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Dr. (Mrs.) Ranjana S. Nargolkar Versus ITO, Ward-5 (1) , Pune

2016 (1) TMI 861 - ITAT PUNE

Addition on account of long term capital gain on transfer of development rights of undivided share in a property - Held that:- We observe that the authorities below have erred in holding that the assessee was the absolute owner of the property acquired by her through WILL. As stated earlier the assessee had only lifetime interest in the property with no right of alienation. It was only through a family arrangement that the assessee got absolute right over 1/4th share in the property. The Ld. AR .....

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r of her 1/4th share in the property. Thus, the second ground of appeal raised by the assessee is allowed in the aforesaid terms.

Disallowance of the claim of exemption u/s.54F - Held that:- Transfer of any rights in the capital asset would constitute transfer within the meaning of section 2(47) of the Act and the assessee is eligible to claim benefit u/s. 54 on such transfer. In view of our above findings, we hold that the assessee is eligible to claim exemption u/s.54F of the Act. - .....

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risdiction u/s.148. 2. The Ld.CIT(A) has further erred on facts and in law in confirming the addition of ₹ 70,00,000/- on account of full long term capital gain on transfer of development rights of a co-owned property. 3. The Ld.CIT(A) has further erred on facts and in law in confirming the disallowance of the claim of exemption u/s.54F of the I.T. Act, 1961. 3. The assessee is a Doctor by profession and is running a Maternity Home at 1277, Jangali Maharaj Road, Deccan Zymkhana. The assess .....

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said property was sub-divided in 4 equal parts between assessee and her 3 children. During survey 4 development agreements in the name of assessee and her children all dated 28-07-2001 with Kumar Group were found. Separate agreements for transfer of development rights were executed with the consideration of ₹ 17.50 lakhs each (total consideration of ₹ 70 lakhs). Admittedly, the bank statement of the assessee reflected receipt of ₹ 17.50 lakhs through cheques. The assessee had .....

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ienate, sale, mortgage or part with it in any form or nature and after her life the property would automatically pass on to her 3 children in equal share. The AO further held that the assessee is not eligible to claim the benefit of section 54F as the flats were acquired by the assessee more than one year prior to the transfer of development rights in the property. The assessee had made investment in flats at Twin Towers, Aundh on 28-08-2000, whereas the transfer of development rights was materi .....

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rejected the contentions of the assessee on the ground of jurisdiction as well. Now the assessee is in second appeal before the Tribunal assailing the finding of the CIT(A) on the ground of jurisdiction as well as on merits. 6. Shri V.L. Jain appearing on behalf of the assessee submitted that no reason for invoking the jurisdiction u/s.147 was mentioned in the notice issued u/s.148 to the assessee. No separate speaking order was passed by the AO on the objections filed by the assessee. The AO wa .....

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decision of Hon ble Delhi High Court in the case of Samsung India Electronics Pvt. Ltd. Vs. Dy. CIT reported as 362 ITR 460 (Delhi) and the decision of Hon ble Bombay High Court in the case of Bharat Jayantilal Patel Vs Union of India reported as 122 DTR 321 (Bombay). 7. The Ld. AR of the assessee assailing the finding of the authorities below on merits submitted, that the authorities below have erred in coming to the conclusion that the assessee was having absolute ownership rights of the beque .....

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rty in any manner. After her death, the property would have passed on to her 3 children, i.e. Gauri, Rohit and Radhika in equal proportion. Since there was dispute between the assessee and her children, a family settlement was drawn on 14-07-2000. According to the family settlement the assessee and her 3 children shared the property in equal proportion. Subsequently, the assessee entered into an agreement with Kumar Group for alienation of her 1/4th share in property for a consideration of ͅ .....

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khs only, which assessee declared in her revised return of income. The Ld. AR stated that the remaining amount has been assessed in the hands of the 3 children of the assessee. 8. The Ld. AR submitted that the authorities below have erred in denying deduction of section 54F to the assessee. As per the provisions of section 54F, the assessee is eligible to get benefit of deduction if the capital gain arising from transfer of any long term capital asset is utilized within a period of 1 year before .....

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riod of one year from the date of confirmation deed. 9. The Ld. AR further submitted that the term transfer as defined u/s. 2(47) of the Act would include the extinguishment of any rights in the capital asset. Thus, after the execution of transfer of development agreement there was extinguishment of rights in the share of property acquired by the assessee through WILL. To support his submissions the Ld. AR placed reliance on the decision of Hon ble Supreme Court of India in the case of Sanjeev L .....

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ion 147 proceedings separately. The Ld. DR also referred to provisions of section 292BB of the Act to buttress his submissions. The ld. DR contended that now at the appellate stage assessee cannot raise the issue that objections were not decided separately or there is any violation of principles of natural justice. 11. The Ld. DR further submitted that the assessee had disposed of the property in violation of the recitals in the WILL. According to the WILL the assessee had lifetime interest in t .....

