HARMEET GANDHI, MUMBAI v. ITO 20(1)-3, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JM & BEFORE SHRI R.K. PA NDA AM I.T.A. NO. 286/MUM/2009 (ASSESSMENT YEAR 2004-05) MR. HARMEET GANDHI OFFICE NO. 5 SHRI SARI RAM CO- OP. SOC. RAM MANDIR ROAD GOREGAON (W) MUMBAI-400104 PAN:AELPG 6835J VS. I.T.O. 20(1)-3 MUMBAI APPELLANT RESPONDENT APPELLANT BY: MR. VIPUL B JOSHI & MR. SAMEER DALAL RESPONDENT BY: MR. SOMAGYAN PAL O R D E R DATE OF HEARING: 23.04.2010 DATE OF ORDER: 30.04.2010 PER R.K. PANDA AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 5.11.2008 OF THE CIT(A)-XX MUMBAI RELATING T O ASSESSMENT YEAR 2004-05. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL EARNING INCOME FROM SALARY HOUSE PROPERTY CAPITAL GAINS INCOME FROM OTHER SOURCES AND BUSINESS INCOME BEING REMUNERATIO N AND SHARE OF PROFIT FROM REGISTERED FIRM M/S. SURAT ROAD KING. THE ASSESSEE HAS PURCHASED A RESIDENTIAL HOUSE IN MARCH 2003 FOR A SUM OF RS.22 61 757 BY TAKING A HOUSING LOAN OF RS.17.50 LAKHS FROM ICI CI BANK. SUBSEQUENTLY HE SOLD CERTAIN SHARES IN FEBRUARY 2004 ON WHICH H E HAS EARNED LONG TERM CAPITAL GAINS OF RS.22 46 199. ACCORDINGLY H E CLAIMED EXEMPTION U/S. 54F OF THE ACT TO THE TUNE OF RS.22 46 199. THE ASSESSING OFFICER HAS REDUCED THE AMOUNT OF LOAN TO RS.17 50 000 FROM THE AMOUNT INVESTED IN THE RESIDENTIAL HOUSE AND CALCULATED THE EXEMPTION RESTRICTING THE SAME TO I.T.A. NO. 286/MUM/2009 MR. HARMEET GANDHI ================== 2 RS.5 02 779 ONLY. FOR THIS PURPOSE HE CONTENDED THAT INVESTMENT IN RESIDENTIAL HOUSE OR NEW ASSET SHOULD BE OUT OF CAP ITAL GAINS EARNED ON TRANSFER OF SHARES I.E. OLD ASSETS. THEREFORE TH E AO HELD THAT THE PROVISIONS OF SECTION 54F OF THE ACT ARE NOT SATISF IED AND ACCORDINGLY RESTRICTED THE CLAIM OF EXEMPTION TO RS.5 02 779 AS NOTED ABOVE. 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSESSE E HAS FULFILLED ALL THE CONDITIONS REQUIRED U/S. 54F SINCE: (I) THERE IS CAPITAL GAIN FROM TRANSFER OF LONG TERM CA PITAL ASSETS; (II) THE ASSESSEE HAS WITHIN ONE YEAR BEFORE TWO YEARS AFTER THE DATE OF TRANSFER PURCHASED OR HAS WITHIN 3 YEAR CONSTRUCTED A RESIDENTIAL HOUSE; (III) THE ASSESSEE HAS GAIN FROM SHARES WHICH ARE LONG TERM AND HAS PURCHASED A HOUSE WITHIN ONE YEAR BEFORE TH E GAIN. HENCE SHE HAS COMPLIED WITH THE CONDITIONS. 