IT : Where requirement of section 54 is that income of building which is being sold should be chargeable under head 'income from house property'; requirement of section is not that assessee must earn income from said property
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[2013] 38 taxmann.com 289 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'E'
Mrs. Sheela Bhagwandas Nichlani
v.
Income-tax Officer -12(3)(2), Mumbai*
I.P. BANSAL, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT APPEAL NO. 4068 (MUM.) OF 2012
[ASSESSMENT YEAR 2004-05]
[ASSESSMENT YEAR 2004-05]
JULY 8, 2013
Section 54 of the Income-tax Act, 1961 - Capital gain - Profit on sale of property used for residence [Exemption] - Assessment year 2004-05 - Whether requirement of section 54 is that income of building which is being sold should be chargeable under head 'income from house property'; requirement of section is not that assessee must earn income from said property - Held, yes - Assessee was owner of a land - In pursance of an agreement between assessee with her husband, a house property was constructed on said land in which assessee's husband contributed all funds - As per said agreement, new building was held by them jointly in equal proportion - Subsequently, said property was sold and a new residential property was purchased - Husband of assessee had been granted exemption under section 54 for his 50 per cent share - Whether assessee was also entitled to said exemption - Held, yes [Para 10] [In favour of assessee]
FACTS
| ■ | The assessee was owner of a land upon which a residential building was constructed with funds of assessee's husband. The assessee sold said property and invested sale consideration in purchasing a new residential house property and claimed exemption under section 54. | |
| ■ | The exemption under section 54 was denied to assessee on the ground that assessee was not owner of the house property and no income had been assessed relating to the said property in hands of assessee under head 'House property' but the Assessing Officer allowed deduction of a sum paid by assessee to her tenants on basis of tenancy agreement and affidavit of tenant. | |
| ■ | The Commissioner (Appeals) upheld said order. | |
| ■ | On appeal, it was submitted by assessee that in the case of her husband the Assessing Officer himself had allowed exemption under section 54 on purchase of new residential property of and, thus, department could not take different stand in the case of the assessee as assessee's case was on sound footing as she was owner of the land. |
HELD
| ■ | It is undisputed that assessee was owner of a land upon which building was constructed by funds made available by husband of assessee in pursuance to an agreement dated 3-12-1973. The relevant clauses of the said agreement provide that the assessee and her husband had agreed to construct a residential house consisting of ground and two upper floor on the said plot of land and the house consisting of the said plot of land together with structure thereon was intended to be held jointly in equal proportion by the assessee and her husband. The husband of the assessee has contributed all the funds for construction of the residential building thereon. If the terms of aforementioned agreement are kept in mind then it cannot be said that assessee was not owner of the building which was sold by her. Upon basis of aforementioned agreement revenue had assessed husband of assessee and had computed long term capital gain on 50 per cent of sale proceeds and exemption had also been granted under section 54. The case of the assessee is on sound footing as assessee is owner of the land itself. Therefore, the claim of the assessee had wrongly been rejected for the reason that assessee is not owner of the building which was sold and upon which long term capital gain has been computed. [Para 10] | |
| ■ | The Assessing Officer after verifying the evidences filed by the assessee has accepted the claim of the assessee regarding deductibility of Rs.25 lakhs, which was paid to the tenant as compensation. This fact itself has established that the property of the assessee was occupied by the tenant. The requirement of section 54 is that the income of the building which is being sold should be chargeable under the head "Income from house property". The requirement of section is not that the assessee must earn income from said property. If there was a tenant then the income from the property was chargeable to tax. Therefore, exemption also cannot be denied to the assessee on the ground that assessee did not show any income chargeable under the head "Income from house property". [Para 10.1] | |
| ■ | There cannot be any dispute on the fact that the new residential property purchased by the assessee and her husband is fulfilling the criteria for exemption under section 54 as the revenue itself has granted such exemption to the husband of the assessee for his 50 per cent share. Keeping in view this fact, exemption under section 54 has wrongly been denied to the assessee and the Assessing Officer was directed to grant such exemption to the assessee. [Para 10.2] |
K.R. Lakhshminarayan for the Appellant. Rajendra Kumar for the Respondent.
