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2015 (6) TMI 674 - ITAT BANGALORE

2015 (6) TMI 674 - ITAT BANGALORE - TMI - Deduction u/s. 54F - CIT(A) allowed the claim - Held that:- An analysis of the provisions of section 54F of the Act in the light of the grounds raised by the Revenue in the appeal would show that there is no merit in the grounds raised by the Revenue in its appeal. Section 54F(1) lays down that any capital gain arising from transfer of long term capital asset, not being a residential house, will be allowed exemption, if the assessee has after the date on .....

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for availing exemption u/s. 54F(1). The purport of the section is investment in construction of a property and the fact that provisions of section 54F(1) does not use that expression will not mean money spent for construction of residential property will not be eligible for deduction u/s. 54F of the Act. It is therefore clear that none of the grounds raised by the Revenue in the grounds of appeal has any merit and accordingly the appeal by the Revenue is dismissed.

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ouse. Once if it is demonstrated that the consideration received on transfer has been invested in construction of the residential house, then though the construction is not complete in all respects and as required under law, the assessee should be given the benefit of section 54F. A reading of the aforesaid decision of the Hon’ble Karnataka High Court would show that there is no particular stage of completion of construction that is contemplated. It is not in dispute that the later the construct .....

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essee did not raise the issue with regard to deduction of ₹ 7,82,394 which was interest paid on borrowing claimed as deduction while computing long term capital gain on sale of land. This sum of ₹ 7,82,394 was interest paid on funds that the assessee borrowed to acquire the land. The AO did not allow the said claim for the reason that it could neither be considered as expenditure incurred in connection with transfer nor cost of acquisition nor cost of any improvement thereon. The ass .....

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stical purposes. - ITA No.864/Bang/2014,CO No.86/Bang/2015 - Dated:- 11-6-2015 - Shri N.V. Vasudevan and Shri Abraham P. George, JJ. For the Petitioner: Shri P. Dhivahar, Jt. CIT(DR) For the Respondent: Shri H.N. Khincha, CA ORDER Per N.V. Vasudevan, Judicial Member ITA No.864/B/14 is an appeal by the Revenue against the order dated 28.3.2014 of the CIT(Appeals), LTU, Bangalore relating to assessment year 2009-10. The assessee has filed the Cross Objection against the very same order of the CIT( .....

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ent was completed U/s. 143(3) of the Act. Following additions were made to the returned income: Returned Income 2,09,08,576 Add : Disallowance of Deduction U/s. 54F 49,27,996 Disallowance of Interest Paid in Computing Long Term Capital Gain 7,82,394 Assessed Income 2,66,18,966 4. In the return of income filed, among others, the assessee had returned gross Long Term Capital Gain of ₹ 1,65,57,000 on sale of shares. This gain arose on account of sale of shares of Musigma Inc., consideration f .....

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45, 14,712. Against the above agreements, during the Financial Year 2008-09, following payments were made by the assessee. Rs . 08.06.2008 : 56,70,000 03.11.2008 : 16,97,333 12.11 .2008 : 12,00,000 85,67,333 Proportionate deduction of ₹ 49,27,996/- was claimed u/s. 54F of the Act. 5. In the assessment order dated 30.12.11 the entire deduction u/s. 54F has been disallowed on fo1lowing grounds :- a) Construction agreement was entered into by the assessee on 21.11.06 which is beyond one year .....

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imitation period of 2 years which ends on September 2010. 6. On appeal by the assessee, the CIT(Appeals) directed the AO to allow the claim of the assessee for deduction u/s. 54F of the Act, observing as follows:- 9.5 I have gone through the appellant s submission and the judicial decisions relied upon. The agreement with the builder company dt. 21.11.2006 is clearly described as a construction agreement and the impugned residential property has been given possession by May 2011. Only where the .....

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en endorsed by the Hon ble Karnataka High Court in the case of CIT vs J. R Subramanya Bhat (1987) 165 ITR 571. The other judicial decisions cited in the context of requirement of registration of transfer deeds support the appellant s grounds. On consideration of the facts and the applicable judicial precedents, therefore, it is reasonably concluded that the appellant s contentions arc correct. The AO is directed to allow the deduction u/s 54F. These grounds, therefore, succeed. 7. Aggrieved by t .....

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e purpose of claim of deduction under the said section in the statute. 4. The ld. CIT(A) had erred in considering the agreement for construction of building which had not even been registered for reckoning the period prerequisite for claim of deduction u/s. 54F. 8. The provisions of section 54F of the Act read as follows:- 54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the tran .....

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, that is to say, - (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided th .....

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income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". 9. An analysis of the provisions of section 54F of the Act in the light of the grounds raised by the Revenue in the appeal would show that there is no merit in the grounds raised by the Revenue in its appeal. Section 54F(1) lays down that any capital gain arising from transfer of long term capital asset .....

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nt to mention that there is no requirement regarding registration and valid title, as a condition for availing exemption u/s. 54F(1). The purport of the section is investment in construction of a property and the fact that provisions of section 54F(1) does not use that expression will not mean money spent for construction of residential property will not be eligible for deduction u/s. 54F of the Act. It is therefore clear that none of the grounds raised by the Revenue in the grounds of appeal ha .....

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e residential house should be purchased within the period of one year before or two years after the date on which the transfer took place. According to the AO therefore the Assessee has not purchased within the stipulated time as it is only a contract for construction. In our view this conclusion is unsustainable. Sec.54F gives exemption for purchase as well as for construction. If it is a case of purchase the full value of consideration can be invested 1 year before transfer or 2 years after th .....

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egistration under the provisions of the Registration Act, 1908. According to the AO the registration of the property in the name of the Assessee happened only on 2nd May. 2011 and the possession of the property was given to you only in May, 2011. The AO in this regard relied on a letter dated 07-05-2011 by M/s Total Environment Building Systems Pvt Ltd in response to notice u/s.133(6) issued by him. This objection in our view is also unsustainable because the Assessee claims exemption for invest .....

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urnishing 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 section (1) of section 139] in an account in any such bank or institution as may he specified in and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such re .....

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language of section 54F(4) which uses the following expression. 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 utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139 The Hon ble Karnataka High Court judgment in the case of Fatima Bai v. ITO, [2009] 32 DTR 2 .....

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efore the transfer or within two years after the transfer by investing capital gains. In which event the assessee will not be liable for capital gain tax. Section 54(2) declares that within one year from the date of transfer if the capital gain is not invested in purchase of building, he should deposit the amount in the Capital Gain Account Scheme or else the assessee should invest the capital gains before filing of return within the permitted period under s. 139. In which event, the assessee wi .....

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139(4) would be 31st March, 1990. The assessee did not file the return within the extended due date, but filed the return on 27th Feb., 2000. However, the assessee had utilised the entire capital gains by purchase of house property within the stipulated period of s. 54(2) i.e., before the extended due date for return under s. 139. The assessee technically may have defaulted in not filing the return under s. 139(4). But, however, utilised the capital gains for purchase of property before the ext .....

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ade above we answer the substantial question of law in favour of the assessee. The appeal is allowed. In the present case the capital gain was utilized by the Assessee on Rs . 08.06.2008 : 56,70,000 03.11.2008 : 16,97,333 12.11.2008 : 12,00,000 85,67,333 The above dates are well within the due date for filing return u/s.139 of the Act, for AY 09-10. The objection of the AO in this regard is therefore without any merit. (d) According to the AO, the information furnished by M/s. Total Environment .....

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gain. Since the assessee s case the construction commenced in November 2006, the AO held that the requirements of Sec.54F are not complied with by the Assessee. In our view, this objection is also without any merit. The Assessee has utilized the consideration received on transfer on which exemption is claimed u/s.54F in construction of the property. The requirement of the section is that the capital gain should be invested in construction. The investment should be within 3 years from the date o .....

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l house. If the money is invested in constructing the residential house, merely because the construction was not complete in all respects and was not in a condition to be occupied within the stipulated period, that cannot be a ground for rejecting the benefit of deduction u/s. 54F to the assessee. The Hon ble Court observed that the essence of the provisions of section 54F is whether the assessee who received the capital gain has invested in the house. Once if it is demonstrated that the conside .....

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l house. In such circumstances, we are of the view that no fault can be found with the order of the CIT(Appeals) allowing benefit of deduction u/s. 54F of the Act to the assessee. 11. For the reasons given above, we do not find any merits in this appeal by the Revenue and the same is dismissed. CO 86/Bang/2015 12. As far as cross objection by the assessee is concerned, the grounds of appeal read as follows:- 2. On the facts and circumstances of the case and the law applicable, the interest on bo .....

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s. 85, 164, 165 & 166 of Doddathogur Village, Begur Hobli, Bangalore South Taluk. The assessee purchased a house site bearing No.197. Concorde Housing also agreed to convey the land and construct a Villa for the assessee. One of its sister concerns, Concorde Shelters Pvt. Ltd. (hereinafter referred to Concorde Shelters ) agreed to construct a villa on the site sold by Concorde Housing to the assessee. By a registered sale deed dated 21.10.2004, the site was conveyed to the assessee for a sal .....

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as Villa was ultimately sold to Shakti Mohan under a registered sale deed dated 10.10.2008. The sale consideration mentioned in this sale deed is a sum of ₹ 21 lakhs. The Revenue has not chosen to take cognizance of the sale consideration as reflected in the sale deed, but has proceeded only on the basis of sale consideration as set out in the agreement dated 5.5.2008. 14. It is not in dispute that the agreement for sale dated 5.5.2008 by which the land as well as Villa was agreed to be so .....

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give rise to long term capital gain. 15. As far as Villa is concerned, construction of Villa was completed in 2008 and same was sold on 5.5.2008 within a short period and therefore sale of Villa would give rise to short term capital gain. The computation of long term and short term capital gains made by the assessee was as follows:- Land Rs. . Sale consideration from Concorde property land 36,81,926 Less: Indexed cost of acquisition 9,90,920 = ₹ 12,01,491 480X 582 Interest paid on borrowi .....

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capital gain to tax. Income chargeable under the head capital gain shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) cost of acquisition of asset and the cost of any improvement thereto. In view of the above provision, he was of the view that the sum of ₹ 7,82,394 claimed as deduction cannot be allowed as it i .....

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as a deduction? The CIT(A) without going into this question, went into the question of correctness of the assessee having bifurcated the capital gain on sale of land and Villa into long term and short term capital gains. According to CIT(A), the transaction for purchase of land and building was a single integrated transaction and therefore AO ought not to have accepted the bifurcation of capital gain on sale of land and building into long term and short term capital gains. The CIT(A) was of the .....

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21.10.2004 and the recital in the sale deed that assessee was given possession of the property by Concorde Housing was brought to the notice of the CIT(A), he observed that such possession was only a paper transfer. The CIT(A) also referred to the fact that the assessee was making composite payments for the land & Villa and therefore the transaction with Concorde Housing and Concorde Shelters had to be treated by the assessee as one holistic transaction routed through a common ledger. The as .....

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n of the word held is much wider than notions of ownership and the Hon ble Supreme Court in the case of CIT vs Podar Cement Pvt Ltd. (1997) 226 ITR 625 held that the owner is the one who effectively controls the property and not merely the one who holds title to the same (emphasis added). In the appellant s case, in spite of the appearance of the sale deed having been registered in respect of land the effective possession and control of this capital asset remained with the Concorde Group, and it .....

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holding of both the land and the constructed villa thereon was less than 36 months as discussed above, the proceeds of the transfer are to be considered for computation of Short Terms Capital Gains only. 19. The CIT(Appeals) ultimately directed the AO to assess the entire gain as short term capital gain by adopting the full value of consideration on transfer at ₹ 58,96,006. 20. Aggrieved by the order of CIT(Appeals), the assessee has preferred ITA No.573/Bang/2012 appeal before the Tribuna .....

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property to develop the same by constructing a residential villa for him by obtaining the sanctioned plan. The first party shall not revoke the permission so granted, till completion of the entire villa with the plan and the specifications agreed to in Annexure-I and II as the agency created herein is one coupled with interest in so far as the second party constructing a residential villa in the schedule property. 16. The land was sold by Concorde Housing to the assessee by a registered sale dee .....

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rlance. The assessee having acquired title to the land as early as on 21.10.2004 and having sold the land together with Villa under an agreement dated 5.5.2008, it is to be held that the transaction of sale has to be bifurcated as one relating to land and the other relating to building. As far as the transaction of sale of land is concerned, the gain on such sale should be construed as long term capital gain because the assessee held the land for a period of more than 36 months. The conclusions .....

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urcated as one relating to land and the other relating to building. If the land is held for more than 36 months, then capital gain on sale of land has to be treated as long term capital gain. The Hon ble Madras High Court in the case of CIT Vs. Ramachandra Rao, 236 ITR 51 (Mad) had an occasion to deal with identical case. The Hon ble Court held as follows:- 8. We have carefully considered the rival contentions of both parties. The expression "capital asset" is defined in s. 2(14) of th .....

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operty. It may be movable or immovable property or any interest thereon. The term 'short-term capital asset' is defined in s. 2(42A) of the Act as under : "Short-term capital asset" means a capital asset held by an assessee for not more than sixty months immediately preceding the date of transfer". During the relevant period, s. 2(42A) of the Act prescribed the period of thirty six months. The emphasis that is given in s. 2(42A) is that the capital assets should be held by .....

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r of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto". Sec. 80T of the Act grants deduction in respect of the long-term capital gains in the case of an assessee other than companies where the gross total income of an assessee not being a company includes any income chargeable under the head "Capital gains" re .....

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in Park View Enterprises (cited supra) makes it clear that the Indian law recognises dual ownership of the land and building. The Privy Council in Narayan Das vs. Jatindranath AIR 1923 PC 135 has also taken the view that having regard to the law in India it is possible to have separation of ownership of the building from the ownership of the land. This view of the Privy Council was approved by the Supreme Court in Bishan Das vs. State of Punjab . In so far as the definition of capital asset is .....

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of the building, that the land which was a long-term capital asset, has ceased to be a long-term capital asset. The land is an independent and an identifiable capital asset, and it continues to remain as an identifiable capital asset even after construction of building and at the time of the sale of the house. Since the land was held by the assessee for a period exceeding 36 months, the land cannot be regarded as a short-term capital asset only by virtue of the construction of building thereon. .....

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it deals with the case where compensation was payable in respect of land and building and in that situation, the Supreme Court has held that both the land and building should be valued as one unit and hence, the decision rendered by the Supreme Court with reference to determination of compensation under the Land Acquisition Act has no application, particularly in the light of s. 80T of the Act. It is impermissible for the learned counsel to rely on a decision for a point which was not decided i .....

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in accordance with the scheme of the Act, land would be considered as a separate capital asset, even if a building is constructed thereon. We are also of the opinion that where the land having been held for more than a prescribed period, the gains arising from the sale of the land could be considered as a long-term capital gains, though the building thereon was a new construction held for a period less than 36 months. Since the Tribunal has come to the correct conclusion by applying the well se .....

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