The Commissioner Of Income Tax,Chennai v. Mr. Ajit Thomasdirectora.v. Thomas Leather & Alliedno. 64, Rukmani Lakshmipathy Salari, Egmore,Chennai -600 008

IN THE HIGH COURT OF JUDICATURE AT MADRASReserved on : 01.08.2016Pronounced on : 30.08.2016 CORAM :THE HONOURABLE MR. JUSTICE S.MANIKUMARandTHE HONOURABLE MR. JUSTICE D.KRISHNAKUMARTax Case Appeal No. 497 of 2016 The Commissioner of Income Tax,Chennai .. Appellant/Appellant Vs. Mr. Ajit ThomasDirectorA.V. Thomas Leather & AlliedNo. 64, Rukmani Lakshmipathy Salari, Egmore,Chennai -600 008. .. Respondent/Respondent Prayer: Appeal filed under Section 260A of Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal Madras'B' Bench, Chennai dated 06.11.2015 in I.T.A.No.1453/Mds/2015against the order of the Commissioner of Income Tax(Appeals)-1Chennai dated 26.02.2015 made in ITA.No.256/14-15/A-I for theA.Y.2012-13. Against the order of the Assessing officer Corporate Circle-1(1), Chennai dated 28.11.2014 made in GIR/PAN717A/AAAPT8581H,for the A.Y.2012-13. For Appellant : Mrs. Hema Murali Krishnan Standing Counsel for I.T COMMON JUDGMENT(Judgment of the Court was made by D. KRISHNAKUMAR, J) This Appeal has been filed by the Revenue against theorder of Madras 'B' Bench, Chennai dated 06.11.2015 in I.T.A.No.1453/Mds/2015 on the file of the Income Tax AppellateTribunal. https://hcservices.ecourts.gov.in/hcservices/ 2. The facts of the case are as follows :- The respondent herein/ Assessee, filed Return ofIncome for the assessment year 2012-2013 on 20.07.2012,admitting a total income of Rs.78,57,110/-. The return wasprocessed under Section 143(1) and the case was selected forscrutiny through CASS and notice under Section 143(2) dated06.08.2013 was served on the assessee/ respondent herein. Asper the jurisdiction notification dated 15.11.2014, anintimation dated 17.11.2014, under Section 129 was sent to theassessee/ respondent herein. In response to the notice underSection 143(2), an authorised representative of the assesseeappeared before the assessment officer and the assessment wascompleted under Section 143(3) of the Income Tax Act, 1961. On28.11.2014, the impugned order was passed by the AssessmentOfficer, disallowing the claim under Section 54F of the IncomeTax Act, 1961. On completion of the assessment, the AssessingOfficer withdrew the benefit of Section 54F of the Income TaxAct, 1961, in the case of the assessee. The disallowance ofexemption claimed under Section 54F is Rs.2,47,52,000/-, as perthe Assessment Order issued by the Assessing Officer. 3. Aggrieved by the aforesaid order, the assesseepreferred an appeal in ITA No. 256/14-15/A-1 dated 26.02.2015before the Commissioner of Income Tax (Appeal), on the followinggrounds :- 1. The order of the Assessing Officer insofar asit denies exemption to the appellant underSection 54F of the Act is erroneous, againstthe provisions of law and contrary to the factsand circumstances of the case. 2. The Assessing Officer should have found thatthe appellant does not own the property atVijayaraghavachari Road as it was settled byhim on his wife Mrs. Shanthi Thomas on24.02.2003 under general law and hence, theappellant does not own more than one houseproperty at the time of transfer of theoriginal asset giving rise to capital gain inthe present case. The Assessing Officer shouldhave found that Transfer of Property Act, 1882is to be considered and not Section 27(i) ofthe Act which is applicable only for thepurposes of Section 22 to 26 of the Act. 3. The Assessing Officer erred in relying onthe provisions of Section 27(i) of the Act,which is a deeming provision for the purpose ofdenying exemption to the appellant underSection 54F of the Act. He should have found 3. The Assessing Officer erred in relying onthe provisions of Section 27(i) of the Act,which is a deeming provision for the purpose ofdenying exemption to the appellant underSection 54F of the Act. He should have found that the concept of deemed ownership isrecognized only under Section 27 (i) of theIncome Tax Act and it is only for the purposeof Section 22 to 26 of the Act and cannot beextended to Section 54F of the Act. TheAssessing Officer erred in not appreciatingthat the concept of “Deemed” ownership cannotbe extended to Section 54F and the deemingfiction cannot operate unless the same is builtin Section 54F. 4. The assessing Officer should have found thatthe provisions of Section 27(i) are restrictedfor the limited purpose of assessing the incomefrom the house property under Sections 22 to 26of the Act and not for the purpose of otherprovisions of the Act and consequently, shouldbe interpreted only in terms of ownership asenvisaged under general law applicable to realproperty as held by the Supreme Court in thecases of Commissioner of Income Tax vs. PoderCement Private Limited & Others [226 ITR 625]and Mysore Minerals Limited vs. Commissioner ofIncome Tax [239 ITR 775]. 