$~1.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 567/2013
Date of decision: 18th December, 2013
COMMISSIONER OF INCOME TAX - XV
..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing
Counsel.
versus
BHARTI MISHRA
..... Respondent
Through Nemo.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
Learned counsel for the appellant-Revenue submits that he does
not rely and has not been able to locate any judgment in favour of the
Revenue.
2. The respondent-assessee, an individual, had sold shares and
thereafter the sale proceeds of Rs.54,86,965/- were invested in
construction of house property. Exemption was claimed under Section
54F of the Income Tax Act, 1961 (Act, for short) in the return of
income filed for Assessment Year 2009-10. Amount of Rs.37,99,000/-
ITA No. 567/2013 Page 1 of 13
was utilised in the construction before date of filing of return and
Rs.16,87,965/- was deposited in a capital gains account in the
prescribed bank on 24th July, 2009 i.e., before the due date of filing of
the return.
3. The Assessing Officer rejected the claim for benefit under
Section 54F of the Act on two grounds. Firstly, he held that the
construction of the house had commenced before the date of sale of
shares and secondly, the construction was not completed within three
years after the date of said sale.
4. On the second aspect, Commissioner of Income Tax (Appeals)
has recorded a contrary factual finding that the construction of the
house was completed within a period of three years from the date of
sale of shares. The shares were sold on 17th September, 2008 and the
construction was completed in June, 2011. The aforesaid factual
findings were not challenged and questioned by the Revenue before the
Tribunal and also in the present appeal.
5. Thus, the only issue, which is raised and has to be examined, is
whether the respondent-assessee can be denied benefit of Section 54F
because construction of the house had commenced before the sale of
the shares i.e., on 17th September, 2008.
6. Commissioner (Appeals) and the tribunal have relied upon
decisions of Allahabad High Court and Karnataka High Court in
ITA No. 567/2013 Page 2 of 13
Comissioner of Income Tax versus H.K. Kapoor (Decd.), (1998) 234
ITR 753 (All.) and Commissioner of Income Tax versus J.R.
Subramanya Bhat, (1987) 165 ITR 571 (Kar). These two cases deal
with interpretation of Section 54 of the Act. The said Section is pari
materia to Section 54F. The only distinction being that Section 54
applies to investment in a new house where the original asset sold
was/is residential property and provisions of Section 54F were/are
applicable to all other assets, not being a residential house. In J.R.
Subramanya Bhat (supra), Karnataka High Court noticed language of
Section 54 which stipulated that the assessee should within one year
from the date of transfer purchase, or within a period of two years
thereafter, construct a residential house to avail of concession under the
said Section. The contention of the Revenue that construction of the
new building had commenced earlier to the sale of the original asset, it
was observed, cannot bar or prevent the assessee from taking benefit of
Section 54. It was immaterial when the construction commenced, the
sole and important consideration as per the Section was that the
construction should be completed within the specified period. It was
accordingly held as under:-
"So too was the next conclusion reached
by the Tribunal. The date of the sale of the old
building was February 9, 1977. The completion
of the construction of the new building was in
March, 1977, although the commencement of
ITA No. 567/2013 Page 3 of 13
the construction started in 1976. It is
immaterial, as the Tribunal, in our opinion, has
rightly observed, about the date of
commencement of the construction of the new
building. Since the assessee has constructed the
building within two years from the date of sale
of the old building, he was entitled to relief
under section 54 of the Act."
7. The aforesaid judgment was pronounced on 9th June, 1986 and
was followed by Allahabad High Court in H.K. Kapoor (Decd.) (supra)
and it has been held as under:-
"The question for consideration is whether exemption on
capital gains could be refused to the assessee simply on
the ground that the construc-tion of the Surya Nagar, Agra
house, had begun before the sale of the Link house.
Similar question came up for consideration before the
Karnataka High Court in the case of CIT v. J. R.
Subramanya Bhat [1987] 165 ITR 571. In the case before
the Karnataka High Court, the date of the sale of the old
building was February 9, 1977. The completion of the
con-struction of the new building was in March, 1977,
although the com-mencement of construction started in
1976. On these facts, the Karnataka High Court held that it
was immaterial that the construction of the new building
was started before the sale of the old building. We fully
agree with the view taken by the Karnataka High Court.
The Appellate Tribu-nal was right in holding that capital
gains arising from the sale of the Golf Link house to the
extent it got invested in the construction of the Surya
Nagar house, will be exempted under section 54 of the
Act."