4. IT WAS ARGUED THAT THE ACT NOWHERE CONTEMPLATES THA T THE PURCHASE OF NEW ASSET HAS TO BE MADE OUT OF CAPITAL GAIN ON TRANSFER OF OLD ASSET. IT WAS ARGUED THAT IF THIS WAS THE INTENTIO N THEN THERE CANNOT BE ANY PURCHASE WITHIN ONE YEAR PRIOR TO CAPITAL GAIN WHICH THE ACT ALLOWS. THERE IS NOTHING IN THE ACT WHICH SAYS THAT IF ANY LOAN IS TAKEN THEN CONSEQUENTLY IT SHOULD BE PAID OUT FROM THE CAPITAL GAIN. IT WAS ACCORDINGLY ARGUED THAT THE ASSESSING OFFICER CANNO T BRING HIS OWN INTERPRETATION OR MAKE LAW WHICH IS INCONSISTENT OR NOT THERE IN THE ACT. THE DECISION OF THE TRIBUNAL IN THE CASE OF BOMBAY HOUSING CORPORATION VS. ACIT REPORTED IN 81 ITD 545 WAS RELIED UPON. 5. HOWEVER THE CIT(A) WAS NOT SATISFIED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE. DISTINGUISHING THE DECIS ION CITED BEFORE HIM AND RELYING ON THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF GOWRISHANKAR GUPTA REPORTED IN 22 SOT 131 ( HYD) HE HELD THAT THE ASSESSEE HAS NOT SATISFIED ALL THE CONDITIONS L AID DOWN U /S. 54F OF THE ACT SINCE THE ASSESSEE HAS NOT INVESTED THE CAPITAL GAIN ON TRANSFER OF OLD I.T.A. NO. 286/MUM/2009 MR. HARMEET GANDHI ================== 3 ASSET IN THE ACQUISITION OF NEW RESIDENTIAL HOUSE. HE ACCORDINGLY UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US BY TAKING THE FOLLOWING GROUNDS: 1.1 THE LEARNED COMMISSIONER INCOME-TAX (APPEALS)-X X MUMBAI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER WHEREBY THE AO RESTRICTED THE APPELLANTS CLAIM OF EXEMPTION U/S. 54F OF THE INCO ME- TAX ACT 1961 TO THE EXTENT OF RS.5 02 779/-. 1.2 WHILE DOING SO THE LD. CIT(A) FAILED TO APPREC IATE THAT: (I) THE APPELLANT HAD COMPLIED WITH ALL THE CONDITIONS LAID DOWN FOR CLAIMING THE EXEMPTION U/S. 54F OF THE ACT. (II) THE PROVISIONS OF SECTION 54F OF THE ACT WHIC H ARE AIMED TOWARDS PROVIDING EXEMPTION FROM LONG TERM CAPITAL GAIN TAX TO INDIVIDUALS WHO INVEST IN RESIDENTIAL HOUSE BEING BENEFICIAL PROVISIONS MUST BE LIBERALLY CONSTRUED. 1.3 IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW NO SUCH ACTION WAS CALLED FOR . 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO REQUIREMENT FOR THE PURPOSE OF THE CONDITION RELATI NG TO INVESTMENT IN SPECIFIED ASSETS U/S. 54 54E OR 54F THAT THE SAME SALE PROCEEDS NEED TO BE INVESTED. THE ASSESSEE MAY MAKE INVESTMENT OUT OF ANY OTHER FUNDS INCLUDING BORROWED FUNDS. FOR THIS PROPOSITION HE RELIED ON THE FOLLOWING DECISIONS: 1. ACIT V. DR. P.S. PASRICHA 20 SOT 468 (MUM). 2. ITO V. K.C. GOPALAN 162 CTR 566. 3. BOMBAY HOUSING CORPORATION V. ACIT 81 ITD 545. 4. MRS. PREMA P. SHAH V. ITO 100 ITD 60. 5. DCIT V. GAYLORD INVESTMENT & TRG. P. LTD. 21 SOT 4 07. 