Vidya K Gaonkar, Mumbai vs Assessee

Per I.P. Bansal (JM):-

This appeal is filed by the assessee directed against the order passed by learned CIT(A) -35, Mumbai dated 6.8.2012 for A.Y. 2007-08.

2. The assessee sold a property situated at Airoli Plaza, Navi Mumbai on 27.2.2007 for a sum of Rs.28 lakhs on which capital gain was shown. She also purchased a flat at Pune for a sum of Rs. 15,59,060/- and claimed exemption u/s. 54 of the Income Tax Act. Title deed of purchase of the flat was registered on 9.3.2007. However, it was noticed by the Assessing Officer that the assessee made payment in respect of purchase of flat as under :-

3. The Assessing Officer observed that as per section 54, exemption can be allowed to the assessee if the assessee has within a period of one year before or two years after the date of which transfer took place purchased, or has within a period of three years after the date constructed, a residential house. Since the payments were made prior to one year from the date of sale of the impugned property, the Assessing Officer gave partial exemption u/s. 54 of the Act i.e. with respect to payments made within one year prior to the date of sale of the property and rest of the amount of Rs. 12,51,700/-was disallowed. Learned CIT(A) has confirmed the disallowance.

4. The assessee is aggrieved hence filed following grounds of appeal:-

Disallowance of exemption u/s. 54 -Rs. 12,51,700/-

The Id. CIT(A) erred in confirming the partial disallowance of exemption u/s.54 without appreciating that the registration for purchase of new flat was made in March, 2007 which had ensured complete transfer of title and possession, hence, denial of full exemption u/s. 54 on criteria of dates of payment amounts to non-consideration of material facts which is not justified and therefore, the full claim u/s. 54 may be allowed.

Without prejudice to above, the Id. CIT(A) failed to appreciate that the exemption provision of Sec. 54 is an incentive provision which should liberally be construed for its interpretation and application where the criteria of date of agreement and registration of new flat and its possession should be the determining factors for its grant; therefore, the Appellant's full claim of exemption may be allowed.

2. Levy of Penal Interests

The Appellant, on merits, denies her liability to penal interest.

5. After narrating the facts it was submitted by ld. AR that according to the provisions of section 54, the assessee is entitled to get exemption if the assessee has within a period of one year before the date on which transfer took place, purchase a residential house. It was submitted that the word 'purchase' cannot be interpreted to mean that the payments also should not be made before one year of the date on which transfer took place of the property which has been sold in lieu of which exemption is claimed. If the assessee has purchased a house within one year prior to the date of sale of the property in respect of which capital gain has arisen then exemption is allowable. To support such proposition ld.AR referred to the decision of Ho'ble Supreme Court in the case of CIT Vs. T.N. Arvinda Reddy (120 ITR 46), wherein their Lordships in the context of section 54 while interpreting the word "purchase" have observed that for applying section 54, there is no reason to divorce ordinary meaning of word 'purchase' as buying for a price or equivalent of a price by payment of kind or adjustment towards old debt or for other monetary consideration from the legal meaning of that word in section 54(1). It was submitted that in the case where such property is purchased towards adjustment of an old debts even then their Lordships have held that same would be tantamount to purchase. Thus, it was pleaded by ld. AR that exemption has wrongly been denied to the assessee.

6. Ld. AR further pleaded that according to the following decisions of Mumbai Tribunal, while applying section 54, it is not necessary that same funds be utilised for the purpose of another residential house and the only requirement is that the assessee should purchase another residential house within specified period.

20 SOT 468 (Mum-Trib) ACIT vs. Dr. P.S. Pasricha 130 TTJ 108 (Mum) Ishar Singh Chawla vs. CIT

He also referred to the decision of Hon'ble Delhi High Court in the case of CIT Vs. R.L. Sood (245 ITR 727) to contend that the date of payment for purchase is irrelevant while granting benefit u/s. 54. Ld. AR also referred to the following decisions to raise following contentions :-

"The object of section 54 is not to establish one to one correlation and source of funds.

Utilization of sale proceeds is not the criteria for granting exemption u/s. 54.

234 ITR 753 (All) CIT vs. H. K. Kapoor

Other decisions in support

130 lTD 230 (Mum) Dy. CIT vs. Chaturbhuj Vallabhdas

[2013] 33 taxmann.com 305/58 SOT 41 (Hyd.) Smt. Pushpa Devi Tirbrewala Vs. ITO : Held, that exemption claimed by assessee under section 54 cannot be denied on ground that assessee has not utilized sale consideration received from sale of flat itself, in purchasing a new residential house.

254 ITR 22 (Del) Balraj vs. CIT : Held, the Agreement for sale and entering into possession is sufficient for purchase of residential house. Therefore, the benefit u/s. 54 is allowable.

7. On the other hand, learned Departmental Representative relied upon the order passed by the Assessing Officer and learned CIT(A).

