Thr Hon’ble Mr. Justice Ravi v. Hosmani

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13 DAY OF SEPTEMBER, 2021 PRESENT THR HON’BLE MRS.JUSTICEK S.SUJATHA ANT) THR HON’BLE MR. JUSTICE RAVI V. HOSMANI I.T.A.No.304/2019 BETWEEN : SHRI PARSWANATHPADMARAJATAH JAIN,NO.792, 9[‘T]MAIN,KORAMANGALA 3 BLOCK,BENGALURU-560034. APPEHLLANT| (BY SRI GANESH 8., ADV.) AND : ASSISTANT COMMISSIONER ©OF INCOME TAX, CIRCLE-1(1)(1)~ FLOOR, BMTC BUILDING, |80 FEET ROAD, 6[‘T]BLOCK,KORAMANGALA, BENGALURU-o60090 .. RESPONDENT. (BY SRI K.V.ARAVIND, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 21.12.2018 PASSED IN ITA NO.453/BANG/2018, FOR,THEASSESSMENTYRAR2013-2014PRAYINGTO|1.|FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED|ABOVE;|«|ALLOWTHEAPPEALANT)SET-ASIDETHREIMPUGNBED ORDER OF THE INCOME TAX APPBLLATBR TRIBUNAPASSED IN ITA NO.493/BANG/2018 DATED 21.12.2018 FOR.ASSEHKSSMENT YEAR 2013-14 ENCLOSED AS ANNEXURE-A -2-. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT This appeal is filed by the assessee challenging the Orderdated21.12.2018passedInITANo.453/Bang/2018 by the Income Tax AppellateTribunal, Bengaluru Bench ‘A’, Bengaluru (‘Tribunal’ forshort) relating to the assessment year 2013-14. 2.|This appeal was admitted by this Court to consider the following substantial questions of law: 1.WhetherOTLthe|facts”andin.thecircumstances of the case, the cost of thenew asset which is eligible for exemptionunder Section 54F(1) would include the costof land though purchased more than 1 yearprior to sale of capital asset?circumstances of the case, the cost of thenew asset which is eligible for exemptionunder Section 54F(1) would include the costof land though purchased more than 1 yearprior to sale of capital asset? 2)WhetherOTLthefactsand.in.the|circumstancesof|the|CASE, whenthe|construction cost of residential house isallowed as per the third limb of exemptionnamely “construction of residential housewithin 3 years from the date of transfer of capital asset’, can the cost of land on whichthe residential house has been constructedbe disallowed applying the first limb of theexemption namely “bought 1 year before thedate of transfer of capital asset’? 3.|The assessee, an individual, purchased aland on 17.04.2010 and claimed exemption undersection o4F of the Income Tax Act, 1961 (‘Act’ for short),of an amount of Rs.3,83,/6,/769/- out of the capitalgains of Rs.8,62,15,500/-. The Assessing Officer deniedthe benefit of Section 54F in respect of cost of land of asum of Rs.1,93,44,970/- on the ground that the saidland was acquired by the assessee before one year ofsale of the capital asset 1.e., 01.04.2012. Beingaggrieved by the said order of the Assessing Officer, theassessee preferred an appeal before the CIT(A). Beingunsuccessful, further appeal was filed before theTribunal. The Tribunal rejected the appeal. Hence, thepresent appeal. - 4 _| 4Learned counsel for the assessee placingreliance on the judgment of the Hon’ble High Court ofMadras in the case of!C. Aryama Sundaram vs.Commissioner of Income-tax,|reported in(2018) 97taxmann.com 74 (Madras)|! and the judgment of thiCourt in the case otCommissioner of Income-Tax vs.J.R. Subramanya Bhat- reported in(1986) O28taxman OS5S-as well as the ruling of the Co-ordinate|Bench of this Court in the case of!Mr. M. George|Joseph vs. Deputy Commissioner of Income TaxOfficer, Circle 12(2), BangaloreinITA No.238/2015(D.D. 12.07.2021)|}argued that as per Section o4F(1) ofthe Act, what was relevant for the authorities to.examine was whether the claim of the assessee comes|withineitherot threelimbsmentioned|therein.According to the assessee, his case would fall under thethird limb namely, has within a period of three yearsalter that date of transfer of any long term capital assetsconstructed, one residential house in India (new asset). The said provision being beneficial in nature, theauthorities ought to have interpreted the same liberallyto achieve the object of which benevolent provision isenacted. 5Learned counsel for the revenue argued thatsection o4F(1) of the Act contemplates that when theassessee 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 afterthat date constructed, a residential house in India, thebenefit of capital gain shall be allowed with inaccordance with Section 45 of the Act. Indisputedly, theassessee had purchased the land on 17.04.2010 notwithin a period of one year before the capital gain arisesfrom the transfer of any long term capital asset, assuch, the authorities have considered the claim of theassessee only relating to the construction of theresidential house denying the land costs purchasedprior to one year. Learned counsel made an endeavor to -6 -| distinguish the judgments relied upon by the learnedcounsel tor the assessee. | 6. We have carefully considered the arguments. advanced by the learned counsel appearing for theparties and perused the material on record. T |section 54F(1) of the Act reads thus:- S4F. Capital gain on transfer ofcertain capital assets not to be charged incase of investment in residential house.