Ita/340/2009 Of The Commissioner Of Income Tax v. Mrs Shakuntala Devi

1 IN THR HIGH COURT OF KARNATAKA AT BBNGALURU| DATED THIS THE 28[th]DAY OF SEPIEMBER 2010. PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AND. THE HON’BLE MR.JUSTICE ARAVIND KUMAR|I.T.A.NO.340/2009 BETWEEN: 1.THR COMMISSIONBR OF INCOME TAX C.R. BUILDING QUEENS ROAD BANGALORE. |THE DY. DIRECTOR OF INCOME-TAX (INTL. TAXN.,)CIRCLE-II (1)CIRCLE-II (1) C.R.BUILDING QUEENS ROADBANGALORE.BANGALORE. (BY SRI. K.V.ARAVIND, ADVOCATE) AND: MRS. SHAKUNTALA DEVILSINCHKH DBECKBASHKD BY HER l(a)MS. ANUPAMA BANERU] ... APPELLANT 2 W/O MR. AJAY, AGED ABOUT 46 YBRARSNO.2, WHITE ACRESCHIKKA-TIRUPATI ROADKADUGODI POSTWHITH FIBLD~BANGALORE-560 067.l(b)SHAKUNTHALA DBVI BDUCATIONAL FOUNDATION PUBLIC TRUSTSHAKUNTHALA DEVI COLLEGENO.32/P3, 17 MAIN |HSR LAYOUT,NKRAR BDA COMPLEXBANGALORE-560 102.... RESPONDENTS| (BY SRI. A.SSHANKAR, ADVOCATE FOR R(1)(b);SRI.K. ARUN KUMAR, ADVOCATE FORM/S CREST LAW PARTNERS R(1)(a)_SRI.K. ARUN KUMAR, ADVOCATE FORM/S CREST LAW PARTNERS R(1)(a)_ THIS APPEAL IS FILED UNDER SECITION JOOA OFTHE INCOME TAX ACT, 1961 PRAYING TO ALLOW THEAPPBAL AND SBT ASIDE THR ORDERS PASSED BY THRINCOME TAX APPELLATE TRIBUNAL, BANGALORE IN TIANO.11/70/BANG/2008 DATED 30.01.2009 AND CONFIRMTHERORDBEROF.THERAPPBRLLATECOMMISSIONERCONFIRMING THERE ORDER PASSED BY THE DY. DIRECIOOF INCOME TAX, (INTL., TAXN.,) CIRCLE-ITI(1), BANGALOREAND ETC., THIS APPEAL BEING HEARD AND RESERVED,|COMING ON FOR PRONOUNCBEMBNT OF JUDGMENT THISDAY,ARAVIND KUMAR Ja> DELIVERED THE FOLLOWING:| JUDGMENT Revenue has preferred this appeal questioning thecorrectness and legality of the order passed by Income,Tax Appellate Tribunal, Bangalore Bench C’ (for short,EITAT‘) in ITA No.1170(BNG)/08, whereunder ITAT has|allowed the appeal filed by the assessee in-part by|concluding that assessee is entitled to exemption under|section 04 of the Income Tax Act, 1961 (for short 'Act‘)as assessee had fulfilled all the conditions prescribed|under said section. | 2 |Facts in brief which has led to filing of this|second appeal by the revenue can be crystlised as)under: For the assessment year 2003-04 a return ofincome came to be filed by the assessee on 17.07.2003| 4 declaringher.total|incomeads“a34,99,390/-. |Assessment came to be reopened under Section 147 andin response to the notice issued under Section 148,|reply came to be filed by the assessee_ statingthereunder that original return filed is to be treated as|return filed in response to the notice issued under|section 148. Accordingly, assessment proceedings|came to be framed. | 3.Assessing officer has noticed that assessee.had sold a flat at Mumbai on 04.02.2003 for a total|consideration of.V1,71,00,000/- and had worked out.long-term capital gain of)“1,44,608,032/- and hadclaimed exemption under Section 54 of the Act on the|sround that assessee had reinvested said amount for|purchasing another property at Mumbai by paying an|advance of=1,600,00,000/- as against total value ofproperty at _=3,29,00,000/-. Assessing officer has held|that agreement to purchase the said property was| entered on 08.09.2003 and between April’ 2003 to|september’ 2003V2,40,00,000/- was paid by theassessee. By assessment order dated 31.12.2007 —|Annexure - C assessing officer held that _ saletransaction had not been concluded, no registration of)sale deed had taken place and balance consideration|amount was yet to be paid and as such, deduction|claimed under Section 54 of the Act came to be)disallowed. 4Being aggrieved by the same, assessee.preferred an appeal before the Commissioner of Income)Tax (Appeals). Appellate authority held that there has)been non-compliance of provision i1.e., Section 94 of theAct and as such, assessee would not be entitled to claimdeduction. Consequently, appeal filed by the assessee|came to be rejected by affirming the order of Assessing|Officer by order dated 30.06.2008 —- Annexure-B. 4Being aggrieved by the same, assessee.preferred an appeal before the Commissioner of Income)Tax (Appeals). Appellate authority held that there has)been non-compliance of provision i1.e., Section 94 of theAct and as such, assessee would not be entitled to claimdeduction. Consequently, appeal filed by the assessee|came