Tnree Years, Then The Unutilized Amount Snail Not Be Liable. To Tax Under Section 45 Of The Act. ~ v. Commissioner Of Income Tax Reported In (2009) 317 Itr 332

R IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18 DAY OF JULY, 2019 BEFORE. THE HON’BLE MRS .JUSTICE S.SUJATHA -WRIT PETITION No.13541/2018 (TIT) BETWEEN: PROF. P.N.SHETTY ~S/O LATE NARAYANA SHETTYAGED ABOUT 7/9 YEARS204-B, SAI RADHA PALACEBRAHMAGIRI, UDUPI-5/76103.. PETITIONER. {BY SRI P.N.SHETTY, PARTY — IN — PERSON.| AND:| OFFICE OF THE INCOME TAX OFFICER|WARD-1, AYAKARABHAVAN,ADI UDUPI, AMBALPADY |UDUPI-5 7/610REP. BY INCOME TAX OFFICER, WARD-1_ RESPONDENT [BY SRI K.V.ARVIND, ADV.] THIS WRIT PETITION IS FILED UNDER ARTICLE 226 R/W|ARTICLES 14 AND 300A OF THE CONSTITUTION OF INDIA,|PRAYING TO ORDER THE RESPONDENT TO SUBMIT WHATEVER|DEMAND HE HAS AGAINST ME UNDER OATH BEFORE THE|HONOURABLE COURT. THIS PETITION HAVING BEEN HEARD AND RESERVED, IS COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE)COURT PASSED THE FOLLOWING: ORDER The petitioner has claimed the following reliefs: adOrder the respondent to submit hisclaim meade in Annexure-Al to theMemorandum of writ petition underoath before Hon’ble Court. claim meade in Annexure-Al to theMemorandum of writ petition underoath before Hon’ble Court. b.OrdertherespondenttodDDIOovepetitioner's.application|InForm-Gsubmitted in the year 2015 and stopharassing the petitioner forthwith if therespondentcannotestablishthelegitimacy of tne claim in Annexure Alto the Memoranaum of writ petition.petitioner's.application|InForm-Gsubmitted in the year 2015 and stopharassing the petitioner forthwith if therespondentcannotestablishthelegitimacy of tne claim in Annexure Alto the Memoranaum of writ petition. CcOrder the respondent to pay thepetitioner exemplary compensation asmay be decided by the Hon’bie Court,for the damage and losses caused totne petitioner alreaay.petitioner exemplary compensation asmay be decided by the Hon’bie Court,for the damage and losses caused totne petitioner alreaay. d.Allow tne writ petition with cost andsuch other relief/s as the Hon’ble Court.may deem appropriate. —such other relief/s as the Hon’ble Court.may deem appropriate. — 2.|Tne petitioner has filed return of incomerelating to the assessment year 2016-2017. On verificationof the same, snow-cause notice under Section 142(3) ofthe Income Tax Act 1961 (for short ‘the Act’) dated28.2.2018 has been issued to subject the proportionate|unutilised deposit in capital gain account scheme, of -3- Rs.91,89,609/- to taxation as the income of the petitionerfor the assessment year 2016-17. Being aggrieved by tne.same, the petitioner is before this court. cmThe petitioner had sold two properties 1.e., 1)Land in 61-C, Marthahali, ITI Employees|Housing Society Layout, Bangalore 560)056 in May 2012 for Rs.1,19,20,000/-Housing Society Layout, Bangalore 560)056 in May 2012 for Rs.1,19,20,000/- 2)Land situated in Yerlapdy, Udupi in)January 2013 for Rs.4,00,000/-.January 2013 for Rs.4,00,000/-. 4Outof.theaforesaidsaleconsideration amount, Rs.1,15,00,000/- was deposited by the petitioner|in the Capital Gain Account Scheme, 1988, with Syndicate|Bank, Branmagiri Branch, Udupi and Vijaya Bank Main)Brancn, Udupi. Tne return of income for the Assessment|year 2013-14 was filed on 14.7.2013 and exemption was.claimed under Section 54F of the Act. In the meantime,|the petitioner had purchased a flat for Rs.21,32,470/-.(including stamp duty and registration) on 20.08.2013)before the expiry of three years from the date of thetransfer of the capital asset. The revenue issued the notice| -4- impugned, to Dring the unutilized capital gain to tax as per)Section 54 F(4) of the Act. In other words, the unutilized.amount(Rs.1,15,00,000.Rs.21,32,470deductingexemption) after the expiry of three years from the date oftransfer of the original capital is proposed to be subjectedto tax under Section 45 of the Act. -4- impugned, to Dring the unutilized capital gain to tax as per)Section 54 F(4) of the Act. In other words, the unutilized.amount(Rs.1,15,00,000.Rs.21,32,470deductingexemption) after the expiry of three years