8. Commissioner (Appeals) in his order while accepting the plea of
the assessee has referred to several judgments of the Tribunal
thereafter in which the aforesaid reasoning and interpretation of
Section 54/54F has been followed. Reference has been made to the
judgment of Madras High Court in Commissioner of Income Tax
ITA No. 567/2013 Page 4 of 13
versus Sardarmal Kothari and Another, (2008) 302 ITR 286 in which
it has been held as under:-
"3. There is no dispute about the fact that the
assessees have invested the entire net
consideration of sale of capital asset in the land
itself and subsequently the assessees have
invested large sums of money in the construction
of the house. The cost of investment in land and
the cost of expenditure towards the construction
of the houses is not in dispute. The one and only
ground on which the Assessing Officer has non-
suited the assessees for the claim of exemption
was that the houses have not been completed.
There remains some more construction to be
made.
4. The requirement of the provision is that the
assessee, within a period of three years after the
date of transfer, has to construct a residential
house in order to become eligible for exemption.
In the cases on hand, it is not in dispute that the
assessees have purchased the lands by investing
the capital gain and they have also constructed
residential houses. In order to establish the same,
the assessees submitted before the Commissioner
of Income-tax(Appeals) several material
evidence, viz., invitation card printed for the
house-warming ceremony to be held on July 12,
2003. The assessees have also produced the
completion certificates from the municipal
authority on January 30, 2004. On the basis of
the above documents, the Commissioner of
Income-tax(Appeals) concluded that the
requirement of the statutory provision has been
complied with by the assessees and that was
reconfirmed by the Tribunal in the orders
impugned."
9. The aforesaid ratio is being followed and accepted since 1986.
ITA No. 567/2013 Page 5 of 13
It will not be fair and in the interest of justice to interfere/alter the said
interpretation and interpret beneficial provision differently after almost
two decades.
10. The Supreme Court recently in Civil Appeal No. 11003/2013,
Arasmeta Captive Power Company Private Limited and another
versus Lafarge India Private Limited, decided on 12th December,
2013 has observed as under:
"2. In Government of Andhra Pradesh and others
v. A.P Jaiswal and others, a three-judge bench has
observed thus:
"Consistency is the cornerstone of the
administration of justice. It is consistency which
creates confidence in the system and this
consistency can never be achieved without
respect to the rule of finality. It is with a view to
achieve consistency in judicial pronouncements,
the Courts have evolved the rule of precedents,
principle of stare decisis, etc. These rules and
principle are based on public policy..."
3. We have commenced our opinion with the
aforesaid exposition of law as arguments have
been canvassed by Mr. Ranjit Kumar, learned
senior counsel for the appellants, with innovative
intellectual animation of how a three- Judge
Bench in Chloro Controls India Private Limited
v. Seven Trent Water Purification Inc. and others
(2013) 1 SCC 641 has inappositely and
incorrectly understood the principles stated in the
major part of the decision rendered by a larger
bench in SBP & Company v. Patel Engineering
Ltd and another (2005) 8 SCC 618 and, in
resistance, Mr. Harish Salve amd Dr. A.M.
Singhvi, learned senior counsel for the
respondent, while defending the view expressed
later by the three- Judge Bench, have laid
immense emphasis on consistency and certainty
of law that garner public confidence, especially in
the field of arbitration, regard being had to the
globalization of economy and stability of the
jurisprudential concepts and pragmatic process of
arbitration that sparkles the soul of commercial
ITA No. 567/2013 Page 6 of 13
progress. We make it clear that we are not writing
the grammar of arbitration but indubitably we
intend, and we shall, in course of our delineation,
endeavour to clear the maze, so that certainty
remains "A Definite" and finality is ,,Final."
The aforesaid observations are equally, if not more important and
relevant to tax matters.
11. Even otherwise, we find that Section 54F(4) is misread and
misunderstood by the Revenue. Section 54-F reads as under:-
"54-F. Capital gain on transfer of certain
capital assets not to be charged in case of
investment in residential house.--(1) Subject to
the provisions of sub-section (4), where in the
case of an assessee being an individual or a
Hindu undivided family, 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 assets not 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 (hereinafter 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 Section 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 Section 45:
ITA No. 567/2013 Page 7 of 13
[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.]
Explanation.--For the purposes of this
section,--
(i) [Omitted]
(ii) "net consideration", in relation to the transfer of
a capital asset, means the full value of the
consideration received or accruing as a result of
the transfer of the capital asset as reduced by any
expenditure incurred wholly and exclusively in
connection with such transfer.
(2) Where the assessee purchases, within the
period of two years after the date of the transfer
of the original asset, or constructs, within the
period of three years after such date, any
residential house, the income from which is
chargeable under the head "Income from house
property", other than the new asset, the amount
of capital gain arising from the transfer of the
original asset not charged under Section 45 on
the basis of the cost of such new asset as
provided in clause (a), or, as the case may be,
clause (b), of sub-section (1), shall be deemed to
be income chargeable under the head "Capital
gains" relating to long-term capital assets of the
previous year in which such residential house is
purchased or constructed.