6. AJIT VASWANIT VS. DY. CIT 117 TAXMAN 123. REFERRING TO THE ORDER OF THE CIT(A) IN THE CASE OF THE FATHER OF THE ASSESSEE SHRI GURU PRATAPSINGH GANDHI THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE FATHER OF THE ASSESSEE U/S. 54 OF THE ACT AND HELD THAT EVEN IF A HOUSE IS PURCHASED I.T.A. NO. 286/MUM/2009 MR. HARMEET GANDHI ================== 4 BEFORE ONE YEAR OF THE TRANSFER OF OLD HOUSE AND TH E CAPITAL GAIN ARISING ON SALE IS NOT DIRECTLY USED FOR THE ACQUISITION OF TH E NEW RESIDENTIAL HOUSE STILL THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 5 4 OF THE ACT. SINCE THE FACTS OF THE IMPUGNED APPEAL ARE IDENTICAL TO THAT OF THE CASE OF THE FATHER OF THE ASSESSEE WHERE THE CIT(A) HAS ALLOWED THE RELIEF AN D SINCE THE REVENUE HAS NOT CHALLENGED THE SAME THEREFORE THE ASSESSE ES CASE ALSO COULD HAVE BEEN DECIDED IN THE SAME LINES AND THE CIT(A) SHOUL D HAVE ALLOWED THE CLAIM OF THE ASSESSEE. 8. THE LEARNED DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO THE DECISION OF THE TRIB UNAL IN THE CASE OF MILAN SHARAD RUPAREL V. ACIT REPORTED IN 121 TTJ 770 HE SUBMITTED THAT AS PER THE SAID DECISION EXEMPTION U/S. 54F IS NOT AVAILAB LE WHERE ASSESSEE PURCHASES RESIDENTIAL HOUSE OUT OF BORROWED FUNDS F ROM BANK. FOR THE PURPOSE OF SECTION 54F THE RESIDENTIAL PROPERTY SH OULD EITHER BE ACQUIRED OR CONSTRUCTED BY THE ASSESSEE OUT OF HIS PERSONAL FUNDS OR THE SALE PROCEEDS OF CAPITAL ASSET ON WHICH THE BENEFIT IS C LAIMED. 9. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJOIN DER REFERRED TO PARA 13 OF THE ORDER AS RELIED ON BY THE LEARNED DR AND DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING: 13. THE OBJECT OF INTRODUCTION OF THESE SECTIONS A RE THAT ASSESSEE SHOULD MAKE MORE INVESTMENTS IN RESIDENTIA L HOUSE ON SALE OF ITS OLD RESIDENTIAL HOUSE OR A LONG TERM CAPITAL ASSET. IT IS NOT NECESSARY THAT THE SAME FUNDS MUS T BE USED IN PURCHASING OF THE NEW RESIDENTIAL HOUSE BUT THE F UND SHOULD BE AVAILABLE WITH THE ASSESSEE FOR ITS INVESTMENT I N RESIDENTIAL HOUSE. SINCE THE LAW PERMITS UTILISATION OF CAPITA L GAIN WITHIN THE SPECIFIED TIME THE ASSESSEE MAY USE SUCH FUNDS FOR OTHER PURPOSES AND MAY FIND RESOURCE FROM OTHER SOURCE OF INVESTMENT IN TIME. THE LAW DOES NOT EXPECT THAT THE SALE AMOUNT SHOULD BE KEPT IN THE LOCKER AND THE SAME SH OULD BE UTILISED IN PURCHASE OF RESIDENTIAL HOUSE. NEITHER THE LAW NOR DOES ANY CIRCULAR REQUIRE THE IDENTITY OF THE AMOUN T RECEIVED ON SALE AND UTILISATION FOR PURPOSE OF S. 54F AND O THER RELEVANT PROVISIONS. IT IS QUITE LIKELY THAT THE A SSESSEE MAY USE THE MONEY FOR HIS BUSINESS AND DRAW THE AMOUNT FOR INVESTMENT FROM HIS PAST SAVINGS. CONVERSELY HE M AY PLACE SALE PROCEEDS IN LONG-TERM INVESTMENT OTHER THAN WH AT IS PERMITTED UNDER S. 54 BUT ALL THE SAME FIND MONEY FROM THE I.T.A. NO. 286/MUM/2009 MR. HARMEET GANDHI ================== 5 BUSINESS OR OTHER SOURCE FOR APPROVED INVESTMENT WI THIN THE TIME. SINCE LAW ITSELF PERMITS INVESTMENT IN A NEW PROPERTY EVEN BEFORE SALE OF PROPERTY COVERED BY SS. 54 AND 54F THE LAW DOES NOT