Vinod Kumar Jain v. Commissioner Of Income Tax, Ludhiana And Others

ITA No. 140 of 2000 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 140 of 2000 Date of Decision: 24.9.2010 Vinod Kumar Jain ....Appellant. Versus Commissioner of Income Tax, Ludhiana and others ...Respondents. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. S.S. Narula, Advocate for the assessee-appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal under Section 260A of the Income-tax Act,1961 (for short “the Act”) has been filed by the assessee against theorder dated 14.3.2000, passed by the Income Tax Appellate Tribunal,Chandigarh Bench (SMC) Chandigarh, (in short “the Tribunal”) in ITANo. 1928/Chandi/92, for the assessment year 1989-90. 2.Facts as narrated in the appeal are that the assessee filedits return for the assessment year 1989-90 wherein a note had beengiven by him that capital gains on account of sale of residential flat inNew Delhi were exempt from tax. The assessing officer asked for thedetails and reasons from the assessee for claiming exemption. It wasalso sought to be furnished as to when the possession of the flat that had been sold on 6.1.1989, had been handed over to him. Theassessee furnished the desired information and documents, includingthe copy of allotment letter besides stating that he was entitled toexemption as per the provisions of Section 2(29A) of the Act. Theassessee had claimed that he purchased another flat at New Delhi on31.1.1989, for Rs.3,80,000/-, and as such the capital gains wereexempted from tax. It was pointed out by the assessing officer that theassessee was allotted a flat No. 73 on 12.3.1986 in category-II underthe Wazirpur Phase-III-Residential Scheme of DDA. The cost of the flatwas Rs.1,49,060/- which was sold by him on 6.1.1989 for a sum ofRs.2,25,000/- and as such, there was a capital gain of Rs.75,940/-.The assessing officer observed that the assessee had claimedexemption under the provisions of Section 2(29A) of the Act which dealswith the matters of long term capital gain but he could not have thebenefit of the said provisions as his case fell under the category of shortterm capital gain and was governed by the provisions of Section 2(42A).It was on this basis the assessing officer did not exempt the long termcapital gain and disallowed the deduction claimed by the appellant-assessee. 3.The assessee filed appeal challenging the order of theassessing officer before the Commissioner of Income-tax (Appeals) [inshort “CIT (A))”] and raised all pleas stating that the assessee appliedfor registration under the aforesaid scheme on 7.3.1981 and pursuant tothe registration, flat was allotted on 27.2.1982. It was submitted furtherthat as per allotment letter, the first instalment was to be paid on30.3.1982 and all instalments were paid up to 31.3.1987. The 3.The assessee filed appeal challenging the order of theassessing officer before the Commissioner of Income-tax (Appeals) [inshort “CIT (A))”] and raised all pleas stating that the assessee appliedfor registration under the aforesaid scheme on 7.3.1981 and pursuant tothe registration, flat was allotted on 27.2.1982. It was submitted furtherthat as per allotment letter, the first instalment was to be paid on30.3.1982 and all instalments were paid up to 31.3.1987. The possession of the flat was taken by the appellant-assessee which wassold on 6.1.1989 by means of special power of attorney. It was furthersought to be contended before the appellate authority that the assesseewas allotted the flat on 27.2.1982 and on the date the allotment letterwas issued, he became absolute owner of the property, and as per thecircular of the Board of Direct Taxes, bearing No. 471 dated15.10.1986, which provides that if the sale is made through specialpower of attorney the same was permissible and as such the sale of theflat under reference made after a period of 36 months, was a long termcapital gain and exempted from tax under Section 2(29A) of the Act. Itwas further urged before the CIT (A) that the assessing officer hadincorporated wrong provisions and given reference of the secondallotment letter dated 15.5.1986. The CIT (A) partly accepted theappeal vide order dated 7.9.1992, Annexure A-4 and also took a viewthat the flat was allotted on 15.5.1986 and as such the same remainedwith the assessee for less than 36 months and was, thus, not exemptedas per the provisions of the Act. 4.The assessee carried the matter in appeal before theTribunal and all contentions that were raised before the assessingofficer and the CIT (A) were also raised therein. The pleas of theassessee did not find favour with the Tribunal as well. It was observedthat the flat was allotted on 15.5.1986 and the letter issued in that behalfindicated the flat number and it called upon the assessee- allottee todeposit the balance amount. The appeal was consequently dismissedby the Tribunal, vide order dated 14.3.2000. 5.On the strength of the above facts and circumstances, the assessee raised the following substantial question of law foradjudication by this Court: “Whether on the facts and circumstances of thepresent case and the provisions of Section 2(29A)and Section 2(42A) read with section 54 of theIncome Tax Act, the flat allotted to the appellant videallotment letter dated 27.2.1982 is a long term capitalgain and further the investing of that amount for thepurchase of another house is exempted under theprovisions of Income Tax Act, 1961?” 