CHANDRAKANT S. CHOKSI HUF, MUMBAI v. ASST CIT CIR 18(1), MUMBAI

ITA 3540/MUM/2013 | 2009-2010
Pronouncement Date: 26-11-2014 | Result: Allowed

Appeal Details

RSA Number 354019914 RSA 2013
Assessee PAN EYEAR2001O
Bench Mumbai
Appeal Number ITA 3540/MUM/2013
Duration Of Justice 1 year(s) 6 month(s) 20 day(s)
Appellant CHANDRAKANT S. CHOKSI HUF, MUMBAI
Respondent ASST CIT CIR 18(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 26-11-2014
Assessment Year 2009-2010
Appeal Filed On 06-05-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI SANJAY ARORA A M AND SHRI AMIT SHUKLA J M ITA NO. 3540 /MUM/201 3 : ASST.YEAR 2009 - 20 1 0 SHRI CHANDRAKANT S.CHOKSI HUF H - 1 EDEN HALL 8 TH FLOOR DR.ANNIE BESANT ROAD WORLI MUMBAI 400 018. PAN : AAHC0350D . / VS. THE ASST.COMMISSIONER OF INCOME - TAX CIRCLE 18(1) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI VIJAY C.KOTHARI /RESPONDENT BY : SHRI SACHCHIDA NA ND DUBEY / DATE OF HEARING : 18.11 .2014 / DATE OF PRONOUNCEMENT : 26.11.2014. / O R D E R PER AMIT SHUKLA (JM) : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 04.03.2013 PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 29 MUMBAI FOR THE QUANTUM PROCEEDINGS U/S 143(3) FOR THE ASSESSMENT YEAR 2009 - 2010 MAINLY ON THE FOLLOWING GROUNDS OF APPEAL . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT ERRED IN NOT ALLOWING DEDUCTION OF RS.60 95 000/ - UNDER PROVISION OF SECTION 54F OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DISMISSING THE APPEAL AND IN IGNORING THE FACT THAT THE APPELLANT HAD RIGHTFULLY CLAIMED THAT IT ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 2 ACQUIRED ONE HALF SHARE OF THE RESIDENTIAL HOUSE OWNED BY MRS.INDRANI CHANDRAKANT CHOKSI AND THUS BECOMING TH E OWNER OF THE ENTIRE RESIDENTIAL HOUSE IN ITS OWN CAPACITY AND SUCH ACQUISITION OF THE ONE HALF SHARE IS ENTITLED FOR DEDUCTION UNDER PROVISION OF SECTION 54F OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED LONG TERM CAPITAL GAIN ON ACCOUNT OF SALE OF SHARES OF HINDUSTAN PLATINUM PRIVATE LIMITED FOR AN AMOUNT OF RS.5 07 86 320. OUT OF THE SALE CONSIDERATION THE ASSESSEE INVESTED RS.50 00 000 IN RURAL ELECTRIFICATION BONDS AND CLAIMED DEDUCTION U/S 54EC WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER. THE ASSESSEE ALSO CLAIMED DEDUCTION U/S 54F F OR A SUM OF RS.60 95 000 WHICH WAS INVESTED FOR ACQUISITION OF RIGHTS IN A PROPERTY. THE ASSESSEE HAD PURCHASED 50% OF THE SHARE OF A FARMHOUSE (USED FOR RESIDENTIAL PURPOSES) CONSTRUCTED ON THE LAND BELONGING TO THE MEMBERS OF THE HUF FROM ONE OF THE ME MBERS MRS.INDRANI CHANDRAKANT CHOKSI. FROM THE RECORDS SUBMITTED BEFORE THE ASSESSING OFFICER HE NOTED THAT A FARMHOUSE HAS BEEN CONSTRUCTED IN THE YEAR 2001 ON AN AGRICULTURAL LAND BELONGING TO FOUR MEMBERS OF THE HUF IN EQUAL PROPORTION. THOUGH THE LAN D BELONGS TO ALL THE FOUR MEMBERS HOWEVER THE FARMHOUSE WAS CONSTRUCTED