Income Tax – Section 54F. – Whether in the absence of completion and possession by way of registration and transfer of its title of flats booked by the assessee on the date of transfer of original capital asset, the income from House Property could be assessed – Whether any payment made towards acquisition of a new residential house by way of making payment in advance even by booking or by paying installments within the prescribed has to be treated as investment towards purchase/construction of a new house.
*IN THE INCOME TAX APPELALTE TRIBUNALJAIPUR BENCH, JAIPUR*
*ITA No.182/JP/2013Assessment Year: 2009-10*
*RAM PRAKASH MIYAN BAZAZS-225, MAHAVEER NAGARTONK ROAD, JAIPURPAN NO:ABHPP9332J*
*DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-6, JAIPUR*
*Income Tax – Section 54F.Keywords: capital gains, long term capital gain, capital asset, income from house property, investment in residential house. Whether in the absence of completion and possession by way of registration and transfer of its title of flats booked by the assessee on the date of transfer of original capital asset, the income from House Property could be assessed – Whether any payment made towards acquisition of a new residential house by way of making payment in advance even by booking or by paying installments within the prescribed has to be treated as investment towards purchase/construction of a new house. The assessee, as an individual, derives his income from long term capital gain and from other sources. For A.Y. 2009-10, he filed his return of income (RIICO) declaring income. The assessee had derived income from other sources, from long term capital and from of interest. During the relevant period, the Rajasthan State Industrial Development and Investment Corporation Ltd. (in short, ‘RIC’) acquired land owned by the assessee jointly with other members of his family. The assessee claimed exemption under section 54F.
The Assessing Officer called for the complete details regarding this claim. In his reply, assessee stated that he had utilized an amount in terms of section 54F of the Act. He had deposited certain amount under capital gain account scheme opened with the Bank of Baroda and an amount was utilized in purchasing residential flat. The assessee also claimed further expenditure given to the Interior Designer towards supervision and interior decoration.
After receipt of this reply, the Assessing Officer sought clarification from the assessee as to how section 54F of the Act applied to this case and why he should allow this exemption. The Assessing Officer wanted proof of the entire claim made by him. The assessee replied. After considering the reply and making various observations, the Assessing Officer finally concluded that the assessee was not eligible for exemption under section 54F because at the time of acquisition of land, the assessee owned more
than one residential house. Therefore, as per Assessing Officer assessee did not fulfill even the primary condition for claiming exemption under section 54F of the Act. Further, advance payment made for the purchase of residential flat was not treated as investment/utilization of the capital gain in the purchase of a residential house. Assessing Officer did not treat the deposit in the capital gain account scheme. The claim of payment to the Civil Engineer on account of supervision was also declined.
In appeal, CIT(A) dismissed the appeal of the assessee.
*Having heard the parties, the tribunal held that,*
Bookings for the flats namely ATS-Noida and ATS-Chandigarh existed on 05/06/2008, wherein the assessee did not have ownership, control, possession, title etc. by virtue of these bookings and the only valuable right/asset, assessee had, was the ‘Right to acquire Flat’ which could be either converted into a ‘Flat’ or the right itself could be transferred for a consideration.”;++ this provision aims at encouraging either construction or purchase of a residential house out of a capital gain arising from the sale of certain capital assets. The title above the main section is very clear in this direction. We would like to repeat this title to emphasize our point of view:- “54F. Capital gain on the transfer of certain capital
assets not to be charged in case of investment in residential house” this section describes vendors of the capital gain, as an individual or a HUF. All other entities like a firm, a company etc. have been excluded from its ambit. This fact also clears the intention of the legislations because the individuals and/or the HUF which is composed of individuals, are only capable of residing in a house. This section binds the individual/HUF to get a new-asset (= a residential house) either by way of purchase or
construction within the stipulated period after the sale of the ‘original asset’. We are not concerned about this limitation in this case. This section also helps the individual to claim benefit by depositing the
‘capital gain’ in a particular manner. We are not concerned about this aspect now. Apart from defining the terms like – the net-consideration etc. this section imposes other conditions via a provision appended thereto. And we are concerned only with the provision 54F(b)(a)(i) as extracted above
and we are required to answer the dispute between the parties by using this provision alone. This provision proscribes that the individual/HUF must not own more than one residential house on the date of transfer of the original asset. They have excluded new-asset i.e. new residential house from being
counted at the time of such transfer because the section provides a leeway of one year for purchasing/constructing the residential house before this transfer. The date of transfer of the original asset in this case is 05/06/2008.
