TMI Blog1995 (3) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... rk, New Delhi 1,18,00,000 Total sales consideration Less: Expenses on sale 2,46,000 Net sales consideration 1,15,54,000 Rs. Less: Market value of the house on 1-4-1974 2,45,000 Capital gains 1,13,09,000 Less: Exempted capital gains under section 48(2) First 10,000 100% 10,000 Balance 1, 12,99,000 50% 5,64,900 56,59,500, ----------------- ------------------- 56,49,500 Less exemption under section 53(b) 1, 13,09,000 x 2,00,000 1,91,677 -------------------------------------- ----------------- 11,80,000 54,57,823 Less: Exempted under section 54E Investment in IDBI Rs. 20,00,000 20,00,000 x 1, 13,09,000 19,57,590 ----------------------------------------- ----------------- 1,15,54,000 35,00,233 Less: Exempted under section 54F - cost price of plot situated at 75, Block 'D' Sector XXVI, Noida, 14,00,500 Amount invested in Canara Bank in Account 'A' 10,00,000 ------------------ 24,00,500 24,00,500 x 1, 13,09,000 ---------------------------------------- 1,15,54,000 23,49,598 ----------------- 11,50,635 3. The Assessing Officer examined the case of the assessee with reference to requirement of sections 54,54(e) and 54(f) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act. The computation under section 48(2) in the view of the learned CIT (Appeals) should have been worked out after taking into account, the deductions allowed under section 53B, 54 and 54F of the Income-tax Act. The learned CIT (Appeals) worked out deduction under section 48(2) at Rs. 41,93,350 as Against Rs. 56,49,500 allowed by the Assessing Officer as per the following calculations : Rs. Sale consideration 1,18,00,000 Less : Expenses on sale 2,46,000 -------------------- 1,15,54,000 Less : Market value of the property as on 1-4-1974 2,45,000 -------------------- Capital Gains 1,13,09,000 Less : Exempt under section 53(b) as Rs. claimed allowed 1,91,677 Exempt under section 54E as claimed allowed 19,57,590 Exempt under section 54 in r/o Flat purchased at Kailash Hills as computed in the order and confirmed by this Rs Rs order 7,83,036 29,32,303 -------------------- 83,76,700 Less: Deduction under section 48(2) of the IT Act on first Rs. I 0,000 10,000 on balance 83,66,700 @ 50% 41,83,350 ------------------ 41,93,350 The learned CIT (Appeals) accordingly enhanced the assessment by Rs. 14,66,150. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provisions of a statute relating to exemption of income are on the same footing as provision making certain items not liable to tax. 8. In support of claim under section 54 in respect of house property constructed at NOIDA, Shri Ganeshan pointed out that the ten lakhs were deposited in the specified account with Canara Bank Kailash Hills on 14-5-1990 to be utilised in construction. Up to 4-1-1993, the assessee had spent on construction by withdrawing from the above amount. The balance amount of Rs. 5 lakhs was withdrawn on 4th and 30th January. It was accordingly claimed that substantial part of the provision was complied with and the property was constructed within three years of sale made on 5-1-1990. It was explained that the reasons for delay in construction of residential house was due to abandoning of work on 16-2-1991 by the contractor. The assessee had to file a suit against the contractor and settlement was arrived at only on 28-2-1992. Thereafter the assessee engaged a new contractor and completed the house construction. It was submitted that the above provision extending benefit to the assessee are entitled to liberal construction. The delay had occurred on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 shares (4 x 500). The assessee applied and paid Rs. 20,00,000 by cheque. It was credited to AMF's a/c with New Bank of India in January 1990. Summary of collection of fresh capital by AMF is on record. (iii) AMF allotted two lakh shares of Rs. 10 each for Rs. 20 lakhs to the assessee. (iv) Share scrips were issued on 10-2-1990 and the assessee became registered shareholder for two lakh shares. The distinctive Nos. are 874501 to 1074500 (two lakh shares). (v) Allotment register of AMF shows allotment of two lakh shares to the assessee. (vi) AMF confirmed to Assessing Officer for allotment of two lakh shares. Sale of shares of AMF - the entire lot - 2,00,500 on 23-3-1990 for Rs. 7,99,995. (vii) Market quotations of AMF on 12-3-1990, 13-3-1990, 14-3-1990, 16-3-1990 and 26-3-1990 of Delhi Stock Exchange on record. (viii) Assessing Officer verified the rate and stated the same to be Rs. 4 per share at that time. (ix) Cheque for Rs. 7,99,995 deposited in assessee's account with Canara Bank, Kalkaji. From the above, it is established that :-- (a) the assessee had become the owner, registered shareholder, paid for the cost of 2,00,500 shares of AMF; (b) the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 666 (All.) means "independent residential unit". That admittedly no independent residential unit came into existence and therefore amount spent on construction of residential property within the