IT : There is no condition that assessee should utilize sale consideration only for purpose of acquisition of new property
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[2013] 38 taxmann.com 384 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'D'
Kapil Kumar Agarwal
v.
Assistant Commissioner of Income-tax, Circle -1(1), New Delhi*
RAJPAL YADAV, JUDICIAL MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
IT APPEAL NO. 2975 (DELHI) OF 2013
STAY APPLICATION NO. 216 (DELHI) OF 2013
[ASSESSMENT YEAR 2009-10]
STAY APPLICATION NO. 216 (DELHI) OF 2013
[ASSESSMENT YEAR 2009-10]
JULY 16, 2013
Section 54F of the Income-tax Act, 1961 - Exemption of, in case of investment in residential house [Sale consideration utilization] - Assessment year 2009-10 - Assessee sold shares and invested sale consideration in purchasing a residential house property - He computed long term capital gains and claimed exemption under section 54F - Assessing Officer found that assessee took loan from employer to purchase said property and held that assessee could not claim benefit under section 54F to extent loan amount was utilized for purchasing house property and made addition to income of assessee - Whether since law permits only utilization of capital gain within specified time, Assessing Officer was not justified in denying exemption to assessee and, thus, addition was to be deleted - Held, yes [Para 11] [In favour of assessee]
FACTS
| ■ | The assessee had sold shares and had computed long term capital gain on account of sale of the shares. The assessee had claimed exemption under section 54F on the ground that he had purchased a residential house property out of sale consideration. | |
| ■ | The Assessing Officer found that assessee had taken a loan from his employer and said loan was invested for purchase of the aforesaid house property. The Assessing Officer was of the view that assessee could claim benefit under section 54F to the extent of amount arrived at after deducting loan. | |
| ■ | Since unutilized part of long-term capital gain had not been deposited in a long-term capital gain account as per section 54F, the Assessing Officer made addition to income of assessee. | |
| ■ | The Commissioner (Appeals) confirmed the said order. | |
| ■ | On second appeal: |
HELD
| ■ | In order to avail the benefit of section 54F, the assessee is required to either purchase a residential house out of the sale proceeds or long term capital assets within a period of one year before or two years after the date on which transfer took place or within a period of three years after that date, construct a residential house. In such cases, gain shall be computed as per clauses (a) and (b) of sub-section (1). In case, the assessee is not able to appropriate the sale proceeds of long-term capital gain then, before filing of a return under section 139, he is required to deposit the same in any capital gain account with a bank or institution specified by the Government in an Official Gazettee. The assessee has to file proof of such deposit along with the return for claiming exemption under section 54F. The idea behind incorporating these sections is that assessee should make more investment in residential house, on sale of its long term capital assets. [Para 10] | |
| ■ | In the present case, the first date of capital gain is 8-11-2008. The assessee can acquire a house within a period 8-11-2007 up to November 2010i.e., one year prior to transfer of original capital assets and two years after the transfer of capital assets. The assessee had made investment in between February 2008 up to August 2008 i.e. well within period. Assessing Officer has also not disputed about the investment made by the assessee. His grievance is that investment was made after taking loan from the employer and, therefore, assessee cannot claim benefit under section 54F(1) qua the loan amount utilized for purchasing the new house. [Para 11] | |
| ■ | On perusal of section 54F(1) and sub-section (4), it reveals that these sections do not put any restriction that only capital gain would be utilized for purchase of the new house. The law permits utilization of capital gain within the specified time, the assessee may use such funds for other purposes and may find resources from other source for investment in time. The section provides investment in a house prior to one year of the transfer of long term capital assets. It will make it clear that if the transfer has not taken place then from where the funds would come for making the investment. The investment must be from some other sources and when assessee would receive sale consideration on transfer of a long term capital asset, he will claim set off of the capital gains against the investment already made for the purpose of exemption under section 54F. [Para 11] | |
| ■ | Thus, the Tribunal have erred in holding that assessee is not entitled for exemption under section 54F(1) for a sum of Rs. 121,32,636. The investment of the assessee is more than the capital gain earned by him. Therefore, the appeal of the assessee was allowed and the addition of Rs. 121,32,636 in the total income of the assessee under the head 'Long term capital gain' deleted. |
CASE REVIEW
Milan Sharad Ruparel v. Asstt. CIT [2007] 27 SOT 61 (para 11) distinguished.