BY TWO MEMBERS NAMELY SMT. INDRANI C.CHOKSI AND SHRI CHANDRAKANT CHOKSI HUF FOR AN AMOUNT OF RS.1 21 90 000 . THE FARMHOUSE WAS CONSTRUCTED ON THE BASIS OF MEMORANDUM OF UNDERSTANDI NG (MOU) DATED 31.01.1999 BETWEEN THE MEMBERS OF THE FAMILY AND HUF. THERE WAS A CLAUSE IN MOU THAT SMT.INDRANI C.CHOKSI HAD THE RIGHT TO WITHDRAW HERSELF FROM THE OWNERSHIP AND IN PURSUANCE THEREOF SHE HAD WITHDRAWN THE RIGHT AND TRANSFERRED THE RIGHT TO THE ASSESSEE - HUF ON A CONSIDERATION MADE THROUGH CHEQUE OF RS.60 95 000/ - WHO HAD BECOME THE SOLE OWNER OF THE CONSTRUCTED PROPERTY. ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 3 THE ASSESSING OFFICER OBSERVED THAT HOW THE PROPERTY CAN BE SOLD WITHOUT THE LAND ON WHICH IT WAS CONSTRUCTED. THE ASSESSE E HAS CLAIMED DEDUCTION U/S 54F FOR BUYING THE ONE HALF SHARE THAT IS THE RIGHT IN THE PROPERTY FROM SMT.INDRANI C.CHOKSI WHO WAS ONE OF THE MEMBERS OF THE HUF. THUS THE ENTIRE ARRANGEMENT WAS MADE TO AVOID TAX ON LONG TERM CAPITAL GAIN AND TO GET BENE FIT U/S 54F. THEREAFTER HE DISCUSSED THE INTENTION AND PURPOSE OF SECTION 54F AND ALSO REFERRED TO THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. V.PRADEEPKUMAR REPORTED IN 290 ITR PAGE 90. AFTER DETAILED DISCUSSION HE DENIED BENEFIT OF DEDUCTION U/S 54F FOR RS.60 25 000. 2.1 BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT IT HAD FULFILLED ALL THE REQUIREMENTS FOR BEING ELIGIBLE TO CLAIM DEDUCTION U/S 54F INASMUCH AS THE ASSESSEE HAS USED THE NET CONSIDERATION FROM TRANSFER OF LONG TERM CAPITAL ASSET FOR PURCHASING A RESIDENTIAL HOUSE. THE ASSESSEE HAS ACQUIRED ONE HALF SHARE OF THE RESIDENTIAL HOUSE FROM SMT.INDRANI C.CHOKSI VIDE MOU DATED 8 TH JANUARY 20 09 FOR A CONSIDERATION OF RS.60 95 000. THE ASSESSEE S SUBMISSION HAS BEEN NOTED BY THE LEARNED CIT(A) AT PAGES 4 AND 5 OF THE APPELLATE ORDER. HOWEVER THE LEARNED CIT(A) UPHELD THE REASONING OF THE A.O. ON THE FOLLOWING GROUNDS: - (I) THE MOU DATED 08.0 1.2009 IS ONLY AN INTERNAL DOCUMENT BETWEEN THE ASSESSEE - HUF AND ITS MEMBERS AND HAS NOT BEEN REGISTERED. (II) HOW THE BUILDING CAN BE CONSTRUCTED OR SOLD WITHOUT THE OWNERSHIP OF THE LAND BEING TRANSFERRED. ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 4 (III) NO DETAILS HAVE BEEN FILED THAT THE HO USE WAS CONSTRUCTED AT RS.1 21 90 000. (IV) THE INTENTION OF SECTION 54F WAS TO ENCOURAGE IN THE ACQUISITION OF NEW RESIDENTIAL HOUSE WHO DO NOT OWN ANY RESIDENTIAL ACCOMMODATION. (V) THE ASSESSEE WAS ALREADY 50% CO - OWNERS OF THE CONSTRUCTED PROPERTY WHICH MEANS THAT THE ASSESSEE W AS ALREADY OWNING THE HOUSE AND NO INVESTMENT HAS BEEN MADE FOR SEPARATE NEW RESIDENTIAL UNIT. 2.2 ACCORDINGLY ON THESE REASONING HE CONFIRMED THE DISALLOWANCE AND CLAIMED DEDUCTION U/S 54F. 3. BEFORE US THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT FIRST OF ALL THE OWNERSHIP OF SUPERSTRUCTURE HOUSE CAN BE WITHOUT LAND OWNERSHIP AND