Let use examine if the assessee had more than one residential house on that date or not. The chart extracted at pages 9 & 10 of this order makes it amply clear that on 05/06/2008, this assessee did not own more than one residential house. However, he had booked two flats (residential houses) – one each at ATS-Noida and ATS-Chandigarh. Regarding these ‘bookings’ and the investments made the contention of the assessee is that “the booking of flats” does not tantamount to ‘ownership’ of the flats unless these are completed and their ownership is transferred in his names. But at the same it is contended that after 05/06/2008, in the year of 2009 i.e. within the period of leeway provided in this section, the assessee has booked one flat in the Emaar-MGF, Gurgaon and has treated the booking amount paid as an ‘investment made’ in the purchase of a new-asset i.e. a residential house in consonance with the provisions of section 54F which does not suffer with the prohibitions of section 54F(4) or the proviso
54F(1)(b)(a)(i). This submission seems to be contradictory at the first sight. But, when this issue is examined it is not noticed that there is neither contradiction in assessee’s claim nor there is inherent
contradiction in the Act. The Act is very clear. It speaks about ‘investment’ in the new-asset (refer the title of this section). The term ‘purchased’ or ‘constructed’ used in section 54F(1) may not necessarily mean that the new-asset must have been transferred in the name of the assessee and the investment made by way of booking a flat and if such investment is proved it must be treated as an ample compliance of this proviso when it is examined in the light of the aim and object with which the legislators have enacted this beneficial provision. On the other hand the “transfer of ownership” in other flats is material because the section uses the term ‘owns’ in the proviso. Thus investment & ownership are two distinct terms which have their meanings and connotations in different ways. The investment of capital gains is a beneficial provision and ‘ownership’ at the time of transfer of the original asset is to be interpreted strictly as per law.
In our considered opinion both these stages cannot be dealt with in the same manner. Our this view is further fortified by the same provision as the proviso 54F(1)(b)(b) to this section postulates that such residential house, other than the residential house owned on the date of transfer of the original asset is chargeable under the head “income from house property”. The proviso 54F(1)(b)(a)(i) is further clarified by this proviso. If the assessee owns more than one residential house the income from that house is chargeable under the head “income from house property”. In this case no such income is chargeable from the flats booked at Noida and Chandigarh. Thus, in the totality of the facts and the law the flats booked at ATS-Noida and ATS Chandigarh ‘owned’ by the assessee as on 05/06/2008;++ On 05/06/2008, the assessee had one residential house at S-225, Mahaveer Nagar, Jaipur which was self occupied, one business office at Heritage City, Gurgaon which is business property, in which the assessee had 50% share. The assessee had booked two flats one each at Noida & Chandigarh and had made advance bookings on the date of transfer i.e. on 05/06/2008. But neither possession had been taken nor ownership had transferred of those flats in the name of the assessee till that date. The assessee has booked one new residential house at Emaar-MGF, Gurgaon in the year 2009 i.e. after the date of 05/06/2008. The assessee has treated this new residential house at MGF, Jaipur as a new asset and the house at Mahaveer Nagar, Jaipur, as his sole residential house.
Regarding two flats booked, one each at Noida and Chandigarh, the case of the assessee is that assessee has not become owner of those houses until 05/06/2008 as neither possession of the same had been given to him.