ITO v. K.C. Gopalan [1999] 107 Taxman 591 (Ker.) (para 11) followed.
CASES REFERRED TO
Sunil Sachdeva v. CIT [2013] 31 taxmann.com 86/56 SOT 321 (Delhi - Trib.) (para 6), ITO v. KC Gopalan [1999] 107 Taxman 591 (Ker.) (para 6), Parkside Holding Ltd. v. Dy CIT [2003] 86 ITD 252 (Chennai) (para 6), Bombay Housing Corpn. v. Asstt. CIT [2002] 81 ITD 545 (Mum.)(para 6), Dy CIT v. Gaylord Investments & Training [2008] 21 SOT 407 (Mum.) (para 6), Asstt. CIT v. Dr. P.S. Pasricha [2008] 20 SOT 468(para 6), Muneer Khan v. ITO [2010] 41 SOT 504 (Hyd.) (para 6), Lalit Marda v. Asstt. CIT [2008] 23 SOT 250 (Kol.) (para 6), CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274/157 Taxman 398 (Gau.) (para 6) and Milan Sharad Ruparel v. Asstt. CIT [2007] 27 SOT 61 (Mum.) (para 7).
Ajay Vohra and Ms. Anuja Garg for the Appellant. Ms. Renuka Jain for the Respondent.
ORDER
Rajpal Yadav, Judicial Member - The present appeal is directed at the instance of assessee against the order of Learned CIT(Appeals) dated 21.03.2013 passed for assessment year 2009-10. The solitary grievance of the assessee is that Learned CIT(Appeals) has erred in upholding the denial of exemption claimed under sec. 54F of the Income-tax Act, 1961 amounting of Rs. 121,32,636.
2. The brief facts of the case are that assessee has filed his return of income on 29.7.2009 declaring total income of Rs. 127,04,920. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Income-tax Act, 1961 was issued on 25.8.2010 which was duly served upon the assessee. In response to the notice, Shri Himanshu Gupta, CA appeared before the Assessing Officer from time to time and submitted the requisite details.
3. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has sold shares of M/s. UFO Movies India Ltd. for a total sales consideration of Rs. 194,35,000. The indexed cost of the purchase of the shares was at Rs. 84,314. The assessee has computed long term capital gain of Rs. 193,50,686 on account of sale of the shares. The assessee has claimed exemption under sec. 54F of the Act on the ground that he has purchased a residential house property bearing Flat No. 601 at 6th floor, Pacific Height, Mumbai for a consideration of Rs.322,49,500. It was also pointed out to the Assessing Officer that this residential house property at Mumbai is in the joint name of assessee Shri Kapil Kumar Agarwal and Smt. Bina Agarwal wife of the assessee. Learned Assessing Officer has reproduced the details of payment made by assessee for purchase of the house starting from 21st February 2008 up to 10th August 2008. He further found that assessee has taken a loan of Rs. 2,50,00,000 from the employer and this loan was invested for purchase of the house property. According to the Assessing Officer, the assessee has only utilized Rs. 72,49,500 out of the sales consideration of the shares which has given rise to the long term capital gain. Thus, learned Assessing Officer was of the view that assessee can claim benefit under sec. 54F of the Act to the extent of Rs. 72,49,500 i.e. (32249500 cost of house - 2.5 cr. Loan = 72,49,500). He further observed that unutilized part of long term capital gain ought to have been deposited by the assessee in a long term capital gain account as per sub-section(4) of sec. 54F of the Act. Since assessee failed to comply with the requirements of this sub-section, therefore, he is not entitled to the exemption of the rest of the amount. Learned Assessing Officer has added back to the income of the assessee a sum of Rs. 121,32,636, as long term capital gain.
4. Dissatisfied with the addition, assessee carried the matter in appeal before the Learned CIT (Appeals). Assessee has filed a letter dated 19.3.2013 whereby he has highlighted as to how exemption under sec. 54F of the Act is admissible to the assessee. Learned CIT(Appeals) has reproduced the letter submitted by the assessee in paragraph No. 4.1. This letter explains the case of the assessee explicitly and it is worth to take note of this letter in order to appreciate the facts and circumstances in more scientific way. Relevant part of this letter reads as under:
"1. Facts of the Case
1.1 Date of Capital Gains
| Date | Amount (Rs.) | Remarks | |
| Nov. 8, 2008 | 14,68,066 | As shown in Computation of income enclosed at P. No. 5 of submission dated Sep. 3,2012. | |
