Capital gains - Ownership of another residential house
October, 19th 2007
CIT vs Ajitsingh Khajanchi Citation 163 Taxman 426 and 211 CTR 403
Capital gains - Ownership of another residential house The assessee was already owner of a house on the date of transfer of another long-term capital asset. On purchase of a new house, no exemption under s.54F could be granted.
Ownership of house - Absence of registration If the assessee had acquired a house the benefit under s.54F could not be denied on the ground that house was not registered in his name.
High Court of Madhya Pradesh
CIT vs Ajitsingh Khajanchi
IT Ref. No. 1of 2005
Deepak Verma and S.K. Kulshrestha, JJ
25 April 2007
None, for the Appellant R.T. Thanewala, for the Respondent
ORDER By The Court :
On being directed by this Court under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "Act"), the Tribunal, Indore Bench, Indore, has referred the following questions of law for the opinion of this Court :
(i) Whether on the facts and in the circumstances of the case, Tribunal was justified in law in allowing the benefits of s. 54F to an assessee who owned another residential house on the date of transfer ?
(ii) Whether on the facts and in the circumstances of the case, Tribunal was justified in law in allowing the benefits of s. 54F even if the transfer is not evidenced by a registered deed ?
2. The assessee had sold his plot of land for Rs. 11,32,625 and claimed exemption under s. 54F of the Act in respect of purchase of residential flat at 7, Chetak Vihar, Race Course Road, Indore, on Rs. 3,50,000 and in addition to this exemption, Rs. 25,000 had also been claimed in respect of expected investments in the said flat within one year.
3. The assessee had enhanced this claim to Rs. 3,90,000. The AO declined the claim on the basis that the title was not vested in the assessee because the flat was not registered in his name and the construction was also not complete on the date of filing of the return. The AO also expressed that the assessee had not purchased the flat, but had simply booked it and even the title of the land also did not vest in him for which the AO reproduced the certificate issued by Chowdhary Builders (P) Ltd., Chetak Centre, Indore.
4. On appeal to CIT(A), the claim for exemption under s. 54F of the Act regarding investment in flat for a sum of Rs. 3,90,000 was allowed. In wealth-tax proceedings, the WTO had also held that the assessee had purchased the residential flat and he was entitled to deduction under s. 5(l)(iv) of the WT Act, 1957. The Revenue, accordingly, took the matter before Tribunal in appeal. The Tribunal, after considering the arguments advanced by the parties and the judgment relied on by the assessee, was of the view that there was effective transfer of the flat in favour of assessee, the same having been actually possessed by him. Therefore, merely on account of the absence of registered sale deed, the assessee was not disentitled to exemption under s. 54F of the Act.
5. The Revenue approached the Tribunal for making reference of the two questions stated in para 3 of the statement of the case, but the Tribunal, on the facts and circumstances of the case, has held that such question did not arise out of the order passed by the Tribunal.
6. On further reference to this Court under s. 256(2) of the Act, the Tribunal was directed to refer the said questions along with the statement of the case. It is in this background that the Tribunal has forwarded this reference for opinion of this Court on the questions stated hereinabove.
7. Learned counsel for respondent assessee has vehemently argued that at the time asset was acquired, the assessee did not possess any residential house and the Tribunal has observed that the assessee was in possession of residential house on the date of transfer of the asset to the assessee and allowance under s. 54F was rightly granted. He has further submitted that even if the ownership of a house is evidenced by circumstances in favour of assessee, would attract the provisions of s. 54F.
8. So far as the question No. 1 with regard to justification of Tribunal's order in allowing the benefit of s. 54F to assessee is concerned, s. 54F provides for exemption from the capital gains to the extent investment is made in residential house. The proviso to sub-s. (1) of s. 54F, however, lays down that if the assessee owns more than one residential house other than the new asset, on the date of transfer of the original asset, the income of such residential house would be chargeable under the head "Income from house property" (sic). For ready reference we reproduce the proviso to s. 54F of the Act hereunder :
"54F. (1) Subject to the provisions of sub-s. (4), where, in the case of an assessee being an individual or a HUF, 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 placepurchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under s. 45;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital 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 s. 45 :
Provided that nothing contained in this sub-section shall apply where
(a) the assessee,
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".
9. A bare reading of the aforesaid provisions shows that if the assessee owns more than one residential house other than the new asset on the date of transfer of the original asset, the income from such residential house is chargeable under the head "Income from house property" (sic). In view of the aforesaid observation, we are of the considered opinion that where an assessee possessed a residential house already on the date of transfer of original asset which is subjected to capital gain, the assessee would not be entitled to exemption contained in s. 54F on the ground of purchase of new asset. The question therefore is answered in favour of the Revenue.
10. Learned counsel for respondent, however, submits that as per the finding of the Tribunal, he was not possessed of any other residential accommodation and therefore the question No. 1 formulated by Tribunal does not arise in the facts of the case. The assessee shall be free to agitate the matter before the appropriate authority, but insofar as the question as formulated is concerned, we are of the view that if a person had already a residential house, he cannot be allowed exemption to the extent of amount spent on acquisition of a new asset.
11. Insofar as the question No. 2 is concerned, the learned counsel for respondent has relied on the decision of this Court in Smt Shashi Varma vs. CIT (1999) 152 CTR (MP) 227 : (1997) 224 ITR 106 (MP). In the said judgment, it was averred that the assessee sold her property at Jabalpur and realized capital of Rs. 31,980 out of which she invested a sum of Rs. 71,256 and purchased a house at Delhi. The exemption was claimed from the charge of tax on capital gain under s. 54F of the Act. It was, rejected by the ITO as also by the Tribunal. This Court observed that substantial investment was made in construction of the house. In view of the requirement of s. 54F of the Act, the Tribunal, in the facts and circumstances of the case, was not justified. We are fortified in the above view by the decision of the Delhi High Court in Baliaj vs. CIT (2002) 173 CTR (Del) 452 : (2002) 254 ITR 22 (Del) to the effect that for the purpose of attracting the provision, it was not necessary that the assessee should have become the owner of the property. Sec. 54F spoke of purchase and registration was not imperative.
In this view of the matter, the question No. 2 is answered against the Revenue and in favour of the assessee.
In view of the aforesaid observation, the questions are answered as stated above. The IT Reference stands disposed of accordingly.