TMI Blog2012 (9) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... y a property as an owner and not as tenant. In case of doubt or ambiguity, benefit of it must go to the State. Thus following the said judgment, therefore, even if there is some ambiguity in the provision, the same has to be interpreted in favour of the revenue because it is an exemption provision. In the present case, there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant - against assessee. - IT Appeal No. 1876 (Mum.) of 2012 - - - Dated:- 21-9-2012 - D.K. AGARWAL AND RAJENDRA SINGH, JJ. ORDER Rajendra Singh, Accountant Member - This appeal by the assessee is directed against the order dated 27.2.2012 of CIT(A) for the assessment year 2008-2009. The only dispute raised in this appeal is regarding allowability of exemption u/s 54 of the Act in respect of capital gain earned by the assessee from sale of house property. 2. The facts in brief are that during the assessment proceedings it was noted by the AO that the assessee had sold a Bungalow No. 32 at Dariyalal C.H. Society, Mumbai 49, for a consideration of Rs. 3.50 crores on 8.8.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to carry out further construction on the said plot and/or building without any recourse to tenant and in case any specific permission/no objection certificate was required, the tenant was required to grant his irrevocable consent/no objection. AO also observed that all the rights of the assessee regarding raising loan, transferring the flat were subject to the permissions or conditions laid down by the society. Further, the owner of the flats was the Laxminagar Co-operative Housing Society and the subsequent purchasers were tenants. The AO also observed that no doubt the tenancy right was a capital asset but this was not the type of the asset for which exemption u/s 54 was available. The exemption was available only in case of purchase or construction of the flat. The AO referred to the judgment of the Hon'ble Supreme Court in the case of CIT v. TN Aravinda Reddy 120 ITR 46 (SC) in which it was held that the word "purchase" occurring in section 54(1) had to be given its common meaning i.e. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. The person who is the owner of the property should possess absolute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Hameed Jaffery v. CIT reported in 227 ITR 724 (Bom) in which it was held that as per the provisions contained u/s 54 at the relevant time, the assessee was required to be in occupation of the property for his own residence or residence of his parents as a owner in the two year period preceding to the date of transfer. Since, the assessee was not owner of the property for the full two year period, the claim of exemption u/s 54 was denied. The same view was followed in CIT v. Gopaldas H. Hansrajani 239 ITR 523. By applying the same principle, the CIT(A) observed that purchase of property by the assessee should be as a owner and not as a tenant. The assessee in this case was not a owner of the property and was only a tenant on a monthly rent of Rs. 500/- and therefore, the provisions of section 54 were not applicable for exemption of capital gain on sale of the residential house as the capital gain had not been invested in purchase or construction of a new residential house. The provisions of section 54 were plain and unambiguous and, therefore, the same could not be applied in case of purchase of tenancy right in respect of flat. CIT(A) accordingly confirmed the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was also submitted that the provisions of section 27(iii)(b) relied upon by the learned AR, treating the perpetual tenancy as ownership, was limited to the application of the section 22 of the Act regarding assessment of income from house property. Similarly, the provisions of section 269UA(f) were applicable for the purposes of presumptive purchase of the properties. These provisions had no application to section 54 of the Act. The learned DR also argued that the provisions of section 54 were exemption provisions and in respect of such provisions, in case there are two interpretations, the one which is favourable to the Revenue has to be followed as held by the Hon'ble Supreme Court in case of Novopan India Ltd. 3 SCR 549. He placed reliance on the judgment of Hon'ble Bombay High Court in case of Hameed Jaffery v. CIT 227 ITR 724 which was later followed in 239 ITR 523 (Mum). He also placed reliance on judgment of Hon'ble Supreme Court in case of Suraj Lamp and Industries Pvt. Ltd. 340 ITR 1 in which it was held that the registered deed of conveyance is the only mode of legal transfer and that general power of attorney, etc do not create title or interest in the property. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w residential house within the period of three years after the date of transfer. In the present case, assessee had sold the residential property for Rs. 3.50 crores on 8.8.2007 and thereafter on 16.8.2007 assessee purchased tenancy rights in flats in the building "Symphony" on deposit of Rs. 1.85 crores which was not refundable and on payment of monthly rent of Rs. 500/-. The case of the assessee is that tenancy right was perpetual and assessee was therefore deemed owner of the property under section 27(iiib). The flat taken for tenancy was to be used for residential purposes and income from the same was chargeable under income from house property. It has also been submitted that under the provisions of tenancy agreement, the assessee was entitled to subletting the flat or to give on leave and license and could also avail loan against said tenancy right. The assessee had also the right to assign or transfer the right in the flat and further entitled to make alteration in the flat. Therefore, it has been argued that for all practical purposes, the assessee was owner of new residential property and therefore, assessee should be entitled for exemption under section 54 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee should acquire the new residential house as owner or even the perpetual tenancy right would suffice, the interpretation favorable to the revenue shall be followed as held by Hon'ble Supreme Court in case of Novopan India Ltd. 3 SCR 549. In the said case, the Hon'ble Supreme Court held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee would not apply to the construction of an exception or an exempting provision; these have to be construed strictly. The Hon'ble Supreme Court also held that the person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. Following the said judgment, therefore, even if there is some ambiguity in the provision, the same has to be interpreted in favour of the revenue because it is an exemption provision. In the present case, there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant. 5.3 The ld. AR for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as limited and restricted to the said flat. Further clause-19 placed restriction that tenant was not entitled to do any act that affected the right of the land lord in the said building and in the said property which clearly shows that the assessee did not have the status of land lord and was only a tenant. The owner of the flat was Laxminagar Co-operative housing Society and as per rules of the society, there was no provision of transfer of land and, therefore, subsequent buyers were only tenants and not owners. 5.5 The ld. AR for the assessee has placed reliance on Circular No. 8/2/169-IT(A)-1 dated 25.3.1969 to argue that in terms of the said Circular the assessee was owner for all practical purposes. The said circular in our view is distinguishable as the same related to a situation in which the builder had transferred land and building to the society and society had allotted the tenancy to the purchasers and possession of the flat had been given. Thus, in that case society had ownership of land as the land had been transferred to the society and it was under these circumstances that it was held that for all purposes including adjustment and recovery, individual members could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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