three flats, one is|being used by the assessee for her self-occupation,another has been let out on a monthly rent ofRs.10,000/- and the third flat was mortgaged for alump-sum consideration. In the returns filed by her, she claimed deduction under Section 54EA of the Act.The Assessing Authority issued notice to the assessee.After hearing the representatives of the assessee,computed the assessment on 19-03-2002 and theAssessing Officer held that the assessee has not fulfilledthe conditions laid down under Section 54EA of the Act,hence she is not entitled for deduction under Section54BHA of the Act she claimed deduction under Section 54EA of the Act.The Assessing Authority issued notice to the assessee.After hearing the representatives of the assessee,computed the assessment on 19-03-2002 and theAssessing Officer held that the assessee has not fulfilledthe conditions laid down under Section 54EA of the Act,hence she is not entitled for deduction under Section54BHA of the Act 3.The assessee being aggrieved by the assessmentorder dated 19-3-2002, preferred an appeal before theCIT (Appeals). The CIT (Appeals) after considering thematter in detail partly allowed the appeal denying theexemption under Section 54 and allowed the appealinsofar as exemption under Section 54EA is concerned.Even though the assessee has not received the saleconsideration in cash pursuant to the agreement, shehas’ received six flats as’ consideration. The saconsideration of three flats was invested in the long term capital gain. Hence, she is eligible for exemption|under Section o4EA of the Act. The Revenue beingagerieved by the order passed by the CIT (Appeals)approached the Income Tax Appellate Tribunal in ITANo.1473/Bang/2003. The Appellate Tribunal relyingupon the judgment of Bombay High Court reported in81 ITD 545 (BOMBAY HOUSING CORPORATION LTD.v/s ACIT) dismissed the appeal and confirmed the orderpassed by the CIT (Appeals). Being aggrieved by thesaid order, the Revenue has preferred this appeal. 4The appeal was admitted for consideration of thefollowing substantial questions of law. 1.Whether the Tribunal was _ right holding that the investment made by theassessee in the specified securities from thesale consideration on the sale of flatsamountsconsideration|receivedby|theassessee on the sale of long-term capitalasset t.e., the land owned by the assessee? 2.Whether the Assessing Officer was rightin holding that the sale consideration investedin specified securities from sale of flats does not amount to consideration on transfer oflong term capital asset as per the provisionsof section 54EA of the Actr 3.Whether the Assessing Authorities werecorrect in holding that though the amountinvested in the securities is from the saleconsideration on sale of flats, the flats weretransferred to the assessee on considerationfor transfer of the long term capital asset Le.,land and the qmounts invested in securitieshas to be treated as consideration received onsale of long term capital asset7 5.orl.M.Thirumalesh, learned counsel appearing forthe appellant contended that the order passed by theAppellate Authority as well as the Appellate Tribunal iscontrary to law. Section 94 speaks of profit on sale ofproperty used for residence. It provides that the longterm capital gains arising from the transfer of aresidential house are exempt from Income Tax subjectto reinvestment in acquiring a residential house withintwo years. The records disclose that the jointdevelopment agreement was entered into between theparties in the year 1994, the property was handed over to the Developer pursuant to the agreement and theconstruction was completed in the year 1998-99. Afterlapse of four years, the flats were given to the assesseein lieu of sale consideration, therefore, the assessee isnot entitled for deduction under Section 54 of the Act.The assessee is not entitled for the benefit of Section54HA of the Act since she has not invested the saleconsideration for purchase of a residential house. Inthe instant case, as per the joint developmentagreement dated 6-7-1994, the assessee has receivedsix flats in lieu of sale consideration for transfer of landin favour of the developer. Out of six flats, she hasalienated three flats. The sale consideration of threeflats was deposited in the ‘Specified Securities’ andclaimed the proportionate exemption under SectionO4EA of the Act, hence, she is not eligible for suchdeduction. The judgment relied upon by the AppellateTribunal is not applicable to the facts of the present case and sought for setting aside the same by allowingthe appeal. case and sought for setting aside the same by allowingthe appeal. 6.On the other hand, Sri.S.Parthasarathi, learnedcounsel appearing for the respondent-assessee arguedin support of the order passed by the Appellate Tribunaland contended that as per the joint developmentagreement, the assessee has to transfer the land to theDeveloper for a sale consideration of Rs.45,00,000/-. Inlieu of cash, the Developer has agreed to give six flats.Accordingly, after construction of the apartment, sixflats were handed over to the assessee for a saleconsiderationoT Rs.45,00,000/-.It 1S|06>92377Ainvestment of the sale consideration for purchase of thehouse. Further, she has alienated three flats for a saleconsideration of Rs.41,13,000/- and invested the samein the Specified Securities while retaining the otherthree flats. In view of that, she claimed exemption|under Section 54EA of the Act. The Assessing Authority misconstrued the Development Agreement and held thatthe assessee is not entitled for the benefit of SectionO4EA of the Act. The Appellate Authority afterconsidering the matter in detail held that the assessee isentitled for exemption under Section S4EA of the Actand the said order was confirmed by the AppellateTribunal. There is no infirmity in the order passed bythe Authorities below and sought for dismissal of theappeal, T.We have carefully considered the argumentsaddressed by the parties. 8.It is not in dispute that the assessee entered into ajoint development agreement with M/s.SoundharyaConstructions. As per the agreement, the Developeralter completion of the construction had delivered sixflats with car parking space in the basement for parkingot six vehicles in favour oft the assessee. The assesseeadmitted that the sale consideration of Rs.45,00,000/- is equivalent to six flats given by the Developer fortransfer of the land to M/s.Soundharya Constructions.Out of six flats, three flats were sold for a sum ofRs.41,13,000/- and retained three flats. After sale ofthree flats, the sale consideration was invested inspecified Securities and claimed deduction undersection o4EA of the Act. The Assessing Authority heldthat the assessee has sold the land and received sixflats in lieu of such land. Out of six flats three weresold. The long term capital gain has arisen on the saleot land. Therefore it cannot be said that the amountinvested in the Specified Securities are qualified fordeduction under Section 54EKA of the Act QOSection 54EA of the Act reads as under: O4EA. (1) Where the capital gain arises fromthe transfer of a long-term capital asset[before the 1[St]day of April, 2O0O/ (the capitalasset so transferred being hereafter in thissection referred to as the original asset) andthe assessee has, at any time within a period of six months after the date of such transfer,invested the whole or any part of the netconsiderationin|anyof|the(bonds,debentures, shares of a public company orunits of any mutual fund referred to in clause(23D) of section 10,/ specified by the Board inthis behalf by notification in the OfficialGazette (such assets hereafter in this sectionreferred to as the /specified securities/), thecapital gain shall be dealt with in accordancewith the following provisions of this section,that is to say, (a)uy the cost of the _ [specifisecurities} is not less than the netconsideration in respect of the originalasset, the whole of such capital gainShall not be charged under section 45; (b)uy the cost of the [specifiedsecurities]1S|lessthanthenetconsideration in respect of the originalasset, so much of the capital gain asbears to the whole of the capital gain theSaneproportionLS|theCOSt 'acquisition of the [specified securities}bears to the net consideration shall notbe charged under section 45, (a)uy the cost of the _ [specifisecurities} is not less than the netconsideration in respect of the originalasset, the whole of such capital gainShall not be charged under section 45; (b)uy the cost of the [specifiedsecurities]1S|lessthanthenetconsideration in respect of the originalasset, so much of the capital gain asbears to the whole of the capital gain theSaneproportionLS|theCOSt 'acquisition of the [specified securities}bears to the net consideration shall notbe charged under section 45, (2) Where the [specified securities] aretransferred or converted (otherwise than bytransfer) into money at any time within aperiod of three years from the date of theiracquisition, the amount of capital gain arisingfrom the transfer of the original asset notcharged under section 45 on the basis of thecost of such [specified securities} as providedin clause(a) or clause (b) of sub-section (1)Shall be deemed to be the income chargeableunder the head “Capital gains” relating tolong-term capital assets of the previous yearin|whichthe|/specifiedsecurities]aretransferred or converted (otherwise than bytransfer) into money. Explanation- In a case where theoriginal asset is transferred and_ thassessee invests the whole or any part ofthe net consideration is respect of theoriginal asset in any [Specified securities]and such assessee takes any loan oradvance on the security of such [specifiedsecurities/, he shall be deemed to haveconverted (otherwise than by_ transfersuch [specified securities} into money onthe date on which such loan or advanceis taken. (3) Where the cost of the [specifiedsecurities} has been taken into account for thepurposes of clause (a) or clause (b) of sub-section (1), a rebate with reference to suchcost shall not be qllowed under section 88. Explanation.- For the purposes of thissection, (a)“cost”,inrelationtoany/specified securities/, means the amountinvested in such [specified securities] outof the net consideration received oraccruing as a result of the transfer of theoriginal asset;(b)“net consideration’, in relation tothe transfer of a capital asset, means thefull value of the consideration received oraccruing as a result of the transfer of thecapitalassetas|reducedbytheexpenditureincurredwhollyandexclusively|inconnectionwith.suchtransfer. 10,Reading of Section S4EA of the Act makes it veryclear that in case, the whole or any part of the netconsideration of sale is invested in Specified Securitieswithin a period of six months after the date of transfer,the deduction under Section 54EA 1s available. The Net Consideration has been defined in Explanation tosection S4EA of the Act. The Net Consideration as perthe definition means, the full value of the considerationreceived or accruing as a result of the transfer of thecapital asset as reduced by the expenditure incurredwholly and exclusively in connection with such transfer.The definition of net consideration does not refer thatthe consideration should be received in cash only. Italso refers to the full value of consideration accruing. Ifthe assessee has invested the long term capital asset inthe specified securities, then the assessee is entitled fordeduction under Section b4KA of the Act. The viewtaken by the CIT (Appeals) is on the basis of decision ofBombay High Court. The Tribunal agreeing with thesaid reasoning of the Bombay High Court has grantedthe relief. Keeping in view of the definition of ‘NetConsideration’ given in Explanation to Section o4EA ofthe Act, we hold that the Tribunal is justified in allowingthe exemption under Section 54EA of the Act. The CIT (Appeals) rightly allowed the appeal in part. The orderpassed by the Appellate Tribunal confirming the order ofthe CIT (Appeals) is just and sound. No ground is madeout to intertere with the same. The substantialquestions of law framed are held against the revenue. Accordingly, the appeal is dismissed. od/-JUDGE od/-JUDGE mpk/-*