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2006 (6) TMI 166
Issues:
Residential status determination - 'resident and ordinarily resident' vs. 'resident but not ordinarily resident'
Detailed Analysis:
1. The appeal was filed against the order of the ld. CIT(A) for the assessment year 2001-02, focusing on the residential status of the assessee. The assessee claimed to be 'resident but not ordinarily resident,' but the Assessing Officer considered the assessee as 'resident and ordinarily resident' based on the days spent in India during the relevant assessment year.
2. The Assessing Officer noted that the assessee had been in India for more than 182 days during the assessment year, making him a resident as per section 6(1)(a) of the Act. Considering the assessee's presence in India in 5 out of the 10 previous years, the Assessing Officer treated the assessee as 'resident and ordinarily resident' under section 6(1) read with section 6(6) of the Act.
3. The ld. CIT(A) upheld the Assessing Officer's order, citing the amendment in the Act by the Finance Act, 2003, which clarified that a person would be 'not ordinarily resident' only if non-resident in at least 9 out of the 10 previous years preceding the relevant year. This amendment was deemed clarificatory in nature.
4. The assessee argued that based on various case laws, he should be considered 'resident but not ordinarily resident' since he was not resident in India for 9 out of the 10 years preceding the relevant year. The specific conditions for being 'not ordinarily resident' were discussed, emphasizing the importance of the number of years of residency.
5. The Tribunal analyzed the amendment brought by the Finance Act, 2003, which substituted the definition of 'not ordinarily resident' to include being non-resident in India in 9 out of the 10 previous years. The Tribunal considered the legislative intent and the impact of the amendment on the assessee's residential status.
6. The Tribunal rejected the ld. CIT(A)'s interpretation based on the Explanatory Note, emphasizing that the amendment had substantive implications on the assessee's tax liability and residential status. The Tribunal highlighted the principle of prospective application of statutes affecting vested rights and concluded that the assessee was rightly claiming the status of 'resident but not ordinarily resident' for the assessment year in question.
7. The Tribunal addressed the ld. CIT(A)'s concerns about potential anomalies in interpretation, emphasizing the strict interpretation of taxing statutes and the correction of casus omissus through legislative amendments. The Tribunal clarified that aid to Notes on clauses can only be sought in case of ambiguity in the section.
8. Ultimately, the Tribunal allowed the assessee's appeal, supporting the claim of 'resident but not ordinarily resident' status based on the specific conditions and the legislative amendments affecting residential status determination.
This detailed analysis covers the issues related to the residential status determination in the judgment, providing a comprehensive understanding of the arguments presented and the Tribunal's decision based on legal principles and case laws.
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2006 (6) TMI 163
Issues:
1. Validity of notice under section 148 of the IT Act, 1961.
2. Legality of assessment order passed under section 143(3)/148.
Analysis:
1. The appeal in question pertains to the validity of a notice issued under section 148 of the IT Act, 1961, for the assessment year 1994-95. The primary contention was whether the notice dated 29th May, 2001, for reassessment was justified or illegal. The CIT(A) had quashed the assessment order dated 28th March, 2003, on the grounds that the second notice was unwarranted as there was no new information necessitating its issuance. The AO had previously completed an assessment based on information received from ITO (CIB), Jaipur, and subsequently issued a fresh notice based on information from Central Circle-I, Jaipur. The CIT(A) held that this amounted to a mere change of opinion by the AO, which is impermissible under the law.
2. Upon thorough examination of the facts and legal precedents, the Tribunal found that the second assessment proceedings were initiated solely on the basis of the same facts that were considered during the first assessment. The AO had already determined the genuineness of various creditors in the initial assessment and made additions accordingly. The subsequent notice and reassessment were deemed to be a case of change of opinion, which is not a valid ground for reassessment as per established legal principles. Citing relevant case laws such as Andhra Bank Ltd. vs. CIT and CIT vs. Paper Products Ltd., the Tribunal affirmed that reassessment cannot be made solely on the basis of a change in the AO's opinion. The legal position was further reinforced by the decision in CIT vs. Kelvinator of India Ltd., emphasizing that the AO lacks the authority to revisit an assessment based on the same set of facts.
3. Consequently, the Tribunal upheld the decision of the CIT(A) to quash the reassessment proceedings, deeming them as a mere change of opinion by the AO. The appeal by the Revenue was dismissed, affirming the legality of the CIT(A)'s order in setting aside the assessment order dated 28th March, 2003. The judgment serves as a significant reminder of the limitations on the AO's power to initiate reassessment based on a mere change of opinion, emphasizing the importance of adhering to established legal principles in tax assessments.
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2006 (6) TMI 161
Issues:
1. Deletion of trading addition made by AO
2. Charging tax on long-term capital gain
Deletion of Trading Addition:
The appeal pertains to the deletion of a trading addition of Rs. 13,14,019 by the AO, which was challenged by the Revenue. The AO rejected the books of account of the assessee due to a low profit rate and a negative capital balance. The CIT(A) deleted the addition stating that the AO did not point out any defects in the books of account. The GP rate declared by the assessee was better than the previous years, and the AO failed to provide any specific reasons for adopting a net profit rate of 4 percent. The ITAT noted that the GP rate shown by the assessee was better than the previous year's, and there was no justification for the trading addition. The ITAT dismissed the Revenue's appeal on this issue.
Charging Tax on Long-Term Capital Gain:
The second issue revolved around the charging of tax on long-term capital gain. The assessee showed short-term capital gain on the sale of certain assets and long-term capital gain on the sale of a plot. The AO treated the plot and building as a single unit, not allowing long-term capital gain on the land. However, the assessee contended that the land was a separate asset and no depreciation was claimed on it. The CIT(A) allowed relief to the assessee after examining the documents provided. The ITAT reviewed the documents and found that the assessee consistently showed the land separately without claiming depreciation. Referring to a decision of the Hon'ble Rajasthan High Court, the ITAT upheld the CIT(A)'s decision to charge tax on the sale of land as long-term capital gains. Consequently, the Revenue's appeal was dismissed on this issue.
In conclusion, the ITAT upheld the CIT(A)'s decision to delete the trading addition and charge tax on long-term capital gain. The Revenue's appeal was dismissed on both issues, emphasizing the importance of consistent documentation and adherence to legal provisions in determining tax liabilities on capital gains.