from the date oftransfer of the original capital is proposed to be subjectedto tax under Section 45 of the Act. 5.The petitioner argued that the scope of Section54F(4) of the Act and the proviso thereof is not properly|appreciated by the respondent. The petitioner naddeposited tne sale consideration received on transfer ofcertain capital assets in the capital gain account scheme,with the bankers and utilized Rs.21,32,4/0/- out of|Rs.1,15,00,000/- capital gain amount deposited which|squarely falls under the proviso to section 54F(4) of the.Act. The respondent failed to interpret the phrase *whollyor partlyenumerated in the proviso in aée rightperspective. According to the petitioner, the amount.deposited under Section 54F (4) of the Act if utilized partly|for the purchase or construction of the new asset within. tnree years, then the unutilized amount snail not be liable.to tax under Section 45 of the Act. ~ 6.|Learned counsel Sri. K.V.Aravind appearing forthe Revenue justifying the impugned notice submitted that.the reasoning of the respondent is in conformity with |Section 54F(4) of the Act and the proviso thereof. It was_submitted that the amount of capital gain unutilized underSection 54F(4) of the Act has to be charged under Section.45 of the Act as income of the previous year after theexpiry of three years from the date of the sale of the.capital asset. In support of his contentions, reliance wasplaced on tne ruling of the High Court of Allanabad in thecase of.Ranjit Narang Vs. Commissioner of Income|Tax reported in (2009) 317 ITR 332. J |The epicenter of the case revolves around theinterpretation of Section 54F(4) of the Act and the provisothereof more particularly, the interpretation of the phraseJwholly or partly“employed in the proviso. | -6- 8. Section 54F(4) of the Act and the proviso reads tnus: “54F(4) - The amount of the net considerationwhicn is not appropriated by tne assesseetowards the purchase of the new asset madewithin one year before the date on which tnetransfer of the original asset took place, orwhich is not utilised by him for the purchase orconstruction of the new asset before the date|of furnishing the return of income undersection 139, shall be deposited by him beforefurnishing sucn return |suchn deposit beingmade in any case not later than the due dateapplicable in tne case of the assessee forfurnishing the return of income under sub-section (1) of section 139] in an account in anysuch bank or institution as may be specified in,and utilised in accordance with, any scnemeWNhIcntneCentral]GovernmentMay,DYnotification in the Official Gazette, frame in thisbehalf and such return shall be accompaniedby proof of such deposit ; and, for thepurposes of sub-section (1), the amount, ifany, already utilized by the assessee for thepurcnase or construction of the new asset -~Tf- together with the amount so deposited snail bedeemed to be the cost of the new asset: | Provided that if the amount deposited underthis sub-section is not. utilizedwholly orpartlyfor the purcnase or construction of thenew asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arisingfrom the transfer of the original asset notcharged under section 45 on the basis ofthe cost of the new asset as provided inclause (a) or, as the case may be, clause(b) of sub-section (1), exceeds (bp) the amount that would not have beenSO charged nad the amount actuallyutilized by the assessee for the purchaseor construction of the new asset withinthe period specified in sub-section (1)been the cost of the new asset, shall be charged under section 45 asincome of the previous year in which theperiod of three years from the date ofthe transfer of the original asset expires" and -8- (a) the amount of capital gain arisingfrom the transfer of the original asset notcharged under section 45 on the basis ofthe cost of the new asset as provided inclause (a) or, as the case may be, clause(b) of sub-section (1), exceeds (bp) the amount that would not have beenSO charged nad the amount actuallyutilized by the assessee for the purchaseor construction of the new asset withinthe period specified in sub-section (1)been the cost of the new asset, shall be charged under section 45 asincome of the previous year in which theperiod of three years from the date ofthe transfer of the original asset expires" and -8- (ii) the assessee shall be entitled towithdraw|the.unutilizedaMOoOunIn,accordance with the scheme aforesaid.