period of 3 years will also not be entitled to any benefit provided under section 54. (d) That provisions of section 54 granting benefit to the assessee under a fiscal statute are required to be construed and complied with strictly. (e) That the assessee has failed to show, through any cogent evidence; that the delay in completion of construction of the house was beyond the control of the assessee. That the claim of the assessee that he be given exemption in respect of two properties under section 54 is beyond the grounds of appeal raised. Even otherwise, the claim is untenable. (g) Assessee's claim that the computation of capital gain under section 48(2) may be made after allowing exemptions under sections 53 and 54 of the Income-tax Act is untenable. The learned DR in this connection relied upon the decision of Hon'ble Bombay Bench of the Tribunal in Mrs. Pushpa B. Sheth's case . 13. In respect of claim regarding loss on sale of shares, the learned DR submitted as under : In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance that there is nothing wrong with the transactions but if all the transactions are seen in the prospective of the facts and circumstances of the case, it would show that the real intention of parties was to defraud the revenue or to violate certain provisions of law. In this case the real intention of parties involved in the transaction were following : (i) The assessee's intention was to obtain fictitious short term capital loss which could be set off against his other income so as to reduce tax liability. (ii) The company's (M/s AMF Ltd.) intention was to bold substantial No. of shares of this company by its sister concern at a fractional cost of the actual value of shares. By going through above, fictitious transaction the parties have been able to obtain above benefits even though there was no real fall in the value of shares of M/s AMF International Ltd. (e) That in the above facts the lower authorities were correct in holding that this is a colourable device and is further supported by the decision of the Hon'ble Supreme Court in McDowell Co. Ltd's case and Indian Express Newspapers (Bombay) P. Ltd v. Union of India [1986] 159 ITR 856 (SC). 14. We have given c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n referred to, respectively, as long-term capital gain and long-term capital asset) by making the further deductions specified in sub-section (2). (2) The deductions referred to in clause (b) of sub-section (1) are the following, namely : (a) where the amount of long-term capital gain arrived at after making the deductions under clause (a) of sub-section (1) does not exceed ten thousand rupees, the whole of such amount ; (b) in any other case, ten thousand rupees as increased by a sum equal to : (i) in respect of long-term capital gain so arrived at relating to capital assets, being buildings or lands or any rights in buildings or lands or gold, bullion or jewellery,-- (A) in the case of a company, ten per cent of the amount of such gain in excess of ten thousand rupees ; (B) in the case of any other assessee, fifty per cent of the amount of such gain in excess of ten thousand rupees." "53. Notwithstanding anything contained in section 45, where in the case of an assessee being an individual (or a Hindu undivided family), the capital gain arises from the transfer of (long-term capital asset) being buildings or lands appurtenant thereto, and being a residential house, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil ; or (it) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shaft be reduced by the amount of the capital gain. (2) The amount of the capital gain 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 utilised by him for the purchase of 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 sub-section (1) of section 139 in an acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) proportionate amount of capital gains with reference to full value of consideration is not charged to tax. Likewise, under section 54, where the investment in the residential house is less than the amount of capital gains, only proportionate amount is exempted and not full. Therefore, in spite of saving in section 45(1) of Income-tax Act, the capital gain is to be computed to apply above-mentioned provision, the computation of capital gain, without a doubt, has to be under section 48 of the Income-tax Act. 15. The said section 48 as it existed at the relevant time, comprised of two Portions divided into two parts, ie., sub-section (1) and sub-section (2). Sub-section (1) of section 48 has to be applied in all cases as capital gain is not " full value of consideration " but is to be arrived at after deducting -- (i) expenditure incurred wholly and exclusively in connection with transfer; and (ii) cost of acquisition of assets and cost of improvement thereto. The figure arrived at, after above deductions from full value of consideration is capital gain. Sub-clause (b) of section 48(1) is applicable to long term capital gains and permits certain