The Assessee Primarily Placed His Case On The Decision Ofhigh Court Of Karnataka In The Case Of Commissioner Of Incometax v. Https://Hcservices.ecourts.gov.in/Hcservices

IN THE HIGH COURT OF JUDICATURE AT MADRAS Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN W.A.No.414 of 2020 and C.M.P.No.6477 of 2020 1. The Commissioner of Income Tax Chennai - 5 (i/c) Office of the Principal Commissioner of Income Tax, Aayakar Bhavan, Wanaparthy Block, 121, Mahatma Gandhi Road, Chennai - 600 034 2. The Assistant Commissioner of Income Tax, Non-Corporate Circle - 3, New Building, Aayakar Bhavan, 121, Mahatma Gandhi Road, Chennai - 600 034.. Appellants/RespondentsVs. Venkata Dilip KumarKartha - HUF..Respondent/Petitioner Prayer: Writ Appeal filed under Clause 15 of Letters Patentagainst the Order of this Court made in W.P.No.16249 of 2018dated 05.11.2019. W.P.No.16249/2018: Prayer:- Writ Petition filed under Article226 of the Constitution of India for issuance of a writ ofcertiorarified mandamus to Call for the records of the Order No.C.No. 1(3)/PCIT-5264/ CR-5/ AAIHV5089G/ 2017-18 dated 08.03.2018passed by the 1st respondent in proceedings U/s 264 of theIncome Tax Act 1961 and to quash the same and consequently todirect the respondents to revise the Assessment and allowadditional exemption of Rs. 57.25 Lakhs due U/s. 54 of theIncome Tax Act 1961 to the petitioner for the Assessment Year2014-15 . https://hcservices.ecourts.gov.in/hcservices/ For Appellants : Mr.Prabhu Mukunth Arunkumar Standing counsel For Respondent : Mr.A.Abdul Ravoof J U D G M E N T [Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] This appeal by the Revenue is directed against the orderpassed in W.P.No.16249 of 2018 dated 05.11.2019. The said WritPetition was filed by the respondent herein praying for issuanceof Writ of Certiorarified Mandamus to quash the order passed bythe 1st appellant dated 08.03.2018, in a proceedings underSection 264 of the Income Tax Act, 1961 ['the Act' for brevity]and consequently, direct the appellants to revise the assessmentand allow additional exemption of Rs.57.25 Lakhs due underSection 54 of the Act for the assessment year 2014 - 2015. 2. The assessing officer, namely, the 2[nd] appellant herein,completed the assessment under Section 143(1) of the Act byintimation dated 29.06.2015. Aggrieved by such order, theassessee filed a petition under Section 264 of the Act beforethe Principal Commissioner of Income Tax, Chennai claiming thatadditional cost of construction to the tune of Rs.1,02,13,527/-as deduction under Section 54 of the Act, ought to have beenallowed. The said petition was rejected by order dated08.03.2018 holding that assessee had deposited only Rs.1.50Crores in the capital gain deposit account with State Bank ofIndia, only this amount is eligible for deduction under Section54 of the Act and any amount, even if it is spent forconstruction of property, cannot be considered for deductionunder Section 54 of the Act because the amount was not theamount from the deposit in the capital gain account. The saidorder passed by the first appellant was put to challenge by therespondent by filing a Writ Petition. 3. The assessee primarily placed his case on the decision ofHigh Court of Karnataka in the case of Commissioner of IncomeTax Vs. Shri.K.Ramachandra Rao in I.T.A.No.47 of 2014 dated14.07.2014. In the said decision, it has been held that whenthe assessee invests entire sale consideration in constructionof a residential house within three years from the date oftransfer can be denied exemption under Section 54F on the groundthat he did not deposit the said amount in capital gains accountscheme before the due date prescribed under Section 139(1) ofthe Act. 3. The assessee primarily placed his case on the decision ofHigh Court of Karnataka in the case of Commissioner of IncomeTax Vs. Shri.K.Ramachandra Rao in I.T.A.No.47 of 2014 dated14.07.2014. In the said decision, it has been held that whenthe assessee invests entire sale consideration in constructionof a residential house within three years from the date oftransfer can be denied exemption under Section 54F on the groundthat he did not deposit the said amount in capital gains accountscheme before the due date prescribed under Section 139(1) ofthe Act. 4. Further, it has been held that it is clear from the SubSection(4) in the event of the assessee not investing thecapital gains either in purchasing the residential house or inconstructing a residential house within a period stipulatedunder Section 54(F)(1), if the assessee wants the benefit ofSection 54F, then, he should deposit the said capital gains inan account, which is duly notified by the Central Government.If he wants to claim exemption from payment of income tax byretaining the cash, then, the said amount is to be invested inthe said account. If the intention is not to retain cash, butto invest in construction, or any purchase of the property andif such investment is made within the period stipulated, then,Section 54F(4) is not at all attracted. Therefore, thecontention that the assessee has not deposited the amount in thebank, as stipulated and therefore, he is not entitled to thebenefit, even though he has invested the money in constructionis also not correct. 