(empnasis supplied) Q.Tne issue involved herein is similar to tne!subject matter of the case|R.S.Sharma Vs. Income Tax| Officer, Bangaloreconsidered by tnis Court inILA NO.2223/2009This Court placing reliance on the judgment otf tnis Court in tne case of.CIT Vs. Knhoobchand M,Maknija (2014) 223 ITR 189observed tnat when tne|statute prescribes expressly when the capital gain is to be)offered to tax, it shall be treated accordingly. If the saidamount is deposited in a Nationalized Bank as required|under law, in capital gain account tne deposit is construed|as investment in new asset. Subsequently, if the amount.deposited is not utilized, tne entire capital gain or the)unutilized capital gain chargeable under Section 45 of theAct is to be offered for tax only in the previous year in)which the period of three years from the date of transfer ofthe original asset expires. -9Q- 10.It|ISacesirableCO excerpt|tnerelevant|paragrapn ot Ranjit Narang,supra, whicn reads tnus: | “ 10. From a plain reading of section 54F of theAct we are of the considered opinion that theamount of capital gains which has not been.utilized under Section 54F has to be cnargedunder Section 45 as income of the previousyear, after the expiry of three years from thedate of sale of the asset which in the present:case is for the assessment year 1993-94.”| 11.In the light of the said judgments, it is cleartnat sub-Section(4) of Section 54F of the Act contemplates|the Assessment year in which the liability of the assesseeto offer the unutilized capital gain would arise. Tne pnrase|‘wholly or partly’ employed in Section 54F/4] is in|partmateriawith Section 54(2), 54 B(2) of the Act. Section|54(1) of the Act reads thus:| "54 (1) - Subject to the provisions of sub-section (2), where, in the case of an assesse beingan individual or a Hindu undivided family], thecapital gain arises from the transfer of a long-term|capital asset, XXxXxXXxX -10 - | (2) The amount of the capital gain which is notappropriated by the assessee towards the purchaseof the new asset made within one year before the|date on which the transfer of the original asset tookplace, or which is not utilised by him for thepurcnase or construction of the new asset before thedate of furnishing the return of income under section139, shall be deposited by him before furnishingsucn return |Ssucn deposit being made in any casenot later than the due date applicable in the case ofthe assessee for furnisning the return of incomeunder sub-section (1) of section 139] in an accountin any such bank or institution as may be specifiedin, and utilised in accordance with, any schemewhich the Central Government may, by notificationin the Official Gazette, frame in this behalf and suchreturn shall be accompanied by proof of suchdeposit; and, for the purposes of sub-section (1), theamount, if any, already utilized by the assessee forthe purchase or construction of the new assettogether with tne amount so deposited shall bedeemed to be the cost of the new asset :Provided that if the amount deposited under thissub-section is not utilized.wholly or partlyfor tnepurcnase or construction of the new asset witnin theperiod specified in sub-section (1), then,— -|]]-| -|]]-| (i) the amount not so utilized shall be chargedunder section 45 as the income of the previous.year in which the period of three years from.the date of the transfer of the original assetexpires; and (ii) the assessee shall be entitied to withdraw.SUCN amount in accordance with tne|scheme aforesaid. SUCN amount in accordance with tne| 54-B (2)The amount of the capital gain which is notutilized by the assessee for the purchase of the newasset pDefore tne date of furnishing the return ofincome under section 139, shall De deposited by nimbefore furnishing such return [such deposit beingmade in any case not later