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2006 (6) TMI 160
Issues:
1. Addition under section 69 of the Act
2. Charging of interest under sections 234A, 234B, and 234C
Issue 1: Addition under section 69 of the Act
The case involved an appeal against the confirmation of an addition of Rs. 22,075 under section 69 of the Act. The dispute centered around the source of funds for the purchase of an FDR and an investment made by the assessee. The AO questioned the cash in hand amount shown by the assessee, leading to the addition. However, the Tribunal found the AO's reasoning based on suspicion and conjectures, as the cash in hand was supported by the balance sheet. The Tribunal concluded that the addition was unjustified, ordering its deletion.
Issue 2: Charging of interest under sections 234A, 234B, and 234C
The assessment order did not specify the charging of interest under sections 234A, 234B, and 234C. The debate revolved around whether interest could be charged without explicit mention in the assessment order. The Tribunal noted conflicting decisions by different High Courts on this matter. While some courts upheld charging interest as mandatory, others required specific directions in the assessment order. Citing relevant case law, the Tribunal followed the opinion of the jurisdictional High Court, ruling that interest under sections 234A and 234B could not be charged without explicit directions in the assessment order. Consequently, the Tribunal allowed the appeal on this ground, holding that the levy of interest in the given circumstances could not be upheld.
In conclusion, the Appellate Tribunal ITAT JODHPUR ruled in favor of the assessee, ordering the deletion of the addition under section 69 of the Act and disallowing the charging of interest under sections 234A and 234B due to the absence of specific directions in the assessment order.
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2006 (6) TMI 159
Issues:
- Whether interest under sections 234B & 234C of the IT Act should be charged after setting off MAT credit.
Analysis:
1. Issue of Interest Calculation: The Revenue appealed against the CIT(A) order directing to charge interest under sections 234B & 234C of the IT Act after setting off MAT credit. The AO initially calculated interest after allowing MAT credit under section 115JAA. However, the AO later issued a notice under section 154 to rectify this, claiming interest under sections 234B & 234C. The assessee argued that interest should be calculated after allowing MAT credit, as per section 115JAA provisions.
2. Debatable Issue: The Tribunal noted that the issue of allowing set off before charging interest under sections 234B & 234C was debatable. The Tribunal had previously ruled in favor of the assessee on similar issues. It was established that in cases involving debatable issues, rectification under section 154 cannot be done by the AO. The Tribunal emphasized that such issues require detailed arguments and cannot be decided summarily.
3. Appellate Order Analysis: The Tribunal reviewed the CIT(A) order, which extensively analyzed sections 115JAA, 234B, and 234C of the Act. The CIT(A) concluded that set off of MAT paid in earlier years is allowable under section 115JAA. The set off of MAT is against the tax payable, not the total tax amount. The Tribunal agreed with the CIT(A)'s interpretation, stating that allowing set off before charging interest aligns with the logic and provisions of the law. Consequently, the demand raised by the Revenue post rectification was deemed incorrect, and the Tribunal confirmed the CIT(A) order.
4. Decision: Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A) decision. The Tribunal concurred with the CIT(A)'s reasoning that set off of MAT credit should be allowed before charging interest under sections 234B & 234C. The Tribunal's decision was based on a comprehensive analysis of relevant legal provisions and logical interpretation of the law.
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2006 (6) TMI 157
Deduction u/s 80-IA - industrial undertaking - the activities of sawing of marble blocks into sizeable blocks and tiles before selling them into market - considered a 'manufacturing' or 'production' activity? - difference of opinion between the learned Members - Third member Order - Whether the cutting of marble blocks into marble slabs amounts to manufacture for the purpose of the Central Excise Act?
J.M. - HELD THAT:- We have no hesitation in holding that the production process employed by the assessee involves manufacturing activity. Accordingly, it is entitled to deduction u/s 80-IA of the Act as per law. We are also satisfied that the word 'produced' even wider in meaning and, therefore, even on that count, the assessee's claim u/s 80-IA deserves to be allowed. The AO is accordingly directed to allow the claim of the assessee u/s 80-IA of the Act in both the years under consideration. In the result, the appeals of the assessee are allowed.
A.M. - HELD THAT:- The activities undertaken by the assessee for converting the marble blocks into marble slabs and tiles do not amount to 'manufacture' or 'production' in view of the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd.[1996 (2) TMI 26 - RAJASTHAN HIGH COURT] and of Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. [2000 (8) TMI 6 - SUPREME COURT]. Therefore, the assessee is not entitled to deduction u/s 80-IA. Accordingly, the order of CIT(A) does not merit any interference and all the grounds of appeal of the assessee for both the assessment years are rejected. In the result, the appeals of the assessee are dismissed.
Third Member - HELD THAT:- Assessee has purchased marble blocks and the same have been cut to various sizes, part of which has been exported and part sold in India. It is also pertinent to mention that the assessee is also engaged in doing the job work of cutting the marble blocks into marble slabs on payment of job charges. The assessee also makes marble tiles by cutting the marble slabs and polishing and buffing the same. The issue to be determined is as to whether the decision of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT [2000 (8) TMI 6 - SUPREME COURT], is applicable to the facts of the present case or the decision of Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd., or none is applicable.
In the case of Lucky Minmat (P) Ltd., the assessee was a mine owner, the marble blocks had been cut into marble blocks and as such a distinction in the facts has got to appreciated insofar as what was excavated from the mines was sold after cutting the same into smaller blocks the product remaining the same. In the case of Sesa Goa Ltd.[2004 (11) TMI 14 - SUPREME COURT], their Lordships of the Supreme Court held that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production'. Their Lordships referred to its decision in the case of CIT vs. N.C. Budharaja & Co.[1993 (9) TMI 6 - SUPREME COURT], to hold that the word 'production' is much wider than the word 'manufacture'.