ORDER
I.P. Bansal, Judicial Member - This is an appeal filed by the assessee. It is directed against the order dated 03/04/2012 passed by Ld. CIT(A)-23, Mumbai for the assessment year 2004-05. The grounds of appeal read as under:
| "1. | The order passed by the learned CIT (A) is bad in law. | |
| 2. | The learned CIT (A) erred in holding that Appellant is not entitled to deduction u/s.54 on the ground that her half ownership in the Flat jointly sold by her and her husband has not been proved. | |
| 3. | The learned CIT (A) failed to take note of the fact that deduction u/s.54 on the same point was allowed by earlier CIT (A) in her favour among other things on the basis of Agreement dated 03-12-1973 between Appellant and her husband. | |
| 4. | The learned CIT (A) failed to take note of the fact that the ITAT while allowing Dept's appeal that the earlier CIT (A) had allowed fresh evidence had remitted the matter to A.O. on the limited point that the Agreement dated 03-12-1973 between Appellant and her husband showing Appellant was 50% owner of the property with funds contributed by her husband had not been filed before the A.O. | |
| 5. | The learned CIT (A) erred in sustaining the A.O.'s order who had not limited himself to the re-examination of the said fresh evidence viz. Agreement dated 03-12-1973 but proceeded beyond the said limit and referring to other papers such as Balance Sheets of Appellant and her husband which were not fresh evidence. | |
| 6. | It is prayed that the order of CIT (A) holding appellant is not entitled to deduction u/s.54 may be reversed." |
2. Impugned assessment order is dated 30/12/2010 framed under section 143(3) r.w.s. 254 of Income Tax Act,1961(the Act). The Tribunal had set aside the matter to the file of AO vide its order dated 12/3/2010, copy of which is filed at pages 13 to 17 of the paper book. The dispute was in respect of grant of exemption under section 54 of the Act with regard to sale consideration received by the assessee in respect of Khar property of which the assessee was owner of 50%. Though the capital gain was computed in the hands of the assessee but exemption under section 54 was not granted in the assessment order passed under section 143(3) of the Act on the ground that assessee is not owner of the house property which was sold and no income has been assessed relating to the said property in the hands of the assessee under the head "house property". The assessee claimed that she has invested a sum of Rs. 1,96,17,250/- in new residential house which was an allowable deduction under section 54 against the income assessed under the head "long term capital gain".
3. Ld. CIT(A) decided the said issue in favour of assessee vide order dated 29/11/2007, copy of which is field at pages 5 to 12 of the paper books. The revenue has field appeal against that order and matter was restored back to the file of AO by the Tribunal vide order dated 12/3/2010 in ITA No.889/Mum/2009. It may also be mentioned here that the husband of the assessee owns remaining 50% share in the property which sold by the assessee and similar capital gain was also assessed in the hands of husband of the assessee on which exemption under section 54 was also granted. However, exemption was denied to the assessee by the AO. The revenue has filed an appeal before ITAT in the case of assessee as well as her husband and vide aforementioned order dated 12/3/2010. The Tribunal has decided both the appeals of the revenue by way of consolidated order. With regard to assessee's appeal the issue regarding grant of exemption u/s.54 was restored back to the file of AO with the following observations.
"2.2.1 We have heard both the parties perused the records considered the matter carefully. The dispute is regarding allowability of deduction u/s 54 in respect of capital gain arising from sale of residential house. The Assessing Officer disallowed the claim on the ground that the assessee was only the owner of the land and not the owner of the residential house. The case of the assessee is that in terms of the agreement dated 3.12.1973 the assessee was 50% owner of the property, which had been constructed on the land belonging to her, with funds contributed by her husband. However, the perusal of the assessment order does not show that the said agreement had been filed before the Assessing Officer. The assessee also produced no evidence to show that the said agreement had been filed before Assessing Officer. In fact, both' the parties agreed that the matter may be restored to the Assessing Officer for examination of the various additional evidences filed by the assessee before the CIT (A). We agree that fresh examination is necessary as the Assessing Officer had not been given opportunity in respect of the additional evidences filed before the CIT (A). We, therefore, restore this issue to the file of the Assessing Officer for passing a fresh order after necessary examination of the evidences filed before the CIT (A) and after allowing of opportunity of hearing to the assessee."
4. The another issue which was set aside by the Tribunal in the case of assessee as well as in the case of husband of the assessee was regarding a sum of Rs. 25.00 lacs which was claimed by them against long term capital gain as payment made to tenant for vacation of the property. Ld. CIT(A) has granted this relief and this issue in the case of assessee was restored back to the file of AO with the following observation.