—(1) Subject to the provisions of sub-section (4),|where, in the case of an assessee being an)individual or a Hindu undivided family, thecapital gain arises from the transfer of anylong-term capital asset, not being a residentialhouse (hereafter in this section referred to asthe 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 threeyearsafterthat|dateconstructed,OTE|residential house in India (hereafter in this}section referred to as the new asset), the) a a capital gain shall be dealt with in accordancewith the following provisions of this section,|that is to say,— (a) u’ the cost of the new asset is notless than the net consideration in respectof the original asset, the whole of suchcapital gain shall not be charged undersection 45; (b) uf the cost of the new asset ts lessthan the net consideration in respect of theoriginal asset, so much of the capital gainas bears to the whole of the capital gainthe same proportion as the cost of the newasset bears to the net consideration, shall|not be charged under section 45: © 8.|In the caseot |C. Aryama Sundaram,SupTa, the Hon’ble High Court of Madras while dealing withsection 94 of the Act where the appellant - assesseebeing an individual having sold a residential houseproperty on 15.01.2010 had purchased the propertywith superstructure thereon and aiter demolishing theexisting superstructure, constructed a residential house -8 -| and claimed entire long term capital gain as exemptfrom tax under Section 54 of the Act. The AssessingOfficer allowed the benefit of Section 54F only to thepart of the construction expenditure denying the landcosts. Being unsuccessful before the First AppellateTribunal and the Income Tax Appellate Tribunal, theassessee preferred an appeal before the High Court ofMadras, which was admitted to consider the followingquestions of law:- When capital gain arises from saleof building and/or land appurtenant theretoand a residential house is constructed within|three years from the date of such sale, whether|the cost of the new asset, which ts eligible forset-off against capital gain, would include the|cost of the land, if such land had beenpurchased three years prior to sale of the|property from which capital gain arose? i) |Whether, in the computation of costof new asset contemplated in Section 54(1) of|the Income Tax Act, the cost of land can be) segregated from the cost of the constructed|house property?” When capital gain arises from saleof building and/or land appurtenant theretoand a residential house is constructed within|three years from the date of such sale, whether|the cost of the new asset, which ts eligible forset-off against capital gain, would include the|cost of the land, if such land had beenpurchased three years prior to sale of the|property from which capital gain arose? i) |Whether, in the computation of costof new asset contemplated in Section 54(1) of|the Income Tax Act, the cost of land can be) segregated from the cost of the constructed|house property?” OQ The substantial questions of law raisedherein is identical to the said substantial questions oflaw considered and answered by the Hon’ble High Courtof Madras. Having analyzed Section o4F of the Act inthe context of the factual aspects as aforesaid, it hasbeen held that it is not in dispute that the newresidential house has been constructed within the time|stipulated in Section 9o4(1) of the Act. It is not arequisite of Section 54 that construction could not havecommenced prior to the date of transfer of the assetresulting in capital gain. The condition precedent foradjustment against the cost of new asset is that the newresidential house should have been purchased withinone year before or two years after the transfer of theresidential house, which resulted in the capital gain oralternatively, a new _ residential house has’ beconstructed in India, within three years from the date of the transfer, which resulted in the capital gain. It hasbeen categorically held that the said Section does notexclude the cost of land from the cost of residential]house. I[t is the cost of the new residential house andnot just the cost of construction of the new residentialhouse, which necessarily include the cost of the land, itincludes, the cost of the materials used in the)construction, the cost of labour and any other costrelatable to the acquisition and/or construction of theresidential house. — This ruling is squarely applicable to the facts ofthe present case. — 1Q.