According to him, on 05/06/2008 he owned only one residential house and therefore, he is entitled for exemption under section 54F of the Act in respect of new asset booked at Emaar-MGF, Gurgaon. It is stated that in those two flats, assessee has only ‘Right to Acquire Flat’;++ the assessee became owner of the Noida flat only on 10/07/2010 and has not acquired ownership of the Chandigarh flat till date. Thus, picture becomes clear in respect of proviso (a)(i) to section 54F of the Act that the residential house mentioned therein has a different connotation because ‘house’ means building in its normal residential conditions which is found fit for living by human-beings and not a house under construction’ and this house should be completely owned by the assessee at the relevant time. The Legislators
in their wisdom have used two different terms to refer to the original residential house sold as ‘old asset’ and by referring to the new residential house to be purchased or constructed as the case may be, as ‘new asset’. The collective reading of this section makes it clear that two conditions should be satisfied and both are co-exist at the relevant time of transfer of original asset 1) the assessee must owned the residential house on the date of transfer and 2) income from such residential house should be chargeable under the head ‘income from other house property’. If the above two conditions co-exist, the assessee becomes disentitled to the exemption section 54F of the Act, particularly when, the assessee owns such a house other than the original asset and its income is chargeable as a income from house property as per the provisions of section 22 of the Act.
The assessee needs to be owner rather legal owner of that house. Supreme Court in the case of CIT Vs. Podar Cement (P) Ltd. etc. has clearly explained this position by holding that ‘owner’ is a person who is entitled to receive income from the property in his own right. In the absence of completion and possession by way of registration and transfer of its title etc., of these two flats booked by the assessee on the date of transfer original capital asset i.e. 05/06/2008, the question of assessing ‘Income from House Property’ under section 22 of the Act will not arise. The CIT(A) has misdirected himself has treating even ‘right to acquire a flat’ as owned by the assessee. In our considered opinion, the conclusion of CIT(A) is not correct. Thus with regard to Noida & Chandigarh flats it can be safely concluded that these were not owned by the assessee on 05/06/2008 in terms of section 54F of the Act.
The CIT(A) has observed (at page 14 of her order) that “the argument that the flats at Noida and Chandigarh are just booked and not possessed does not hold water, because if the same logic is applied, no exemption would be available to the appellant because the flat at the Gurgaon with respect to which exemption is being sought from capital gain is also just booked and possession has not been given to the appellant in the assessment year under consideration”;++ the above observation seems to be plausible at the first reading. Why – the booking at Noida/Chandigarh is to be treated differently from the booking of Gurgaon flat. But, when this aspect is examined in depth with ratiocination the above observation becomes wrong and contrary to the intention of the Act. The meaning of term ‘owns’ used in section 54F (conditions) – ‘owns more than one residential house on the date of transfer of the capital asset’ – has a different meaning. That house needs to be. This owner means a legal owner who is entitled to receive income from the property in his own right. This house should be real and not symbolic. In the absence of possession, registration, title etc., question of assessing ‘income from house property’ under section 22 of the Act does not arise.
Thus, CIT(A) has failed to differentiate between the nature of asset owned by the assessee when a flat is booked he has a ‘right to acquire’ and this ‘right to acquire’, is not equivalent to ‘own’ a house.
On the other hand the parameters which apply to investment of ‘capital gain’ in the construction – purchase of a house within two years of sale of the original asset. That is why the CBDT has issued circular Nos. 471 dated 15/10/1986 and circular No. 672 dated 06/12/1993 which clarify that the amount paid towards booking as to be treated towards ‘construction’ for the purpose of section 54/54F. This assessee made payment to the builder Emaar – MGF Gurgaon before 30/09/2009 for buying a II residential house. Builder has promised to give possession of the house before 05/06/2010 i.e. within 2 years of the sale of the original asset but could not give possession by that time. Section 54F is a beneficial provision for promoting the construction of residential houses and requires an assessee to construct houses and for achieving that purpose to intent of the Legislature is to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of the law.