ITA No. 567/2013 Page 8 of 13
(3) Where the new asset is transferred within
a period of three years from the date of its
purchase or, as the case may be, its construction,
the amount of capital gain arising from the
transfer of the original asset not charged under
Section 45 on the basis of the cost of such new
asset as provided in clause (a) or, as the case may
be, clause (b), of sub-section (1) shall be deemed
to be income chargeable under the head "Capital
gains" relating to long-term capital assets of the
previous year in which such new asset is
transferred.
(4) The amount of the net consideration which
is not appropriated by the assessee towards the
purchase of the new asset 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 by which--
ITA No. 567/2013 Page 9 of 13
(a) the amount of capital gain arising from the
transfer of the original asset not charged under
Section 45 on the basis of the cost of the new
asset as provided in clause (a) or, as the case may
be, clause (b) of sub-section (1),
exceeds,
(b) the amount that would not have been so charged
had the amount actually utilised by the assessee
for the purchase or construction of the new asset
within the period specified in sub-section (1)
been the cost of the new asset,
shall be charged under Section 45 as 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 the
unutilised amount in accordance with the scheme
aforesaid."
12. Section 54F(1) if read carefully states that the assesseee being an
individual or Hindu Undivided Family, who had earned capital gains
from transfer of any long-term capital not being a residential house
could claim benefit under the said Section provided, any one of the
following three conditions were satisfied; (i) the assessee had within a
period of one year before the sale, purchased a residential house; (ii)
within two years after the date of transfer of the original capital asset,
purchased a residential house and (iii) within a period of three years
after the date of sale of the original asset, constructed a residential
house.
13. For the satisfaction of the third condition, it is not stipulated or
indicated in the Section that the construction must begin after the date
ITA No. 567/2013 Page 10 of 13
of sale of the original/old asset. There is no condition or reason for
ambiguity and confusion which requires moderation or reading the
words of the said sub-section in a different manner. The apprehension
of the Revenue that the entire money collected or received on transfer
of the original/capital asset would not be utilised in the construction of
the new capital asset, i.e., residential house, is ill-founded and
misconceived. The requirement of sub-section (4) is that if
consideration was not appropriated towards the purchase of the new
asset one year before date of transfer of the original asset or it was not
utilised for purchase or construction of the new asset before the date of
filing of return under Section 139 of the Act, the balance amount shall
be deposited in an authorized bank account under a scheme notified by
the Central Government. Further, only the amount which was utilised
in construction or purchase of the new asset within the specified time
frame stand exempt and not the entire consideration received.
14. Section 54F is a beneficial provision and is applicable to an
assessee when the 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 Supreme Court in CCE versus Favourite Industries,
(2012) 7 SCC 153 has succinctly observed:-
ITA No. 567/2013 Page 11 of 13
"21. Furthermore, this Court in Associated
Cement Companies Ltd. v. 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 statutes it is
construed strictly either because of legislative
intention or on economic justification of
inequitable burden of progressive approach of
fiscal provisions intended to augment State
revenue. But once exception or exemption
becomes applicable no rule or principle requires
it to be construed strictly. Truly speaking, liberal
and strict construction of an exemption provision
is to be invoked at different stages of interpreting
it. When the question is whether a subject falls in
the notification or in the exemption clause then it
being in the nature of exception is to be
construed strictly and against the subject but once
ambiguity or doubt about applicability is lifted
and the subject falls in the notification then full
play should be given to it and it calls for a wider
and liberal construction. (SeeUnion of
India v. Wood Papers Ltd. [(1990) 4 SCC 256 :
1990 SCC (Tax) 422] and Mangalore Chemicals
and Fertilisers Ltd. v. CCT [1992 Supp (1) SCC
21] to which reference has been made earlier.)"
22. In G.P. Ceramics (P) Ltd. v. CTT [(2009) 2
SCC 90] , this Court has held: (SCC pp. 101-02,
para 29)
"29. It is now a well-established principle of
law that whereas eligibility criteria laid down in
an exemption notification are required to be
construed strictly, once it is found that the
applicant satisfies the same, the exemption
ITA No. 567/2013 Page 12 of 13
notification should be construed liberally.
[See CTT v. DSM Group of Industries[(2005) 1
SCC 657] (SCC para 26); TISCO Ltd. v. State of
Jharkhand [(2005) 4 SCC 272] (SCC paras 42-
45); State Level Committee v. Morgardshammar
India Ltd. [(1996) 1 SCC 108] ; Novopan India
Ltd. v. CCE & Customs [1994 Supp (3) SCC
606] ; A.P. Steel Re-Rolling Mill Ltd. v. State of
Kerala[(2007) 2 SCC 725] and Reiz
Electrocontrols (P) Ltd. v. CCE. [(2006) 6 SCC
213] "
15. In view of the aforesaid position, we do not find any merit in the
present appeal and the same is dismissed.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
DECEMBER 18, 2013
VKR
ITA No. 567/2013 Page 13 of 13
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