Whether the sawing of marble blocks into marble slabs and tiles with or without polishing amounts to production of article or thing - The contention advanced on behalf of the assessee that the decisions to the effect that the activities carried on by the assessee do not amount to manufacture of article or thing would not come in the way of the assessee insofar as even the production of article or thing not amounting to manufacture also enables the assessee to get the deduction u/s 80-IA is also bereft of substance. In the case of CCE vs. Fine Marble & Minerals (P) Ltd. [1984 (5) TMI 256 - CEGAT NEW DELHI], has specifically pointed out that cutting of marble blocks into marble slabs does not amount to manufacture or production of article or thing.
In the case of Fine Marble & Minerals (P) Ltd. is referred to in the order of the Tribunal in the case of Aman Marble Industries (P) Ltd. vs. CCE [2003 (9) TMI 81 - SUPREME COURT], and has been relied upon by the learned JM of CEGAT whose decision has ultimately been upheld by the Hon'ble Supreme Court. It is evident from the above decision of the Central Excise Tribunal that the activities carried on by the assessee do not also fall within the ambit of production of article or thing and, therefore, the assessee is not entitled to deduction under s. 80-IA.
Thus, the cutting of marble blocks into marble slabs and tiles and selling the same after polishing does not amount to either production or manufacture of any article or thing. I, therefore, concur with the view expressed by the learned AM.
In conformity of the opinion of the majority of the Members of the Tribunal who have heard these cases, for the reasons cited in the orders, we adjudicate the issue apropos of the point of difference against the assessee.
In the result, both the appeals stand dismissed.
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2006 (6) TMI 153
Stock Exchange - charitable institution - Grant of exemption u/s 11 - benefit of accumulation of income - Objects of General Public Utility - whether the objects of the company are charitable or not? - claimed depreciation - HELD THAT:- The AO in the present case has failed to point out any specific instance that the assessee has not complied with the conditions mentioned in s. 11(5) of the Act. The AO has herself contradicted her own statement mentioning that the assessee does not have business income. Therefore, following the decision of the Tribunal in assessee's own case in the AY 1988-89 and consistency thereafter, we are of the view that the assessee is a charitable institution u/s. 2 sub-s. (15) of the Act and is eligible to exemption u/s 11 of the Act.
The main decisions relied upon by the AO were in respect of Delhi Stock Exchange[1997 (3) TMI 11 - SUPREME COURT], Madras Stock Exchange [1976 (4) TMI 47 - MADRAS HIGH COURT], and Ahmedabad Stock Exchange[1990 (6) TMI 84 - ITAT AHMEDABAD-A]. All the said cases relied upon by the AO have been discussed in the paras hereinbefore wherein the said stock exchanges have been held to be a charitable institution u/s 2(15) of the Act and have been allowed exemption u/s 11 of the Act. Therefore, in the circumstances of the present case, following decision in assessee's own case and decisions of various stock exchanges referred to in this para, we hold the assessee as a charitable institution u/s 2(15) of the Act and assessee is eligible for grant of exemption u/s 11 of the Act and the assessee is allowed the benefit of accumulation of income. Thus, ground Nos. 1 and 2 of the Revenue are dismissed.
Whether the depreciation claimed by the assessee on fixed assets is allowable deduction to arrive at the income available for application to charitable purposes - Assessee has relied upon judgments of various High Courts and the headnotes of said judgments by the various High Courts are: CIT VS. Society of the Sisters of St. Anne [1983 (8) TMI 44 - KARNATAKA HIGH COURT].
Following the same, Depreciation on fixed assets is an allowable deduction which is necessary to arrive at the income available for application to charitable purposes. Hence, depreciation on fixed assets in the present case is an allowable deduction. Therefore, the AO is directed to examine the claim of depreciation as per rules and allow the same to the assessee. Thus, ground No. 3 of the Revenue is dismissed.
In the result, both the appeals of the Revenue are dismissed.
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2006 (6) TMI 151
Issues Involved:
1. Determination of annual value of the property.
2. Legitimacy of claiming loss from house property.
3. Interpretation of Section 23(1) and Explanation 1 of the Income Tax Act.
4. Validity of the tax planning device used by the assessee.
Detailed Analysis:
1. Determination of Annual Value of the Property:
The primary issue revolves around the correct determination of the annual value of the property for tax purposes. The assessee let out a property for one day each year at a rent of Rs. 1,000 and computed the annual value at Rs. 3,65,000. The Assessing Officer rejected this computation, determining the total income without considering the claimed loss from house property.
2. Legitimacy of Claiming Loss from House Property:
The assessee claimed a loss from house property by calculating the annual value based on the one-day rent, leading to a significant vacancy allowance and repair deductions. This resulted in a computed loss of Rs. 90,250, which was set off against other income. The Assessing Officer and CIT(A) rejected this claim, suspecting it as a tax evasion tactic.
3. Interpretation of Section 23(1) and Explanation 1:
Section 23(1) of the Income Tax Act deals with the determination of the annual value of a property. Clause (a) refers to the reasonable rent expected, and clause (b) refers to the actual rent received if it exceeds the reasonable rent. Explanation 1 defines 'annual rent' for properties let out throughout the year and for shorter periods. The Tribunal examined whether the rent for one day could be extrapolated to determine the annual value.
4. Validity of the Tax Planning Device:
The Tribunal scrutinized whether the assessee's method of letting out the property for one day at a high rent to claim higher deductions was a legitimate tax planning device or a colorable device to evade tax. The Tribunal found that the device used by the assessee led to absurd results, providing undue tax benefits and reducing the tax liability on other income heads.
Judgment Summary:
1. Annual Value Determination:
The Tribunal upheld the CIT(A)'s decision that the annual value should be based on the municipal valuation (Rs. 2,068) rather than the inflated figure derived from one day's rent. The CIT(A) directed the Assessing Officer to recompute the income from house property using the municipal valuation.
2. Loss from House Property:
The Tribunal found that the assessee's claim of loss from house property was unjustified. The method of letting out the property for one day at a high rent was deemed a device to claim undue deductions and reduce taxable income from other sources.
3. Section 23(1) and Explanation 1 Interpretation:
The Tribunal clarified that the term 'annual rent' in Explanation 1 should not be interpreted to allow an unreasonable multiple of one day's rent to determine the annual value. The property should be let out for a reasonable period, such as a month, to apply the proportionate calculation.
