2002 (1) TMI 1296
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....see to bring the new flat in a habitable condition was not includible in the cost of new flat and thereby disallowing the amount of ₹ 14,94,357. (4)The CIT(A) erred in passing an order of enhancement under section 251(2) of the Act rejecting the valuation report of a government approved valuer for fair market value as on 1-4-1981 of the flat sold by the assessee. The registered valuer had worked out the fair market value at ₹ 1,22,12,644 and the CIT(A) has applied his own method by adopting the same to be at ₹ 26,17,542. 2. Briefly stated the facts are that the assessee was owner of a flat at 7/B, Sunita, B.G. Kher Marg, Malabar Hill, Mumbai. The same was sold by the assessee for a consideration of ₹ 13,25,00,000 vide sale deed dated 29-11-1995. The assessee filed return of income disclosing the capital gain thereon based on the following working : Rs. Net consideration on sale of flat 12,84,11,500 (Details as per separate statement attached) Less : (1) Valuation of flat Rs. as on 1-4-1981 1,22,12,644 (As per valuation report attached) (2) Share Money 251 (3) Deposits with Comtrust Co-op. Hsg. Soc. Ltd. 4,000 1,22,16,895 Index cost 1,22....
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....tset, it may be pointed out that section 54 of the Act is intended to give relief in respect of capital gain arising from the transfer of a residential house if the net-consideration is invested in the purchase or construction of the residential house. The opening words of section 54 are as under : 54(1) Subject to the provisions of sub-section (2), wherein, in the case of an assessee being an individual of a Hindu Undivided Family, the capital gain arises from the transfer of a long term capital assets, being building or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the "Income from house property" (hereinafter in this section referred to as the original asset) and the assessee has within a period of (one year before or two years after the date on which the transfer took place purchase) or has within a period of three years after that date constructed, a residential house, . . . ." The expression "a residential house" used in section 54 would mean in the context any residential houses and not one residential house. Unlike in the case of section 23 or section 53 or section 54E of the Income-tax Act there....
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....ther capital gains arising on transfer of each of such houses should qualify for exemption. Section 54 lays emphasis on the use of the property mainly for the purpose of assessee or his parents'; own residence. If an assessee has retained more than one house for the purpose of his own or the parents'; own residence, and has used them for such residence, and not for any other purpose the capital gains arising on transfer of each of such house would qualify for exemption under section 54, provided the other conditions spelt out therein are fulfilled. Letter : No. 207 24/76-IT(A-II), dated 25-3-1977." (copy enclosed) "Thus, it is submitted keeping in view the context, the object and purpose of section 54 for giving relief in respect of investment in residential house, the exemption claimed under section 54 in the return of income in respect of residential flats in the very same co-operative society is in accordance with the provisions of the Act for which sufficient justification is furnished hereinabove." The Assessing Officer, however, held that the provisions of section 54 of the Act are very clear and the exemption is available only in respect of one re....
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.... ₹ 2,09,000 (c)Cost of construction (as taken by the valuer) ₹ 9,61,000 (d)Additional cost for various factors as discussed above ₹ 9,42,172 Total ₹ 28,51,237 Less : Depreciation on super structure for 10 years calculated at 12.5% (of c + d) ₹ 2,37,946 (Taking total durability of ₹ 26,13,291 the building to be 80 years) Applying the indexed cost valuation, CIT(A) taken the cost of the flat at ₹ 73,55,293 as against adoption of ₹ 3,43,20,474 by the Assessing Officer. 7. Regarding the allowability of only one flat under section 54(1) the CIT(A) accepted the conclusion of the Assessing Officer that a residential house means one residential house. Relying on the Supreme Court judgment in the case of Municipal Corpn. of Greater Bombay v. Mafatlal Industries AIR 1996 SC 1541 it was held that the word used in the statute should be given their natural and popular meaning in the absence of specific definitions of a residential house, therefore, ordinarily means, structurally one residential unit as the common man understands it. Regarding K.G. Vyas v. Seventh ITO (1986) 16 ITD 195(Bom.), the CIT(A) held that accepting more th....
