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TMI Blog2018 (2) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... jal Pura, Vadodara in Vadodara which he sold off during the relevant previous year for a consideration, net of expenses, of Rs. 2,46,00,000 and earned long term capital gain of Rs. 1,89,77,426. Whatever may have been the compulsions of this sale of property by the assessee, like an overwhelming majority of non-resident Indians, the assessee did not entirely severe his India connection as far holding property in India is concerned. He invested a portion of the sale proceeds, Rs. 78,00,000 to be precise, in another residential unit, though a much smaller one admeasuring 1,952 sq ft, i.e. Row House No. C 6, Anandvan Complex, Vadodara. In effect thus while he continued to have a house in Vadodara, his investment in the house property was scaled down. It was in this backdrop that out of the long term capital gain of Rs. 1,89,77,426 that the assessee claimed a deduction, under section 54 of the Act, for an amount of Rs. 78,00,000. The assessee's claim was that he has invested, within permissible time limit and out of this capital gain earned by him, Rs. 78,00,000 in the new house. During the course of scrutiny assessment proceedings, however, this claim did not find favour with the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropositions put to them during the course of fresh hearing. 5. Let us look at the sequence of events so far as the purchase of residential unit C-6 Anandvan Complex is concerned. The assessee entered into a banakhat (i.e. agreement to buy) on 19th January 2011, for the purchase of said property. This agreement, inter alia, provided as follows: That, whereas THE PURCHASER has agreed to purchase and THE SELLER has agreed to sell the property owned by him which is described below on the terms and conditions recited hereinafter:- DESCRIPTION OF THE PROPERTY TO BE GIVEN IN SALE: Land/property situated, lying and being in District - Vadodara. Registration Sub-District-Vadodara Village Vadodara-Kasba on the land bearing R S No-376/1, 376/2 and 379 City Survey No.2732, 2733, 2744, 2680 and T.P. Scheme No.18 and FP No.338 "Anandvan Compalex" (Annapurna Co. Op. Hsg Ltd) scheme of row houses has been constructed at IG Marg, Opp. Bhavan's School, Lal Baug Road, Vadodara. In the said Society, Block No.C/6, having total plot area 1952 in which 885 sq. ft. construction at ground floor and 1000 sq. ft. construction at final floor and 315 construction at second floor and the said Block is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, as loosely translated from the document written in Gujarati language, that "that the said property title is clear and marketable, we have the full right and authority to sell this property, the said property at present is in the possession of we the second party and it is agreed between us, both the parties, to sell the same on permanent basis, with the common facilities, for a sale consideration of Rs. 60,00,000 (In words Rs Sixty Lakhs only) and that the said sale consideration includes consideration for all the luxury facilities and common right authority available". The assessee has paid Rs. 30,00,000, vide ING Vaishya Bank Ltd cheque no. 354375 dated 4.2.2011, under this said agreement. On the same day, the assessee had entered into a separate agreement, under which he paid Rs. 18,00,000 by the very next cheque leaf of the same bank i.e. cheque no. 354376 dated 4.2.2011 on INNG Vaishya Bank Ltd. This sale agreement for sale of furniture and fixtures, inter alia, stated as follows: Today on date 04.02.2011 the Scheme organized in the name of "Anandvan Complex" (Annapurna Co-Operative Housing Society Ltd.) House No-C-6, in the property the sale agreement for fixed furnitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst party in favour of you the second party. That hereinafter regarding this fixture and furniture and the other things and property you the second party and your heirs, ancestors have became the sole owners and to make use of it on the basis of ownership right to occupy you and your heirs ancestors are entitled you have right and authority to do so. That hereinafter regarding the fixture and furniture sold and on the other things and property that neither the first party nor any of our heirs, ancestors shall have any kind of right, share, interest or relation or authority." 7. What is quite clear from these arrangements is that the actual consideration for purchase of the house property in question is Rs. 78,00,000 and the splitting of consideration, as rightly noted by the Assessing Officer, is an artificial arrangement; in substance and in effect the house is sold for Rs. 78,00,000 and it was not open to the assessee, as evident from the contents of the banakhat (i.e. agreement to sell), to buy the house for Rs. 60,00,000 and furniture separately for Rs. 18,00,000. Even if the assessee was to buy the house, without the furniture, it would have been Rs. 78,00,000 anyway- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust bear in mind the fact that the expression used in the statute is "cost of the residential house so purchased" and it does not necessarily mean that the cost of the residential house must remain confined to the cost of civil construction alone. A residential house may have many other things, other than civil construction and including things like furniture and fixtures, as its integral part and may also be on sale as an integral deal. There are, for example, situations in which the residential units for sale come, as a package deal, with things like air-conditioners, geysers, fans, electric fittings, furniture, modular kitchens and dishwashers. If these things are integral part of the house being purchased, the cost of house has to essentially include the cost of these things as well. In such circumstances, what is to be treated as cost of the residential house is the entire cost of house, and it cannot be open to the Assessing Officer to treat only the cost of only civil construction as cost of house and segregate the cost of other things as not eligible for deduction under section 54. Let us, in this light, address ourselves to the facts of this case. Quite clearly, for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 54 to the buyer to that extent. The remedy was in bringing the right amount of capital gains to tax by ignoring the nomenclature of sale of personal effects, specifically excluded under section 2(14)(ii) from the definition of capital assets, as sale of residential property. That, however, was not done. It could not have been open to the authorities below to treat the payment of Rs. 18,00,000 on account of furniture and fixtures on standalone basis, and thus exclude it as a separate item rather than as a "cost of the residential house so purchased". In our considered view, therefore, the assessee is entitled to deduction under section 54F by treating entire amount of Rs. 78,00,000 as the "cost of the residential house" purchased within specified time limit under section 54. 9. When the above position was put to the learned Departmental Representative, he was fair enough in not really being very aggressive in disputing our perspectives on the artificial splitting of contracts. He, however, pointed out that it was never the case of the assessee that these two agreements were required to be viewed together- particularly in the light of the agreement to sell. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been declined the legitimate deduction under section 54 in respect of the same, only for the reason, as the circumstances suggest, that he is made an unwilling party to artificially splitting of sale consideration to minimise the capital gains burden of the seller. Leaving even this aspect of the matter aside, quite clearly the sale of furniture and fixtures was an integral part of the deal of buying the house property. Whichever we way look at it thus, the assessee was wronged in partial denial of deduction. Now that the facts on record demonstrate that the actual consideration for the new house property was Rs. 78,00,000, he is being sought to be declined resultant relief on the ground that this particular plea was not taken earlier. That is certainly not a fair treatment to an assessee. What matters really is that whether the assessee deserves the relief on merits or not, and when the assessee deserves the relief on merits, such technicalities should not be allowed to come in the way of justice to the assessees. We are, therefore, not inclined to uphold the technical objection raised by the learned Departmental Representative. 10. In the light of the above discussions, as also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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