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of Property Act, the assessee cannot take benefit of deduction u/s.54F of the Act. Further, even if it is assumed that the assessee had invested the amount for purchase of flats at Twin Towers, Aundh within 1 year from the date of transfer of developments rights, still the assessee would not be eligible for the benefit of section 54F. As per the provisions of section 54F, investment has to be made in a residential house which means only one residential house. Whereas, the assessee in the presen .....

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assailed the finding of CIT(A) in confirming the addition of ₹ 70 lakhs on account of long term capital gain on transfer of development rights of undivided share in a property. The assessee had acquired the property from her mother through WILL dated 25-09-1991. The relevant extract of recital in the WILL is reproduced hereunder : The remaining part of the ground floor which is now used by the firm of M/s. Indira Maternity Home, Ist Floor, and 2nd Floor of my property called as Madhu Ranj .....

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st in the property and the assessee is barred from alienating the property in any manner whatsoever. After the death of the assessee the property will pass on to the grand children of the testator, i.e. 3 children of the assessee named Gauri, Rohit and Radhika in equal proportion. It is amply evident that the assessee is not absolute owner of the property but had acquired only a limited right to enjoy the property during her lifetime with restrictive conditions. Thereafter, in the year 2003, the .....

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assessee only received ₹ 17.50 lakhs, i.e. to the extent of her 1/4th share in the said property. The assessee in her revised return of income disclosed the long term capital gain on the aforesaid amount. 14. We observe that the authorities below have erred in holding that the assessee was the absolute owner of the property acquired by her through WILL. As stated earlier the assessee had only lifetime interest in the property with no right of alienation. It was only through a family arrang .....

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long term capital gains on the considered received, i.e. ₹ 17.50 lakhs on transfer of her 1/4th share in the property. Thus, the second ground of appeal raised by the assessee is allowed in the aforesaid terms. 15. In the third ground of appeal the assessee has assailed the finding of CIT(A) in confirming the disallowance of the claim of exemption u/s.54F of the Act. 16. Before we proceed to decide this issue it would be essential to have the glimpse of the important dates. Dates Events 2 .....

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ance to development agreement dated 28- 07-2001 17. The contention of the Revenue is that initial development agreement with Kumar Group could not be materialized, therefore, the assessee entered into another development agreement with Kumar Jain of the same group on 28-07-2001. The revenue has not placed on record any document to show that the initial agreement entered into between the assessee and Kumar group was cancelled. The assessee has placed on record the development agreement dated 28-0 .....

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place within the span of 1 year. The execution of confirmation deed at a later date would not make the assessee ineligible from the benefit of section 54F. A perusal of confirmation deed dated 13-12- 2002 would show that the same is in furtherance to the Development Agreement dated 28-07-2001 with assessee. Therefore, the assessee is eligible for claiming exemption u/s. 54F of the Act. 18. We observe that the CIT(A) in the impugned order has held that the assessee has sold one of the new flats .....

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54F in such circumstances is restricted to the amount of capital gain invested in one flat i.e. 801, Twin Towers, Aundh, Pune only. 19. One of the objections raised by the Revenue is that the transfer of rights does not constitute transfer of capital asset for claiming deduction u/s.54F. 20. A perusal of section 2(47) of the Act which defines the term transfer shows that clause (ii) of section 2(47) deals with the extinguishment of any rights in the capital assets. Thus, transfer in relation to .....

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n 54 of the Act, it is very clear that so as to avail the benefit under Section 54 of the Act, one must purchase a residential house/new asset within one year prior or two years after the date on which transfer of the residential house in respect of which the long term capital gain had arisen, has taken place. 18. In the instant case, the following three dates are not in dispute. The residential house was transferred by the appellants and the sale deed had been registered on 24th September, 2004 .....

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allenged by his son and the appellants had been restrained from dealing with the house in question by a judicial order and the said judicial order had been vacated only in the month of May, 2004 and therefore, the sale deed could not be executed before the said order was vacated though the agreement to sell had been executed on 27th September, 2002. 19. If one considers the date on which it was decided to sell the property, i.e. 27th December, 2002 as the date of transfer or sale, it cannot be d .....

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a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immoveable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the .....

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asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word transfer is as under: 2(47) transfer , in relation to a capital asset, includes,- (i)……………. (ii) the extinguishment of any rights therein; or ……………………………… 21. Now in .....

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on and a sum of ₹ 15 lakhs had been received by way of earnest money. It is also not in dispute that the sale deed could not be executed because of pendency of the litigation between Shri Ranjeet Lal on one hand and the appellants on the other as Shri Ranjeet Lal had challenged the validity of the Will under which the property had devolved upon the appellants. By virtue of an order passed in the suit filed by Shri Ranjeet Lal, the appellants were restrained from dealing with the said resid .....

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t of the aforestated facts and in view of the definition of the term transfer , one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personam had .....

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ovisions of Section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within th .....

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atible partner to the Income Tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. Commissioner of Income Tax [(2001) 3 SCC 359] this Court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious const .....

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