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Humayun Suleman Merchant Versus The Chief Commissioner of Income Tax Mumbai City, XVII, Mumbai and Anr.

2016 (9) TMI 70 - BOMBAY HIGH COURT

Eligibility of exemption u/s 54F(4)- Held that:- The return of income is admittedly filed on 4th November, 1996. In terms of Section 54F(4) of the Act as interpreted by the Gauhati High Court in Rajesh Kumar Jalan (2006 (8) TMI 126 - GAUHATI High Court ) the amounts subject to capital gain on sale of the capital asset for purpose of exemption, has to be utilized before the date of filing of return of income. In this case 4th November, 1996 is the date of filing the return of Income. It is not di .....

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amounts utilized for construction of a house before filing the return of income on 4th November, 1996 for extending the benefit of exemption under Section 54F of the Act. Therefore, in the present facts, the decision of the Gauhati High Court in Rajesh Kumar Jalan (supra) would not apply so as to hold that the appellant had complied with the Section 54F(4) of the Act. - Decided against assessee - INCOME TAX APPEAL NO. 545 OF 2002 - Dated:- 18-8-2016 - M.S. SANKLECHA & A.K. MENON, JJ. Mr. B. .....

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. 2 This appeal was admitted on 25th August, 2004 on the following substantial questions of law : (a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in applying the provisions of Section 54(F) (4) of the Income Tax Act, 1961? (b) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Assessing Officer has rightly computed the deduction u/s. 54F of the Income Tax Act, 1961, restric .....

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₹ 10,00,000/- each on 17th July, 1996 and 23rd October, 1996 to the developer / builder i.e. before the due date for filing of return of Income under Section 139(1) of the Act i.e. 31st October, 1996. (d) On 1st November, 1996 the petitioner paid to the developer a further installment of ₹ 15,00,000/- for purchase of flat pursuant to the agreement dated 16th July, 1996. (e) On 4th November, 1996 the appellant filed his return of income for the Assessment year 1996-97. This was after .....

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7; 43,84,334/- which was payable for purchase of the flat pursuant to the agreement dated 16th July, 1996 was brought to tax under the head 'Capital Gains'. This on account of appellant's failure to deposit the unutilized consideration for purchase of the flat in specified bank accounts in accordance with the scheme of Central Government as provided under Section 54F(4) of the Act. (g) Being aggrieved, the appellant-assessee filed an appeal to the Commissioner of Income Tax (Appeals) .....

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et consideration received on sale of land towards purchase of a flat before the due date of filing the return of income. Further, the balance of the net consideration had not been deposited in the specified bank account as mandated by Section 54F(4) of the Act. Thus dismissing the appeal of the appellant-assessee. 4 It is in the backdrop of the above facts that the two substantial questions of law arise for our consideration: 5 Regarding Question No.1:- (a) No submissions were made specifically .....

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ding Question No.2: (a) The facts leading to this question have been set out in Para 2 herein above. Therefore not repeated here. (b) Mr.Chatterji, learned Senior Counsel in support of the appeal submits as under:- (i) The issue arising herein is no longer res-integra as it stands covered by the decision of this Court in Commissioner of Income Tax Vs. Mrs.Hilla J.B.Wadia [1995] 261 ITR 376 read with Circulars dated 15th October, 1986 and 16th December, 1993 issued by the Central Board of Direct .....

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liance is placed upon the decision of the Delhi High Court in Commissioner of Income Tax vs. Ravinder Kumar Arora [2012] 342 ITR 38; (iii) Section 54F(4) of the Act has deliberately used the word appropriation while extending its benefit. It is used in addition to be utilized with a view to extend the scope of its benefit. The word appropriation means setting apart. Therefore once an agreement to purchase the flat was executed on 16th July, 1996 and the consideration was set aside though not pai .....

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of Income Tax vs. Rajesh Kumar Jalan [2006] 286 ITR 274. (c) As against the above Mr.Malhotra learned Counsel for the revenue in response submits as under : (i) On plain interpretation of Section 54F(4) of the Act the petitioner has not utilized the entire net consideration taxable under the head Capital Gains for purchase of the flat. Nor had the appellant deposited the balance unutilized consideration in a specified bank account as notified in terms of Section 54F(4) of the Act. Therefore, the .....

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he context of Section 54F(4) of the Act as it was not in the Act, at the relevant time; (iii) The word appropriation towards purchase of the new flat used in Section 54F(4)of the Act only covers cases where the flat has already been purchased within one year before date on which capital gains arose on the transfer of the asset. In the present facts, there is no purchase of a flat prior to the sale of the capital asset but the purchase is post sale of the capital asset. This requires utilization .....

