TMI Blog2014 (9) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(A) is upheld – Decided against assessee. Restriction of expenses on sale of property – Held that:- The assessee claimed to have incurred amounts aggregating to ₹ 40 lakhs in connection with the sale / transfer of the property - CIT(A) rightly disallowed the payment of ₹ 5 lakhs paid to Sri M.S. Narayan, only on the ground that there was no rationale in making the payment on 12.3.2008, almost six months after the sale of the asset - the 4 payments of ₹ 5 lakhs each made by the assessee to Sri M.S. Narayan, Advocate aggregating to ₹ 20 lakhs are incurred in connection with the sale / transfer of the property and are to be allowed as a deduction u/s 48 of the Act while computing the LTCG on sale of the property - these persons were neither a party to the civil suit nor were connected with the original owners of the land and that merely by making payments by cheque and producing receipts for the same are not sufficient to establish that these expenses were incurred wholly and exclusively for the purpose of transfer of the property - the assessee has failed to adduce any evidence to establish that payments to the 4 persons @ ₹ 5 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 21/12/2011 for the assessment year 2008-09. 2. The facts of the case, in brief, are as under:- 2.1 The assessee, a non residential individual, working as a Scientist with Ford Motor Company, U.S.A., filed his return of income for the assessment year 2008-09 on 30/3/2009 declaring income of ₹ 1,63,74,362/- comprising capital gains of ₹ 1,57,82,650/- on sale of an agricultural property bearing Survey No.43/1, situated at Kothanur Village, K R Puram Hobli, Bangalore measuring about 6 acres 5 guntas for a sale consideration of ₹ 3,50,93,750/- which was purchased by Regd. Sale Deed dated 25/11/1981 at a total consideration of ₹ 48,500/- in December, 2007 and interest income of ₹ 5,91,712/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) and taken up for scrutiny by issue of notice under section 143(2) of the Act. The assessment was completed by an order dated 16/12/2010 determining the income from long term capital gains (LTCG) at ₹ 2,98,26,515/- by making the following disallowances:- (i) Indexed cost of improvement ₹ 53,47,235 (ii) Expenses incurred on transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption of ₹ 50 lakhs being the investment made in the NHAI Bonds which the appellant is eligible to invest under the provisions of section 54EC of the Act under the facts and circumstances of the case. 7. The learned authorities below are not justified in law in not allowing the professional charges paid by the appellant amounting to ₹ 1,96,630 to the chartered accountant for advising on the transfer of the property holding that the same is not an allowable expenditure under the facts and circumstances of the case. 8. The appellant denies himself liable to be charged to interest under sections 234A, 234B 234C of the Income Tax Act, 1961, under the facts and circumstances of the case. 9. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 10. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity. 4.0 We have heard both the parties on their respective contentions. The learned AR of the assessee has filed a paper book, compilation of 107 pages and also placed on record certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that the sale consideration includes these immovable assets and therefore a reasonable amount has to be allowed as cost of constructing these immovable assets. 6.2 Per contra, the learned Departmental Representative supported the findings in the orders of the authorities below and prayed that the grounds raised by the assessee be dismissed. 6.3 We have heard both parties and carefully perused and considered the material on record. Section 48 of the Act lays down that while computing capital gains the income chargeable to tax shall be computed by deducting from the full value of consideration received the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of improvement thereto. In order to ascertain as to whether at the time of sale or transfer of the said property, any improvement to the property was in existence, we have perused both the sale deed 25.11.1981 whereby the assessee purchased the said property and sale deed dt.14.12.2007 whereby he sold the said property in the relevant period. On perusal thereof we find that when the property was purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sold by the assessee soon thereafter on 14.12.2007. On examination, it was submitted, that the Assessing Officer allowed only an amount of ₹ 5 lakhs as expenses incurred for transfer of the said property and disallowed the balance ₹ 35 lakhs holding that these cannot be said to have been incurred wholly and exclusively for transfer of the property. The learned CIT(Appeals) however held that without getting the dispute cleared, it was not possible to sell the property and that the payments made to settle the legal disputes was well within the ambit of section 48 of the Act. He allowed a further amount of ₹ 10 lakhs out of the balance amount of ₹ 15 lakhs paid to M.S. Narayan, Advocate but disallowed a sum of ₹ 5 lakhs paid to him, as it was paid by the assessee in March, 2008 which was after a period of six months from the date of sale, holding that the same could not have been incurred in respect of the sale of the impugned property. It is the contention of the learned counsel for the assessee that the balance of ₹ 5 lakhs paid to Sri M. S. Narayan, Advocate be allowed as the time lag of 3 months should in no way affect the claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit No.7276 of 2005 filed against the assessee for specific performance of sale of the said asset by one Sri A. Bhaskar before the XI Addl. City Civil Judge,Bangalore on 23.9.2005 in which the assessee was represented by Sri M.S. Narayan, Advocate. This suit was dismissed by the Hon'ble Court by its judgment dt.27.11.2007 and thereafter the assessee sold the said property on 14.12.2007. Section 48 of the Act mandates that expenditure incurred wholly and exclusively in connection with the transfer of the said asset and the cost of acquisition of the asset is to be allowed as a deduction from the full value of the consideration received from the transfer on record. On careful consideration of the material on record, we are in agreement with the finding of the learned CIT(Appeals) that the expenses incurred as payment of fees to the Advocate Sri M.S. Narayan of ₹ 5 lakhs each on 6.5.2007, 7.5.2007 and 18.12.2007 aggregating to ₹ 15 lakhs are incurred wholly and exclusively in connection with the transfer of the said asset for getting the suit dismissed by the Hon'ble City Civil Judge, Bangalore on 27.11.2007 without which it would not have been possible to transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of professional charges of ₹ 1,96,630 paid by the assessee to M/s. Amarnath Kamath Co., Chartered Accountant for advising him on the transfer of property on the ground that the same payment is not an allowable expenditure. 