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....nt, a notice under section 143(2) could have been issued. Having not done so, it can be presumed that the Assessing Officer had dispensed with the assessment and the reopening of an assessment can be made only when there is an assessment. Since order under section 143(1)(a) is not an assessment, the same cannot be reopened. Therefore, issue of notice under section 148 was not proper. 9. The learned departmental representative relied on the order of the CIT(A) in this behalf upholding the reopening which, inter alia contains that the scheme of the Act suggest that the law intends to treat an assessment under section 143(1)(a) as an alternative assessment. Consequently a scrutiny assessment under section 143(3) need not be done at all and issue of intimation would suffice and in totality of the Scheme it can be held that intimation is nothing but an assessment. The learned departmental representative further contended that in terms of proviso to section 143(2), a notice could not be issued after expiry of 12 months from the end of the month in which the return was furnished. The return was filed on 30-8-1996 and by this provision, the issue of notice under section 143(2) was barred ....
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....ld that the re-assessment is valid. This issue raised by the assessee by various grounds is dismissed. 12. Coming to the second issue, the learned counsel for the assessee contended that the assessee';s family consisted of husband, wife and three married daughters and grand children. The assessee had sold her flat in Sunita Apartments and purchased one flat at 8D, 1st Floor, Land';s End Building at Dongri Road, Mumbai. The assessee wrote a letter dated 10-4-1996 that the flat had only two bed rooms and was not sufficient for members of her family and, therefore, was desirous of acquiring additional premises preferably in the same block of the building. A request was, therefore, made that if any member of the Society is desirous of transferring the flat, the assessee was willing to make a bid. By the time of submitting the return, the assessee had bought this property and made additions thereto and the balance amount on which exemption from capital gain has been claimed was deposited in capital gain account scheme in the Nationalised Bank. From the amount deposited in Capital Gain Account Scheme (CGAS), the assessee subsequently after following the due prescribed procedure ....
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.....f. assessment year 1983-84. Prior to this amendment, the flat purchased or constructed should be for the purposes of one';s own residence and as per the amended provisions, the exemption was granted if the asset purchased was a residential house. Consequently there is a shift in legislative intention from the "new asset" being compulsorily used for the self-residence to any residential house. 14. The learned counsel further contended that as per the new provisions, the words used are "a residential house" which expression would mean in the context of section 54 as "any residential house" and not one residential house. Therefore, "a" would mean "any" and not necessarily "one". In other words, the expression "a residential house" is descriptive in nature of the property and there is no reference to the numerical figure of the property. The learned counsel contended that ';any residential house'; would include more than one unit of residential house. The dominant object is that the new asset so purchased should be residential house for the assessee. Therefore, the number of units is not very relevant t....
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.... learned departmental representative, on the other hand, argued that the language of section 54 is plain and simple and leads to one interpretation. The words in the section are to be given its ordinary grammatical meaning. The words used are - "a residential house". The plea of the learned counsel for the assessee that the revenue is overemphasising the words "the residential house" is also not correct as the section itself refers to "a residential house" in clause (i), i.e. (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed....". It was contended that the section refers not only to "a residential house" which in its plain and grammatical meaning means one residential house, the latter words, "the residential house" also signifies that what the Legislature clearly intends and means by these words is contemplation of one residential house by way of purchase or construction. It was contended that when the statute is capable of drawing only one plain meaning, no rule of interpretation should be applied irrespective of the probable difficulties or absurdities from th....
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....y clear, and capable of giving plain meaning, there is no purpose in going for external aids of construction and case laws which are based on earlier provisions by drawing simile therefrom. Apart from the inconsistencies in the stand of the assessee about the legitimate residential needs it was further contended that the flats being separate and distinct residential units were on separate floor and from additional utility point of view also, they cannot be considered as a house. Reliance was placed on CIT v. Gautam Sarabhai Trust (1988) 173 ITR 216(Guj.) in the case of CIT v. Poddar Cement (P.) Ltd. (1997) 226 ITR 625. In fine it was contended that the words used are not only "a residential house" but it is supplemented by the use of words "the residential house". So what is contemplated by section 54(1) is purchase or construction of one residential house. Since the reading of the statute leads to only one meaning, there is no use of external aids of constructions or drawing analogies from case laws. The operation of the statute has to be given effect to. The Bombay realities and other factors may be inconveniences to the assessee but they cannot override the p....
