TMI Blog2017 (8) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... y ignored by the Assessing Officer as well as by the CIT(A). Treating the interest expense on borrowed funds towards cost of acquisition of residential house as transferred the assessee had not claimed such interest expense as a deduction on such self occupied property under any Section like that of Section 24(B) or Section 57 of the Act. Therefore, the assessee is entitled to claim it as part of cost of acquisition of such house. The same is supported by the Karnataka High Court judgment in case of CIT Vs. Maithrevi Pai [1983 (11) TMI 43 - KARNATAKA High Court] wherein it is held that interest paid on borrowings for acquisition of a capital asset must fall for deduction u/s 48 of the Act provided the same has not been claimed as a deduction under other heads like those u/s 57 of the Act. Thus, the order of CIT(A) is set aside. - Appeal of assessee allowed. - I.T.A .No.5852/DEL/2012 - - - Dated:- 14-7-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Sanjiv Sapra, FCA For The Respondent : Sh. N. K. Bansal, Sr. DR ORDER PER SUCHITRA KAMBLE, JM This appeal has been filed by the assessee agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue. 3. The assessee is a non-resident Indian and filed his return of income on 10/7/2009 declaring therein income of ₹ 2,98,550/- comprising of long term capital gains and income from other sources. During Assessment Year under consideration, he sold a residential house for a sum of ₹ 1,16,50,000/- by way of sale deed dated 11/4/2008. This property was acquired on 10/12/1996 for a price of ₹ 10,16,943/-. The assessee had incurred interest cost of ₹ 2,16,255/- on loan taken to acquire the property and included it in cost of acquisition. Long term capital gains was worked out to be ₹ 97,09,473/- after considering indexed cost of acquisition. The assessee claimed exemption u/s 54 of the Income-Tax Act, 1961 as he had invested ₹ 1,03,22,025/- on 22/4/2008 in flat being constructed by a developer under agreement dated 3/1/2007. The A.O denied exemption u/s 54 of the Act and brought long term capital gains to tax on grounds that the assessee did not have firm ownership of the property, the assessee had not made substantial payments towards purchase of property as on date of filing the return, the said flat claimed as exempt falls under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing exemption under section 54. The above circulars are binding on the revenue authorities under section 119 of the Act. Since the flat has been allotted to the assessee by the builder who would fall in the category of other institutions mentioned in the circulars, it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat . The Ld. AR further submitted that Board s Circular No. 471 dated 15-10- 1986, has also been considered by Hon ble Bombay High Court in the case of CIT v. Hilla J.B. Wadia 216 ITR 376 (Bom). Thus, the Ld. AR submitted that the CIT(A) was incorrect in observing that the assessee s case falls under the category of purchase of new house when it is clearly a case of construction of new house. 6. The Ld. AR further submitted that there is no restriction under sec. 54 if construction of new asset is started prior to sale of old asset for which relied upon the jurisdictional High Court judgment in the case of CIT vs. Bharti Mishra (41 taxmann.com 50) these Synopsis. Relevant portion from para 12 13 of such judgment are reproduced below: 12. Section 54F(1) if read carefully states that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of transfer of original asset in April, 2008. (iii) Even if for arguments sake, the time limit as specified in section 54 is to be considered as 2 years from transfer of original asset as specified in case of purchase (and not construction) of new asset, then also, the scheduled date for giving possession of the new asset in January, 2010 was well within such 2 year time limit from April, 2008. (iv) Out of total consideration of ₹ 2,36,81,250/- (which was later enhanced to ₹ 2,40,18,750) for the new asset, the Appellant on 22/04/2008 had paid ₹ 1,03,22,025/- to the builder/DLF and on such payment alongwith total of installments paid prior to that of ₹ 1,18,40,625/- accounted for 94% of the total consideration amount as mentioned in the Apartment Buyer s Agreement and as per details reflected in Annexure I to the Synopsis. (v) Hence, not only the long term capital gains of ₹ 92,96,818/- as worked out by the Appellant but the entire sale proceeds of ₹ 1,16,50,000/- as received on sale of old asset stood invested in the New Asset within the time limit as specified in section 54. (vi) The Sale deed/possession of the New Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh (Jurisdictional Delhi H.C.) 270 CTR 561 in which it was held as under: It is accepted position and it is not disputed by the revenue that amount had been invested by the assessee for purchase of flat. However, legal title in the said property was not passed or transferred to the assessee within a period of two years from the date of sale of residential property. The flat was still under construction though the builder had entered into and executed the flat buyers agreement with the assessee. The said agreement mentions the apartment number and gives specific detail of the property. The payments were linked to stage of construction and that amount was payable within 21 months of booking. The consideration being paid by the assessee was nearly 9 times income by way of capital gains which was earned by the assessee. [Para 7], The basic purpose behind section 54 is to ensure that the assessee is not taxed on the capital gains, if he replaces his house with another house and spends money earned on the capital gains within the stipulated period. [Para 12]. The Ld. AR also relied on the case of CIT vs. R L Sood 245 ITR 727 (Jurisdictional Delhi H.C.). In this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained and given effect to. A provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee . iii. CIT vs. J.H. Gotla 156 ITR 323 (Supreme Court), in which it was held as under: If a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation ascertained from the scheme of the legislation, then, if another construction is possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction. Where the plain literal interpretation of a statutory provisions produces a manifestly unjust result which could never have been intended by the legislature, the court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational result. BY THE COURT: Though equity and taxation are often strangers, attempts should be made that these doe not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. 10. The Ld. AR f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... builders. The assessee has shown on record that the sale value of the earlier property has been totally been utilized in the purchase value of the new property. The Jurisdictional High Court in the case of CIT Vs. Bharti Mishra has also held in Para 14 as under:- Section 54F is a beneficial provision and is applicable to an assessee when theh old capital asset is replaced by a new capital asset in form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Hon'ble Supreme Court in CCE Vs. Favourite Industries, [2012] 7 SCC 153 has succinctly observed:- 21. Furthermore, this Court in Associated cement Companies Ltd Vs. State of Bihar [(2004) 7 SCC 642], while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held: (SCC p. 648, Para 12). 12. Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statues it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports the case of the assessee. The assessee has complied with all the conditions for making investment of capital gains in asset which cannot be termed as new asset as the old asset was sold on 11/4/2008 and time limit for investing capital gains in construction of new asset would have expired on 10/4/2011 but the assessee prior to that had entered into an apartment buyers agreement on 3/1/2007. Thus, the assessee has proved its stand along with the documentary evidence which was totally ignored by the Assessing Officer as well as by the CIT(A). As per the issue for treating the interest expense on borrowed funds towards cost of acquisition of residential house as transferred the assessee had not claimed such interest expense as a deduction on such self occupied property under any Section like that of Section 24(B) or Section 57 of the Act. Therefore, the assessee is entitled to claim it as part of cost of acquisition of such house. The same is supported by the Karnataka High Court judgment in case of CIT Vs. Maithrevi Pai 152 ITR 247 wherein it is held that interest paid on borrowings for acquisition of a capital asset must fall for deduction u/s 48 of the Act provided the same h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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