8.2 We have heard both parties, perused and carefully considered the material on record. The learned counsel for the assessee argued that the provisions of section 48 of the Act was similar to that of section 37 of the Act and just as expenses incurred by a business by way of payment to chartered accountants for audit of books, filing of returns of income, etc. of a business house are allowed under section 37 of the Act, similarly the payment made for advise on capital gains ought to be allowed under section 48 of the Act for the assessee who has no other source of income other than capital gain and interest income as a result of sale of property. After careful consideration, we do not find the arguments put forth by the learned counsel for the assessee to be sustainable. We, rather, agree with the finding of the learned CIT(Appeals) that this expense on payments to chartered accountants is not allowable as a deduction under section 48 of the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the second investment of ₹ 50 lakhs is also made before the expiry of six months period from the date of sale. The Assessing Officer therefore was of the view that the time limit of section 54EC is to limit the exemption to ₹ 50 lakhs and hence restricted the exemption to ₹ 50 lakhs. 9.3 The learned CIT(Appeals) while disposing off the appeal appeared to agreed in principle with the assessee that as per the proviso to section 54EC of the Act the limit of ₹ 50 lakhs pertains to the investment that can be made in a single financial year and that the section does not prevent an assessee from availing exemption of ₹ 1 Crore in the event the assessee were to invest a sum of ₹ 50 lakhs in a particular financial year and a further sum of ₹ 50 lakhs in the immediately succeeding financial year, subject to the basic condition of section 54EC of the Act that both investments are made within a period of six months from the date of sale of the property. The learned CIT(Appeals) however restricted the claim of deduction to ₹ 50 lakhs by holding that the second investment of ₹ 50 lakhs in NHAI Bonds falls outside the period of six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis those who sell property in the period October to March of the same financial year. In this view of the matter, they came to the conclusion that for the investment to be made within a period of six months, the exemption under section 54EC of the Act is to be restricted to ₹ 50 lakhs only. 9.7 The learned counsel for the assessee placed reliance on circular No.3/2008 dt.12.3.2008 issued by CBDT, being an explanatory note on the provisions relating to Direct Taxes in Finance Act, 2007. In the said para 28.2 thereof the reason for it to set a limit on the quantum of investment by a person in a financial year, reads as under : 28.2 The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible, should reference be given to that view which promotes constitutionality and not where the statute can be read only in a particular way. The following decisions of the Hon'ble Apex Court have laid down the proposition that provisions for deduction, exemption or relief are to be construed liberally in order to advance the objective and not to frustrate it. (i) CIT Vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (196 ITR 149)(SC) (ii) CIT Vs. Vegetable Products Ltd. ( 88 ITR 192) (iii) Bajaj Tempo Ltd. Vs. CIT (196 ITR 188)(SC) Taking into consideration the overall facts and circumstances of the case, the CBDT s Circular No.3/2008, and the principles laid down by the Hon'ble Apex Court for interpreting statutes, we are of the considered view that it would be in the fitness of things, to follow the decision of the ITAT, Ahmedabad Bench in the case of Aspi Ginwala Others (supra) relied on by the assessee and hold that the assessee is entitled to total deduction under section 54EC of the Act spread over a period of two financial years @ ₹ 50 lakhs each on investments made in specified instruments within a period of six months from the date of sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. JCIT reported in 81 ITD 163 held that the assessee therein was prevented by sufficient cause from investing within the statutorily permitted period of six months and allowed the assessee exemption under section 54EC of the Act in respect of the said investment. In the present case before us, the assessee has made payment for the investment in NHAI which was encashed on 9.6.2008 well within the statutorily permitted period of six months from the date of sale of the property (i.e. upto 13.6.2008). What is to be reckoned here is the date of payment and not the date of allotment as the same is not in the control of the assessee. In this view of the matter, we hold that the date of payment (i.e. date of encashment of cheque) is to be reckoned for calculating the six month period and since in this case the date of payment / encashment being well within the period of six months, the assessee is entitled to exemption under section 54EC of the Act even on the second investment of ₹ 50 lakhs made in Bonds issued by NHAI. It is ordered accordingly. 11. In the result, the assessee's appeal is partly allowed. Order pronounced in the open court on 14th Dec., 2012. - - TaxT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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