Exemption under Section 54F is not allowed for the acquisition of a land piece
Fact and Issue of the case
This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals)-1, Jabalpur (‘CIT(A)’, for short) dated 06/09/2016, partly allowing his appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for Assessment Year (AY) 2012-13 vide order dated 26/03/2015 (typed mistakenly as 26/03/2013 in the assessment order).
The assessee having expired on 03/05/2021, his son and legal heir, Shri Vikrant Kumar Jain, stands brought on record as his legal representative u/s. 159 of the Act, filing revised Form 36 (memorandum of appeal) before the Tribunal, adopting the same grounds as per the original Form 36, as under:-
The learned CIT (Appeals) has not appreciated that order has been passed by DCIT, Circle-1(1) by violating rule of natural justice.
The learned Commissioner of Income Tax (Appeals) failed to appreciate that benefit of section 54C cannot given in parts.
The learned Commissioner of Income Tax (Appeals) failed to appreciate the relevant material or evidence on record regarding house property, and partly disallowed exemption u/s. 54F of the I.T. Act which is arbitrary and unjustified.
The learned Commissioner of Income Tax (Appeals) erred in law in giving relief only to the extent of constructed area of the house whereas as per section 54F cost of complete house including garden open space and parking space other etc. are exempted.
The learned Commissioner of Income Tax (Appeals) erred in law in not appreciating the documents produced before him as copy of agreement property tax payment receipt, receipt of municipal corporation, Nagar Nigam lease deed, electricity bill, certified copy of lease deed, copy of diversion Khasra, which clearly shows that the complete unit of houses are for residential purpose.
That the ld. CIT (Appeals) failed to appreciate that there is no provision u/s. 54F of the IT Act to allow exemption up to the limit of constructed area or in part.
The appellant craves for leave to amend, add or omit any ground upto the time of hearing of appeal.
The issue, as would be apparent from the foregoing, is the exigibility to tax of the capital gain arising to the assessee during the relevant previous year, which is on the sale of agricultural land and two residential flats and, for the purpose, the eligibility to deduction, if any, u/s. 54F of the Act in view of the investment of the transfer proceeds. The reference to s.54C in Ground 2 of the Grounds of Appeal (GoA) is clearly a typing error; the correct provision being s. 54F.
It shall be relevant to discuss the background facts of the case, leading to the instant appeal, in brief. The assessee during the relevant previous year sold the following assets for Rs. 87.36 lacs, and purchased (along with Smt. Divya Jain, with 50% share each) a plot of land at Golebazar, Jabalpur, for a consideration of Rs. 85 lacs on 26/03/2012, claiming exemption u/s. 54F in respect of the entire capital gain, returned at Rs. 46.93 lacs:
|Particulars of the capital asset||Amount in RS.||Date of transfer|
Observation of the court
We may, however, before we do so, clarify that the Tribunal is not, in deciding an appeal before it, confined to the grounds set forth in the memorandum of appeal or even that taken with its leave. The only caveat is that the party which may be affected is to be allowed sufficient opportunity of being heard, i.e., observing the principles of natural justice (rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963). The reason is not far to seek: there is no estoppel against law and, therefore, the Tribunal is at liberty to, on an examination of the facts and circumstances of the case, and in view of law impinging thereon, raise issues or questions which need to be addressed or arise for determination of the matter before it, i.e., the subject matter of appeal, being the correct determination of capital gain chargeable to tax in the facts and circumstances of the case. In fact, as explained by the Apex Court time and again, even rules 11 & 27 of the Tribunal Rules are not exhaustive the powers of the Tribunal, being only procedural in character, which do not control or circumscribe it’s power (Hukumchand Mills Ltd. v. CIT  63 ITR 232 (SC)). The said power is, as afore-noted, confined to the subject matter of appeal. In the facts of that case, the issue arising before the Tribunal was discerned by it as the proper written down value (WDV) of the assets of the assessee-company for calculating the depreciation allowance under the Act.
4.4 Coming to the facts of the case, none of the facts impinging adversely on the primary condition for a claim u/s. 54F have been denied by the assessee; he, rather admitting capital gain on the two Flats sold on 29/03/2012 & 30/03/2012. Exemption u/s. 54F is, as afore-noted, not exigible on transfer thereof. No material as to the residential house at Ganjipura, Jabalpur, the assessee’s residence, as being not his house, has been furnished despite availing time for the same. Whichever way one may look at it, the assessee is not entitled to any exemption u/s. 54F. Without prejudice, even on the merits of the issue raised, we find no substance in the assessee’s case. The plot purchased surely had a super-structure thereon. The purpose of purchasing the plot, however, by own admission, was to build a residential house thereon, with the super-structure thereon being only incidental. It is for this reason that the assessee intended to pay stamp duty only on the value of the plot and not the super-structure thereon which, unless being acquired for user, is valued at nil/nominal value; the scrap also entailing demolition cost, while striking a bargain for purchase and sale of IP, which also explains the non-mention thereof in the sale deed. No wonder, the dismantling thereof followed immediately after purchase, and it is admittedly only per chance that the dismantling was not complete at the time of spot inspection, resulting in stamp duty being also levied on the super-structure part. The whole premise of allowing exemption on acquisition of a residential house, whether by purchase or through construction, is an addition to the stock of inventory of residential house property of the Nation, so that capital gain to that extent is not subject to tax. Legislative intent is the foundational basis of any interpretive exercise and, therefore, the Courts are to keep the object in view while interpreting a provision (CIT v. Baby Marine Exports  290 ITR 323 (SC)). What has been in effect and substance purchased in the instant case, as also evidenced by the sale deed, is only a plot of land for construction of a residential house thereon. Rather, but for the demolition having been completed by the date of inspection, no stamp duty would have been paid on the structure part. No case for construction of a residential house has been preferred or pressed at any stage, including before us. The assessee is, accordingly, not entitled to any exemption u/s. 54F on the purchase of plot. Further still, the very fact of returning nil capital gain, determined at Rs. 46.93 lacs, implies the claim of exemption u/s. 54F qua the entire investment of Rs. 85 lacs, even as, as apparent, and not disputed at any stage, is the assessee’s share in the property purchased being at one-half, so that only an investment of Rs. 42.50 lacs, if at all, could be taken into account for claim for exemption u/s. 54F, even as noticed by the AO. That apart, the same is exigible only in respect of capital gain arising on transfer of a long-term capital asset/s other than a residential house, so that it would not be entitled on capital gain arising on the sale of residential flats. This is being stated, as afore-said, without prejudice to the foregoing findings.
In view of the foregoing, the assessee’s claim u/s. 54F is without any merit whatsoever. The AO’s action in denying the same is, for the reasons stated, which include that appealed to the AO, upheld. We decide accordingly.
In the result, the assessee’s appeal is dismissed on the afore-said terms.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
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