TMI Blog2019 (8) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... st limb i.e., purchase of a new asset i.e., a residential house and not on the basis of the second limb of Sec.54 viz., construction of new asset i.e., one residential house in India. Since the words used in Sec.54 of the Act in so far as it relates to the first limb are purchase of a new asset, there was scope for examining regarding ownership of the new asset purchased, but such conditions cannot be extended to a case of deduction u/s.54 claimed on the basis of the second limb viz., construction of new asset i.e., one residential house in India. The requirement of Sec.54 in the second limb is that capital gain should be used in construction of residential house and nothing more. Assessee in the present case is the owner of the superstructure constructed by utilizing the capital gain and this is clear from clause-10 of the lease deed by which the land over which the construction has been put up was given on lease to the Assessee. Therefore, the deduction u/s.54 of the Act ought to be allowed to the Assessee as claimed by the Assessee. - Decided in favour of assessee. - ITA No.792/Bang/2019 - - - Dated:- 31-7-2019 - Shri N.V. Vasudevan, Vice President And Shri Jason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 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 say,- (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al building (except the land) would vest in the Assessee for the period of lease and thereafter the title in the building will vest with the lessor. 4. The Assessing Officer denied exemption U/s 54 of the Act on the ground that since the Assessee was not owner of the land, the condition laid down in Sec.54 of the Act for claiming deduction was not satisfied. taking the stand that such dichotomy in ownership is not acceptable. According to the AO, the Assessee had only a leasehold interest over the land on which building was constructed. He was of the view that the Assessee did not have any right to alienate the superstructure. 5. It was the plea of the Assessee based on a decision of the Hon ble Madras High Court in the case of Park View enterprises (1991) 189 ITR 192 that in law there can be two different owners of the land and the building constructed on a land and that had occasion to consider whether two different persons could own the land and building separately. Reference was also made to Sections 63A, 108(h) and 8 of the Transfer of Property Act, 1882 to further the proposition that the owner of land need not necessarily be the owner of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 8. He drew our attention to the lease deed between Mrs.Sarojini Kheny, who is the wife of the Kartha of the Assessee HUF and the Assessee HUF dated 14.3.2013. This lease deed is in respect of the land owned by Mrs.Sarojini Kheny, over which the Assessee HUF put up construction. The lease was for a period of 20 years. The yearly rent was a sum of ₹ 60,000/- to be paid in equal monthly installments commencing from the date of the lease deed. The Lessor had already obtained planning permission as early as 17.9.2012 and has put up construction thereon of the value of ₹ 4,90,000/-. The Assessee HUF undertook to return this sum. The Assessee HUF was permitted to the enjoy the building for a period of 20 years and thereafter the building will vest with the lessor. During the lease period of 20 years, the lessee was to be regarded as owner of the building (Clause10 of the lease deed). He brought to our notice none of the above facts were disputed by the revenue. The revenue seeks to rely on the only circumstance that the Assessee was only lessee of the land for 20 years and did not have absolute ownership. It was submitted by the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication in India. Mr, Mohan Parasaran, learned counsel would straightway refer to a Division Bench decision of this Court in Venkatasubbiah v. Thirupurasundari, wherein after referring to Section 63 of the Transfer of Property Act, it was held categorically, There is no substance in this contention. This maxim -- whatever is affixed to the soil belongs to the soil is a rule of considerable antiquity and has been held to be inapplicable in this Country. .................... In India the view has been uniformly taken that the English doctrine of fixtures as to buildings would not apply and that the party who builds on another's land should be allowed to remove the materials . As already referred to in Bishan Das v. State of Punjab , it was held that it is well settled that the maxim, what is annexed to the soil goes with the soil has not been accepted as an absolute rule of law in this Country, another Division Bench of this Court in M. A. Kadar v. Dt. Collector Kanyakumari expresses the same view. Being bound by these decisions, this Division Bench does not see any valid ground made out for accepting the plea of the learned Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period beyond 12 years, such leases have to be regarded as transfer for the purpose of the Act. We are not discussing those arguments at this stage. 12. The learned DR relied on the order of the CIT(A). Without prejudice to the above submission, he submitted that the Assessee should not be given deduction u/s.54 of the Act to the extent of ₹ 490000 which was the sum spent by the owner of the land for putting up construction and which was reimbursed by the Assessee to the owner of the land. He also submitted that the deduction cannot be in excess of what is actually invested in constructed of a new asset and to the extent spent by the Assessee during the relevant previous year. 13. We have given a very careful consideration to the rival submissions. The provisions of Sec.54 of the Act, allows deduction while computing capital gain, if the capital gain is reinvested in two modes viz., (i) purchase of a new asset i.e., a residential house or (ii) construction of new asset i.e., one residential house in India. In the event of purchase of new asset the time limit laid down in the section is within a period of one year before or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial Bungalow at ₹ 2,13,02,427/- which was claimed exempt to the extent of ₹ 2,04,11,610/- because of the investments made in acquisition of the tenancy rights in the new two flats. The revenue however denied exemption u/s.54 of the Act on the ground that exemption from tax on capital gain from sale of residential house property was available only when the assessee purchased or constructed a new residential flat. The assessee purchased only tenancy rights and therefore was not entitled to deduction u/s.54 of the Act. The tribunal upheld the stand of the revenue. The following were the relevant observations of the Tribunal:- 5.1 We have carefully considered the various aspects of the matter. We find that under the provisions of section 54, exemption of capital gain is available in respect of transfer of residential house owned by the assessee. The purpose of the section is to grant exemption in case the assessee acquires a new residential house by investing the capital gain as an owner. It is because of this reason, the words used in section 54 are purchase or construction of a new residential house. The requirement of section is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of it must go to the State. Following the said judgment, therefore, even if there is some ambiguity in the provision, the same has to be interpreted in favour of the revenue because it is an exemption provision. In the present case, there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant. 15. As rightly submitted by the learned counsel for the Assessee, deduction in the case of Yogesh Sunderlal Shah (supra) was claimed by the Assessee u/s.54 of the Act on the first limb i.e., purchase of a new asset i.e., a residential house and not on the basis of the second limb of Sec.54 of the Act viz., construction of new asset i.e., one residential house in India. Since the words used in Sec.54 of the Act in so far as it relates to the first limb are purchase of a new asset, there was scope for examining regarding ownership of the new asset purchased, but such conditions cannot be extended to a case of deduction u/s.54 claimed on the basis of the second limb viz., construction of new asset i.e., one residential house in India. The require ..... X X X X Extracts X X X X X X X X Extracts X X X X
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