COMMISSIONER OF INCOME TAX Vs. GIRISH L. RAGHA

JUDGEMENT

(1.) Upon hearing the learned counsel appearing for the respective parties, the only contention which arise for consideration is whether the Tribunal was justified to come to the conclusion that merely purchasing a flat for the purpose of seeking exemption of capital gain taking within a period of two years would imply taking the actual possession and also completion certificate of such premises within such period.

(2.) On perusal of the records, we find that the fact finding authorities below have concurrently come to the conclusion that the consideration amount was in fact paid for the purpose of purchasing the flat to the Developer M/s. Ashraya Real Estate Developers. It is also not disputed that the construction was incomplete as there was a dispute between a bank and the original owner in respect of the subject property. Only after the injunction was vacated, the developers could complete the premises and hand over possession to the respondent which admittedly is beyond the period of two years. On the basis of such fact, as the payment of the total consideration was paid by the respondent, merely because the residential premises were not occupied, as the possession was not delivered to the respondent by the developer and the deed of conveyance was not executed within such period would not by itself be a ground to deprive the respondent from availing the exemption of payment of capital gain under section 54 of the IT Act. Our view also takes support of the judgment of the Delhi High Court in the case of the Commissioner of Income Tax Vs. Kuldeep Singh (2014) 108 DTR (Del) 161 : (2014) 270 CTR (Del) 561 wherein it has been observed at paras 6, 8, 9, 10, 11, 12 and 13 thus : 6. This brings us to the other question whether the assessee had "purchased" the second property and, therefore, payment made of Rs. 37,86,273 was entitled to exemption under section 54 of the Act. Sec. 54 of the Act as applicable to asst. yr. 2006-07 reads as under : 54. Profit on sale of property used for residence.-(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or an HUF the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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 constructed, a residential house, 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 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. Explanation.-Omitted by Finance Act, 1987 w.e.f. 1st April, 1988. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new assets made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing 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 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 be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.-Omitted by Finance Act, 1992, w.e.f. 1st April, 1993. 8. The word "purchase" can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. "Purchase" can also refer to payment of consideration or part consideration along with transfer of possession under section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in Commissioner of Income Tax Vs. T.N. Aravinda Reddy (1979) 12 CTR (SC) 423 : (1979) 4 SCC 721, however, gave it a wider meaning and it was held 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 in section 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 observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money s worth. The word "purchase", it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of section 54, you were exempt. The purpose was plain; the symmetry' was simple; the language was plain. 9. Recently Supreme Court in Civil Appeal Nos. 5899 and 5900 of 2014 titled Sanjeev Lal Etc. Vs. Commissioner of Income Tax and Anr., decided on 1st July, 2014, (2014) 269 CTR (SC) 1 : (2014) 105 DTR (SC) 305 : 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 Dec., 2002 and had received Rs. 15 lacs by way of earnest money and subsequently received the balance sale consideration of Rs. 1.17 crores (total being Rs. 1.32 crores) when the sale deed was executed on 24th Sept., 2004. In the meanwhile, the assessee had purchased another house on 30th April, 2003. Benefit under section 54 was denied by the High Court observing that the new house had been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th Sept., 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th Dec., 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 defines the term transfer in relation to a capital asset. In the light of the factual matrix, it was observed that the intention behind section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long 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 expenses incurred in relation to the sale deed which was executed. 10. More direct are the two decisions of Madhya Pradesh High Court in Smt Shashi Varma Vs. Commissioner of Income Tax (1999) 152 CTR (MP) 227 : (1997) 224 ITR 106 (MP) and Calcutta High Court in Commissioner of Income Tax Vs. Smt. Bharati C. Kothari (2000) 160 CTR (Cal) 165 : (2000) 244 ITR 352 (Cal). In Shashi Verma (supra), the assessee had invested the sale consideration for purchase of a flat from Delhi Development Authority and had paid part instalments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was Rs. 31,980 whereas the instalments paid were Rs. 71,256, i.e. much more than the amount of capital gain. Reference was made to Circular No. 471, dated 15th Oct., 1986 [(1987) 59 CTR (St) 19 : (1986) 162 ITR (St) 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, Noticing that it was not easy to construct a house within the time limit of three years and under the Government schemes, construction takes years. When substantial investment was made in the construction and it should be deemed that sufficient steps had been taken and it satisfied requirement of section 54. 11. What has been stated in the judgment of the Madhya Pradesh High Court in 1997, in practical terms and in reality still holds good. This is a matter of common knowledge that flats or apartments being constructed by builders take time. The Government Housing Boards also take time and seldom adhere to the promised date. Similar view has been taken in Bharati C. Kothari (supra) wherein reference was made to the decision of Andhra Pradesh High Court in Commissioner of Income Tax Vs. Mrs. Shahzada Begum, (1988) 73 CTR (AP) 229 : (1988) 173 ITR 397 (AP) and it was observed that assessee had entered into an agreement within two years for purchase of a flat which was under construction. Payment for the said flat was made within three years from the date of sale of the first property. No doubt the assessee was not constructing the new asset herself but she had purchased the flat. Reference was made to the decision of the Supreme Court in Commissioner of Income Tax Vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), wherein it has been observed : Where the plain literal interpretation of a statutory provision 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 construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the legislature from the language used. It is necessary to remember that language used is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meeting. 12. Moreover, in Bharati C. Kothari's case (supra) it was stated as under : The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against those sale considerations then capital gains tax arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party that does not make any difference. The basic requirement for the purpose of relief under section 54(1), is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Keeping in view the above observations and reasons given by the Tribunal, no case is made out for interference. It was observed that 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. 13. The view we have taken gets support from sub-section (2) to section 54. The aforesaid sub-section requires the assessee to deposit unspent amount not utilised by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilised for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word "purchase" is used in sub-section (2) and indicates that the said word is not restricted or confined to registered sale deed or even possession but has a wider connotation. The proviso supports the aforesaid interpretation and stipulates that the amount deposited but not utilised wholly or partly for purchase or construction of new asset within the specified period will be charged to tax under section 45 in the previous year in which the period of three years from the date of transfer of original asset expired. The period of three years is stipulated as this is the longer period specified in the sub-section (1) to section 54. It is only the balance amount which is not utilised which is to be brought and charged to tax. The entire amount of sale consideration or the capital gains is not to be brought to tax. but the unspent amount/figure is taxed.

