Sarang v. Kotwal, Jj

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 53 OF 2017 Pr. Commissioner of Income Tax -23, Mumbai..Appellant VersusJaya Uday Tuljapurkar..Respondent ................... •Mr. P. C. Chhotaray for the Appellant ................... CORAM : AKIL KURESHI & SARANG V. KOTWAL, JJ. DATE : APRIL 22, 2019. P.C.: 1.This appeal is filed by the Revenue to challenge thejudgment of the Income Tax Appellate Tribunal, Mumbai ("theTribunal" for short) dated 28.9.2015. 2.Following questions are presented for our consideration:- (a) Whether on the facts and in the circumstances of the case andin law, the Tribunal was justified in accepting the claim of theassessee and holding that the cost of acquisition of theproperty would be taken as the market value of the property ason 1st April, 1981 and the indexation will be applied from 1stApril, 1981 with this base?"in law, the Tribunal was justified in accepting the claim of theassessee and holding that the cost of acquisition of theproperty would be taken as the market value of the property ason 1st April, 1981 and the indexation will be applied from 1stApril, 1981 with this base?" (b) Whether on the facts and in the circumstances of the case andin law, the definition of the expression ‘previous owner of thein law, the definition of the expression ‘previous owner of the property’ occurring in the Explanation to sub-section 49(1)would be applicable to sub-clause 55(2)(b)(ii) since thedefinition is confined to sub-section 49(1) only ? (c) Whether on the facts and in the circumstances of the case andin law, the ITAT was justified in holding that the assessee isentitled to exemption under Section 54 of the Act ?in law, the ITAT was justified in holding that the assessee isentitled to exemption under Section 54 of the Act ? 3.We notice that identical issue came up for considerationin case of the son of this assessee arising out of the sametransaction and decided by the Tribunal by commonjudgment, in case of Revenue's Appeal No. 416 of 2017. The said appeal was dismissed by making followingobservations:- "2. Insofar as Questions (A) and (B) are concerned, concededlyboth the issues are squarely covered against the Revenue by theJudgment of this Court in the case of Commissioner of IncomeTax Vs. Manjula J. Shah[1] In the said Judgment, this Court has heldas under : “In the result, we hold that the Income Tax Appellate Tribunalwas justified in holding that while computing the capital gainsarising on transfer of a capital asset acquired by the assesseeunder a gift, the indexed cost of acquisition has to becomputed with reference to the year in which the previousowner first held the asset and not the year in which theassessee became the owner of the asset.” 1[2013] 355 ITR 474 (Bom) 3.Coming to Question (C), the same arises in the followingbackground. "2. Insofar as Questions (A) and (B) are concerned, concededlyboth the issues are squarely covered against the Revenue by theJudgment of this Court in the case of Commissioner of IncomeTax Vs. Manjula J. Shah[1] In the said Judgment, this Court has heldas under : “In the result, we hold that the Income Tax Appellate Tribunalwas justified in holding that while computing the capital gainsarising on transfer of a capital asset acquired by the assesseeunder a gift, the indexed cost of acquisition has to becomputed with reference to the year in which the previousowner first held the asset and not the year in which theassessee became the owner of the asset.” 1[2013] 355 ITR 474 (Bom) 3.Coming to Question (C), the same arises in the followingbackground. The Respondent - Assessee is an individual. The Assesseewas a joint owner of a residential property in the nature of a flatsituated at 61C, 6th floor, Rambha Building, 66 Napean Sea Road,Mumbai. The Assessee received the said property under a Will dated15/10/2006 made by his father. The flat complex was owned by a Co-operative Housing Society on a piece of land which was grantedunder a long term lease. Father of the Assessee was a member ofthe Co-operative Housing Society and owned the said flat. After hisdeath, the Assessee received half share, other half going to hismother. These co-owners sold the flat under a registered deed dated18/07/2008 for a sale consideration of Rs.23 Crores. The Assessee,after sale of the flat, had invested a part of the sale consideration ofRs.2.89 Crores (rounded of) in purchase of a new residential unit. Inthe return of income that he filed for the Assessment Year 2009-2010, he had shown the sale consideration of Rs.11.50 Crores whichwas his share of the sale proceeds by way of capital gain. Heclaimed the benefit of cost indexation and also claimed exemption ofthe sum of Rs.2.89 Crores while computing his capital gain taxliability in terms of Section 54 of the Income Tax Act, 1961 ('the Act',for short). 4.The Assessing Officer rejected his claim on the ground thatthe Assessee had nottransferredthebuildingand theland appurtenant thereto. In the opinion of the Assessing Officer,since this was a pre-condition for application of Section 54 of the Act,the Assessee was not entitled to the benefit of exemption as per thesaid provision. 5. The Assessee carried the matter in appeal. TheCommissioner of Income Tax (Appeals), in a detailed order, allowedthe appeal. He held that the fact that residential building in which theflat was situated was constructed on a leased land, would not change the nature of transaction. He accepted the Assessee's contentionthat as per the provisions of Maharashtra Ownership Flats(Regulation of the Promotion of Construction, Sale, Management andTransfer) Act, 1963, the Assessee would be the owner of the flat inlaw. The Commissioner (Appeals) also held that for applicability ofSection 54, the Assessee had to sell a capital asset in the nature ofbuilding or land appurtenant thereto. The word 'or' cannot be read as'and' in the context of the said provision. 6.The Revenue carried the matter in appeal before the Tribunal.The Tribunal, by the impugned Judgment, dismissed the Revenue'sappeal upon which the present appeal has been filed. the nature of transaction. He accepted the Assessee's contentionthat as per the provisions of Maharashtra Ownership Flats(Regulation of the Promotion of Construction, Sale, Management andTransfer) Act, 1963, the Assessee would be the owner of the flat inlaw. The Commissioner (Appeals) also held that for applicability ofSection 54, the Assessee had to sell a capital asset in the nature ofbuilding or land appurtenant thereto. The word 'or' cannot be read as'and' in the context of the said provision. 