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From the Courts »
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COMMISSIONER OF INCOME TAX - XV Vs. BHARTI MISHRA
January, 09th 2014
$~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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