8. We have heard both the parties and their contentions have carefully been considered. The dispute in the present appeal is only with regard to a sum of Rs. 12,51,700/- which represent payments made by the assessee prior to one year from the date of transfer of the property, upon which long term capital gain has been computed. The Assessing Officer disallowed this amount only on the ground that the payments made by the assessee do not fall within the period of one year from the transfer of old property in respect of which long term capital gain exemption has been claimed. The question which has to be decided in the present appeal is as to whether or not the assessee is entitled to get exemption simply on the basis of title deed registered within a period of two years after the date on which old property was disposed of. In the present case old property has been disposed of on 27.2.2007 and new property has been purchased on 9.3.3007. The assessee has been making payments much prior to one year from the date of sale of the property. According to terms of section 54, the assessee is entitled to get exemption u/s. 54, if he has purchased the new property within one year before the date of transfer or two years after the date of transfer.

In otherwords, for purchase of new property two periods have been prescribed, one is - one year before the date of sale of the property in respect of which long term capital gain has arisen and other is - two years from the date of transfer of the property in respect of which capital gain has arisen. In the present case the assessee has purchased a new property within a month from the date of sale of the old property. Thus, it is the case of the assessee that she is entitled to get exemption u/s. 54 of the Act. Such exemption is denied to the assessee partially because payment of a sum of Rs. 12,51,700/- was made prior to one year from the date of transfer of the old property. We do not find any justification in such disallowance for the reason that according to the plain language of section 54, the assessee, has purchased a new property within one year prior to the date of transfer or two years after the date of transfer. It has already been mentioned that the assessee has purchased property within one month of the transfer of the old property. Interpretation done by the Assessing Officer and upheld by learned CIT(A) is contrary to the interpretation of section 54 explained by Hon'ble Supreme Court in the case of T.N.

Arvinda Reddy (supra). In the said case four brothers, who were members of a co-parcenary, partitioned their family properties, leaving in a common a large house in the occupation of their mother. The eldest, who was the respondent sold his own house at a price sufficient to attract handsome capital gains tax, but pre-empted the demand for tax by acquiring common house from his three brothers who executed three release deeds for a consideration of Rs. 33,000/- each, which were adjusted towards extra share agreed to be given to the eldest by next three. It was claimed that if those release deeds did amount to purchase of the house then section 54(1) would save the respondent from eligibility to tax. Thus, it was the case of the Revenue that whether release deeds executed by the sharers in favour of one of them whereby joint ownership of all became separate ownership of one amount to purchase of the house property within the meaning of section 54 of the Act. Hon'ble High Court held in favour of the assessee. On these facts their Lordships while interpreting word 'purchase' found place in section 54 have observed as under :-

"We find no reason to divorce the ordinary meaning of the word 'purchase" as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in s. 54(1). If you sell your house and make a profit, pay Caesar what is due to him. But if you buy or build another, subject to the conditions of s. 54(1), you are exempt. The purpose is plain; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on "cash and carry". The point pressed must, therefore, be negatived. We have declined to hear Sri S. T. Desai's artillery fire although he was armed cap a pie with Mitakshara lore and law. A point of suffocating scholarship sometimes arrives in Court when one nostalgically remembers the escapist verse !

"Where ignorance is bliss, 'Tis folly to be wise."

Amen ! A passing reference to avoidance and evasion of tax was made at the bar, a dubious refinement of a dated legal culture sanctified, though, by judicial dicta. The Court is not the mint of virtue and one day in our Welfare State geared to social justice, this clever concept of avoidance' against 'evasion' may have to be exposed. Enough unto the day is the evil thereof."

9. It can be seen from the above observations that the word 'purchase' has to be interpreted as buying for a price or equivalent for a price by payment of kind or adjustment towards an old debt or for other monetary consideration from legal meaning of that word in section 54(1). In the present case the assessee has already made advance payment with respect to flat for which title was got by the assessee within one month from the date of sale of the old property. Thus assessee cannot be held to be disentitled for exemption of the amount which has been paid even prior to one year from the date of transfer of the old property. Accordingly we direct the Assessing Officer to delete the disallowance of ` 12,51,700/- and ground No. 1 of the assessee is allowed.

10. Apropos ground No. 2, levy of interest u/s. 234A, 234B & C are consequential and directed to be recomputed after giving effect to this order.

11. In the result, appeal filed by the assessee is allowed in the manner aforesaid.

Order pronounced on 25th Day of March 2015.

Sd/-

(RAJENDRA) ACCOUNTANT MEMBER

Sd/-

(I.P. BANSAL) JUDICIAL MEMBER

Mumbai; Dated : 25/3/2015

Copy of the Order forwarded to :

The Appellant The Respondent The CIT(A) CIT DR, ITAT, Mumbai Guard File.

BY ORDER,

//True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai PS

S.No. Description Date Intls

1 Shorthand script attached yes

2 Draft dictated on 16.3.2015

Sr.P.S./P.S 3 Draft placed before author 17.3.2015

Sr.P.S/PS 4 Draft proposed & placed before the second Member

JM/AM 5 Draft discussed/approved by second Member

JM/AM 6 Approved Draft comes to the Sr.P.S./PS

Sr.P.S./P.S

7.

Kept for pronouncement on .3.2015

Sr. P.S./P.S.

8. File sent to the Bench Clerk .3.2015

Sr.P.S./P.S 9 Date on which file goes to the Head Clerk

10 Date of Dispatch of order

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Vidya K. Gaonkar