4. Tax Planning Device:
The Tribunal concluded that the assessee's approach was a colorable device to evade tax. Allowing such a method would lead to absurd results and undermine the tax laws' intent. The Tribunal emphasized that tax planning should not involve artificial transactions designed solely to gain tax benefits.
Conclusion:
The Tribunal dismissed the assessee's appeals, sustaining the CIT(A)'s orders. The annual value of the property was determined based on the municipal valuation, and the claim of loss from house property was rejected as a tax evasion tactic. The judgment reinforces the principle that tax planning should not involve artificial and unreasonable methods to reduce tax liability.
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2006 (6) TMI 150
Issues:
Claim of exemption under section 54F for long-term capital gain on sale of shares invested in construction of residential house on husband's land.
Analysis:
The assessee earned a long-term capital gain on sale of shares and claimed exemption under section 54F of the Income Tax Act for investing the sale consideration in the construction of a residential house within three years. The Assessing Officer (AO) denied the claim as the property title was not transferred to the assessee. The assessee argued that possession of the house was sufficient for ownership under section 27(iii)(a) of the Transfer of Property Act. The Commissioner of Income Tax (Appeals) upheld the AO's decision due to lack of title transfer and relationship between the contracting parties. The Tribunal considered the legal aspect of ownership and cited the Supreme Court judgment in R.B. Jodhamal Kulthiala vs. CIT (1971) 82 ITR 570 (SC) to establish that registration is not necessary for ownership. The Tribunal also referred to section 27(iiia) which deems a person as an owner if in possession of a building under a contract in part performance of the Transfer of Property Act.
The Tribunal found that the assessee, despite not holding legal title, was the owner of 50% of the house constructed on the husband's land. The Tribunal rejected the Revenue's argument that the agreement between husband and wife was not genuine, emphasizing that the assessee had indeed constructed a residential house, meeting the requirements of section 54F. The Tribunal clarified that exclusive ownership was not mandatory under section 54F and that the assessee's ownership of 50% was sufficient. The Tribunal also highlighted the relevance of ownership over division in cases where contracting parties are related.
Furthermore, the Tribunal considered judgments such as Saiffuddin vs. CIT (1985) 48 CTR (Raj) 197 and CIT vs. Ajit Kumar Roy (2001) 170 CTR (Cal) 187 to support the assessee's case of ownership despite lack of legal title. The Tribunal noted that in these cases, ownership was recognized based on factors like construction involvement and investment, even when legal title was not in the assessee's name. Based on the legal principles and precedents, the Tribunal concluded that the CIT(A)'s decision was not sustainable and allowed the assessee's claim for exemption under section 54F.
Therefore, the Tribunal allowed the appeal of the assessee, recognizing her ownership of 50% of the residential house constructed on her husband's land, and granting the exemption under section 54F for the long-term capital gain on sale of shares.
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2006 (6) TMI 149
Capital Gains or not - amount on sale of shares, by the lender, of the NUT shares owned by the appellant but pledged to the lender - noyt applying the ratio of V.S.M.R. JAGADISHCHANDRAN (DECD.) VERSUS COMMISSIONER OF INCOME-TAX [1997 (7) TMI 6 - SUPREME COURT] - ignoring the fact that the assessee can legally recover the amount from the third party for whose benefits the assessee pledged his shares and sale proceeds of which were appropriated by the financial institution - ignoring the provisions of section 2(47) and section 45.
Whether the ratio of the judgments of Hon'ble Supreme Court in the cases of RM. ARUNACHALAM VERSUS COMMISSIONER OF INCOME-TAX [1997 (7) TMI 5 - SUPREME COURT] and V.S.M.R. Jagdishchandran/COMMISSIONER OF INCOME TAX VERSUS ATTILI N. RAO [2001 (10) TMI 5 - SUPREME COURT] cover the case before us against the assessee?
HELD THAT:- The criteria is the perfection of title in order to effect the sale. In this present case, without removing the liability of the Allahabad Bank, the title of the purchaser could not be perfected. Having regard to the facts and circumstances of this case and the position in law as discussed above, the meeting of the liability of the Allahabad Bank relating to the assets of Gobindo Sheet Metal was an expenditure incurred wholly and exclusively in connection with the transfer.
We should follow the judgment of Hon'ble Calcutta High Court in the case of GOPEE NATH PAUL AND SONS AND ANOTHER VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. [2005 (3) TMI 73 - CALCUTTA HIGH COURT] and of Hon'ble Kerala High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS SMT. THRESSIAMMA ABRAHAM (NO. 1) [1996 (9) TMI 60 - KERALA HIGH COURT] in preference to the judgment of Hon'ble Bombay High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS ROSHANBABU MOHAMMED HUSSEIN MERCHANT, FANCY CORPORATION LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER. [2005 (1) TMI 53 - BOMBAY HIGH COURT] for the following reasons:
(1) Both in the cases of R.M. Arunachalam and V.S.M.R. Jagdishchandran, the Hon'ble Supreme Court were not considering a situation pertaining to loss of capital asset on account of guarantee for a third party loan. In the case of R.M. Arunachalam the question was whether estate duty paid can he treated as a part of cost of acquisition of asset to the inheritor. In the case V.S.M.R. Jagdishchandran and Attill N. Rao encumbrance was created by the owner of the capital asset for his own benefit and those assessecs had already received value corresponding to mortgage liability. Thus, in none of the cases there was any loss or erosion in the value of capital asset without any benefit whatsoever to the owner.
(2) In the case of Smt. Thressiamma Abraham the Tribunal held that the amount paid by that assessee to discharge the debt was an expenditure incurred by the assessee for removing the encumbrance. Hon'ble Kerala High Court, though upheld the decision, clarified that the Tribunal appeared to have been proceeding in wholly unnecessary direction by resorting to the provisions relating to the deduction from the full value of the consideration provided under section 48 of the Act According to the view taken by the Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham the crux of the matter was not any expenditure for removal of encumbrance but the reduction in the full value of consideration on account of diversion of amounts at source.
(3) In the case of Roshanbabu Mohammad Hussein Merchant the assessee had sought permission from the bank and voluntarily deposited part of the sale proceeds of the plot of land towards discharge of the debt so as to have clear title over the remaining plot of land; whereas in the case of Smt. Thressiamma Abraham as well as in the case before us the mortgaged property had been sold by the credit institutions.