THIS ISSUE HAS BEEN SETTLED BY VARIOUS HIGH COURTS THE FEW BEING AS UNDER: - (I) CIT V. THE MADRAS CRICKET CLUB [2 ITR 209 (FB) (MAD.)] (II) CIT V. D.L.RAMACHANDRA RAO [236 ITR 1 (MAD.)] (III) CIT V. CITIBANK N.A. [261 ITR 570 (BOM.)] (IV) CIT V. M/S.I.K.INTERNATIONAL PVT.LTD. [ITA NO.791 OF 2011) (DELHI HIGH COURT) DATED 29.03.2012] ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 5 3.1 HE FURTHER SUBMITTED THAT THE ISSUE WHETHER PURCHASE OF A FRACTIONAL INTEREST IS PERMISSIBLE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 54 OR 54F OR NOT HAS BEEN SETTLED LONG TIME BACK BY THE HON BLE SUPREME COURT IN THE CASE OF CIT V. T.N. AR A VINDA REDDY REPORTED IN 120 ITR 46. THIS PROPOSI TION HAS BEEN REITERATED BY THE DELHI HIGH COURT AND GUJARAT HIGH COURT IN THE CASE OF ADDL.CIT V. VIDYA PRAKASH TALWAR 132 ITR 661 (DEL) AND CIT V. CHANDANABEN MAGANLAL 245 ITR 182 (GUJ.). THUS ON BOTH THE COUNTS FOR WHICH THE A.O. AND CIT(A) HAVE REJECT ED THE ASSESSEE S CLAIM FOR DEDUCTION IS NO LONGER SUSTAINABLE IN VIEW OF THE AFORESAID DECISIONS. HE FURTHER SUBMITTED THAT EVEN REGISTRATION OF MOU SALE AGREEMENT OR PURCHASE AGREEMENT IS NOT NECESSARY AND IN SUPPORT OF THIS PROPOSITION HE RELIED UPON THE FOLLOWING DECISIONS: - (I) CIT V. DR.LAXMICHAND NARPAL NAGDA [211 ITR 804 (BOM.)] (II) BALRAJ C. CIT [254 ITR 22 (DEL.)] THUS HE SUBMITTED THAT THE ASSESSEE S CLAIM FOR DEDUCTION U/S 54F SHOULD BE ALLOWED. 3.2 ON THE OTHER HAND THE LEARNED DEPAR TMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE REASONING GIVEN BY THE A.O. AS WELL AS CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AND THE MATERIAL PLACED ON RECORD. THE MAIN ISSUE INVOLVED IN THIS CASE IS WHETHER THE ASSESSEE IS ENTITLED FOR CLAIM OF DEDUCTION U/S 54F FOR ACQUIRING THE RIGHTS / PURCHASE OF FRACTIONAL INTEREST IN ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 6 THE PROPERTY. FROM THE FACTS AS DISCUSSED ABOVE IT IS SEEN THAT THE DEPARTMENT S CASE FOR REJECTING THE ASSESSEE S CLAIM IS MAINLY ON FOLLOWING COUNTS: - (I) HOW THE CONSTRUCTED BUILDING CAN BE SOLD WITHOUT OWNERSHIP OF THE LAND BEING TRANSFERRED ; (II) ELIGIBILITY FOR CLAIM OF DEDUCTION U/S 54F IS ONLY ON THE PURCHASE OF A NEW AND SEPARATE HOUSE RATHER THAN PURCHA SING THE SHARES / FRACTIONAL INTEREST IN A PROPERTY WHEREIN THE ASSESSEE HI MSELF IS ONE OF THE CO - SHARERS; (III) THE MOU THROUGH WHICH THE ASSESSEE HAD ACQUIRED THE RIGHTS IN THE PROPERTY HAS NOT BEEN REGISTERED. THE OTHER FACTORS AS DISCUSSED BY THE A.O. AND CIT(A) ARE NOT VERY RELEVANT FOR THE PURPOSE OF DECIDING THIS ISSUE. THEREFORE THE SAME ARE NOT BEING DISCUSSED. 