6.We have heard learned counsel for the parties and haveperused the record. 7.The sole point for consideration in this case is, whether thecapital gain arising on allotment of flat under the scheme of the DDA on27.2.1982 of which actual flat number and delivery of possession tookplace on 15.5.1986 and the flat having been sold on 6.1.1989, was along term capital gain; and consequently, whether the assessee wasentitled to set off the same under Section 54 of the Act. 8.The assessee relied upon judgment of this Court inCommissioner of Income Tax v. Ved Parkash and sons (HUF),(1994) 207 ITR 148 (P&H) and Circular No. 471 dated 15.10.1986 [162ITR (st.) 41] to contend that allottee gets title to the property with theissuance of allotment letter and payment of instalments is only a follow-up action and taking of the delivery of possession is only a formality andno right as such accrues thereon. According to the assessee, thetransaction stood completed on 27.2.1982 and the flat having been sold 8.The assessee relied upon judgment of this Court inCommissioner of Income Tax v. Ved Parkash and sons (HUF),(1994) 207 ITR 148 (P&H) and Circular No. 471 dated 15.10.1986 [162ITR (st.) 41] to contend that allottee gets title to the property with theissuance of allotment letter and payment of instalments is only a follow-up action and taking of the delivery of possession is only a formality andno right as such accrues thereon. According to the assessee, thetransaction stood completed on 27.2.1982 and the flat having been sold on 6.1.1989, the same amounted to long term capital gains and benefitof Section 54 was available to the assessee. The counsel further reliedupon the provisions of Section 2(42A) of the Act to contend that it washolding of the property and not the ownership of the property that wasgermane for determination of the question regarding long term capitalgains and since the assessee had held the flat for approximately sevenyears, he was entitled to adjustment of long term capital gains underSection 54 of the Act in respect of the property purchased by him.Learned counsel for the revenue, with the aid of judgment inCommissioner of Income Tax v. Smt. Beena K. Jain, [1996] 217 ITR363 (Bom) supported the order of the Tribunal. 9.We have given our thoughtful consideration to the entirematter and find force in the submission of learned counsel for theassessee. 10.Before delving on the controversy involved herein, it wouldbe apposite to refer to relevant statutory provisions. 11.Section 2(14) defines capital asset. Under Section 2(29A)long term capital asset is one which is not a short term capital asset.According to Section 2(42A) short term capital asset at the relevant timemeant, a capital asset held by an assessee for not more than thirty-sixmonths immediately preceding the date of its transfer. A conjointreading of aforesaid provisions leads to one conclusion that a capitalasset which is held by the assessee for 36 months would be termed asa long term capital asset and any gain arising on account of sale thereofwould constitute long term capital gain. 12.It would also be advantageous to refer to Circular No. 471 dated 15.10.1996 [162 ITR (st.) 41] issued by CBDT on which heavyreliance has been placed by the assessee whereby instructions havebeen issued regarding treatment of capital gains tax in case of a flatpurchased under Self-Financing Scheme. It reads thus:- “CIRCULAR NO. 471 Capital gains tax- Whether investment in a flat underthe Self-Financing Scheme of the Delhi DevelopmentAuthority would be construction for the purpose ofss.54 and 54F of the IT Act, 1961. 15/10/1986 CAPITAL GAINS SECTIONS 54, 54F. Secs. 54 and 54F of the IT Act, 1961, provide thatcapital gains arising on transfer of a long-term capitalasset shall not be charged to tax to the extentspecified therein, where the amount of capital gain isinvested in a residential house. In the case ofpurchase of a house, the benefit is available if theinvestment is made within a period of one yearbefore or after the date on which the transfer tookplace and in case of construction of a house, thebenefit is available if the investment is made withinthree years from the date of transfer. 2.The Board had occasion to examine as towhether the acquisition of a flat by an allottee underthe Self-Financing Scheme of the Delhi Development 15/10/1986 CAPITAL GAINS SECTIONS 54, 54F. Secs. 54 and 54F of the IT Act, 1961, provide thatcapital gains arising on transfer of a long-term capitalasset shall not be charged to tax to the extentspecified therein, where the amount of capital gain isinvested in a residential house. In the case ofpurchase of a house, the benefit is available if theinvestment is made within a period of one yearbefore or after the date on which the transfer tookplace and in case of construction of a house, thebenefit is available if the investment is made withinthree years from the date of transfer. 