(4) In the instant case the assessee had already handed over share certificates in original along with duly signed bank transfer deeds to the credit institutions. Thus, the assessee had already completed his part of transfer at the time of the pledge of the shares and in the event of the failure on the part of Pertech and Swati the credit institutions could freely sell the shares in the open market.
(5) During the course of arguments in the case of Smt. Thressiamma Abraham, the revenue had placed reliance on the earlier judgments of Kerala High Court in the cases of Ambat Echukutty Menon; Salay Mohd. Ibrahim Sail and K.V. Idiculla, but the same were distinguished by the Hon'ble High Court in the case of Smt. Thressiamma Abraham. These three judgments relied upon by revenue have been expressly over-ruled by Hon'ble Supreme Court in the case of R.M. Arunachalam.
(6) In the instant case what appears to us to be clinching the issue is the fact that the assessee before us has not received a single paisa from out of sale proceeds of the assessee's shares running into crores of rupees. At the cost of repetition we may state here that there is not a whisper in the order of the Assessing Officer or the learned CIT(A) that the assessee, at any stage before, during or after the pledge of shares in question, received anything in terms of money or money's worth in relation to parting with of the assessee's shares for the benefit of Pertech and Swati. There is thus no force in the contention of the learned CIT(DR) that under clause 6 of the agreement the assessee could receive surplus sale proceeds after credit institutions satisfied their rights in full. Fact of the matter is that there was no surplus.
Having regard to the huge amount involved it may also be safely assumed that the assessee should have been reasonably aware of the very likelihood of loosing the capital asset. If these hazards did not deter the assessee, the assessee was within his legal rights to do whatever he felt like to do with his absolute property. The assessee was even entitled to throw these shares from the window of a running train if he so wished because he was absolute owner of these shares. In the case before us there is not even a wishper of any advantage received by the assessee. On the facts of the case as they have emerged before us the only possible inference is that the assessee made a kind of gift of these shares in favour of Pertech and Swati.
The profits or gains arising from the sale of 11,72,900 shares of NIIT Ltd. in question cannot be charged to tax in the hands of the assessee before us because no value of the consideration was either received or accrued as a result of the transfer of those shares. Moreover, even if notionally any consideration on sale of transfer accrued to the assessee, there was diversion of the entire consideration at source before it became income in the hands of the assessee.
This appeal filed by the revenue fails and is accordingly dismissed.
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2006 (6) TMI 148
Issues Involved:
1. Whether the order of assessment was barred by time as per the provisions of the Income Tax Act.
2. Application of sections 158BE, 158BH, and 153 of the Income Tax Act in computing the period of limitation for block assessment.
Issue-wise Detailed Analysis:
1. Whether the order of assessment was barred by time as per the provisions of the Income Tax Act:
The assessee argued that the order dated 31st March 2003 passed by the Assessing Officer (AO) was beyond the period of limitation as laid down in section 158BE of the Income Tax Act. The original assessment was completed on 31st March 2001, which was within the period of limitation. However, after the Commissioner of Income Tax (CIT) set aside this assessment under section 263, the AO passed a new order on 31st March 2003, which the assessee contended was beyond the prescribed time limit.
2. Application of sections 158BE, 158BH, and 153 of the Income Tax Act in computing the period of limitation for block assessment:
Section 158BE:
This section prescribes the time limit for completion of block assessment. It states that the order under section 158BC should be passed within two years from the end of the month in which the last of the authorizations for search was executed. In this case, the search was conducted on 12th October 1999, and the original assessment order was passed on 31st March 2001, which was within the time limit. However, the subsequent order passed on 31st March 2003, after the CIT's intervention, was beyond this period.
Section 158BH:
This section states that all other provisions of the Income Tax Act shall apply to assessments made under Chapter XIV-B, except where otherwise provided. The Revenue argued that by virtue of section 158BH, the provisions of section 153(2A) should apply, which allows one year from the end of the financial year in which the order under section 263 is passed by the CIT. Therefore, the period of limitation would be 31st March 2003, which is one year from the end of the financial year 2001-02.
Section 153:
The Revenue contended that section 153(2A) extends the period of limitation for passing the order of assessment after it is set aside by the CIT under section 263. This section allows an additional year from the end of the financial year in which the order under section 263 is passed.
Court's Analysis and Judgment:
The court held that section 158BE is a complete code in itself, providing a specific time frame for passing an order of assessment under Chapter XIV-B of the Act. The court referenced the judgment of the Rajasthan High Court in CIT vs. Ramesh Chand Soni, which stated that section 158BH permits the operation of other provisions of the Act only in areas where no provisions are made in Chapter XIV-B. Since section 158BE provides a specific period of limitation for block assessments, the provisions of section 153 do not apply.
The court found that the order passed on 31st March 2003 was beyond the prescribed time limit and annulled the assessment order. Consequently, the other issues raised by the assessee were not considered.
Conclusion:
The appeal by the assessee was allowed on the grounds that the order of assessment dated 31st March 2003 was barred by time as per the provisions of section 158BE of the Income Tax Act. The court emphasized that section 158BE is a complete code in itself, and the provisions of section 153 do not apply to block assessments under Chapter XIV-B.
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2006 (6) TMI 147
Computation of Capital gain - Valuation of the property - The full value of consideration by the fair market value on the basis of the DVO's report? - HELD THAT:- From the facts available on record it is clear that the sale consideration as per the registered document was only a sum of Rs. 18 lakhs. There was no material available with the AO to show that the assessee received much more than a sum of Rs. 18 lakhs as shown in the registered documents.
We are bound to follow the decision of the Hon'ble Supreme Court in the case of K.P. Verghese [1981 (9) TMI 1 - SUPREME COURT] and in the case of C.B. Gautam[1992 (11) TMI 1 - SUPREME COURT].
As observed by us, there is no evidence before the Revenue authorities to show or suspect that the sale value declared in the instrument of transfer was understated and that consideration over and above what was stated in the instrument of transfer had passed between the parties. We, therefore, hold that the action of the AO in substituting the full value of the consideration received by the fair market value as stated by the DVO in his report was not in accordance with law. In the circumstances, we hold that there was no capital gain which could be brought to tax in the hands of the assessee. The appeal of the assessee is allowed.