4.1 A RESIDENTIAL HOUSE OR ANY HOUSE FOR THAT MATTER CANNOT EXIST WITHOUT OR INDEPENDENT OF LAND BENEATH SO THAT IT (HOUSE) WOULD INCLUDE LAND OR RIGHTS THEREIN. THE ISSUE HOWEVER BEFORE US IS IF THE OWNER OF THE SUPERSTRUCTURE HAS NECESSARILY TO BE ALSO THE OWNER OF THE LAND FOR HIS INVESTMENT THEREIN TO QUALIFY FOR DEDUCTION U/S 54 / 54F. IN THE PRESENT CASE THE CO - OWNER OF THE LAND BEING FAMILY MEMBERS HOLDING 4/5 TH SHARE THEREIN HAVE GIVEN THEIR CONSENT FOR CONSTRUCTION OF THE HOUSE. THE ASSESSEE AND HIS WIFE WHO CONSTRUCTED THE HOUSE IN THE FIRST INSTANCE CAN THUS ONLY BE CONSIDERE D AS HAVING RIGHTS OF USER OF LAND. IT IS THIS RIGHT OF USER WHICH GETS VESTED IN THE ASSESSEE ON THE PURCHASE OF THE SHARE IN BUILDING / SUPERSTRUCTURE FROM HIS WIFE. AFTER GOING THROUGH THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL WE FIND THAT IN T HE CONTEXT OF WHETHER SURPLUS ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 7 REALIZED ON SALE OF LAND WHICH WAS HELD FOR A PERIOD OF 36 MONTHS WILL BE TREATED AS LONG TERM CAPITAL GAIN WHEN THE BUILDING WHICH WAS CONSTRUCTED AND SOLD ON THE SAID LAND WAS HELD FOR LESS THAN THE PERIOD OF 36 MONTHS A ND HENCE SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN. IN THIS CONTEXT THE COURTS HAVE HELD THAT THE LAND IS AN INDEPENDENT AND IDENTIFIABLE CAPITAL ASSET AND IT CONTINUE TO REMAIN SO EVEN AFTER THE CONSTRUCTION OF THE BUILDING THEREON. IF THE LAND ARE H ELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN SIX MONTHS THEN IT IS NOT POSSIBLE TO SAY THAT BY CONSTRUCTING OF A BUILDING THEREON THE LAND WHICH WAS A LONG TERM CAPITAL ASSET CEASES TO BE A LONG TERM CAPITAL ASSET. THE MADRAS HIGH COURT IN THE CASE OF CIT V. D.L.RAMACHANDRA RAO (SUPRA) HAS HELD THAT THERE CAN BE A BIFURCATION OF A CAPITAL GAIN INTO LONG TERM CAPITAL GAIN PERTAINING TO LAND AND SHORT TERM CAPITAL GAIN PERTAINING TO SUPERSTRUCTURE. SIMILARLY FULL BENCH OF MADRAS HIGH COURT IN THE CASE OF CIT V. MADRAS CRICKET CLUB (SUPRA) HELD THAT A PERSON MAY BE ASSESS ED AS AN OWNER OF A BUILDING AND IT IS NOT NECESSARY THAT HE SHOULD ALSO BE AN OWNER OF THE LAND ON WHICH THE BUILDING STANDS. FROM THE RATIO AS CULLED OUT IN THE AFORESAID DECISIONS IT IS AMPLY EVIDENT THAT THE LAND IS AN INDEPENDENT AND IDENTIFIABLE CAPITAL ASSET WHICH CAN BE SEPARATE FROM SUPERSTRUCTURE BUILT UP ON IT. A PERSON CAN BE THE OWNER OF A SUPERSTRUCTURE AND CAN EARN INCOME SEPARATELY FROM SUCH A SUPERSTRUCTURE EITHER IN THE FORM OF RENT OR BY GAIN ON SELLING IT. IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD HOLD THE EXCLUSIVE RIGHT ON THE LAND WHILE PURCHASING THE HOUSE OR VICE VERSA. SUCH KIND OF ARRANGE MENT ALWAYS HAPPEN IN THE CASE OF L EASE LAND. THEREFORE WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE DEPARTMENT THAT SIMPLY BECAUSE THE PROPERTY HAS BEEN SOLD WITHOUT THE ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 8 TRANSFERRING THE RIGHT IN THE LAND THE SAME CANNOT BE HELD TO BE SALE OF PROPERTY. 