to be rejected by affirming the order of Assessing|Officer by order dated 30.06.2008 —- Annexure-B. 5Assessee pursued her grievance before [TAT|in ITA No.11/70(BNG)/2008. Tribunal after consideringthe rival contentions held that assessee was entitled to deduction since for the purposes of Section 954 of the Actthe date of purchase was to be taken as the basis|namely, entering into a agreement for purchasing the|new property. It also came to be held that payment|made by assessee to purchase new property fully|covered the consideration of capital gains portion and assuch, it came to be held that assessee was eligible for|claiming exemption under Section 94 of the Act. It has|been further held by the Tribunal taking of physical|possession or for that matter registration of the sale|deed would be immaterial. Hence, appeal filed by the|assessee came to be allowed by order dated 30.01.2009vide Annexure-A. Hence, revenue is in appeal. | 6.This Court by order dated 22.06.2011 has|admitted the appeal for considering the following|substantial question of law; “Whether the finding of the Tribunal that saleconsideration|received|bytheassessee would be entitled to benefitunder Sec.954 of the Income Tax Act, eventhough the sale was not completed andpossession handed over to the assesseewithin two years as per Sec.o4 of theIncome Tax Act, is perverse, arbitraryand contrary to law?” ToWe have heard the arguments of Sri.K.V.Aravind, learned counsel appearing for revenue andSri.A.|Shankar,learnedcounselappearingfor.respondent No.1l(b) and Sri. K.Arun, learned counselappearing for respondent No.1(a) . 8.)It is the contention of Sri. K.V.Aravind,|learned counsel appearing for revenue that Tribunal| committed an error in not considering the fact that|entire sale consideration had not been paid by the|assessee for purchase of new property and what had_been invested by her is only a portion of total sale|consideration and as such, assessee would not be|entitled to the benefit of Section 54 of the Act. He would|also submit that possession of the property proposed to be purchased was also not delivered to the assessee|within two years and as such, assessee would not be|entitled to claim benefit flowing from Section 54 of the|Act. Hence, he prays for answering the substantial|question of law in favour of the appellant-revenue. QPer contra, Sri. A. Shankar, learned counsel|appearing for assessee would support the order passed|by the Tribunal and contends that it is the utilization ofamount, which was received by the assessee by sale ofproperty, which had to be reinvested for the purposes ofClaiming benefit under Section 54 of the Act and said| exercise having been undertaken by the assessee,|Tribunal on appreciation of facts had found thatassessee had reinvested the amount and _ therebsranted the benefit of claiming Long Term Capital Gain|as provided under Section 94 of the Act. Hence, he|prays for answering the substantial question of law in|favour of the assessee. In support of his submission he|would rely upon the judgment of this Court in the case|otPRINCIPAL COMMISSIONER OF INCOME-TAX ANDANOTHER vs. C. GOPALASWAMY’ reported in 2016]384 ITR 307 (KAR) 1Q.Facts on hand would clearly indicate that,assessee had sold a flat at Mumbai for a total|consideration of Rs.1,71,00,000/- on 04.02.2003 and|thereby Long Term Capital Gains was arrived at|Rs.1,44,68,032/-. In the return of income assessee|claimed exemption under Section 54 of the Act,|contending interalia that said amount had _ bee 1Q.Facts on hand would clearly indicate that,assessee had sold a flat at Mumbai for a total|consideration of Rs.1,71,00,000/- on 04.02.2003 and|thereby Long Term Capital Gains was arrived at|Rs.1,44,68,032/-. In the return of income assessee|claimed exemption under Section 54 of the Act,|contending interalia that said amount had _ bee reinvested by her for purchase of another residential|property namely, a flat at Mumbai itself for a total|consideration of Rs.3,25,00,000/- as per Memorandum|of Understanding entered on 08.09.2003. It is also not|in dispute that assessee had been paid a sum of|Rs.2,40,00,000/- as advance between 12.04.2003 to|24.09.2003 as against the total consideration of|Rs.3,25,00,000/-. The Assessing Officer, as already|noticed hereinabove, denied the exemption and brought|the entire capital gain to tax. Section 94 of the Act|which provides for claiming exemption reads as under: J54,(1) Subject to the provision of sub-section (2), where, in the case of an.assessee being an individual or a Hindu)undivided family, the capital gain arises|from the transfer of a long-term capital|asset, being buildings or lands appurtenantthereto, and being a residential house, the|income of which is chargeable under the|head“Income.fromhouseproperty”(hereafter in this section referred to as the.