5. Without prejudice to the above contention, inany case, the Assessing Officer should havefound that if the logic adopted with referenceto Vijayaraghavachari Road property is appliedto the vacant land (at Sholinganallur), thesale of which has given rise to capital gain inthe present case and which again was settled onthe appellant by his wife Mrs. Shanthi Thomasand falls within the scope of Section 64 (1)(iv) of the Act, the capital gain arising onthe sale of the said property cannot be broughtto tax in the hands of the appellant. 4. Considering the case of the assessee, theCommissioner of Income Tax (Appeal) has observed that theproperty situated at No.24 Vijaya Raghavachari Road, T. Nagar,Chennai-17, was transferred by the appellant in the name of hiswife Mrs. Shanthi Thomas, by virtue of settlement deed dated24.02.2003 and so in the year 2011, when the assessee's landproperty situated at Sholinganallur, was sold. Hence, theassessee possessed only one property i.e. the residentialproperty at Kodaikanal. While assessing, the Assessment Officerunder the presumption that the appellant was in possession oftwo residential houses on the date of transfer of property,denied the exemption. But, the house property situated at No.24Vijaya Raghavachari Road, T. Nagar, Chennai-17 stands in thename of the assessee's wife, namely, Mrs. Shanthi Thomas and therefore, the Commissioner of Income Tax (Appeal) came to aconclusion that the assessee had only one property at Kodaikanaland hence the denial of exemption of the Assessment Officer, onthe ground that as per Section 27(i) of the Income Tax theassessee is a deemed owner of the property and so he is noteligible for exemption under Section 54F, was reversed andallowed the appeal filed by the assessee. Aggrieved by theaforesaid order passed by the Commissioner of Income Tax(Appeal), the Revenue preferred an appeal before the Income TaxAppellate Tribunal in I.T.A. No.1453/Mds./2015 for theassessment year 2012-13, on the following grounds : 1. Income from house property transferred by the assessee tohis wife (spouse) is assessable in his hands under Section64(1) (iv) read with Section 27(i) of the Income Tax Actand hence the said property is deemed to be owned by theassessee.his wife (spouse) is assessable in his hands under Section64(1) (iv) read with Section 27(i) of the Income Tax Actand hence the said property is deemed to be owned by theassessee. 1. Income from house property transferred by the assessee tohis wife (spouse) is assessable in his hands under Section64(1) (iv) read with Section 27(i) of the Income Tax Actand hence the said property is deemed to be owned by theassessee.his wife (spouse) is assessable in his hands under Section64(1) (iv) read with Section 27(i) of the Income Tax Actand hence the said property is deemed to be owned by theassessee. 2. The gain arising on sale of vacant land is assessable inthe hands of his wife under Section 64(1)(iv) since thesaid land at Sholinganallur which yielded the capital gain(from which deduction under Section 54F is claimed by theassessee) was settled on the assessee by his wife asadmitted by him. Hence, deduction is not permissible underSection 54F in respect of income assessable in the hands ofhis wife.the hands of his wife under Section 64(1)(iv) since thesaid land at Sholinganallur which yielded the capital gain(from which deduction under Section 54F is claimed by theassessee) was settled on the assessee by his wife asadmitted by him. Hence, deduction is not permissible underSection 54F in respect of income assessable in the hands ofhis wife. 5. It is not disputed that the house propertysituated at No.24, Vijaya Raghavachari Road, T. Nagar, Chennai-17, originally belonged to the assessee and thereafter it wastransferred in the name of the assessee's wife Mrs. ShanthiThomas, by execution of a settlement deed during the year 2003.Case of the Revenue is that the assessee is not entitled forexemption under proviso (b) of Section 54F (1) of the Income TaxAct, as it states that the income from such residential house,other than the one residential house owned on the date oftransfer of the original asset, is chargeable under the head“Income from house property”. The Tribunal has considered theprovisions under Section 54F of the Act, by observing that theAssessing Officer had passed the impugned Assessment order,without taking into consideration the provisions under Section27(i) of the Act, which is a deeming provision applicable forSections 22 to 26 of the Act. Section 54F of the Act is aprovision granting deduction to the assessee and so the otherprovisions of the Act, which are relied on by the AssessingOfficer, cannot be construed that Section 27 (i) can also beread with Section 54F for the purpose of the ownership of theproperty. According to the Tribunal, it has to be construedthat the assessee is not the owner of the residential housesituated at No.24, Vijayaraghavachari Road, T.Nagar, Chennai andso, as per Section 54F of the Act, the assessee/ respondent herein, is entitled to get exemption. In view of the above saidfinding, the Income Tax Appellate Tribunal dismissed the appealfiled by the Revenue. 6. Being not satisfied with the order passed by theTribunal, the Revenue has preferred the instant appeal beforethis Court, on the following substantial questions of law : 1. Whether on the facts and circumstances of the case, theTribunal was right in holding that the assessee wasentitled to deduction under Section 54F of theIncomeTax Act ? 2. Is not the finding of the Tribunal bad by granting reliefunder Section 54F especially when income from houseproperty transferred by the assessee to his wife isassessable in his hands under Section 64(1)(iv) read withSection 27(i) of the Act as he is the deemed owner of theproperty ? 3. Whether the finding of the Tribunal is correct in holdingthat the property gifted to the wife cannot be held as selfowned property for the purpose of claiming deduction underSection 54F ? 1. Whether on the facts and circumstances of the case, theTribunal was right in holding that the assessee wasentitled to deduction under Section 54F of theIncomeTax Act ? 2. Is not the finding of the Tribunal bad by granting reliefunder Section 54F especially when income from houseproperty transferred by the assessee to his wife isassessable in his hands under Section 64(1)(iv) read withSection 27(i) of the Act as he is the deemed owner of theproperty ? 3. Whether the finding of the Tribunal is correct in holdingthat the property gifted to the wife cannot be held as selfowned property for the purpose of claiming deduction underSection 54F ? 7. Learned counsel for the Revenue contended beforethis Court that the assessee has sold the vacant land measuring11,881 sq.ft. in Sholinganallur Village and realised a long termcapital gain of Rs.2,47,52,000/- but the respondent had claimedexemption under Section 54F. The assessee has purchased a newresidential property, a flat, at 4[th] floor in Midland Apartments,Turn Bulls Road, Chennai worth about Rs.2,88,85,100/-. Prior tothe purchase of the above said asset, it was noticed from theschedule of income of the house property that the assessee hadheld the house property at No.24, Vijayaraghavachari Road, T.Nagar, Chennai-17 and a residential house at Kodaikanal.Therefore, the Assessing Officer came to a conclusion that thebenefit of Section 54F of the Income Tax Act sought for by theassessee, is not eligible to him, since he was holding more thanone residential property. The exemption sought by the assesseewas rejected by the Assessing Officer, based on the provisionsunder Section 27(i) of the Act, which deals with “Owner of thehouse property”. Therefore, she submitted that the AssessingOfficer has rightly come to a conclusion and had disallowed theexemption claimed under Section 54F of the Act. 8. Learned Junior Standing Counsel representing theRevenue, drew our attention to Section 54F of the Income TaxAct, which is extracted below :- “Capital gain on transfer of certaincapital assets not to be charged in case ofinvestment in residential house.54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assesseebeing an individual or a Hindu undividedfamily], the capital gain arises from thetransfer of any long-term capital asset, notbeing a residential house (hereafter in thissection referred to as the original asset), andthe assessee has, within a period of one