than tne due date|applicable in the case of the assessee for furnishingthe return of income under sub-section (1) ofsection 139] in an account in any such bank orinstitution as may be specified in, and utilized inaccordance with, any scneme wnichn tne CentralGovernment may, by notification in the OfficialGazette, frame in this Dehalf and such return snall beaccompanied by proof of such deposit; and, for thepurposes of sub-section (1), the amount, if any,already utilized by the assessee for the purchase ofthe new asset together with the amount so depositedShall be deemed to be the cost of the new asset: Provided that if the amount deposited under thissub-section is not utilized.wholly or partlyfor tnepurchase of the new asset within the period specifiedin sub-section (1),then,— (i) the amount not so utilised shall be charged undersection 45 as the income of the previous year in -10-| which the period of two years from the date of the)transfer of the original asset expires; and (ii) the assessee Shall be entitled to withdraw sucn.amount in accordance with the scheme aforesaid. 12.|A reading of these provisions makes it clearthat the assessee is provided with the benefit of paymentof tax of capital gains either py purcnasing a house or.constructing a house within the specified period providedas per Section 54 F(1). Section 54F|4] do not waive of tne.payment of tax under Section 45 if the amount deposited|under tne said section !Is not utilizedwholly or partlyforthe purchase or construction of the new asset. The words.employed in tne proviso are“not utilized wholly or|partly|not|~Utilized wholly or partly”, the negationclause ‘not’ in the construction of the sentence makes thedifference. The interpretation suggested py the petitioner.would have been countenanced if the language employedIS‘utilised wholly or partly’For eg., If the amount.deposited under Section 54 F(4) is Rupees one crore in the.capital gain account scheme, an amount of Rupees Fortylakhs is utilized for the purchase of the new asset, -13-| unutilized amount would be Rupees Sixty lakns. ‘Not:utilised partly applies to the said Sixty lakns. The)reasonable interpretation is ‘not utilized partly means the)Dalance amount available in the capital gain deposit)scheme after the expiry of the period of three years fromtne date of the transfer of the original asset. 13.)The phrase “not utilized wholly or partly” refersto two eventualities. In the aforesaid given example, (i).the entire amount of Rupees one crore — not utilized wholly(ii) un-utiiized amount of Rupees Sixty lakns remaining in|tne capital gain deposit account. Then, the consequences—set out therein follows. Tne unutilized income of Rupees.Sixty Lakhs shall be liable to tax under Section 45 of theAct after tne expiry of period of three years from the date.of transfer of the capital asset. 14.Tne purposive interpretation nas to be given to.the provision to achieve the object of the Act. To ascertaintne intention of the legisiature, the provision nas to be.read asa wnole not In Isolation. -1]4-. 1L5.It is apt to refer to.S.Sundaram Pillai etc.,| V/s. V.R.Pattabiraman[1]wherein, scope of proviso Is. analysed. Tne Hon bile Apex Court has held thus: 14.Tne purposive interpretation nas to be given to.the provision to achieve the object of the Act. To ascertaintne intention of the legisiature, the provision nas to be.read asa wnole not In Isolation. -1]4-. 1L5.It is apt to refer to.S.Sundaram Pillai etc.,| V/s. V.R.Pattabiraman[1]wherein, scope of proviso Is. analysed. Tne Hon bile Apex Court has held thus: ‘A proviso may nave three separatefunctions. Normally, a proviso is meant to bean exception to something witnin tne mainenactment or to qualify something enactedtherein which but for the proviso would bewithin the purview of the enactment. In otherwords, a proviso cannot be torn apart from themain enactment nor can it be used to nullify orset at naugnt tne real object of the mainenactment. While interpreting a proviso caremust be taken tnat it is used to remove specialcases from the general enactment and provideforthemseparately.