In the result, the appeal by the assessee is allowed.
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2006 (6) TMI 146
Marginal Fall In GP Rate - trading addition - unexplained public deposit accepted u/s 68 - failed to file corroborative evidence - non-business related expenditure - disallowance of foreign travelling expenses - Entertainment expenditure - Order of the CIT(A) is non-speaking - HELD THAT:- In the instant case, the assessee is a company under the Companies Act, 1956 whose accounts are statutorily audited and there are no adverse observations in this regard. In fact, the reasons explained for the marginal decline are also reasonable and can be accepted. The AO has reproduced the reply of the assessee made before him wherein the reasons for the decline have been explained. Ostensibly, the assessee explained that the average selling price of one of its products, namely, connecting rods declined in this year. Further, the purchase price of raw material remained the same. None of these explanations has been commented adversely by the AO and yet the addition has been made. Thus, we are inclined to affirm the conclusions drawn by the CIT(A) that the impugned addition was unwarranted. Accordingly, on the first ground, the Revenue fails.
We notice that in a large number of cases the repayment cheques issued by the assessee have been furnished before the IT authorities. These cheques which are placed at the paper book contain an endorsement of the bankers of the depositors, which clearly evidence the repayment. The aforesaid piece of evidence clearly demonstrates the identity of the deposit holders. Now, insofar as the quantum of individual deposit is concerned, we find that the same ranges from Rs. 5,000 to Rs. 15,000 in an overwhelming majority of cases. Considered in the face of the fact that the deposits have been received in response to the public advertisement, through normal banking channels, repayments are evidenced by bank and most importantly, the absence of any adverse material with the Revenue, we see no reason to treat the deposits as unexplained. Therefore, considering the overall gamut of facts and circumstances of the issue, we are inclined to affirm the conclusion of the CIT(A) in deleting the addition made by the AO.
Merely because the order of the CIT(A) is brief, cannot be a reason to interpret it as a non-speaking order. In contrast, a non-speaking order is to be understood as one, which shows a lack of application of mind on the part of the authority writing the order. Having noted the manner in which the CIT(A) has proceeded to examine the rival claims, it cannot be said that there is an absence of application of mind on his part. Therefore, the grievance of the Revenue on this count is misplaced. Accordingly, the Revenue fails on this ground.
Foreign travelling - We find that no specific instance of any non-business related expenditure has been pointed out by the AO on this count. The order of the CIT(A), even if we agree with the learned Departmental Representative that the same is brief, yet it brings out the reasons adopted by him for deleting the addition. In any case, having regard to our observations above, we are inclined to affirm the conclusion drawn by the CIT(A), albeit on a different ground. Thus, the Revenue fails in this ground.
Entertainment expenditure - There is no instance noticed by the AO, which showed that the expenditure was incurred for personal purpose. Moreover, the accounts of the assessee, as noted by us earlier, are statutorily required to be audited and have been so done. There is also no adverse observation by the auditors in this regard. The disallowance, therefore, was made by the AO on mere surmises and conjectures. Therefore, the CIT(A) appropriately deleted the addition. We hereby affirm the order of the CIT(A) and, therefore, the Revenue fails on this ground.
In the result, the appeal of the Revenue is dismissed.
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2006 (6) TMI 145
Issues:
1. Denial of exemption under s. 10(5B) of the IT Act 1961.
2. Levy of interest under s. 234B of the IT Act.
Analysis:
Issue 1: Denial of exemption under s. 10(5B) of the IT Act 1961:
The case involved an appeal by the assessee against the denial of exemption under s. 10(5B) of the IT Act for the assessment year 1998-99. The assessee, a managing director, claimed exemption based on specialized knowledge and experience in technical fields. The assessing officer denied the exemption, stating the managing director role did not qualify as a "technician." The CIT(A) upheld the denial, emphasizing direct involvement in technical work for exemption. The assessee argued his qualifications and job responsibilities aligned with the definition of a technician under s. 10(5B). The Tribunal analyzed the facts, noting the assessee's technical contributions, experience, and job profile. The Tribunal found the designation as managing director did not disqualify the assessee as a technician if specialized knowledge was utilized. The Tribunal rejected the Revenue's argument that a managing director could not be a technician, emphasizing job content over designation. The Tribunal upheld the assessee's claim, supported by CBDT circular and job responsibilities demonstrating technical involvement.
Issue 2: Levy of interest under s. 234B of the IT Act:
The second ground of appeal concerned the levy of interest under s. 234B of the IT Act. However, the judgment did not provide detailed analysis or discussion on this issue. The Tribunal simply stated that the appeal filed by the assessee was allowed, indicating success in challenging the levy of interest under s. 234B.
In conclusion, the Tribunal ruled in favor of the assessee regarding the denial of exemption under s. 10(5B) of the IT Act, emphasizing job content and technical contributions over designation. The judgment did not delve into detailed analysis of the levy of interest under s. 234B, but it indicated the overall success of the assessee's appeal.
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2006 (6) TMI 144
Reopening of assessment - Income Escaping Assessment before-issuing notice under section 148 of Income-tax Act - void assessment order - Department is in appeal to contend that the CIT(A) was wrong in holding that the Assessing Officer only had reason to suspect and not reason to believe that income chargeable to tax had escaped assessment.
Reasons to disbelieve - HELD THAT:- We have no reasons to disbelieve the Assessing Officer that the there exists the reasons which were recorded under section 148(2) before issue of the reopening notice. The fact that the paragraph has been given by the Assessing Officer within inverted commas permits the inference that it has been extracted from the record. In these circumstances and despite the fact that the record was not produced before us by the department, we consider it proper to infer that the reasons for reopening the assessment were recorded by the Assessing Officer and they are as given here.
Reasons for reopening the assessment were not disclosed to the assessee or formally communicated to her - HELD THAT:- Before us as also before the Assessing Officer, the assessee has been harping that she did not receive the notice herself as she was away to Pakistan. In fact, in her letter dated 10-3-1998 to the Assessing Officer, she has stated, in a very guarded language that the notice under section 148, if served, might have been left unattended by her servant and that the existence of the notice came to her knowledge for the first time on10-3-1998 when her statement was recorded under section 131. We do not see how the assessee can say at the same breath that she was not served will the notice under section 148 and also that she was not being given reasons for reopening the assessment. This again is only a passing observation.