yearbefore or [two years] after the date on whichthe transfer took place purchased, or has withina period of three years after that dateconstructed, a residential house (hereafter inthis section referred to as the new asset), thecapital gain shall be dealt with in accordancewith the following provisions of this section,that is to say,—(a) if the cost of the new asset isnot less than the net consideration inrespect of the original asset, the whole ofsuch capital gain shall not be chargedunder section 45 ;(b) if the cost of the new asset isless than the net consideration in respectof the original asset, so much of thecapital gain as bears to the whole of thecapital gain the same proportion as thecost of the new asset bears to the netconsideration, shall not be charged undersection 45: Provided that nothing contained in this sub-section shall apply where the assessee owns onthe date of the transfer of the original asset,or purchases, within the period of one yearafter such date, or constructs, within theperiod of three years after such date, anyresidential house, the income from which ischargeable under the head “Income from houseproperty”, other than the new asset.’ — (i) owns more than one residentialhouse, other than the new asset, on thedate of transfer of the original asset; or(ii) purchases any residential house, Provided that nothing contained in this sub-section shall apply where the assessee owns onthe date of the transfer of the original asset,or purchases, within the period of one yearafter such date, or constructs, within theperiod of three years after such date, anyresidential house, the income from which ischargeable under the head “Income from houseproperty”, other than the new asset.’ — (i) owns more than one residentialhouse, other than the new asset, on thedate of transfer of the original asset; or(ii) purchases any residential house, other than the new asset, within a periodof one year after the date of transfer ofthe original asset; or(iii) constructs any residentialhouse, other than the new asset, within aperiod of three years after the date oftransfer of the original asset; and(b) the income from such residential house,other than the one residential house ownedon the date of transfer of the originalasset, is chargeable under the head “Incomefrom house property.” 9. The issue involved for consideration in theinstant appeal is, whether Section 27(i) of the Act could beread along with Section 54F, for the purpose of “Owner of houseproperty” under the said provision. Section 27(i) is extractedbelow :- “Owner of house property”, “annual charge”,etc., defined.27. For the purposes of sections 22to 26—(i) an individual who transfers otherwise thanfor adequate consideration any house propertyto his or her spouse, not being a transfer inconnection with an agreement to live apart, orto a minor child not being a married daughter,shall be deemed to be the owner of the houseproperty so transferred; ” The aforesaid provision comes under Chapter-4 of the Income TaxAct, for the purpose of the charging Income Tax under the headof “Income from house property” and for fixing annual value ofthe property. But, from the facts of the case on hand, wherethe assessee claims relief of exemption of tax in respect of aresidential house, exemption under such section is notavailable, since the assessee owns more than one residentialhouse, other than the new asset, on the date of transfer of theoriginal asset. The assessee is otherwise eligible for grant ofexemption, if he satisfies the condition specified as per theamendment to the proviso, with effect from 1[st] April 2001, topermit exemption under Section 54F, where the assessee has oneresidential house or constructed a house, after transfer. So,the language of the said provision under Section 54F, which isunambiguous and clear and if the assessee satisfies theconditions as per the provisions of the said Act, then theassessee is eligible for grant of exemption under Section 54F inChapter IV of the Income Tax. Further, grant on transfer ofcertain capital assets not to be charged in case of investmenton residential houses. 10. The contention of the learned Counselrepresenting the Revenue that the meaning of the owner has beendefined under Section 27(i) of the Act, for the purpose ofdeemed to be the owner of the property, has to be interpreted.In support of the said contention, the learned counsel relies onthe decision of the Hon'ble Supreme Court in the case of MysoreMinerals Limited vs. Commissioner of Income Tax [239 ITR 775],wherein the meaning of “owner” has been observed as follows :“ The Podar Cement's case [1997] 226ITR 624 (SC) is under the Income-Tax Act and hasto be taken as a trend-setter in the concept ofownership. Assistance from the law laid downtherein can be taken for finding out the meaningof the term “owned” as occurring in Section 32(1) of the Act. In our opinion, the term“owned” as occurring in Section 32(1) of theIncome-Tax Act, 1961, must be assigned a widermeaning. Anyone in possession of property inhis own title exercising such dominion over theproperty as would enable others being excludedtherefrom and having the right to use and occupythe property and/or to enjoy its usufruct in hisown right would be the owner of the buildingsthough a formal deed of title may not have beenexecuted and registered as contemplated by theTransfer of Property Act, the Registration Act,etc.”.11. In the case of Commissioner of Income Tax vs.Poder Cement Private Limited & Others [226 ITR 625], theHon'ble Supreme Court has considered the meaning of “Owner”under the context of Section 22 and 27 of the Indian Income Tax,1922. The afore cited decision was considered by the Hon'bleSupreme Court for the purpose of the rental income to becalculated on the bonafide annual value of the property. Thefacts of the said case relates to the provisions of Section 22of the Act, where charges of the income arises from houseproperty and not the ownership of house property. Such incomefrom house property can be real or notional. It has beenfurther stated that the owner is the person who in his own rightcan use the house property or derive income from it and onlysuch owner has to be taxed under the head “Income from houseproperty”. Therefore, in that case, learned Senior Counsel hasinterpreted the language of Section 22 of the Act in the contextof that particular section, the Hon'ble Supreme Court hasinterpreted the meaning of “ownership”. The Hon'ble SupremeCourt has held that “owner” means a person who has got validtitle legally conveyed to him after complying with therequirements of law such as the Transfer of Property Act, theRegistration Act, etc. But, in the context of Section 22 of theIncome Tax Act 1961, having regard to the ground realities and further having regard to the object of the Income Tax Act, 'totax the income', the “owner” is a person who is entitled toreceive income from the property in his own right. So, in theafore cited decisions, the Hon'ble Supreme Court have consideredthe provisions under Section 22 and 27 of the Income Tax Act1961, for the purpose of determining “annual value of theproperty”. Therefore, the decisions of the Hon'ble SupremeCourt, cited supra by the Revenue, do not apply to the facts ofthis case. Whereas, in this case, as categorically held by theCommissioner of Income Tax (Appeal) and the Tribunal thatSection 27(1) of the Act is a deeming provision applicable onlyfor Sections 22 to 26, in computing the annual value of theproperty and as such deeming provision cannot be extended todeny the exemption under Section 54F of the Act. 12. Therefore, we are of the considered view thatSection 54F of the Act, for granting exemption applies for thepurpose of capital gain of transfer of certain capital assetsnot to be charged in the case of investment in residentialhouse. To this context, Section 54F would apply as anindependent provision, to the instant case. Therefore, theCommissioner of Income Tax (Appeal) and the Income Tax AppellateTribunal have rightly come to the conclusion that Section 27(i)of the Act is not applicable to the facts of the present case.For the reasons stated supra, we are not inclined to entertainthe instant appeal and the substantial questions of law raisedin this Tax Appeal, is answered against the Revenue. 13. Accordingly, the TCA No. 497 of 2016 isdismissed, at the stage of admission itself. No order as tocosts. -s/d-Assistant Registrar True Copy Sub-Assistant Registrar avr To 1.The Income Tax Appellate Tribunal'B' BenchChennai. 2.The Commissioner of Income-Tax (Appeals)-1, Chennai 3.The Commissioner of Income-Tax(A)-1Chennai-34Chennai-34 4.The Deputy Commissioner of Income TaxCorporate Circle-1(1) ChennaiCorporate Circle-1(1) Chennai 5.The Assistant RegistrarIncome Tax Appellate TribunalRajaji Bhavan Chennai-34 Tax Case Appeal No.497 of 2016ctk(co)aa09/11/2016