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....ious of the selection of words. If the Legislature had an intention to exempt more than one unit it could have been done by simple words like "residential house or houses", "the new asset/assets". Similarly in clauses (i) & (ii), the cost of acquisition of new asset is directed to be taken as Nil if the new asset is sold within three years of its purchase. If the Legislature intended more than one residential units, here also it could have used the words "if there are more than one units the cost of acquisition in respect of new asset should be the date on which it is acquired". The whole Scheme of section 54(1)(i) & (ii) spells out that what the Legislature means unambiguously is one residential use. The Hon';ble Supreme Court in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192has held that if the language of the statute is plain, the fact that the consequences of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the disparity. Further, the Supreme Court in CED v. Alladi Kuppuswamy (1977) 108 ITR 439 has opined "it is true th....
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....of the Act on the alleged ground that expenditure incurred by the Appellant to bring the new flat to a habitable condition was not includible in the cost of the new flat, thereby disallowing an amount of ₹ 14,94,357 which was earlier allowed by the JCIT out of the total expenditure of ₹ 17,26,908. 2. He further erred in making certain incorrect, immaterial and/or irrelevant observations, in particular the following : (i)the expenditure for the kind of minor defects pointed out by the architect certainly could be a minor amount and not as much as ₹ 17,26,908. The appellant obviously has undertaken substantial renovation to achieve a luxury status. (ii)the term "cost of the new asset" should necessarily refer to purchase consideration and not subsequent expenditure unrelated to purchase transaction itself. He failed to appreciate and ought to have held that : (i)the expenditure on repairs was incurred only to bring the new flat to a habitable condition and fit for occupation by the Appellant and her family. (ii)the term "cost" is not synonymous with the "price" that is paid for the acquisition of an asset, as is laid down by vario....
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....r. The flat was built 30 years ago. Much attention was not paid in its upkeep and maintenance. The CIT(A) however, was of the view that cost of the "new asset" should necessarily refer to purchase consideration or cost of construction and not subsequent expenditure unrelated to purchase iself. Legislature have provided for cost of improvement in respect of original asset under section 48(ii), but have not provided it for the new asset. The same could not be an unintended omission. Looking at the time limit prescribed, the CIT(A) was of the view that looking at the plain langauge, further renovation, repairs after purchase could not be included in the cost of the new asset. If that was to be allowed, the Assessing Officer had to read more words into the provision than what actually existed. The assessment was accordingly enhanced by excluding the above amount out of the cost of the new asset as worked out by the assessee. 23. The learned counsel for the assessee contended that the report of the architect placed at paper book page 35 goes to show that the flat was in a general state of disrepair and was unhabitable and the same required extensive repairs to make the same t....
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....h in common parlance means price of the house. Wherever the Legislature have intended to increase the ambit of word "cost", necessary words are used as rightly observed by the CIT(A) in connection with section 48(iii) with reference to cost and improvement. In the existing provisions, there cannot be further addition after the purchase is completed. 26. We have heard the rival submissions and perused the material available on record. The words used about the amount spent on purchase of new asset are "cost thereto" and not "price thereto". The cost includes purchase as well. Consequently, we are of the view that the word used signifies that the amount of purchase will include other necessary expenditure in this behalf to make a residential house habitable and taken together will be the cost of the new asset. We have perused the items of the report of the architect. The residential house was in a state of general disrepair and was unhabitable. Consequently, the necessary repairs carried out to make the same habitable will constitute part of the cost of new house. We hold that the CIT(A) was not justified in enhancing the assessment by excluding the amou....
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.... be sold at a considerably lesser amount because of the presence of a tenant. The assessee sold the flat with a vacant possession. These two instances cannot be compared. The learned CIT(A) instead of himself touching the technical aspect should have referred the same to the Departmental Valuation Officer in this behalf. A reference was made to section 55A. Reliance was placed in the case of Raj Paul Oswal v. CWT (1988) 171 ITR 489(Punj. & Har.) to the effect that the word used "may" in the provisions means "shall". The valuation report of the assessee was described and it was contended that the same being realistic and based on technical data, should have been relied on. 30. The learned departmental representative, on the other hand, contended that the valuation report submitted by the assessee is a self-serving document. Besides, it is not a final say about the FMV of any property. It was only a piece of evidence in the form of advice. Reliance was placed in the case of Hotel Amar v. CIT (1993) 200 ITR 785(Ori.). It was contended that the depreciation of property was not properly considered. Multiplying factors adopted by the assessee';s valuer were not c....