(3.) We are in respectful agreement with the view taken by the Delhi High Court to come to the conclusion that the purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of the litigation. In the present case, the learned Tribunal has noted that the assessee has sold the property on 1st Dec., 2009 and the assessee has made the payment on 16th March, 2010. The assessee was required to get the house and occupancy certificate on or before 1st Dec., 2011. But however, the assessee got the occupancy certificate of the property on 17th Jan., 2014. The learned Tribunal further noted that the assessee submitted the documentary evidence to show that after purchasing the property there was a civil suit filed by the other parties and the assessee could not complete the construction and the licence for constructing the house was accordingly delayed. The learned Tribunal further noted that CIT(A) in his order relied upon the decision of the Madras High Court in the case of Commissioner of Income Tax Vs. Sardarmal Kothari (2008) 217 CTR (Mad) 414 : (2008) 9 DTR (Mad) 257 : (2008) 302 ITR 286 (Mad), wherein it is held that in order to get the benefit under section 54 of the IT Act, the assessee need not complete the construction of the house and occupy the same. It is further noted that the assessee has invested the money and the occupancy certificate is delayed which is beyond the control of the assessee then the assessee is entitled for deduction under section 54 of the Act. The learned Tribunal as such found that the assessee was entitled for deduction under section 54 of the Act and consequently, dismissed the appeal of the Revenue. Considering the said facts and the ratio of the judgment referred to herein above, we find that there is no substantial question of law which arises for consideration in the present appeal under section 260A of the IT Act, 1961. Hence, no case is made out by the appellant for interference in the order passed by the Tribunal. The appeal stands accordingly rejected. .