2.The Board had occasion to examine as towhether the acquisition of a flat by an allottee underthe Self-Financing Scheme of the Delhi Development Authority amounts to purchase or its construction bythe Delhi Development Authority on behalf of theallottee. Under the Self-Financing Scheme of theDelhi Development Authority the allotment letter isissued on payment of the first instalment of the costof construction. The allotment is final unless it iscancelled or the allottee withdraws from theScheme. The allotment is cancelled only underexceptional circumstances. The allottee gets title tothe property on the issuance of the allotment letterand the payment of instalments is only a follow-upaction and taking the delivery of possession is only aformality. If there is a failure on the part of the DelhiDevelopment Authority to deliver the possession ofthe flat after completing the construction, the remedyfor the allottee is to file a suit for recovery ofpossession. 3.The Board have been advised that under theabove circumstances, the inference that can bedrawn is that the Delhi Development Authority takesup the construction work on behalf of the allottee andthat the transaction involved is not a sale. Under theScheme, the tentative cost of construction is alreadydetermined and the Delhi Development Authorityfacilitates the payment of the cost of construction ininstalments subject to the conditions that the allottee has to bear the increase, if any, in the cost of theconstruction. Therefore, for the purpose of capitalgains tax, the cost of the new asset is tentative costof construction and the fact that the amount wasallowed to be paid in instalments does not affect thelegal position stated above. In view of these facts, ithas been decided that cases of allotment of flatsunder the Self-Financing Scheme of the DelhiDevelopment Authority shall be treated as cases ofconstruction for the purpose of capital gains.” 13.On careful reading of the Circular issued by the Board, para2 thereof describes the nature of right that an allottee acquires onallotment of flat under Self-Financing Scheme. According to it, theallottee gets title to the property on the issuance of an allotment letterand the payment of instalments is only a consequential action uponwhich the delivery of possession flows. 14.The next issue is the meaning to be assigned to the word“held” occurring in Section 2(42A) of the Act. A Division Bench of thisCourt in Ved Prakash's case (supra) while interpreting the provisionsof Section 2(42A) of the Act elaborated the expression “held by anassessee”, in the following words:- “As is clear from a bare reading of section 2(42A) ofthe Act, the word “owner” has designedly not beenused by the Legislature. The word “hold”, as perdictionary meaning, means to possess, be the owner,holder or tenant of (property, stock, land ....). Thus, a 14.The next issue is the meaning to be assigned to the word“held” occurring in Section 2(42A) of the Act. A Division Bench of thisCourt in Ved Prakash's case (supra) while interpreting the provisionsof Section 2(42A) of the Act elaborated the expression “held by anassessee”, in the following words:- “As is clear from a bare reading of section 2(42A) ofthe Act, the word “owner” has designedly not beenused by the Legislature. The word “hold”, as perdictionary meaning, means to possess, be the owner,holder or tenant of (property, stock, land ....). Thus, a person can be said to be holding the property as anowner, as a lessee, as a mortgagee or on account ofpart performance of an agreement, etc. Conversely,all such other persons who may be termed aslessees, mortgagees with possession or persons inpossession as part performance of the contractwould not in strict parlance come within the purviewof “owner”. As per the Shorter Oxford Dictionary.Edition 1985, “owner” means one who owns or holdssomething; one who has the right to claim title to athing.” 15.Now adverting to the case law relied upon by learnedcounsel for the revenue, reference is made to Smt. Beena K. Jain'scase (supra). The assessee therein had sold office premises on23.7.1987 which had resulted in long term capital gain. Prior thereto,the assessee had entered into an agreement for purchase of aresidential flat vide agreement dated 4.9.1985 which was registered on27.10.1985. The construction of the flat was finally completed in July,1988 and assessee was put in possession on 30.7.1988. The claim ofthe assessee under Section 54F of the Act was upheld by the Tribunal.Aggrieved, the department had approached the High Court and thepetition of the department was dismissed and the issue was decided infavour of the assessee. The said pronouncement does not help therevenue. 16.In view of the above, it is concluded that the provisions ofSections 2(14), 2(29A) and 2(42A) encompasses within its ambit those ITA No. 140 of 2000 cases of capital asset which are held by an assessee. Once that is so,adverting to the facts of the present case, the assessee was allotted flaton 27.2.1982 on payment of instalments by issuance of an allotmentletter and he had been making payment in terms thereof but the specificnumber of the flat was allocated to the assessee and possessiondelivered on 15.5.1986. The right of the assessee prior to 15.5.1986was a right in the property. In such a situation, it cannot be held thatprior to the said date, the assessee was not holding the flat. 17.Accordingly, the substantial question of law proposed bythe assessee is answered in favour of the assessee and against therevenue. 18.Consequently, the appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE September 24, 2010gbs (ADARSH KUMAR GOEL)JUDGE