5. The assessee in the Writ Petition further contended thatthe requirement to deposit under capital gains deposit schemearises only when assessee claims exemption under Section 54 ofthe Act without paying tax on the amount. Further, theassessee's tax payment has been paid prior to raising the claimfor exemption under Section 54 of the Act, hence what is soughtfor revision under Section 264 of the Act is only a refund andreturn of the excess amounts, which were already paid towardsIncome Tax during the assessment year 2014-2015. 6. The revenue resisted the prayer sought for in the WritPetition by contending that Section 54F(2) of the Act is veryclear and is an exemption provision and there cannot be anydeviation or no justification whatsoever, which can supersedethe non-compliance of provisions of Section 54(2) of the Act.The revenue further contended that the respondent / WritPetitioner failed to deposit 57.25 Lakhs in the Capital GainsDeposit Scheme with any Nationalised Bank and hence becomeineligible to avail the benefit. 7. The revenue sought to distinguish the decision in thecase of K.Ramachandra Rao on facts and relied upon the decisionof the Hon'ble Supreme Court in Commissioner of Customs V.Dilip Kumar reported in 2018 SCC online SC 747 and submittedthat exemption provision under Section 54(2) requires to bestrictly interpreted. 8. The asessee filed a reply affidavit to the counteraffidavit filed by the revenue among other things, assesseecontended that even in the assessee's individual case, theTribunal by order dated 24.01.2019 on similar facts, granted relief, interfered with the order passed by the assessingofficer and directed the assessing officer to re-examine all thedocuments and this order covers 75% of the transaction andtherefore, it should apply to the balance 25% of thetransaction, which is in the hands of HUF, the respondent / WritPetitioner. Therefore, the assessee contended that the orderpassed by the 1st appellant should be set aside and theassessing officer should be directed to re-examine the costoverrun submissions. 8. The asessee filed a reply affidavit to the counteraffidavit filed by the revenue among other things, assesseecontended that even in the assessee's individual case, theTribunal by order dated 24.01.2019 on similar facts, granted relief, interfered with the order passed by the assessingofficer and directed the assessing officer to re-examine all thedocuments and this order covers 75% of the transaction andtherefore, it should apply to the balance 25% of thetransaction, which is in the hands of HUF, the respondent / WritPetitioner. Therefore, the assessee contended that the orderpassed by the 1st appellant should be set aside and theassessing officer should be directed to re-examine the costoverrun submissions. 9. The learned Single Judge considering the contentionsplaced before it, discussed about Section 54 of the Act andafter noting the legal position pointed out that the dispute isonly with regard to balance sum spent on additional constructioncost, which according to the revenue is not entitled fordeduction under Section 54 of the Act, since it was deposited inthe capital gain account, as required under Section 54(2) of theAct. The learned single Judge further opined that Section 54(2)would come into operation only in the event of failure on thepart of the assessee to comply with the requirement underSection 54(1) of the Act and mere non compliance of a proceduralrequirement under Section 54(2) itself cannot stand in the wayof the assessee in getting the benefit under Section 54, if heis, otherwise, in a position to satisfy that the mandatoryrequirement under Section 54(1) is fully complied with withinthe time limit prescribed therein. 10. At this juncture, the Court took into consideration thedecision of K.Ramachandra Rao and allowed the Writ Petition andremanded back the matter to the 2nd appellant to pass freshorder by considering the issue as to whether the disputedamount, claimed by the assessee as deduction, has been utilisedby the assessee towards additional construction within a timelimit prescribed under Section 54(1) of the Act. 11. The Revenue is on appeal before us contending that thereare two sub-sections to Section 54 and both sub-sections laydown mandatory requirements for the purpose of enjoyingexemption from tax on capital gains. Therefore, to state thatSub-Section (1) as mandatory and Sub-Section (2) as directory,is incorrect interpretation. Further, reliance has been placedon the decision of the Hon'ble Supreme Court in the case ofCommissioner of Customs Vs. Dilip Kumar reported in 2018 SCCOnline SC 747 to emphasis the point exemption notificationshould be interpreted strictly. 12. Further, Revenue places reliance on the decision in thecase of Humayun Suleman Merchant V. CIT reported in [2016] 73Taxmann.com 2 (Bombay) wherein it has been held that where theassessee had filed return of income and entire amount, which was https://hcservices.ecourts.gov.in/hcservices/ subject to capital gain tax had not been utilised for purpose ofconstruction of new house nor were unutilised amounts depositedin notified bank Accounts in terms of Section 54F(4) beforefiling return of income, assessing officer rightly computeddeduction under Section 54F, restricting exemption under Section54F proportionately to amount invested. 