4.2 SO FAR AS THE ISSUE W HETHER THE ASSESSEE CAN PURCHASE FRACTIONAL INTEREST THAT IS BUYING OF SHARE IN THE PROPERTY AND WHETHER IT CAN BE HELD AS PURCHASE OR NOT WE FIND THAT THIS ISSUE IN PRINCIPLE IS SETTLED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. T.N.ARAVINDA REDDY (SUPRA) . IN THE CASE BEFORE THE HON BLE SUPREME COURT FOUR BROTHERS WERE THE MEMBERS OF HUF WHO HAD PARTITIONED A JOINT FAMILY PROPERTY LEAVING AN UNDIVIDED COMMON HOUSE. THE THREE BROTHERS EXECUTED A RELEASE DEED IN FAVOUR OF THE ELDER BROTHER FOR A CONSIDERATION WHICH WAS TREATED AS PURCHASE OF THE HOUSE BY THE ELDER BROTHER. THE ELDER BROTHER HAD SOLD ONE OF HIS HOUSE S AND OUT OF THE SALE PROCEEDS PAID THE CONSIDERATION TO HIS BROTHERS TO ACQUIRE THEIR SHARES IN THE HOUSE. IN THIS CONTEXT IT WAS HELD THAT THE ELDER BROTHER WOULD BE ENTITLED TO RELIEF U/S 54(1). SIMILAR VIEW HAS BEEN TAKEN BY THE HON BLE DEL HI HIGH COUR T IN THE CASE OF CIT V. CHANDANBEN MAGANLAL (SUPRA) WHEREIN THE HON BLE HIGH COURT HELD THAT SALE PROCEEDS INVESTED FOR PURCHASE OF INTEREST IN THE RESIDENTIAL HOUSE OWNED BY THE ASSESSEE S HUSBAND AND SON AMOUNTS TO PURCHASE AND HENCE ENTITLED FOR EXEMP TION U/S 54F. SECTION 54F PER SE DOES NOT PROHIBIT OR BAR THAT FRACTIONAL INTEREST OR SHARE IN THE PROPERTY WHICH HAS BEEN PURCHASED WILL NOT BE ENTITLED FOR DEDUCTION U/S 54F. THUS FOLLOWING THE SAID PROPOSITION LAID DOWN BY THE HON BLE COURT WE HOL D THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 54F ON THE AMOUNT SPENT ON ACQUISITION OF RIGHTS IN A PROPERTY FROM THE OTHER MEMBERS OF THE FAMILY OR HUF. ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 9 4.3 LASTLY REGARDING WHETHER REGISTRATION OF MOU IS COMPULSORY OR NOT WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. LAXMICHAND NARPAL NAGDA (SUPRA) AND DELHI HIGH COURT IN THE CASE OF BALRAJ V. CIT (SUPRA) . IN THE LAT T ER DECISION THE HON BLE DELHI HIGH COURT HELD THAT FOR THE PURPOSE OF ATTRACTING THE PROVISIONS OF SECTION 54 IT WAS NOT NECESSARY THAT THE ASSESSEE SHOULD BECOME OWNER OF THE PROPERTY ON ONLY THROUGH REGISTRATION AS THE SECTION SPE AKS OF PURCHASE AND REGISTRATION OF DOCUMENT WAS NOT IMPERATIVE. THUS ON ALL COUNTS THE REASONING GIVEN BY THE A.O. AS WELL AS CIT(A) CANNOT BE SUSTAINED IN VIEW OF THE AFORESAID LEGAL PROPOSITION DISCUSSED ABOVE. ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION OF RS.60 95 000 U/S 54F IN PURCHASE OF ACQUIRING ONE HALF SHARE OF THE RESIDENTIAL HOUSE OWNED BY SMT.INDRANI CHANDRAKANT CHOKSI ONE OF THE MEMBERS OF THE ASSESSEE - HUF. THEREFORE THE GROUND RAISED BY THE ASSESSEE STAND S ALLOWED. 5 . IN THE RESULT ASSESSEE S APPEAL IS ALLOWED . ORDER PRONOUNCED ON THIS 26 TH DAY OF NOVEMBER 2014 . SD/ - SD/ - ( SANJAY ARORA ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 26 TH NOVEMBER 2014 . DEVDAS* ITA NO. 3540 /MUM/201 3 . SHRI CHANDRAKANT S.CHOKSI HUF . 10 / COPY OF THE ORDER FORWARDED TO : / BY ORDER //TRUE COPY// / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT MUMBAI. 4. / CIT(A) - 29 MUMBAI 5. / DR ITAT MUMBAI 6. / GUARD FILE.