LAW DOES NOT COMPEL DOING IMPOSSIBILITIES IMPOSSIBILIUM NULLA OBLIGATIO EST

[Mr. M. GOVINDARAJAN]

Law existing in the country is binding on everybody.  Non knowing law is not an exemption to anybody. Some provisions are compulsorily to be complied with. For example a company has to comply with the provisions of Company Law. Some provisions are mandatory. Failure to comply with mandatory provisions will attract penalty etc., Another example we may cite is filing return by electronic is made mandatory today. Failure to comply with these provisions will attract penalty. But at the same time the law does not compel anybody to do which could not be done. There is no obligation to do impossible things. In ‘State of Rajasthan V. Shamsher Singh’ – 1985 (Supp) SCC 416, the Supreme Court held that a person should not be deprived of justice for not doing a particular thing, which was not capable of doing.  This doctrine is analyzed in this article with reference to decided case law in income tax matter in ‘Smt. V.A. Tharabai V. Deputy Commissioner of Income tax’ – (2012) 14 ITR (Trib) 15 Chennai.   The facts of the case run as follows:

The assessee sold her property on 08.06.2006 for Rs.34,73,447/-. The cost of acquisition was Rs.1,25,000/- and indexed to Rs.1,95,997/- and the long term capital gains arising out of the sale was Rs.32,77,450/-. She purchased a land property on 05.07.2006 to construct a house for a consideration of Rs.33,88,160/-. She claimed exemption under Section 54F of the Income Tax Act, 1961 for the capital gains since she purchased a land property immediately.  The assessee could not construct the residential house as proposed. The purchase of the said property was transacted on the authority of a power of attorney.   The owners of the land filed a petition for injunction before the Civil Court. The Civil Court granted an injunction to the owners of the property and ordered status quo, which prevented the assessee from proceeding further in construction of the house.  Revision petition was filed before the High Court. The High Court dismissed the said petition.   The matter went up to the Supreme Court which dismissed since the case was withdrawn and all proceedings before the Civil Court was dismissed.  In the meantime the 3 years period from the date of sale of property was expired under Sec. 54F on 08.06.2009.

The assessee explained the above circumstances before the Assessing Authority for non-construction of house within 3 years. However the Assessing Authority rejected the claim of the assessee on the ground that the assessee has not constructed the residential house within the period of 3 years which is mandatory as per the provisions of Income Tax Act.  The assessee being aggrieved against the order of the Assessing Authority filed an appeal before the Commissioner of Income Tax (Appeals).  The Commissioner (Appeals) acknowledged the fact that the assessee was prevented from constructing the proposed residential house but still he held that the conditions laid down in Section 54F are mandatory and as those conditions were not complied with by the assessee exemption cannot be granted to the assessee and thus the first appeal was dismissed by the Commissioner (Appeals).

The assessee filed an appeal before the Tribunal. She put forth the following arguments before the Tribunal in support of her case:

• The order of Commissioner (Appeals) is contrary to law, facts and circumstances of the case and opposed to principles of legitimate expectation and evidence on record;
• The Commissioner (Appeals) mechanically confirming the order of the Assessing Authority without considering the eligibility of the relief based on the case law and on account of force majeure situation of stay order of the court obtained against the appellant and others and hence the appellant could not complete the construction within the time fixed by the provisions under Section 54F;
• The Commissioner (Appeals) ought to have appreciated the ‘purposive approach’ to the issue in hand and ought to have appreciated that the appellant had invested Rs.33,88,160/-;
• The Commissioner (Appeals) ought to have considered the well settled principle that there is no obligation to do impossible things;
• The law always gives a remedy.   It does injury to no one;
• The Commissioner (Appeals) ought to have considered the binding decisions of jurisdictional High Court and other decisions of Tribunals;
• The sale proceeds were straightaway utilized by the assessee in purchasing the landed property to construct a residential house and it was on that basis exemption was claimed;
• The assessee has purchased the land property for a consideration more than the taxable long term capital gains, but could not proceed further to construct the house, as the assessee was prevented from proceeding further by virtue of the restraint order by the competent civil court;
• Non construction of the house was beyond the scope of the assessee’s abilities and therefore the purchase of the land itself should be considered as sufficient investment under Section 54F of the Income Tax Act, 1961.

The Revenue put forth the following arguments before the Tribunal:

• Irrespective of the circumstances faced by the assessee, exemption under Section 54F could be granted only if the conditions prescribed by the statue are complied with by an assessee;
• The assessee has not constructed a residential house and therefore the assessee is not entitled for any exemption under Sec. 54F;

After hearing both sides the Tribunal analyzed the matter in detail.  The High Court found that the assessee was absolutely prevented from taking any single step in constructing the proposed residential house during the period of three years.  The assessee is in fact between the devil and deep sea.  It is an accepted principle of jurisprudence that the law never dictates a person to perform a duty that is impossible to perform. In this case it was impossible for the assessee to construct the residential house within the stipulated period of three years. 

A dominant factor to be considered in this case, according to the Tribunal is, that the entire consideration received by the assessee on sale of her property has been utilized for the purpose of new property which is more than the long term capital gains. It is true that the assessee could not construct the house.  In the special facts and circumstances of the case the Tribunal held that it is necessary to hold that the amount utilized by the assessee to purchase the land was in fact utilized for acquiring/constructing a residential house. Without purchasing the land the house cannot be constructed. The first step should be the purchase of the land. That was done. No step could be put forward for reasons beyond the control of the assessee. Therefore the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house.  In view of the above the Tribunal held that the assessee is entitled for exemption under Sec. 54F.