6.The Revenue carried the matter in appeal before the Tribunal.The Tribunal, by the impugned Judgment, dismissed the Revenue'sappeal upon which the present appeal has been filed. 7. Learned Counsel Mr. Chhotaray appearing for the Departmentargued that for availing benefit of Section 54 of the Act, the Assesseehas to sell a capital asset in the nature of building and landappurtenant thereto. In the present case, the complex was situatedon the land which itself was granted on lease. The Co-operativeHousing Society was therefore not the owner of the land. What theAssessee therefore transferred under a registered sale deed wasmere building and not land appurtenant thereto. In support of hiscontention that in the context of Section 54 of the Act, the word 'or'should be read as 'and', he relied on the commentaries of certainrenowned authorities on income tax law. We may, however, recordthat the commentaries presented before us were in the context oftaxing Assessee's income from house properties and the questionwas whether the income arising from land appurtenant thereto shouldalso be taxed as the income from house property. Thesecommentaries therefore would be of no help in deciding the presentissue. 8.The facts noted above are not in dispute. The father of theAssessee was allotted a flat in a residential complex in a Co-operative Housing Society. The complex was constructed on a landwhich was not owned by the society but was being enjoyed on long term lease. According to the Revenue, the sale of a flat in such asociety and investing any sale proceeds for acquisition of a newresidential unit, would not satisfy the requirements of Section 54 ofthe Act.In our opinion, the Revenue is wholly incorrect in thecontention. Sub-Section (1) of Section 54 of the Act reads as under : “54. [(1)] Subject to the provisions of sub-section (2), where, inthe case of an assessee being an individual or a Hinduundivided family, the capital gain arises from the transfer of along-term capital asset, being buildings or lands appurtenantthereto, and being a residential house, the income of which ischargeable under the head “Income from house property”(hereafter in this section referred to as the original asset), andthe assessee has within a period of one year before or twoyears after the date on which the transfer took placepurchased, or has within a period of three years after that dateconstructed, one residential house in India, then, instead ofthe capital gain being charged to income-tax as income of theprevious year in which the transfer took place, it shall be dealtwith in accordance with the following provisions of this section,that is to say,- (i) if the amount of the capital gain is greater than the costof the residential house so purchased or constructed(hereafter in this section referred to as the new asset), thedifference between the amount of the capital gain and the costof the new asset shall be charged under section 45 as theincome of the previous year; and for the purpose of computingin respect of the new asset any capital gain arising from itstransfer within a period of three years of its purchase orconstruction, as the case may be, the cost shall be nil, or (i) if the amount of the capital gain is greater than the costof the residential house so purchased or constructed(hereafter in this section referred to as the new asset), thedifference between the amount of the capital gain and the costof the new asset shall be charged under section 45 as theincome of the previous year; and for the purpose of computingin respect of the new asset any capital gain arising from itstransfer within a period of three years of its purchase orconstruction, as the case may be, the cost shall be nil, or (ii) if the amount of the capital gain is equal to or less thanthe cost of the new asset, the capital gain shall not be chargedunder section 45; and for the purpose of computing in respectof the new asset any capital gain arising from its transfer withina period of three years of its purchase or construction, as thecase may be, the cost shall be reduced by the amount of thecapital gain.” 9. In terms of this provision, therefore, where in case of anAssessee who is an individual or Hindu Undivided Family, the capitalgain arises from transfer of a long term capital asset being buildingsor lands appurtenant thereto and being a residential house, theAssessee could claim exemption under the said provision by either constructing or acquiring a residential unit within prescribed time. Inthe context of our case, what is important is that there should be atransfer of capital asset being a building or land appurtenant theretoand being a residential house. The requirements of this Sectionwould be satisfied if these conditions are met with. The Revenuestrangely argued that the transferrer of a capital asset of a residentialunit, in order to claim benefit of Section 54, must also transfer theland appurtenant thereto. Firstly, there is no such prescription underSection 54(1) of the Act. Secondly, such a rigid interpretation woulddisallow every claim in case of transfer of a residential unit in a Co-operative Housing Society. The very concept of Co-operative Housing Society is that the societyis the owner of the land and continues to be so irrespective of theincomings and outgoings of its members. A member of Co-operativeHousing Societies has possessory right over the plot of land which isallotted to him. In case of a constructed building of a Co-operativeHousing Society, the member owns the constructed property andalong with other members enjoys the possessory rights over the landon which such building is situated. In either case, a member of theCo-operative Housing Society even when he sells his house, nevertransfers the title in land to the purchaser. 10.The present case is no different. Merely because the housingcomplex in the present case is situated on a piece of land which isoccupied by the Co-operative Housing Society under a long termlease, would make no difference. 11.In the result, the Income Tax Appeal is dismissed.” 4.In view of above, this Income Tax Appeal is alsodismissed.dismissed. [ SARANG V. KOTWAL, J. ] [ AKIL KURESHI, J ]