13. Mr.Prabhu Mukunth Arunkumar, learned counsel for theappellant / department submitted that in the decision HumayunSuleman Merchant, the Court noted the decision in K.RamachandraRao and observed as to how the decision was rendered sub-silentio because no argument was made with regard to therequirement of deposit in the notified bank account in terms ofSection 54F(4) of the Act before the due date as provided inSection 139(1) of the Act. In this regard, the learned counselhas referred to the following paragraphs of the said decision : 13. Mr.Prabhu Mukunth Arunkumar, learned counsel for theappellant / department submitted that in the decision HumayunSuleman Merchant, the Court noted the decision in K.RamachandraRao and observed as to how the decision was rendered sub-silentio because no argument was made with regard to therequirement of deposit in the notified bank account in terms ofSection 54F(4) of the Act before the due date as provided inSection 139(1) of the Act. In this regard, the learned counselhas referred to the following paragraphs of the said decision : 6. (o) Mr. Chatterji, learned Senior Counsel nextsubmitted that in any case the issue now standsconcluded in favour of the Appellant by the decision ofthe Karnataka High Court in K. Ramachandra Rao's case(supra) wherein an identical question came up forconsideration and it was held that even where theassessee had not deposited the unutilized Capital Gainin an account which was duly notified by the CentralGovernment in terms of Section 54F(4) of the Act, thebenefit of Section 54F(1) of the Act would still beavailable. The Court held that if the intention was notto retain the capital gains but was to invest it inconstruction of property within the period stipulatedin Sub-Section (1) of Section 54(F) of the Act thenSection 54F(4) of the Act is not at all attracted. Weare with respect unable to accept the reasoning adoptedby Karnataka High Court in K. Ramachandra Rao's case(supra). The mandate of Section 54F(4) of the Act isclear that amount which has not been utilized inconstruction and/or purchase of property before filingthe return of income, must necessarily be deposited inan account duly notified by the Central Government, soas to be exempted. 6(p). Further, Section 54F(4) of the Act specificallyprovides that the amounts which have not been investedeither in purchase/construction of house have to bedeposited in the specified accounts before the due dateof filing of return of income under Section 139(1) ofthe Act. The aforesaid aspect it appears was notnoticed by the Karnataka High Court. In any case, theentire basis of the decision of the Karnataka HighCourt in K. Ramachandra Rao's case (supra) is the intent of the parties. In interpreting a fiscal statuteone must have regard to the strict letter of law andintent can never override the plain and unambiguousletter of the law. It is true that normally whileconstruing an all India Statute like the Income TaxAct, we would not easily depart from a view taken byanother High Court on an issue arising for ourconsideration. This on consideration of certainty andconsistency in law. However, the view of the other HighCourts are not binding upon us unlike a decision of theApex Court or of Larger or a Co-ordinate Bench of thisCourt. Thus if on an examination of the decisions ofthe other High Court we are unable to accept the same,we are not bound to follow/accept the interpretation ofthe other High Courts leading to a particularconclusion. In this case we find that the decision ofthe Karnataka High Court in K. Ramachandra Rao's case(supra) was rendered sub-silentio i.e. no argument wasmade with regard to the requirement of deposit innotified bank account in terms of Section 54F(4) of theAct before the due date as provided in Section 139(1)of the Act. As observed in Salmond's Jurisprudence 12thEdition : "The rule that a precedent sub silentio is notauthoritative goes back at least to 1661(m) whenCounsel said : 'An hundred precedents sub-silentio arenot material'; and Twisden J agreed : 'precedents sub-silentio and without argument are of no moment'. Thisrule has ever since been followed." "The rule that a precedent sub silentio is notauthoritative goes back at least to 1661(m) whenCounsel said : 'An hundred precedents sub-silentio arenot material'; and Twisden J agreed : 'precedents sub-silentio and without argument are of no moment'. Thisrule has ever since been followed." 