Assessee was not served with the notice under section 148 - HELD THAT:- It is no doubt true that the service of the notice under section 148 is a condition precedent for the validity of the reassessment proceedings. However, in the peculiar facts and circumstances of the present case, we are unable to hold that the reassessment proceedings can be invalidated on that ground.
Objection based on section 151(1) - HELD THAT:- We are unable to entertain the same. Under this provision, in a case where an assessment has been made under section 143(3) or section 147, no notice under section 148 shall be issued by an Assessing Officer who is below the rank of ACIT or DCIT unless the JCIT is satisfied on the reasons recorded by the Assessing Officer, that it is a fit case for issue of such notice. This section applies only where an assessment has already been made under section 143(3) or section 147 and it is sought to be reopened. In the present case, there was no earlier assessment order under section 143(3) or section 147 which was communicated to the assessee - Obvious as it is, the case of the assessee did not fall under sub-section (2) of section 151 and the satisfaction of the JCIT was not required to be obtained on the reasons recorded by the Assessing Officer before issuing the notice under section 148. We therefore reject the contention raised by the learned counsel for the assessee on this issue.
Whether the CIT(A) was right in holding that the Assessing Officer did not have reason to believe that income had escaped assessment, but merely had "reason to suspect"? - HELD THAT:- It has to be remembered that at the stage of recording reasons and issuing notice under section 148 it is only expected of the Assessing Officer to reach a prima facie conclusion that income chargeable to tax has escaped assessment. At that stage, he is not expected to build a fool-proof or cast-iron case against the assessee before proceeding to issue the notice. He is not expected to make a complete investigation before issuing the notice - there is no force in the submission of the learned counsel for the assessee that the Assessing Officer had not held any enquiry into the veracity of the letter received from the CIB or had not conducted an investigation to check the allegation in the letter before issuing the notice.
The view taken by the CIT(A) that the notice under section 148 was prompted by reason to "suspect" and not reason to "believe", cannot be agreed upon - The matter has to go back to the file of the CIT(A) for decision on merits which he has not dealt with, in the view he had taken of the jurisdiction of the Assessing Officer to reopen the case.
Appeal of Revenue allowed.
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2006 (6) TMI 143
Business Expenditure - salaries and perquisites - payment of the incentive - commercial expediency - Whether there was a liability on the part of the assessee to pay the amount of taxes which the employees were liable to pay in respect of the salaries received by them outside India from Marubeni Corporation, the Japanese company?- HELD THAT:- The assessee merely agreed to pay the salary to the employees when their services were seconded by the Japanese company. If there is no contractual liability, then the amounts cannot be claimed as a deduction for the years under appeal. It is also difficult to imagine that the assessee-company, well advised in its income tax matters, would not have claimed the liability as a deduction in the returns for the years filed originally since the amounts were quite substantial. What seems to have happened, as pointed out by the CIT(A) in rather strong terms, is that the assessee was compelled to pay the taxes in respect of the salaries of the employees received by them outside India from the Japanese company, which the Japanese company ought to have deducted and paid to the Indian Government under section 192 of the Act. Since it failed to do so and since it was a non-resident company, and since the assessee was its 100 per cent subsidiary, there was pressure brought upon the assessee-company to settle the matter with the Income-tax Department by paying the tax component referable to the salaries paid to the employees by the Japanese company outside India.
We are not merely referring to the difficulty in ascertaining the amount of the incentive. Even the very question whether the assessee was liable to pay the taxes as incentive was not clear, according to the assessee. The statement that the employees were eligible for "some bonus and incentive for working inIndia" in the letter is quite ambiguous and non-committal. Nothing can be inferred therefrom in favour of the assessee.
Thus, we hold that the Income-tax authorities were right in saying that there was no ascertained liability for payment of the taxes as incentives.
We have already seen that there was no contractual liability undertaken by the assessee at the time when the services of the employees were seconded to it by the Japanese company to pay the tax in question as incentive to them and as p part of their salary payable by the assessee-company. If such a liability had been undertaken, it was not necessary for the assessee to put forth its claim on the principle of commercial expediency at all. It is only in that year that the amount was actually paid without any pre-existing liability and therefore, this argument is open to the assessee to be raised only in that year. We, therefore, do not see how the amounts can be allowed as a deduction on the principle of commercial expediency for the years under consideration.
Thus, we are unable to allow the amount of taxes paid by the assessee as incentive, as a deduction in the assessment years 1997-98 and 1998-99.
In the result, the appeal for assessment year 1997-98 is dismissed and the appeal for assessment year 1998-99 is partly allowed.
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2006 (6) TMI 142
Income Escaping Assessment - initiation of assessment proceedings u/s 147 - notice issued u/s 148 - HELD THAT- In the instant case on the reasons recorded it is apparent that the learned Assessing Officer entertained an honest belief that assessee's income chargeable to tax had escaped assessment. The belief was based on application of mind on relevant facts. I, therefore, see no merit in grounds of appeal Nos. 1 and 2 taken by the assessee. The same are rejected.
In the appeals before me the dispute relates to the assessment of a sum for assessment year 1997-98 and assessment year 1998-99 assessed by the Assessing Officer on account of interest income of the assessee on fixed deposits with the bank. It is seen that interest income earned by an assessee on surplus funds of a mutual society deposited with a banking institution are covered by the principle of mutuality, as held by Hon'ble Delhi High Court in their judgment in the case of DIT v. All India Oriental Bank of Commerce Welfare Society [2003 (1) TMI 704 - DELHI HIGH COURT]. In my opinion the authorities below have erred in distinguishing the E aforesaid judgment of Hon'ble Delhi High Court on the ground that the assessee is a co-operative housing society whose income was not exempt u/s 11. Hence, respectfully following the judgment of Hon'ble Delhi High Court above mentioned, I direct deletion of the additions made in orders u/s 147 read with section 143(3) for both assessment years 1997-98 and 1998-99.