"2.1.2 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding allowability of deduction of Rs 25 lakhs on account of payment to the tenant Shri Ramesh B. Nichiani. The Assessing Officer had disallowed the claim on the ground that there was no evidence produced to show that Shri Ramesh Nichlani was a tenant. However, it appears that the assessee filed evidence in the form of Leave and License Agreement dated 16.9.1969 before CIT (A) to prove the tenancy based on which the claim was allowed. This was a fresh evidence and, therefore, opportunity was required to be given to the Assessing Officer by CIT(A) which had been not done. Both the parties agreed that the matter may be restored to the Assessing Officer for necessary examination of the additional evidence. We, therefore, restore the issue to the file of the Assessing Officer for passing a fresh order after necessary examination of evidences produced before the CIT (A) and after allowing the opportunity to the assessee."
5. It is in pursuance of aforementioned order of the Tribunal the impugned assessment has been framed which an order dated 30/12/2010. Before AO the AO the assessee filed various evidences with regard to a sum of Rs.25.00 and the AO has referred to those evidences in para 8, which is reproduced below:
"8.The assessee's representative Shri Vasu Harwani, CA attended and filed his submissions as per letter dated 18/10/2010. He filed copy of tenancy agreement dated 16/9/1969 as per which Mr. Ramesh Nichlani and M/s. Ralhan Productions to whom flat was sub leased and also copy of affidavit filed by Shri Ramesh Nichlani before Small Cause Court in Suit No.975/3248 of 1979 which was filed against M/s. Ralhan Productions. Further assessee also filed copy of agreement dated 3/12/1973 between him and his wife as per which they agreed to construct house property on plot of land owned by assessee's wife. The said ground also contains recital to the effect that in case property is sold the sale proceeds were to be shared equally. The assessee has also filed the copies of receipts of property tax for the year 1993-99 and 2003-04 which bears the name of the assessee.
Further, Mr. Vasu Harwani, CA alongwith assessee's husband Shri Bhagwandas Nichlani attended and produced the c original agreements for verification."
6. Considering all these evidences AO has allowed deduction of Rs.25.00 lacs with the following observations:
"9. Considering the above submissions assessee's claim for deduction of compensation of Rs.25,00,000/- paid to tenant Shri Ramesh Bhagwandas Nichlani is held to be allowable."
However, AO did not allow the claim under section 54 of the Act to the assessee as according to AO the assessee did not bring enough material on record to prove that the assessee is 50% owner of the property. According to AO sale agreement dated 3/3/2004 only showed that the assessee was owner of the land. The AO also observed that no income has been shown by the assessee from the property which was sold and also the fact that rent receivable from tenants was not offered to tax. The observation of AO for not allowing the exemption under section 54 is as under:
"10.Regarding the claim of exemption of the assessee under section 54 of Rs.1,96,17,250/- the assessee had not brought enough material to prove that the assessee is a 50% owner of the property, since the recital of the sale agreement dated 03/03/2004 shows that the assessee was the owner of the land only. Also the Assessing Officer has correctly pointed out that in the balance sheet of the assessee for the year ended 31/03/2003 the assessee is shown to be the owner of the land. Also no income from the house property i.e. rent from the tenants offered for taxation in the hands of the assessee. Therefore, the assessee's claim of exemption under section54 of the Act is rejected."
Ld. CIT(A) has upheld the action of AO. The assessee is aggrieved, hence, in appeal.