CONTEMPLATE THE IDENTITY OF THE FUNDS ON SALE FOR ITS INVESTMENT. SINCE MONEY HAS NO COLOUR ALL THA T IS REQUIRED IS COMPLIANCE WITH THE CONDITION OF INVESTMENT WITH IN THE SPECIFIED TIME. 10. REFERRING TO THE ABOVE HE SUBMITTED THAT THE DECIS ION OF THE TRIBUNAL AS RELIED ON BY THE LEARNED DR IS IN FACT IN FAVOUR OF THE ASSESSEE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASS ESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE U/S. 54F OF TH E ACT ON THE GROUND THAT THE INVESTMENT IN PURCHASE OF HOUSE/CONSTRUCTION OF THE HOUSE MUST BE OUT OF CAPITAL GAIN ONLY. SINCE THE ASSESSEE IN TH E INSTANT CASE HAS TAKEN A LOAN FOR PURCHASE OF HOUSE WHICH IS PURCHASED ONE YEAR BEFORE THE SALE OF THE SHARES THE ASSESSEE SHOULD HAVE REPAID THE SAI D LOAN OUT OF THE CAPITAL GAIN INCOME TO BECOME ELIGIBLE FOR THE SAID DEDUCTI ON. HE ACCORDINGLY DENIED THE BENEFIT U/S. 54F WHICH HAS BEEN UPHELD B Y THE CIT(A). WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F DR. P.S. PASRICHA HAS HELD THAT AS PER THE REQUIREMENT OF SECTION 54 TH E ASSESSEE SHOULD ACQUIRE A RESIDENTIAL HOUSE WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLA CE. NOWHERE IT HAS BEEN MENTIONED THAT THE SAME FUNDS MUST BE UTILISED FOR THE PURCHASE OF ANOTHER RESIDENTIAL HOUSE. ACCORDING TO THE SAID D ECISION THE REQUIREMENT OF LAW IS THAT THE ASSESSEE SHOULD PURC HASE A RESIDENTIAL HOUSE WITHIN THE SPECIFIED PERIOD AND SOURCE OF FUN DS IS QUITE IRRELEVANT. WE FIND THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT VIDE INCOME TAX APPEAL NO . 1825 OF 2009. SIMILARLY WE FIND THE TRIBUNAL IN THE CASE OF MILA N SHARAD RUPAREL (SUPRA) AS RELIED ON BY THE LEARNED DR HAS HELD T HAT IT IS NOT NECESSARY THAT THE SAME FUNDS MUST BE USED FOR PURCHASE OF TH E NEW RESIDENTIAL I.T.A. NO. 286/MUM/2009 MR. HARMEET GANDHI ================== 6 HOUSE BUT THE FUNDS SHOULD BE AVAILABLE WITH THE AS SESSEE FOR ITS INVESTMENT IN THE RESIDENTIAL HOUSE. THE VARIOUS O THER DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPOR T HIS CASE. IN THIS VIEW OF THE MATTER WE ARE OF THE CONSIDERED OPINION THA T THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 54F OF THE ACT ON ACCOUN T OF CAPITAL GAIN ARISING ON SALE/TRANSFER OF SHARES FOR THE HOUSE PURCHASED BY HIM ONE YEAR PRIOR TO SALE OF SUCH SHARES. THE CIT(A)S ORDER IS ACCO RDINGLY SET ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 30 TH APRIL 2010. SD/- (R.S. PADVEKAR) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 30 TH APRIL 2010 COPY TO: (1) THE APPELLANT (2) THE RESPONDENT (3) THE CIT(A) -XX MUMBAI (4) THE CIT-20 MUMBAI (5) THE DR H BENCH ITAT MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO