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2015 (11) TMI 1069

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..... ncome Tax (Appeals) on the issue in hand - Decided against revenue. Deduction in respect of interest paid on borrowed capital to acquire capital asset - CIT(A) allowed the claim - there is no provision for such deduction, therefore, the conclusion drawn in the assessment order was defended - Held that:- Section 48, which is meant for capital gains clearly envisages allowbility of such expenditure which is incurred wholly and exclusively in connection with such transfer and for the purpose of cost of acquisition of the asset as deduction from the full value of consideration received or accrued as a result of transfer of capital asset, which is chargeable under the head capital gain. The words ‘in connection with’ used in section 48 (i) are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The Hon’ble Karnataka High Court in Commissioner Of Income-Tax, Karnataka II Versus Maithreyi Pai (1983 (11) TMI 43 - KARNATAKA High Court ) held that interest on borrows is deductible only if is not allowed u/s 57 of the Act, thus, we find no infirmit .....

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..... Act 1963) and not the date of allotment of letter. 2.1. During hearing, the ld. DR, Shri B. Yadagiri, advanced his arguments which is identical to the ground raised by defending the conclusion arrived at in the assessment order by further submitting that while granting relief to the assessee, the ld. Commissioner of Income Tax (Appeals) did not appreciate the fact that the agreement for purchase was entered in 2006 and the date of sale was in 2008. 2.2. On the other hand, the ld. counsel for the assessee, Shri Vijay C. Kothari, defended the conclusion arrived at in the impugned order by contending that the assessee received allotment letters on 31/12/2004 and the agreement for purchase of the flats was entered into vide agreement dated 02/11/2006 and the MOU for sale of these flats was entered into on 24/04/2008 by explaining that the agreement of sale was executed on 17/05/2008 for flat no.1901 and 1902 and for flat no.1907 1908 on 18/07/2008. 2.3. We have considered the rival submissions and perused the material available on record. On the basis of material available on record, we note that the ld. Assessing Officer has discussed the issue in para 5.1.2 of the assessme .....

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..... e note that, under the facts available on record, the basic question to be adjudicated is whether the gain arising on transfer of capital asset is long term capital gain or short term capital gain. We are of the considered opinion that assessee got his right over the capital asset on the date of allotment of letter in respect of flats booked by the assessee. Therefore, the subsequent action of registration of sale agreement is merely an assignment of rights in the property of the assessee with Act of registration under the Stamp Duty Act. Our view is fortified by the decisions of the Tribunal/Hon ble High Courts in following cases:- a. Praveen Gupta vs ACIT (137 TTJ 307)(ITAT Delhi) b. CIT vs Laxmi devi Ratani (2005) 198 CTR (MP) 336 c. CIT vs Tata Services ltd. 122 ITR 594 d. CIT vs Vijay Flexible Containers 186 ITR 693 (Bom.) e. CIT vs Mormasji Man Charji Vaid 168 CTR (Guj.)(FB) 565 f. Arundhati Balkrishna vs CIT (1982) 29 CTR (Guj.) 85. 2.6. In view of the above, we are usefully quoting the relevant portion from the decision from Hon ble jurisdictional High Court (122 ITR 594) (supra):- Quote:- What is a capital asset is defined in sec .....

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..... le things, right or interest or liability. The definition of capital asset, under the Income Tax Act referring to property of any kind carries no words of limitation, because it is a wide amplitude and includes every possible interest that a person may hold and enjoy. Our view is fortified by the following decisions:- a. Syndicate Bank Ltd. vs Addl. CIT 155 ITR 681 (Kerala), b. Madthil Brothers vs DCIT (2008) 301 ITR 345 (Madr.) c. CIT vs Tata Services ltd. 122 ITR 594 (Bom.) d. Bafna Charitable Trust vs CIT 230 ITR 864 (Bom.) e. V. Rangaswamy Naidu vs CIT 31 ITR 711 (Mad.) f. Addl. CIT vs Ganpati Raju 119 ITR 715 (AP) g. S. Vaidyanathna Swamy vs CIT 119 ITR 369 (Mad.) h. P. J. Mathew vs ITO 323 ITR 592 (Ker.) In the light of the above, it can be said that the interest of the assessee accrued right from the date of allotment itself. The claim of the assessee is further supported by CBDT Circular No.672 and 471 dated 16/12/1993 and 15/10/1986 respectively clarifying that the allotee gets title to the property on the issuance of allotment letter and the payment of installments is only a follow of action and taking the delivery of .....

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..... ch is incurred wholly and exclusively in connection with such transfer and for the purpose of cost of acquisition of the asset as deduction from the full value of consideration received or accrued as a result of transfer of capital asset, which is chargeable under the head capital gain. The words in connection with used in section 48 (i) are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The Hon ble Karnataka High Court in 152 ITR 247 (supra) held that interest on borrows is deductible only if is not allowed u/s 57 of the Act, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) on this issue also, therefore, dismissed. 4. The next ground pertains to deleting the additions made by the Assessing Officer invoking the provisions of section 50C of the Act. The crux of argument on behalf of the Revenue is that while coming to a particular conclusion, the ld. Commissioner of Income Tax (Appeals) did not appreciate the fact that the provisions of section 50C of the Act, the Assessing Officer .....

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..... d. counsel for the assessee defended the conclusion arrived at in the impugned order by submitting that all the payments of interior work were made through account payee cheque/from the bank account of the assessee and list of vendors, to whom the impugned payments totaling ₹ 53,11,335/- were made, along with cheque number, date of cheque issued and copy of invoices were furnished by the assessee. 5.1. We have considered the rival submissions and perused the material available on record. Uncontrovertedly, the impugned payments were made through account payee cheque and the assessee furnished the complete list of vendors to whom the payments were made (through cheque), Cheque No., copy of invoices for the impugned amount were produced before the authorities. Admittedly, without interior work, largely kitchen, carpentry, ceiling and flooring the apartment cannot be come usable, thus, such investment was rightly held to be investment in the residential property, thus, we find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals), therefore, we find no merit in the impugned ground, raised by the Revenue, consequently, dismissed. 6. The last ground p .....

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..... ew flat No. 62 in a serialised manner as under: 24-7-72 Agreement of original purchaser K.K. Gopaldas booking flat from Malabar Inds. P. Ltd. 22-10-77 Agreement to purchase from K.K. Gopaldas. 24-10-77 Date of payment of ₹ 42,780 7-12-77 Date of payment of ₹ 2,15,941 29-12-77 Letter from Builder agreeing to transfer from name of K.K. Gopaldas to the name of the assessee. 24-3-79 Date of payment of ₹ 20,780. 23-4-79 Pate of payment of last instalment. 16-5-79 Municipal conditional letter of NOC for occupation. 24-11-79 Date of offer for possession. 9-4-80 Letter from Builder for readiness for completion certificate. 13-5-80 Date of possession. 3. Before the ITO, the assessee contended th .....

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..... nstruction. He submitted that the builder being out of fund and for such other reason, went on delaying the construction. Just to help the builder to fasten the construction, the payments were made in instalments much earlier to the actual possession of the property. This is very common in transaction in flats. The construction was completed at a later date and on 24-11-79, the builder expressed his desire to offer the possession of the flat. That is the first date when the property, at best, can be said to be a purchase of residential property. He stressed that even after construction of the building, the flat is not immediately available for residence to the assessee unless it is cleared by the municipal/corporation authorities. Therefore, he submitted that only when the flat construction was completed and available for residence and was actually allotted by the builder to the buyer in compliance with the agreement of sale entered upon by the builder earlier, it could be taken as ready for occupation and that was the date material for the purpose of counting period of one year within the meaning of section 54 of the IT Act, 1961. He finally submitted that 9-4-1980, on which .....

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..... s ready for occupation which the builder normally intimates to the buyer. The buyer will then take possession and actually enjoy the house property to the exclusion of others. In this flat business, at times, the builder goes financially bad and delays the construction. Against this background of flat transaction, we are now faced with the provisions of section 54 for granting exemption to the assessee, who at one time, enters into purchase and at other times, takes possession and starts actual enjoyment of the flat. At what point of time he became owner of the house property will decide the fate of his exemption. 7. In identical issue in Purushottam Govind Bhat';s case (supra) the Tribunal held as under: The right the assessee has got is a peculiar type of right which certainly cannot be classified as ownership. To say, therefore, that the assessee. has purchased the property would in law be erroneous. On the contrary, that the assessee has an interest in this flat as much as that of a full owner cannot be denied. The purpose of the assessee getting the flat allotted was to have the benefit of residential accommodation entirely in his control as if he was the full owner. .....

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..... ined the society in 1977. He was allotted a flat and occupied the same on l-l-1980. The Tribunal held, joining the society and paying the amounts cannot really amount to purchase of a house. On the contrary, allotment of the flat would certainly give the assessee certain specific obligations and rights. The manner in which the amounts are paid and the period over which they are paid may not be of much relevance. Considering the peculiar circumstances of that case, it was held that the benefit of section 54 should be extended by taking the date of allotment and occupation as the relevant date of purchase. Following the said decision, we are inclined to hold that in this case also, the assessee has, though, entered into agreement for purchase of flat on 22-10-77, paid the money during 1977 to 1979, but the relevant date to be taken for the purpose of applying of section 54 should be the date on which the flat was ready for occupation by the assessee. Taking that date as the date of purchase, is within the period of one year and therefore the capital gains are clearly exempt from tax applying the provisions of section 54. 9. In view of the above facts, we allow the assessee' .....

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