14. Mr.Abdul Ravoof, learned counsel appearing for therespondent / assessee argued to sustain the impugned order andwould submit that the Writ Appeal filed by the revenue hasbecome infructuous owing to the fact that the 1[st] appellant haspassed an order under Section 264(7) of the Act dated 20.02.2020and granted relief to the assessee. Therefore, it is submittedthat the Writ Appeal may be dismissed as infructuous and theorder passed by 1[st] appellant dated 20.02.2020 shall be directedto be given effect to. 15. Mr.Prabhu Mukunth Arunkumar, learned standing counselfor the appellant on the other hand, would contend that at thetime when the appeal was entertained, the Division Bench of thisCourt has recorded that the revenue has made out a prima faciecase, granted interim stay on 18.03.2020. Further more, becauseof the order of stay, the order passed by the 1[st] appellant dated20.02.2020 has not been given effect to. Further, it issubmitted that the decision of K.R.Ramachandra Rao, does not laydown the correct proposition and the Court is required to https://hcservices.ecourts.gov.in/hcservices/ interpret the exemption provisions strictly as the impugnedorder is likely to be taken as precedent. 16. We find that the appeal was filed on 13.01.2020,however, it was an improper filing and the Registry returned thepapers on 28.01.2020 noting that memo valuation was not given,all corrections in the memo to be incorporated in the copies,batta to be filed with full address of respondents, notsufficiently stamped, not signed by Advocate, dates and events,date of filing, synopsis, grounds, not properly filed and typedset has not been filed. Further, ten days time was granted tothe revenue to represent the matter. However, the papers wererepresented only on 02.03.2020, as per the date of seal, onwhich date, the typed set of papers and documents were receivedby the Registry, therefore, for all purposes the appeal wasproperly filed only on 02.03.2020. Much prior to that, the 1[st]appellant has passed giving effect to order dated 20.02.2020granting relief to the respondent. 17. The argument of Mr.Prabhu Mukunth Arunkumar, learnedcounsel for the appellants / revenue is that in the event,revenue succeeds in this appeal, that order can always berectified and fresh order can be passed. 18. We find from the order passed by the 1[st] appellant dated20.02.2020 that it has not been passed without prejudice to therights of the department in pursuing the Writ Appeal against theorder in the writ petition. In fact, the 1[st] appellant recordsin the order that taking cognizance of the direction issued bythe High Court, assessee was heard and in pursuant to theCourt's decision, the additional cost of construction incurredby the assessee for claiming deduction under Section 54 of theAct was allowed and then, relief has been granted. 17. The argument of Mr.Prabhu Mukunth Arunkumar, learnedcounsel for the appellants / revenue is that in the event,revenue succeeds in this appeal, that order can always berectified and fresh order can be passed. 18. We find from the order passed by the 1[st] appellant dated20.02.2020 that it has not been passed without prejudice to therights of the department in pursuing the Writ Appeal against theorder in the writ petition. In fact, the 1[st] appellant recordsin the order that taking cognizance of the direction issued bythe High Court, assessee was heard and in pursuant to theCourt's decision, the additional cost of construction incurredby the assessee for claiming deduction under Section 54 of theAct was allowed and then, relief has been granted. 19. Therefore in our considered view, the revenue cannotpursue this appeal after implementing order passed in the writpetition. However, we take note of the argument of Mr.Mr.Prabhu Mukunth Arunkumar, learned standing counsel for theappellant with regard to the legal issue, which has been decidedby the learned Writ Court by following the decision inK.Ramachandra Rao. On that issue, we are of the primafacie viewthat finding rendered in Humayun Suleman Merchant, appears toreflect the correct position of law. We have referred torelevant paragraphs of the Judgment above. However, since wehold that the writ appeal has become infructuous, we leave thequestion of law open for being agitated in an appropriateproceedings and consequently, we are inclined to vacate thefinding rendered by the learned Single Judge on the question oflaw, which was decided therein. We are inclined to make suchobservation, because the exemption provisions requires to be strictly interpreted, as per decision of the Hon'ble SupremeCourt in the case of Dilip Kumar mentioned supra. For the above reasons, the Writ Appeal is dismissed ashaving become infructuous, the finding rendered by the learnedSingle Judge on the question of law stand vacated and thequestion is left open. The 1[st] appellant is directed to giveeffect to his order passed under Section 264(7) of the Act dated20.02.2020 within a period of four weeks from the date ofreceipt of copy of this Judgment. Consequently, connectedmiscellaneous petition is closed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrarssd To1. The Commissioner of Income Tax Chennai - 5 (i/c) Office of the Principal Commissioner of Income Tax, Aayakar Bhavan, Wanaparthy Block, 121, Mahatma Gandhi Road, Chennai - 600 034 2. The Assistant Commissioner of Income Tax, Non-Corporate Circle - 3, New Building, Aayakar Bhavan, 121, Mahatma Gandhi Road, Chennai - 600 034 +1cc to Mr.A.Abdul Ravoof, Advocate, sr no.34273 BR(CO)RMP(27/11/2020) W.A.No.414 of 2020 and C.M.P.No.6477 of 2020 https://hcservices.ecourts.gov.in/hcservices/