In the result, these two appeals are partly allowed.
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2006 (6) TMI 141
Application for Registration u/s 12A(a) - Charitable Trust - Whether Punjab Urban Planning and Development Authority ('PUDA') is of general public utility and was established to satisfy the need for housing accommodation of various sections of the people of Punjab and specially for planning and development in the cities, town and villages and is of charitable nature ? - HELD THAT:- Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the form of hidden cost. Rather the assessee is generating income, so no charity is involved. We agree with the conclusion of the learned CIT, as contended by learned CIT-DR, that a charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large.
As we have discussed, the assessee acquires land at nominal rates and after developing the same, the same land (is sold) on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted, then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center, school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less.
Thus, we are of the view that the application of the assessee has been rightly rejected by learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is, therefore, dismissed.
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2006 (6) TMI 140
Issues Involved:
1. Sustaining the addition of Rs. 94,56,500 based on an alleged confessional statement.
2. Endorsing the addition of interest under sections 234A, 234B, and 234C of the Income Tax Act.
3. Validity of the assessment due to improper notice service.
4. Justification of proceeding with the assessment without examining and offering cross-examination of key witnesses.
5. Legality of the interest levy under sections 234B and 234C.
Detailed Analysis:
Issue 1: Sustaining the Addition of Rs. 94,56,500
The assessee contested the addition of Rs. 94,56,500 made by the Assessing Officer (AO) based on a statement recorded under the Foreign Exchange Regulation Act (FERA). The Enforcement Directorate had conducted searches and recorded statements implicating the assessee in arranging foreign currency and making payments through unaccounted money. The CIT(A) had initially set aside the assessment for fresh consideration, directing the AO to provide the assessee with copies of the statements and documents and an opportunity to cross-examine the witnesses. However, the AO repeated the addition ex parte under section 144 of the Income Tax Act, leading to the current appeal.
Issue 2: Endorsing the Addition of Interest under Sections 234A, 234B, and 234C
The assessee argued that the interest levied under sections 234A, 234B, and 234C was illegal as the assessment order did not specify the basis for such interest. The Tribunal noted that the AO's actions in framing the assessment ex parte and without following due process, including the directions from the CIT(A), rendered the assessment invalid.
Issue 3: Validity of the Assessment Due to Improper Notice Service
The assessee claimed that no proper notice had been served for fixing the hearing, which was a ground for annulling the assessment. The Tribunal found that the AO had issued multiple notices, but the assessee's authorized representative had requested adjournments due to difficulties in contacting the assessee. The Tribunal observed that the AO did not reject these adjournment requests, nor did he serve the notices directly to the assessee as requested, leading to procedural lapses.
Issue 4: Justification of Proceeding Without Examining Key Witnesses
The assessee contended that the AO proceeded with the assessment without examining and offering cross-examination of key witnesses, namely Shri Raj Kumar Seth and Shri Krishna Kumar Pittie. The Tribunal emphasized that the AO's failure to comply with the CIT(A)'s directions to provide copies of statements and documents and allow cross-examination violated the principles of natural justice. The AO's actions were deemed arbitrary and not in accordance with the law.
Issue 5: Legality of the Interest Levy under Sections 234B and 234C
The assessee argued that the interest levy under sections 234B and 234C was illegal as the assessment order did not state that such interest was to be levied. The Tribunal did not specifically address this issue, as the primary focus was on the procedural lapses and the invalidity of the assessment itself.
Conclusion:
The Tribunal quashed the assessment framed by the AO, citing repeated non-observance of the principles of natural justice, failure to comply with the CIT(A)'s directions, and procedural lapses in serving notices and providing opportunities for cross-examination. The Tribunal emphasized that it would be subversive of judicial discipline to remand the matter back to the AO, given the persistent refusal to follow due process. The appeal filed by the assessee was allowed, rendering other issues academic and not requiring further adjudication.
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2006 (6) TMI 139
Capital Gains - denial of assessee's claim under section 54F of the Income-tax Act, 1961 - amount spent by the assessee, after the purchase of inhabitable house, to make the house habitable.
The contention of revenue is that, the moment the house is purchased, the requirement of section 54F stands complied with and, therefore, any amount spent thereafter in respect of such house would not qualify for exemption under section 54F.
HELD THAT:- The investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable. An inhabitable premises, in our opinion, cannot be equated with a residential house. If one person cannot live in a premises, then such premises cannot be considered a residential house. In the modern age, the builder may provide semi-finished house or complete house depending upon the price agreed to between the parties. In case of semi-finished house, the purchaser will have to invest on flooring, wooden work, sanitary work, etc., to make it habitable.
Therefore, the investment in house would be complete only when such house becomes habitable - it is held in principle that expenditure incurred on making the house habitable should be considered as investment in purchase of the house subject to the condition that payment was made during the period specified in section 54F.
There is distinction between expenditure incurred on making the house habitable and the expenditure on renovation. A situation can be visualised where assessee may buy a habitable house but the assessee may like to incur expenditure by way of renovation to make it more comfortable. He may not be happy with the quality of material used by the builder and, therefore, he may incur the expenditure on improvement of the house. Such expenditure cannot be equated with the expenditure on making the house habitable. Whether the house purchased by the assessee was in a habitable condition or not would depend on the state of condition of the house at the time of purchase. Hence, this aspect would have to be kept in mind while adjudicating such issue.
In the present case, the Assessing Officer as well as the learned CIT(A) had rejected the claim of the assessee on the ground that no expenditure could be considered for exemption under section 54F which was incurred after the date of purchase. The Assessing Officer had no occasion to examine the state of the condition of the house purchased by the assessee. Though, the list of expenditure has been provided by the assessee, yet it is to be examined whether such expenditure was incurred to make the house habitable or just to make the house more comfortable. This aspect of the matter requires examination by the Assessing Officer.
The assessee is entitled to exemption under section 54F with reference to the expenditure incurred for making the house habitable. However, the factual matrix requires examination. Accordingly, the order of the learned CIT(A) is set aside and the Assessing Officer is directed to re-adjudicate the issue in accordance with the guidelines given and after considering the entire material produced by assessee before him.
The assessee's appeal stands allowed protanto.
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