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sideration : 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 transfer of any long-term capital asset, not being a residential house (hereafter 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 purchased or has within a period of three years after that date .....

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apital 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 that nothing contained in this sub-Section shall apply where the assessee owns on the date of the transfer of the original asset, or purchases, within the period of one year after such date, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable un .....

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g 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 sub-Section (1) of Section 139] in an account in any such bank or institution as may be 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 return shall be accompanied by proof of such deposit; and for the purposes of sub-Section .....

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ot charged under Section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-Section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilized by the assessee for the purchase or construction of the new asset within the period specified in sub-Section(1) been the cost of the new asset, shall be charged under Section 45 as income of the previous year in which the period of three years from the date .....

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gains and also for exemption available there under. Section 54F of the Act introduced into the Act with effect from 1st April, 1983 by the Finance Act, 1982 provides exemption from Capital gain on transfer of any long termcapital asset in case the same is invested in a residential house. However, the Section when introduced provided that any capital gain arising from transfer of long term capital asset would not be chargeable to capital gains tax, if the same were utilized for purchase of an ho .....

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d. However, while implementing Section 54F of the Act, it was noticed that at times assessments were completed prior to the expiry of above period of two / three years from the date of sale of the Capital Asset and the assessee had not utilized the amount within the prescribed period provided in Section 54F of the Act. This would lead to Assessment orders being rectified by appropriate orders,to determine the availability of benefit of exemption under Section 54F of the Act. (g) This led to the .....

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at is purchased either within one year prior to the sale of capital asset or within 2 years after the date of sale of the capital asset or where a residential house is constructed within 3 years from the date of sale of the capital asset, is now subject to the provisions of Section 54F(4) of the Act. Thus, where the consideration received on sale of capital asset is not appropriated (where purchase was earlier than sale)or utilized (where purchase is after the sale) then the same would be subjec .....

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ub-section(1)of Section 54F of the Act. This by providing that in such cases,Capital Gain under Section 45 of the Act would be charged on the un-utilized amount as Income of the previous year in which the period of three years from the date of transfer of the capital asset expires. (i) On the basis of the above broad analysis, we shall now examine the facts of the present case. The sale of capital asset took place on 29th April, 1995 for a consideration of ₹ 85.33 lakhs. The agreement for .....

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under Section 139(1) of the Act in the specified bank account. In this case admittedly the entire amount of capital gains on sale of asset which is not utilized has not been deposited in a specified bank account before due date of filing of return under Section 139(1) of the Act. Therefore where the amounts of capital gains is utilized before filing of the return of income in purchase / construction of a residential house, thenthe benefit of exemption under Section 54F of the Act is available. B .....

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Mr.Chatterji in support of the appeal to urge a view contrary to the plain meaning of Section 54F of the Act. (k) Reliance placed by the Appellant upon the decision of this Court in Mrs.Hilla J. B.Wadia (supra) to contend that the issue stands concluded in favour of the appellant-assessee is not acceptable. This for the reason that the only issue for consideration before the Court in the above case was the interpretation of Section 54 of the Act. In the above case the assessee had sold her resi .....

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Act (similar to Section 54F(4) of the Act). Therefore the Court had no occasion to consider the provisions of Section 54(2) of the Act which is similar to Section 54F(4) of the Act, with which we are concerned. (l) Mr.Chatterji, then placed reliance on the observation of this Court in Mrs. Hilla J. B. Wadia (supra) that the Circular issued by the Central Board of Direct Taxes dated 15th October, 1986 in relation to construction of a home by Delhi Development Authority should also be extended to .....

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ssued by the Authority and facility of payment in installment is provided for the purchase of flat. It did not even remotely concern itself with the provision of Section 54(2) and/or 54F(4) of the Act with which we are concerned. The Circular only extended the meaning of constructing a residential house within a period of three years from the sale of the capital asset. The subsequent Circular issued in 16thDecember, 1993 by the Central Board of Direct Taxes relied upon by the Appellant, only ext .....

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rd of Direct Taxes Circulars dated 15th October, 1986 and 16thDecember, 1993 would govern the issue so as to conclude the issue in favour of the Appellant. (m) The reliance upon the decision of the M. P. High Court in Smt. Shashi Varma (supra), also does not advance the case of the Appellant. We find that the facts in the above case are similar to the one in Mrs. Hilla J. B. Wadia (supra) and for the same reasons, will not govern the present dispute. In fact, the issue stood covered by the Circu .....