In view of the above discussion the assessee cannot be treated owner of Noida/Chandigarh flats on 05/06/2010. At the same time, he to be allowed benefit of section 54F because he has invested the capital gain as per the requirement of the Act; the CBDT issued a circular No. 471 dated 15/10/1986 clarifying that payment made to a builder/developer is a sufficient compliance for exemption under section 54F of the Act. CIT(A) has gone by sheer technicalities to hold that the flat at Emaar-MGF, Gurgaon is not covered under section 54F of the Act.
To meet such recurrence of situations in the modern days where properties are booked and thereafter purchased, the CBDT in their wisdom further clarifies vide circular No. 672 dated 16/12/1993 that if any amount out of net sale consideration of the original asset is paid to any builder or developer, this amount should be considered towards the terms ‘purchase/construct’ for the purpose of sections 54/54F of the Act. It is not disputed by the Revenue that the assessee has not made payment for purchase of residential house in Gurgaon in view of the above clarifications of CBDT, this is enough compliance of the provision of section 54F of the Act and the assessee became entitled to this exemption;++ section 54F of the Act is a beneficial provision aimed at promoting existence of new residential houses to further the needs of the society. Thus, the intention of the Legislator is to encourage investment in the acquisition of residential houses and section 54F of the Act prescribes and proscribes the conditions for availing its benefit. The terms/words used in this section have been very selectively & prudentially used by the legislature. This benefit is against the capital gain arising out of transfer of any long term capital asset not being a residential house and which has been referred to as an ‘original asset’ subject to a condition that if the ‘net-sale-consideration’ is invested either in purchasing/constructing a residential house or in constructing the same within the period prescribed in this section.
However, if the assessee owned more than one residential house other than the new asset on the date of transfer of the original asset, this benefit is not available to him. In the given case, undisputedly, the assessee had sold a capital asset in the form of land on 03/10/2008 and earned long term capital gain of Rs. 2,03,76,237/- (this LTCG has been calculated by the Assessing Officer at Rs. 2,04,37,654/-) as there was some error in the computation filed by the assessee with the return because in the indexing of the cost of land in F.Y. 1991-92, the assessee’s half share was not considered. The assessee has claimed exemption under section 54F (1)(b) of the Act to the extent of Rs. 1,26,52,789/- as against total investment of Rs. 1,29,66,275/-. Thus, by now we have come to the conclusion that the assessee did not own more than one residential house on the date of transfer of the original asset. Therefore, one condition of this provision stands satisfied; owning of a residential house at the time of transfer of the original asset has different meaning and connotation and acquisition of new asset ‘which is equivalent to purchase of new residential house’ has entirely different meaning and connotation. This provision encourages people to purchase or construct new residential houses. If the capital gain is invested in the manner prescribed in this section to that extent the capital gain is spent or invested ‘has to be allowed as deduction’. So, with regard to purchase of new residential house, the provisions does not laid down a condition that a new house should either be complete or it should be purchased as a complete livable house. The aim is to direct the minds of the society in purchasing new residential house so that the menace of shortage of houses is tackled to some extent. Therefore, keeping in view the aim and object of the legislator and in view of that clarifications of the CBDT, in our considered opinion, CIT(A) has misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as ‘new asset’ in the Act. Therefore, any payment made towards acquisition of a new residential house by way of making payment in advance even by booking or by paying installments within the prescribed has to be is treated as investment towards purchase/construction of a new house.
Accordingly, we hold that the assessee is entitled for exemption under section 54F of the Act of LTCG of Rs. 2,04,37,654/-;++ we allow grounds raised in this appeal, which are in fact in relation to only one issue i.e. availability of deduction of section 54F(1)(a)(i) of the Act or to say under section 54F of the Act. Accordingly, this appeal of the assessee stands allowed and the entire addition stands deleted.