further deductions in cases st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1), the assessee has to purchase one year before or two years after date on which the transfer took place a residential house. The assessee could also within a period of three years after the sale, construct a residential house. In the above situations the amount of capital gain accruing on transfer is to be dealt with as provided in clause (1) or (2). It is agreed position that clause (1) is applicable in this case. 19. The assessee claimed deduction for investment in construction of house at NOIDA. There is not much dispute as the assessee did invest Rs. 14,00,500 in the purchase of the land within the specified period. The revenue did not allow exemption to the assessee on the ground that residential house was not constructed within three years of sale of house property as stipulated in sub-section (1) of section 54. Even at the end of stipulated period of 3 years, the house was incomplete. 20. In order to appreciate the above raised objection of the revenue, we have to read sub-section (1) of section 54 along with sub-section (2) of the. said section. As per the said sub-section (2), the amount of capital gain which is not appropriated or utilised by the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, the position of amount deposited in Bank account and remaining wholly or partly unutilised for purposes of purchase or construction is to be seen. Such unutilised amount is to be dealt with as provided in the proviso to section 54(2). Thus the emphasis is on utilisation or investment of capital gain in the construction of a residential house. If the entire amount deposited in the bank account is utilised in the process of construction of the house, as provided in sub-section (2) of section 54, there is no provision to withhold or withdraw the deduction on the ground that the residential house sought to be constructed is not complete. As already noted, the proviso to sub-section (2) is attracted only in a case where the amount deposited is not utilised. Thus for these reasons, we hold that emphasis is on utilisation of the amount of capital gain by withdrawing from the notified bank deposit or otherwise and not on completion of residential house. 21. In the present case, there is ample evidence to show that super-structure was built by the assessee in the period under consideration within the stipulated period of 3 years but the house needed finishing on which a sum of Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s AMF International Ltd. purchased on 10-2-1990 and sold on March 16,1990. As per the detail available on record, 500 shares of above company were purchased by the assessee on 13-10-1989 at the rate of Rs. 14.01 per share. The said company brought out right issue and the assessee claimed to have purchased two lakhs right shares for a total consideration of Rs. 20 lakhs. These shares were allotted to assessee on 10-2-1990 by the company as per the allotment papers and share certificates. All the above shares, numbering 2,00,500 were sold by the assessee on 16-3-1990 at the rate of Rs. 3.99 per share for a total consideration of Rs. 7,79,995. The assessee, thus claimed short-term capital loss of Rs. 12,07,010. 24. In order to verify the genuineness of the above claim, the revenue carried out a survey operation under section 133A on the business premises of M/s AMF International Ltd. and statements of Directors/ Managing Directors were recorded. From the above statements and other enquiries conducted, the AO reached the following conclusions : (a) that the assessee was entitled to 2,000 right shares but was allotted 2 lakh shares against norms set by the company ; (b) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions in statement recorded under section 131 of the Income-tax Act. The rate of purchase and sale of shares was further supported by quotations of Stock Exchange. The assessee thus claimed that the share loss was genuine and should be allowed. 28. The learned CIT(A), during the course of hearing, called for a report from the Assessing Officer in regard to value of shares shown by Stock Exchange during 12-3-1990 to 26-3-1990 when such value fell down from Rs. 7.50 to Rs. 3. The Assessing Officer was also directed to examine share brokers. The enquiry, accordingly, was undertaken to find out whether share prices reported by share brokers on these dates were real or rigged ones. As per the report dated 6-10-1993 of the AO, the sale of 2 lakh shares of M/s AMF International Ltd. on 16-3-1990 were not recorded in Delhi Stock Exchange. Only sale of I 00 shares at the rate of Rs. 4 per share was recorded. M/s Shanti Company, through whom the shares in dispute were claimed to be sold had stated before the AO that the assessee and the purchasers had contacted them for sale of shares. The enquiry further revealed that only 100 shares of M/s AMF Intetnational Ltd. were sold to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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