|In the case ot|Mr. M. George Joseph,supra,the Co-ordinate Bench of this Court has observed that|exemption under Section 54 of the Act is dependent onthe date of acquisition of the property and not on thedate of payment made in respect of such property. It isalso noteworthy to mention that to claim an exemption under Section o4F of the Act, it is not necessary thatthe same sale consideration should be used for'construction of a new house property. Section 54 of theAct is a beneficial provision, which has been enactedwith an object to promote investment in housing andenable the assessee to save tax on capital gains. It iswell settled rule of interpretation that benevolentprovision should be interpreted liberally bearing in mindthe object for which the provision is enacted. 11.)In the case of.Shri. Lahar Singh Stroya vs. The Assistant Commissioner of Income-Tax1N|ITA|No.169/2010 (D.D. 15.12.2015),(where one of us.Hon’ble SSJ was a member), it has been observed thatproviding for short term and long term capital gains is abeneficial piece of legislation, whereby certain benefit intaxation is given to the assessee on fulfillment of certainconditions. Every such legislation is to be construed liberally in favour of the assessee, as it is for the benefitof the assessee. 12.In yet another coordinate bench decision inthe case ofCommissioner of Income —- Tax Us.Sambandam Udaykumar‘reported in(2012) 345 ITR|4!#, It has been held that the essence of Section 54F iswhether the assessee, who received capital gains hasinvested in a residential house. Even though theconstruction of a residential house is not complete in allrespects, but if it is demonstrated that the same hasbeen invested either in purchasing a residential houseor in construction of a residential house, the assesseecannot be disentitled from seeking the benefit. Theobject of enacting Section 54 of the Act is to encourageinvestmentin.the.residentialbuildingandthefulfillment of the same would make the assessee eligiblefor the benefits. _ liberally in favour of the assessee, as it is for the benefitof the assessee. 12.In yet another coordinate bench decision inthe case ofCommissioner of Income —- Tax Us.Sambandam Udaykumar‘reported in(2012) 345 ITR|4!#, It has been held that the essence of Section 54F iswhether the assessee, who received capital gains hasinvested in a residential house. Even though theconstruction of a residential house is not complete in allrespects, but if it is demonstrated that the same hasbeen invested either in purchasing a residential houseor in construction of a residential house, the assesseecannot be disentitled from seeking the benefit. Theobject of enacting Section 54 of the Act is to encourageinvestmentin.the.residentialbuildingandthefulfillment of the same would make the assessee eligiblefor the benefits. _ 13.)A reading of Section o4F of the Act in thelight of these judgments would make it clear that thethree limbs of Section 54F(1) namely, the capital gainarising from the transfer of any long term capital asset,not being an individual or a Hindu undivided tamily, |1) purchased within a period of one year prior to thedate of transfer of long term capital asset, 2) purchasedthe residential house within a period of two years afterthe date on which the transfer took place, 3)constructed one residential house in India within a'period of three years after the date of transfer, suchcapital gain arising on transfer of certain capital assets.not to be charged in case of investments in residentialhouse. The object of Section o4F is to encourageinvestment in the residential building and enable theassessee to save tax on capital gains. The aforesaidthree limbs of Section o4F(1) being different anddistinct, each limb has to be read as a whole separately.The three parts/limbs cannot be intermingled to deny - 14 -— the benefit of o4F(1) to the assessee. The thirdpart/limb being applicable to the facts of the case and itis not in dispute that the assesse has constructed theresidential building within three years from the date oftransfer of long standing asset, the benefit flowing fromthe said Section cannot be denied on the premise thatthe land was purchased prior to one year. In ouropinion, this interpretation of the revenue is whollyuntenable and would defeat the object and purport ofthe provision. The Tribunal has failed to appreciate thejudgment ofC. Aryama Sundaram,supra in a right|perspective. | 14.|It is trite that even if two plausible views arepossible, the view beneficial to the assessee has to beapplied. On technicalities, the benevolent provisioncannot be interpreted to deny the benefit to theaSSECSSFEC. | 15.For the reasons discussed above, we pass|the following PMR ORDER 0'The appeal is allowed. 00' Theimpugnedorderdated|21.12.9018passed in ITA No.453/Bang/2018 by theIncome Tax Appellate Tribunal, BengaluruBench‘A,Bengaluru,relatingTO theassessment year 2013-14 is set aside. 000' ThesubstantialquestionsoT|laware|answered in favour of the appellant —assessee and against the respondent —TEVENUC. SD/-JUDGE| SD/-JUDGE|