| March 16,2009 | 1,78,82,620 | -Do- | |
| Total Capital Gain | 1,93,50,686 |
1.2 Date of Investment in House Property.
The assessee purchased a hour property situated at Flat No. 601, 6th Floor, Pacific Heights, Village Danda, Sherly Rajan, Bandra (West), Mumbai-400050 at a total cost of Rs.322.49 lacs and the details of payment are given hereunder:
| Date | Amount | Paid to | Source of Fund | |
| 21/02/2008 | 11,00,000 | Rizvi Land Development Pvt. Ltd. | HSBC Bank | |
| 18/04/2008 | 1,00,00,000 | -do- | Loan taken from Apollo International Ltd. | |
| 10/07/2008 | 1,00,00,000 | -do- | -do- | |
| 10/08/2008 | 50,00,000 | -do- | -do- | |
| 08/09/2008 | 44,00,000 | -do- | HSBC Ltd. | |
| 28/07/2008 | 15,07,600 | Draft for Stamp duty | -do- | |
| 28/07/2008 | 30,000 | Sub-registrar fees | -do- | |
| 01/08/2008 | 2,11,900 | Draft for stamp duty | -do- | |
| Total | 3,22,49,500 |
1.3 Governing Law for availing of Deduction u/s. 54F
The assessee claimed a deduction of Rs. 1,93,50,686 u/s. 54F. We reproduce hereunder the sec. 54F as it stood in the relevant A.Y. 2009-10.
54F. Capital Gain on transfer of certain capital assets not to be charged in case of investment in residential house.— (1) subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or his within a period of three years after that date constructed, a residential house (hereinafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
| (a) | if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under sec. 45; | |
| (b) | if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: |
1.4 Window of Investment available u/s 54F
Starts at
One year before the date of Capital Gains i.e. Nov. 8, 2007
Ends at
Two year after the date of Capital Gains i.e. Nov. 7,2010 in this case, as the date of First Capital Gain in Nov. 8, 2008.
1.5 Whether Assessee Falls into this time period
The assessee has made its investments between Feb.21, 2008 to Aug. 1, 2008 which is well within the Window of Nov. 2010 and hence is fully eligible for this deduction.
1.6 Relevant Case law of jurisdictional Tribunal (Dr. Smita Swaroop v. ITO, Gurgaon.
We enclose as Annexure A, decision of jurisdictional H'ble Delhi ITAT dated 28.2012 against the decision of ITO Gurgaon dealing with same subject, same facts where the CIT Appeal Faridabad and later on ITAT Delhi held:
I have carefully considered the submission made by the appellant, it is seen that the property in question has been purchased by making payments from the period starting 7th November 2004 to August 2008. The offer of possession of the apartment was given on 29 January, 2008. The property has been registered on 05.05.2008. As per Section 54 of the Act the capital gain earned from sale of a residential house is not chargeable to tax if the assessee purchases within a period of one year before or two years after the date of transfer or constructs within a period of three years after the date of transfer, a house property."
5. Learned First Appellate Authority took into consideration the submissions made by the assessee as well as sec. 54F of the Act. Learned CIT (Appeals) has observed that two sub-sections of section 54F of the Act are relevant for the present controversy. She made reference to sec. 54F(1) and 54F(4) of the Act. According to the Learned CIT (Appeals), section 54F(1) lays down the condition for allowability of exemption and the extent of exemption that can be claimed. This section provides that the amount of capital gain that can be exempted under this section is equal to the difference between the cost of new asset and the net consideration received from the transfer of the original assets. If the cost of the new asset is equal or more then the net consideration received in lieu of transfer of original assets, then the entire amount of capital gain is exempted under sub-section 54F(1) of the Act. But if the cost of the new asset is less then the net consideration then proportionate exemption is allowable. Thereafter, Learned CIT(Appeals) has observed that sub-section (4) of section 54F overrides sub-section 54F(1) of the Act. According to the Learned CIT(Appeals), the amount on net consideration which is not utilized for the purchase/construction of a new residential house should be deposited by the due date for filing of return of income under sec. 139(1) of the Act in an account in a specified bank under the Capital Gain Amounts Scheme, 1988 notified by the Government in the Official Gazettee. Learned CIT(Appeals) has further observed that the assessee has only utilized Rs.74,18,050 for the purchase of new house and the remaining amount was not deposited in a capital gain account, therefore, he is not entitled for the exemption.
6. The learned counsel for the assessee while impugning the order of the Learned CIT(Appeals) contended that the Learned First Appellate Authority has committed an error while observing that section 54F(4) has a overriding effect over sub-section 54F(1). He took us through paragraph 4.4 of the Learned CIT(Appeals)'s order and submitted that in first eight lines, Learned First Appellate Authority has construed the section in right perspective. Without applying this interpretation on the facts of the assessee's case, he jumped to section 54F(4) of the Act. The assessee has no dispute that if he has unutilized amount of capital gain available with him and not deposited in a capital gain account, then same is taxable. The case of the assessee is that he has purchased a house prior to one year of sale of capital assets. The Act does not provide that same amount which was received on sale of capital assets is to be used. He further submitted that this aspect has been examined in a number of cases. He, for buttressing his contentions, relied upon the following judgments and placed on record copies of these orders in the paper book:
| 1. | Order of ITAT, Delhi in the case of Sunil Sachdeva v. CIT [2013] 31 taxmann.com 86/56 SOT 321 (Delhi - Trib.) | |
| 2. | Decision of the Hon'ble Kerala High Court in the case of ITO v. KC Gopalan [1999] 107 Taxman 591 | |
| 3. | Order of ITAT, Chennai in the case of Parkside holding Ltd. v. Dy. CIT [2003] 86 ITD 252; | |
| 4. | Order of ITAT, Mumbai in the case of Bombay Housing Corpn. v. Asstt. CIT [2002] 81 ITD 545; | |
| 5. | Order of ITAT, Mumbai in the case of Dy. CIT v. Gaylord Investments & Training [2008] 21 SOT 407; | |
| 6. | Order of ITAT, Mumbai in the case of Asstt. CIT v. Dr. P.S. Pasricha [2008] 20 SOT 468; | |
| 7. | Order of ITAT, Hyderabad in the case of Muneer Khan v. ITO [2010] 41 SOT 504; | |
| 8. | Order of ITAT Kolkata Bench in the case of Lalit Marda v. Asstt. CIT [2008] 23 SOT 250; and | |
| 9. | Decision of Hon'ble Gauhati High Court in the case of CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274/157 Taxman 398. |
7. On the other hand, Learned DR relied upon the orders of the revenue authorities. She contended that section 54F does not provide that a person shall avail loan, purchased a house and then set off that loan amount against the capital gain earned on sale of a capital assets subsequent to the purchase of an assets. She pointed out that assessee took a loan of Rs.2.5 crores. He is setting off the capital gain earned on transfer of shares against this loan for claiming exemption under sec. 54F(1) of the Act. In support of her contentions, she relied upon the order of the ITAT, Mumbai in the case of Milan Sharad Ruparel v. Asstt. CIT [2007] 27 SOT 61.
8. We have duly considered the rival contentions and gone through the record carefully. Section 54F has a direct bearing on the controversy, therefore, it is imperative upon us to take note of relevant part of this section. It reads as under:
"54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.—(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereinafter in this section referred to as the new asset) the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say :—
| (a) | if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; | |
| (b) | if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the new whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45 : |
Provided that nothing contained in this sub-section shall apply where—
| (a) | the assessee,— |
| (i) | owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or | |
| (ii) | purchases any residential house, other than the new asset within a period of one year after the date of transfer of the original asset; or | |
| (iii) | constructs any residential house, other than the new asset, within a period of 3 years after the date of transfer of the original asset; and |
| (b) | the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head 'Income from house property'. |
Explanation.—for the purposes of this section—
'Net consideration,' in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
| (2) and (3)** | ** | ** |
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilized wholly, or partly for the purchase or construction of the new asset within the period specified in sub-section (1) then,—
| (i) | the amount by which— |
| (b) | the amount that would not have been so charged had the amount actually utilized by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, | |
| shall be charged under section 45 as income of the previous year in which the period of three years from the date of transfer of the original asset expires; and |
| (ii) | the assessee shall be entitled to withdraw the unutilized amount in accordance with the scheme aforesaid." |
9. Before embarking upon an inquiry about the ambit and scope of section 54F, we deem it necessary to take note certain undisputed facts between the parties, inter alia; (a) no dispute about the sale of shares and computation of long term capital gain between the parties; (b) no dispute about the purchase of new assets and quantum of investment made in it at Rs. 322,49,500; (c) the investment in the new assets was made within the stipulated period provided in section 54F(1) of the Act because the Assessing Officer has himself granted the benefit of Rs. 72,49,500.
10. A bare perusal of sec. 54F, it would reveal that sub-section (1) and sub-section (4) have the bearing on the controversy in hand. Sub-section (l) allows the benefit of exemption to the individual or an HUF in which case the capital gain arises from transfer of any long term capital assets not being a residential house and assessee has, within the period of one year before or two years after the date on which the transfer took place purchase or has within a period of three years after the date, construct a residential house, the capital gain shall be dealt with in accordance with the provisions laid down in sec. 54F of the Act. Sub-section (4) contemplates that amount of net consideration which is not appropriate by the assessee towards the purchase of the new assets made within one year before the date of transfer of the original assets or not utilized by him for purchase or construction of the new assets then before the date of filing of the return of income under sec. 139, shall be deposited by him in any bank or institution specified by the Central Government. If assessee fails to make deposit then exemption under sec. 54F sub-section (4) will not be available. If we read both these sub-sections together then, it would reveal that in order to avail the benefit of section 54F, the assessee is required to either purchase a residential house out of the sale proceeds or long term capital assets within a period of one year before or two years after the date on which transfer took place or within a period of three years after that date, construct a residential house. In such cases, gain shall be computed as per clauses (a) and (b) of sub-section (l). In case, the assessee is not able to appropriate the sale proceeds of long term capital gain then, before filing of a return under sec. 139, he is required to deposit the same in any capital gain account with a bank or institution specified by the Government in an official gazettee. The assessee has to file proof of such deposit along with the return for claiming exemption under sec. 54F. The idea behind incorporating these sections is that assessee should make more investment in residential house, on sale of its long term capital assets.
11. In the present case, the first date of capital gain is November 8, 2008. The assessee can acquire a house within a period November 8, 2007 up to November 2010 i.e. one year prior to transfer of original capital assets and two years after the transfer of capital assets. The assessee had made investment in between February 2008 up to August 2008 i.e. well within period. Learned Assessing Officer has also not disputed about the investment made by the assessee. His grievance is that investment was made after taking loan from the employer and, therefore, assessee cannot claim benefit under sec. 54F(1) qua the loan amount utilized for purchasing of the new house Hon'ble Kerala High Court in the case of K.C. Gopalan (supra), has held that in section 54, there is no condition that assessee should utilize the sales consideration itself for the purpose of acquisition of new property. Similar are the other orders of the ITAT relied upon by the assessee. On perusal of section 54F(1) and sub-section (4), it reveals that these sections do not put any restriction that only capital gain would be utilized for purchase of the new house. The law permits utilization of capital gain within the specified time, the assessee may use such funds for other purposes and may find resources from other source for investment in time. The section provides investment in a house prior to one year of the transfer of long term capital assets. It will make it clear that if the transfer has not taken place then from where the funds would come for making the investment. The investment must be from some other sources and when assessee would receive sales consideration on transfer of a long term capital assets, he will claim set off of the capital gains against the investment already made for the purpose of exemption under sec. 54F. Learned DR has relied upon an order of the ITAT Milan Sharad Ruparel (supra). In that case, the ITAT has held that if investment was made out of loan amount then exemption under sec. 54F(1) will not be available. In the opinion of the ITAT, the assessee has to demonstrate source of funds, if investment was made by the assessee from his own source and not from loan taken from the bank then, exemption would be available. In our opinion, the section does not put any such restriction. Hon'ble Kerala High Court has explained the position. Similarly, in a series of other orders, at the end of ITAT, it has been held that there is no condition that assessee should, utilize the sales consideration only for the purpose of acquisition of new property. In view of the above discussion, we are of the view that Learned Revenue Authorities have erred in holding that assessee is not entitled for exemption under sec. 54F(1) of the Income-tax Act, 1961 for a sum of Rs. 121,32,636. The investment of the assessee is more than the capital gain earned by him. Therefore, we allow the appeal of the assessee and delete the addition of Rs. 121,32,636 in the total income of the assessee under the head "long term capital gain".
12. As far as stay application is concerned, since, we have allowed the appeal itself, it becomes infructuous and accordingly dismissed.
POOJARegards
Prarthana Jalan
__._,_.___
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