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|YCaIsatterthatdate|constructed,aresidential 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 inaccordance with the following provisions of,this section, that is to say, --- (i)if the amount of the capitalgain is greater than the cost of theresidential house so purchased orconstructed (hereaiter1nNthesection referred to as the new)asset), the difference between the|amount of the capital gain and thecost of the new asset shall be!charged under section 45 as the|income of the previous year; and forthePUTPOSEotcomputinginrespect of the new asset any capitalsain arising from its transfer withina period of three years of itspurchase or construction, as thecase may be, the cost shall benil;OT| (11)if the amount of the capitalgain is equal to or less than thecost of the new asset, the capitalgain shall not be charged undersection 45; and for the purpose ofcomputing in respect of the new|asset any capital gain arising from|its transfer within a period of threeYCaIsofitspurchaseOT| construction, as the case may be,the cost shall be reduced by theamount of the capital gain. © 1(2) The amount of the capital gain whichis 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|undersection139,shall|be.deposited by him before furnishing such)return such deposit being made in any case.not later than the due date applicable in thecase of the assessee for furnishing the.return of income under sub-section (1) of.section 139 in an account in any such bankor institution as may be specified in, and|utilised in accordance with, any scheme,which the Central Government may, by.notification in the Official Gazette, frame in|this behalf and such return shall be!accompanied by proof of such deposit; and, for the purposes of sub-section (1), the.amount, if any, already utilised by the)assessee for the purchase or construction ofthe new asset together with the amount so|deposited shall be deemed to be the cost of|the new asset: Providedthat if the amount depositedunder this sub-section is not utilised wholly|or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,-- | Providedthat if the amount depositedunder this sub-section is not utilised wholly|or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,-- | (1)the amount not so utilised.shall be charged under section 40as the income of the previous yearin which the period of three years.from the date of the transfer of theoriginal asset expires; and (ii) theaSSecSSe€shallbe.entitled to withdraw such amount in accordance with the scheme|aforesaid.” | 1].A reading of the above Section would make it)explicitly clear that proceeds of sale of the property is tobe reinvested within a period of two years, which wouldnot be chargeable to tax. The intention of Legislature|was to encourage the investment in the acquisition ofresidential house or construction thereof. The conditionprecedent for claiming benefit under said provision is that the capital gains realized from sale of a capital|asset should be reinvested either in purchasing a|residentialhouseOT|utilisedfor.constructinga 14 residentialbuilding.Tf1T 1Sestablishedthatconsideration so received on alienation of property has|been invested in either purchasing a residential buildingor spent on construction of residential building, an|assessee would be entitled to the benefit flowing from|section 934 of the Act irrespective of the fact thattransaction not being complete in all respects. In other|words, it has to be examined or discerned from the factsoft each case as to whether the assessee had undertakensuch an exercise or not? 12.The main purpose of Section 54 of the Act isto give relief in respect of profits on the sale of a|residential house. Necessary conditions to be fulfilled|for the applicability of Section 954 are: !<#Assessee should be an individual| or a Hindu Undivided Family; !<<#Capital assets should result from|the transfer of a long term capital asset;the transfer of a long term capital asset; !<<<#Capital gain must arise from|transfer of building which is|Chargeable as ‘income from house.property’;transfer of building which is|Chargeable as ‘income from house.property’; !<4#Property should be a residentialhouse;house; !4#Assessee must have within asperiod of two years after that date.purchased another property;period of two years after that date.purchased another property; !4<#PropertypurchasedMUSTbe|residential;residential; !4<<#Exemption would be available|only to the extent the sale.proceeds are utilised;only to the extent the sale.proceeds are utilised; 16 !4<<<#Wherere-investment.inaresidential property is not made.before due date for filing report,|amount not so utilised till such|date is required to be deposited|in Capital Gain Account Scheme. Thus, if the above conditions are satisfied, assessee is entitled to claim benefit of the provision of Section 54. 13.|Facts on hand would disclose that assessee|had owned a flat at Mumbai and sold the same on'04.02.2003 tor a total consideration of.v1,/0,00,000/-.subsequent to such sale she entered into an agreement|for.purchasinganotherpropertyforatotalconsideration of|V3,25,00,000/- by agreement dated.08.09.2003. Said agreement came to be entered into)within six months from the date of sale i.e., 04.02.2003and assessee had paid a total consideration of|=2,40,00,000/- between April’ 2003 to September’ 2003.After making the payment, a registered sale deed had Thus, if the above conditions are satisfied, assessee is entitled to claim benefit of the provision of Section 54. 13.|Facts on hand would disclose that assessee|had owned a flat at Mumbai and sold the same on'04.02.2003 tor a total consideration of.v1,/0,00,000/-.subsequent to such sale she entered into an agreement|for.purchasinganotherpropertyforatotalconsideration of|V3,25,00,000/- by agreement dated.08.09.2003. Said agreement came to be entered into)within six months from the date of sale i.e., 04.02.2003and assessee had paid a total consideration of|=2,40,00,000/- between April’ 2003 to September’ 2003.After making the payment, a registered sale deed had not been executed in favour of the assessee before|completionotTwoYCarsperiodpursuantTO|Memorandum of Understanding dated 08.09.2003. The|considerationTreCeivedby.herundersale!dated04.02.2003 has been paid by the assessee _forpurchasing another property and reinvestment has beenmade within two years as contemplated under Section|o4 of the Act. These facts are not in dispute. Thus, long-term capital gains computed by virtue of sale deed stoodadjusted by virtue of payment made by assessee for|purchasing another property under Memorandum of|Understanding dated 08.09.2003. As such, Tribunal|has rightly held that date of purchase was to be taken|as the basis for reckoning the period of two years|prescribed under Section 54 of the Act for extending thebenefit flowing therefrom. In the instant case| consideration paid by assessee under Memorandum of|Understanding dated 08.09.2003 would fully cover the ©consideration of capital gains portion for being eligible|to claim exemption under Section 954 of the Act. 14.Coordinate Bench of this Court in the case of PRINCIPAL COMMISSIONER OF [INCOME-TAX vs. C.GOPALASWAMY‘reported in |2016] 384 ITR 307 (KAR)has held that utilization of capital gains in construction|of residential house would suffice to claim the benefit otSection 54 of the Act. | 15.Following the same and for the reasons.aforestated, we are of the considered view thatsubstantial question of law is to be answered in the|affirmative i.e., in favour of assessee and against the|revenue and accordingly, it is answered. DR Hence, the following order is passed: ORDER. !<#Appeal is hereby dismissed. | !<<#Order dated 30.01.2009 passed| by Income-Tax Appellate Tribunal 1nNITANo.11/70(BNG)/08 Annexure-A, is hereby affirmed. | (111)No order as to costs. SD/-.JUDGE SD/-. JUDGE