|Inshort,generally speaking, a proviso is intended to timit theenacted provision so as to except somethingwhich would nave otnerwise been witnin it orin some measure to modify the enactingclause. SometimesadDrovisoINdybe|embedded in the main provision and becomesan integral part of it so as to amount to asubstantive provision itself. | To sum up, a proviso may serve fourdifferent purpose: 1]|gualifying|Or>exceptingcertain-provisions from he main enactment; 2]it may entirely cnange the very.concept or the intendment of the enactmentby insisting on certain mandatory conditions to -15-| be fulfilled itn order to make the enactmentworktabie; 3]it may be so embedded in the Act|itself as to become an integral part of theenactment and thus acquire tne tenor andcolour of the substantive enactment itself; and 4 |it may be used merely to act as an)optional addenda to the enactment with thesole object of explaining the real intendment oftne statutory provision. [Case law discussed. |” 16.In.State of West Bengal V/s. Union of India[2], the Hon ble Apex Court nas neid tnus: “The Court must ascertain the intentionof the Legislature by directing its attention notmerely to the clauses to be construed but tothe entire statute; it must compare the clausewith tne other parts of the law, and the settingin wnich the clause to be interpreted occurs.” 1/.In.Reserve Bank of India V/s. Peerless| General Finance and Investment Co. Ltd.[3]$the Hon ble Apex Court has held thus: 7Interpretation must depend on the text and thecontext. They are the bases of interpretation.One may well say if tne text is the texture,context is wnat gives tne colour. Neither can beignored. Both are important. That interpretationis best whicn makes tne textua/ interpretation 2MANU/SC/0086/1 96: [(1964) 1 SCR 371] 311987| 2SCRI1 -16-| matchtne|contextual.AAStatuteIS.bestinterpreted wnen we Know why it was enacted.With this Knowleage, the statute must be read,first as a wnole and then section by section,clause by clause, pnrase by pnrase and word byword. If a statute is looked at, in the context ofits enactment, with the glasses of the statutemaker, provided by sucn context, its scneme,.the sections, clauses, phrases and words maytake colour and appear different than when thestatute is looked at without the glasses providedby tne context. With these glasses we must lookat the Act as a whole and discover whet each|section, eacn clause, eacn pnrase and eacn wordis meant and designed to say as to fit into thescneme of the entire Act. No part of a statuteand no word of a statute can be construed In|Isolation. Statutes Nave to be construed so thet|every word has a place and everything Is in itsplace... 18.In the light of the aforesaid judgments, it isclear that the proviso appended to Section 58/4 ||[f] Nas tbe read as a whole along witn the Clauses [a] and |D].therein which would explain the real intendment of the)pnrase “not utilized wholly or partly”. In the context, the)proviso to Section 54 F[4] becomes an integral part of theenactment acquiring the tenor and colour of the main.provision. To make the provision workable, the arguments|of the petitioner that the Clauses [a] and [b] of the proviso| -1/-| need not be addressed to, cannot be countenanced for the)reasons aforesaid. Tnus, it can be neld that on reading of tneprovision as a whole along with Clauses ja] and |b] to tne)proviso, the intention of tne Legislature would be gathered|tnat the unutilized capital gain amount under Section 54 F/4].nas to be charged under Section 45 as income of tne:previous year, after the expiry of three years from the dateof sale of the capital asset wnich in the present case is the.assessment year 2016-17, 19.In the circumstances, the assessee is entitied to the withdrawal of the amount deposited under Sub-Section (4)of Section 54F of the Act under tne capital gain account subject|to deduction of tax applicable to the case on hand. Therespondent shall consider the petitioner’s application in Form-G submitted in terms of the observations made hereinabove. | With the aforesaid observations and directions, writpetition stands disposed of. Dvr/PMR/NC | Sd/-.JUDGE