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has passed on to the assessee. Therefore the payment made subsequent to allotment letter in installments would not in any manner affect the assessee having satisfied Section 54F(1) of the Act. This submission ignores the fact that Sub Section (1) of Section 54F has been made subject to Sub Section (4) of the Act. The requirement under Section 54F(4) of the Act is the deposit of the unutilized amount in the specified bank account till it is utilized. This requirement has not been done away with .....

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uly notified by the Central Government in terms of Section 54F(4) of the Act, the benefit of Section 54F(1) of the Act would still be available. The Court held that if the intention was not to retain the capital gains but was to invest it in construction of property within the period stipulated in Sub Section (1) of Section 54(F) of the Act then Section 54F(4) of the Act is not at all attracted. We are with respect unable to accept the reasoning adopted by Karnataka High Court in K. Ramchandra R .....

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date of filing of return of income under Section 139(1) of the Act. The aforesaid aspect it appears was not noticed by the Karnataka High Court. In any case, the entire basis of the decision of the Karnataka High Court in K. Ramchandra Rao (supra) is the intent of the parties. In interpreting a fiscal statute one must have regard to the strict letter of law and intent can never override the plain and unambiguous letter of the law. It is true that normally while construing an all India Statute l .....

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of the other High Courts leading to a particular conclusion. In this case we find that the decision of the Karnataka High Court in K.Ramchandra Rao (supra) was rendered sub-silentio i.e. no argument was made with regard to the requirement of deposit in notified bank account in terms of Section 54F(4) of the Act before the due date as provided in Section 139(1) of the Act. As observed in Salmond's Jurisprudence 12th Edition : The rule that a precedent sub silentio is not authoritative goes b .....

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s placed in the above order upon the decision of the Apex court in Valliamma Champaka Pillai vs. Sivathanu Pillai AIR 1137 1979 (SC) 1937 to hold that it is well settled that decision of one High Court is not a binding precedent upon another High Court and at best can only have persuasive value. However, at the cost of repetition we must emphasize that the decision of another High court rendered in the context of an all India Act would have persuasive value and normally tomaintain uniformity and .....

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ch would result in the benefit being extended to the appellant assessee. In support, reliance was placed upon the decision of Delhi High Court in Ravindra Kumar Arora (supra). We find that observation of the Delhi High Court in Ravindra Kumar Arora (supra) that Section 54F of the Act should be liberally construed was in the context of the benefit being denied as the name of the wife was added to purchase made by the assessee of a new flat. This denial was even though all the requirements of Sect .....

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vs. Modi Sugar Mills [1961] 12 STC 182 reiterated the well settled principle of interpretation in the following words: In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statute be interpreted on any presumption or assumptions....It must interpret a taxing statute in the light of what is clearly expressed ... Recently, the Supreme Court in Mathuram Agrawal vs. State of Madhya Pradesh [1999] 8 SCC 667 has observed as under :- The intention of the .....

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nambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the Legislature..... (emphasis supplied) Similarly this Court in Thana Electricity (Supra) had observed as under : If the provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted. This is a well-accepted view of law. It is the satisfaction of th .....

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n of Section 54F(4) of the Act are very clear. There is no ambiguity. Thus, there is no occasion to apply liberal / beneficial construction while interpreting the Section as contended by the Appellant. (t) It was next contended by Mr. Chatterji, learned Senior Counsel for the appellant that the word appropriation used in Section 54F(4) of the Act would also apply in the present case where the capital asset has been sold and sale proceeds are earmarked to be invested in construction of house. A p .....

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acts we are concerned with the second class i.e. purchase post the sale of the capital asset. (u) The parliament has used the word appropriated in the first class of cases i.e. where property has already been purchased prior to the sale of capital asset and the amount received on sale of capital asset is appropriated towards consideration which has been paid for purchase of the flat. In this case we are concerned with the purchase / construction of residential housing, after the sale of capital .....

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ase prior to sale of capital asset) and utilization (purchase/construction after the sale of capital asset). Therefore the word appropriated would have no application in cases of purchase / construction of a house after the sale of capital asset with which we are concerned. (v) Lastly and in the alternative, it is submitted by Mr.Chatterji, that as the entire amount has been paid to the developer/builder before the last date to file the return of Income under Section 139 of the Act, the exemptio .....

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f furnishing of return of Income under Section 139 of the Act has not to be restricted only to the date specified in Section 139(1) of the Act but would include all sub section of Section 139 including sub section (4) of the Act. On the above basis it concluded that if the amount is utilized before the last date of filing of the return under Section 139 of the Act then the provision of Section 54(2) of the Act would not hit the assessee before it. It is not very clear in the above case whether t .....

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