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2016 (3) TMI 52 - ITAT BANGALORE

2016 (3) TMI 52 - ITAT BANGALORE - TMI - Addition made under long term capital gain - claim u/s 54 denied - cost of acquisition considered by assessee rejected - determination of date of transfer - Held that:- The liberal interpretation of the term purchase as it appear in section 54 has to be given also to the term ‘constructs’ appearing therein, in conjunction to the former. Even the Hon’ble jurisdictional High Court in the case of CIT Vs Smt B.S.Shanthakumari [2015 (8) TMI 274 - KARNATAKA HIG .....

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of the IT Act, 1961, and earnestly demonstrated his intention to invest the capital gain in a residential house. We are therefore, of the considered opinion, that the assessee ought not have been denied the claim u/s 54 of the IT Act, 1961. The disallowance of such claim stands deleted. Since we have allowed the claim u/s 54 of the Act, the question of computation of cost of purchase of the property sold becomes academic. - Decided in favour of assessee - ITA No. 323(BNG.)/2015 - Dated:- 19-2-20 .....

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rm capital gain denying the claim u/s 54 of the IT Act, 1961 and also not considering the cost of acquisition of ₹ 23.80 lakhs claimed by the assessee. 2. The appeal has been filed with a delay of 333 days. Pleading of the assessee in the affidavit filed is that he was pursuing a proceeding before the Central Administrative Tribunal (CAT) and was also pre-occupied due to a serious illness of his daughter. Assessee has also filed evidence in this regard. Learned DR submitted that the depart .....

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000/-. The conveyance deed was executed on 15-04-2008. However, assessee did not show any capital gains in his return of income. Explanation of the assessee was sought. Reply of the assessee was that the entire sum of ₹ 66,50,000/-realized on sale was given by him to his brother Shri T.Vijayakumar for acquiring a house bearing No.199, 12th Main , 4th Block, Koramangala, Bangalore-560 034. The payments to his brother Shri T.Vijayakumar, were through a cheque dated 19-04-2008 for ₹ 64, .....

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As per the assessee the said sum was later paid to one Mrs. Mary Susan for acquiring a residence owned by the latter at No.828, 2nd Block, 4th Stage, BTM Layout, Bangalore based on an agreement entered with her on 10-03-2010. The consideration agreed as per the agreement was ₹ 70.00 lakhs which was re-negotiated down to ₹ 45.00 lakhs through an addendum agreement entered on 30-03-2011. Nevertheless, it seems the said transaction also did not eventually materialize. 4. The AO was of t .....

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fterthought. In sofaras the deposit of ₹ 40.00 lakhs refunded by Shri T.Vijayakumar in capital gains deposit account was concerned, learned AO made enquiries with the bank and as per the learned AO, the bank had confirmed that there was no such deposit made by the assessee. 5. As for the claim of the assessee that he had entered into an agreement with Mrs Mary Susan on 10-03-2010 for acquiring property at No.828, 2nd Block, 4th Stage, BTM Layout, Bangalore, learned AO was of the opinion th .....

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akhs. 7. Aggrieved on the above, assessee moved in appeal before the CIT(A). Submission before the CIT(A) was that on cancellation of agreement entered by the assessee with Mrs. Mary Susan, he had utilized the refund received from Mrs. Mary Susan for purchasing a flat in Sobha Garrison Project, Yeshwanthpur Hobli, Bangalore North through agreement dated 24-03-2011 from M/s Sobha Builders. Argument of the assessee was that even this investment would qualify for claim of exemption u/s 54F of the A .....

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the transaction with Mrs Mary Susan were also not reliable. As per the learned CIT(A) the condition in the said agreement that cheque given by the assessee could be encashed only after completion of the residential building appeared contrary to vendors assertion that she selling due to paucity of funds. Even the agreement entered by the assessee with M/s. Shobha Developers would not qualify for deduction u/s 54, as per the learned CIT(A). Further according to him, assessee had not deposited the .....

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arned AR strongly assailing the order of the lower authorities submitted that the intention of the assessee to invest in a residential house building was clear from the very beginning. According to him, assessee believed his brother and paid money to him for acquiring a house from him. When his brother was reluctant to transfer the house he got a refund from his brother. Such refunded money was deposited by him in the capital gains account scheme and later used for paying advance to Mrs.Mary Sus .....

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Thus, according to him, the failure of the persons to whom assessee had in good faith paid money for acquiring a residential premise to honour their commitments, could not fastened on the assessee as a reason for denying a legitimate claim made u/s 54 of the IT Act, 1961. 9. We have perused the orders and heard the rival contentions. 10. The date of which the transfer giving rise to the capital gains was effected on 15-04-2008. Section 54 of the IT Act, 1961 which allows an exemption on profit .....

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his 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 purchased, or has within a period of three years after that date 3[constructed, one residential house in India], then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to .....

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, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropri .....

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under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall .....

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nt in accordance with the scheme aforesaid . 11. The time period allowed for making a purchase if it is done after the date of transfer is two years and if it is a construction it is three years. Thus, if the intention was to construct a residential house the period is three years, the outer limit of three years for constructing a house in the given case before us was 14-04-2011. Vide sub-sec.2 of section 54 a deposit under capital gains scheme, if the capital gain is not appropriated for such c .....

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is assessment year : 2009-10, and the extended time period u/s 139(4) is before expiry of one year from the end of the relevant assessment year or before completion of assessment whichever is earlier. One year from the end of the impugned assessment year would expire only on 31-03-2011. The assessment for the impugned assessment year having been completed only on 29-12-2011 the date to be reckoned for the purpose of application of sub-sec.2 of sec.54 in the case before us is 31-03-2011. Thus, it .....

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11. Leaving apart, the transaction the assessee claimed to have made with his brother Shri T.Vijayakumar, undisputedly, on 10-03-2010, he had entered into an agreement with one Mrs Mary Susan. He had also paid a post dated cheque pursuant to such agreement. The agreement dated 30-03-2011 through which consideration originally agreed by the assessee with Mrs. Mary Susan was reduced from ₹ 70.00 lakhs to ₹ 40.00 lakhs has been placed on record. It is clearly mentioned therein that asse .....

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idence before the agreed date. The agreement also mentions that the vendor had delivered to the assessee the original documents of title and the vacant possession of the scheduled property. How the term purchase has to be construed in relation to interpretation of sec.54 of the IT Act, 1961 had come up before the Hon ble Delhi High Court in the case of CIT Vs Kuldeep Singh in ITA No.117/2014. Their Lordship held at paras 8 to 10 of judgment dated 12-08-2014… 8. The word purchase can be gi .....

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eld that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word purchase . It was observed that the word purchase used inSection 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that purchase primarily meant acquisition for money paid and not adjustment, was rejected observ .....

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empt. The purpose was plain; the symmetry was simple; the language was plain. 9. Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sh. Sanjeev Lal Etc.Etc. vs. CIT, Chandigarh & Anr., decided on 01/07/2014, 2014 (8) SCALE 432 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received ₹ 15 lacs by way of earnest money and subsequently received the balance sale consideration .....

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4. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient for the purpose of Section 2(47), which .....

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ng term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observations made in the said decision are also relevant on the question whether the payments made by the assessee to the person with whom he had entered into an earlier agreement to sell should be allowed to be set off as exp .....

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, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was ₹ 31,980/- whereas the installments paid were ₹ 71,256/-, i.e. much more than the amount of capital gain. Reference was made to Circular No. 471 dated 15th October, 1986 [1986] 162 ITR (Stat.) 41. It was observed that Section 54 of the Act says that assessee could have constructed the house and not that the construction should have necessarily been completed .....

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