7. It was submitted by Ld. A.R that assessee is undisputable owner of the land on which building was constructed by the husband of the assessee which was sold. He in this regard referred to the agreement entered into between the assessee and her husband, which is dated 3/12/1973 and copy of which is filed at page 18 of the paper book. According to recital of the said claim it was clearly mentioned that assessee being party of one part owns plot of land admeasuring 660 sq. yards bearing plot No.671 of, Bandra, Bombay. The assessee and her husband had agreed to construct a residential house consisting of ground and two upper floor on the said plot of land and the house consisting of the said plot of land together with structure thereon is indented to be held jointly in equal proportion by the assessee and her husband. The husband of the assessee has contributed all the funds for construction of the residential building thereon. The said recital is reproduced below for the sake of convenience:
"Whereas:
| (a) | Mrs. Sheela of the One Part owns a plot of land admeasuring 660 sq. yards bearing Plot No.671, TPS-III of Bandra, Bombay (hereinafter referred to as the said Plot of Land). | |
| (b) | Mr. Bhagwandas is the Husband of the said Mrs. Sheela. | |
| (c) | Both the parties hereto had agreed to construct a residential house consisting of Ground and Two upper floors on the said Plot of land. | |
| (d) | The House consisting of the said Plot of land together with structure thereon is intended to be held jointly in equal proportion by Smt. Sheet and the said Shri Bhagwandas. | |
| (e) | Smt. Sheela's contribution is the said Plot of land on which the House is constructed whereas the said Shri Bhagwandas has contributed all the funds for construction of the residential building thereon." |
Ld. AR further submitted that as per clause 2 of the said agreement the ground and the first floor was to be let out and the second floor was to be used by the assessee and her husband for their own residence. In clause 3, It has been provided that in case of sale of the property net sale consideration will be shared by the assessee and her husband in equal proportion. For the sake of convenience clauses 2 & 3 are also reproduced below:
"2.While the Ground and the First Floor are let out, the Second Floor is used by Smt. Sheela and Shri Bhagwandas for their own residence. 3. In case the property is sold the net sale proceeds will be shared by the two owners in equal proportion."
8. It was submitted by Ld. AR that as in the case of husband of the assessee the AO himself had allowed exemption under section 54 on purchase of new residential property of which assessee is also co-owner of 50%. He submitted that department cannot take different stand in the case of the assessee as assessee's case is on sound footing that she is owner of the land upon which the property was constructed and which has been sold. He submitted that section 54 nowhere conveys that for the purpose of availing exemption under section 54 the seller of the property should be the owner of the said property. The main requirement is that long term capital gain has been computed in respect of transfer of a long term capital asset being building or land appurtenant thereon to the income of which is chargeable under the head "income from house property". Ld. A.R submitted that AO himself has accepted that there was a tenant in the property and the dispute was prevailing between the assessee and the tenant, therefore, no rent was received. The AO himself has allowed deduction of compensation paid to tenant after verifying the evidences. Thus it was pleaded by Ld. AR that claim of exemption under section 54 has wrongly been denied to the assessee and the same should be granted.
9. On the other hand, Ld. DR relied upon the orders passed by AO & Ld. CIT(A). He submitted that assessee has not submitted sufficient evidences to prove the ownership of the assessee on the assets of which long term capital gain has been computed and also assessee could not prove that any income was derived by the assessee which was assessable under the head income from house property. Therefore, Ld. DR pleaded that the claim of the assessee has rightly been rejected by Ld. CIT(A) and the appeal filed by the assessee should be dismissed.
10. We have carefully considered the rival submissions in the light of material placed before us. It is undisputed that assessee is owner of the land upon which building was constructed by the funds made available by the husband of the assessee in pursuance to an agreement dated 3/12/1973. The relevant clauses of the said agreement have been reproduced above. If the terms of aforementioned agreement are kept in mind then it cannot be said that assessee was not owner of the building which was sold by her. Upon the basis of aforementioned agreement revenue has assessed the husband of the assessee and has computed long term capital gain on 50% of the sale proceeds and exemption has also been granted under section 54. The case of the assessee is on sound footing as assessee is owner of the land itself. Therefore, the claim of the assessee has wrongly been rejected for the reason that assessee is not owner of the building which was sold and upon which long term long term capital gain has been computed.
10.1 Now the question remain is regarding house property income. The AO after verifying the evidences filed by the assessee has accepted the claim of the assessee regarding deductibility of Rs.25.00 lacs, which was paid to the tenant as compensation. This fact itself has established that the property of the assessee was occupied by the tenant. The requirement of section 54 is that the income of the building which is being sold should be chargeable under the head "income from house property". The requirement of section is not that the assessee must earn income from said property. If there was a tenant then the income from the property was chargeable to tax. Therefore, exemption also cannot be denied to the assessee on the ground that assessee did not show any income chargeable under the head "income from house property."
10.2 There cannot be any dispute on the fact that the new residential property purchased by the assessee and her husband is fulfilling the criteria for exemption under section 54 as the revenue itself has granted such exemption to the husband of the assessee for his 50% share. Keeping in view this fact we hold that exemption under section 54 has wrongly been denied to the assessee. We direct the AO to grant such exemption to the assessee.
11. In the result, the appeal of the assessee is allowed.
POOJARegards
Prarthana Jalan
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