2008 (9) TMI 234 - HC - Income Tax

Appeal entertained after assessee's death; investment in adopted son's name denies Section 54/54F exemption, capital gains demand upheld

HC held the ITAT could entertain the appeal filed after the assessee's death. The court found the assesee had used sale proceeds to purchase and construct ... Jurisdiction of the ITAT to entertain appeal after the death of the assessee - Entitlement to claim relief u/s 54F - investments made in residential house - legal heir of the deceased/assessee - Liability to capital gains tax - land in question used for agricultural purposes - definition of the terms 'capital asset' - concepts of the 'assessee', 'own', 'owned' 'owner', 'ownership', 'co-owner', 'owner of house property' or 'ownership of property' as elaborated in sections 22 to 27 and 32 - exemption - Sale proceeds from sale of Capital assets invested by assessee in residential house in name of his adopted son - HELD THAT:- In view of the undisputed position on the record that the deceased assessee, admittedly, though sold the property owned by him yet purchased the new property in the name of adopted son and paid consideration out of the sale proceeds in question, with clear intention to transfer the property to the adopted son. He, therefore, utilised the sale proceeds to construct a house by transferring the property and submitting plan in the name of the son only. The intention was very clear from the day one to transfer the property even before the construction of residential house to the adopted son. He transferred the property before the prescribed period, as per the scheme of Section, and the son becomes the owner of the property for all the purposes. The deceased/assessee, admittedly, had no domain and/or right whatsoever on the said property. This fact itself, therefore, disentitled him to claim any exemption as there were various non- compliances with the conditions as per the scheme of sections 54 and 54F of the I.T. Act. The deceased assessee admittedly sold and purchased the property from the realisation but in the name of the adopted son, who in the scheme of the Act and Section 54F is not an assessee, who after selling the old asset purchased and constructed the new property. He was not the owner of the new purchased property. Ponds India Ltd. v. Commissioner of Trade Tax [2008 (5) TMI 46 - SUPREME COURT], the Apex Court's following declaration supports the view we have taken based upon the principle of interpretation of revenue/taxation status. The appellant does not qualify for the exemption under section 54F of the Income-tax Act. We hold that the appeal filed before the Income-tax Appellate Tribunal on 01.05.1988 is competent. It was arising out of the assessment year 1983-84. The Department had issued notice under section 139(2) of the Act calling upon the assessee (Timaji Dhanjode) who had filed his return who was alive at the relevant time. The Assessing Officer held that the investment by the deceased assessee in the name of his adopted son not calling for an exemption and, therefore, demanded capital gains tax. Against the order, the appeal filed by the deceased was allowed on 25.01.1989, and after remand, CIT (A) reversed the order of Assessing Officer on 11.02.1998, therefore, the Department appeal dated 01.05.1998, against the same, even after the death of the assessee on 09.05.1991, against the appellant being the only legal heirs, is maintainable. For qualifying the exemption it is necessary and applicable to have the investments made in residential house in the name of the assessee only. Appeal is dismissed accordingly. Issues Involved:1. Competency of appeal filed before ITAT after the death of the assessee.2. Eligibility for exemption under Section 54F of the Income-Tax Act for investments made in the name of the assessee's adopted son.3. Necessity of investment in the residential house to be in the name of the assessee for qualifying exemption under Section 54F.Issue-wise Detailed Analysis:1. Competency of Appeal Filed Before ITAT After the Death of the Assessee:The court addressed whether the appeal filed before the ITAT on May 1, 1998, in the name of the deceased assessee, Timaji Sakharam Dhanjode, who died on May 9, 1991, was competent. The court affirmed that the appeal was indeed competent. The legal heir of the deceased assessee was entitled to continue the proceedings. The Department had issued notice under section 139(2) of the Income-Tax Act to the deceased, who had filed his return while alive. Therefore, the appeal was properly maintainable even after his death.2. Eligibility for Exemption Under Section 54F of the Income-Tax Act for Investments Made in the Name of the Assessee's Adopted Son:The court examined whether the sale proceeds of agricultural land invested in purchasing a plot and constructing a residential house in the name of the appellant (adopted son) qualified for exemption under Section 54F. The court held that the appellant did not qualify for the exemption. The deceased assessee had no legal title or domain over the new property, which was purchased and constructed in the name of his adopted son. The intention was clear from the beginning to transfer the property to the adopted son, thus disqualifying the deceased from claiming any exemption under Sections 54 and 54F due to non-compliance with the conditions stipulated in the Act.3. Necessity of Investment in Residential House to Be in the Name of the Assessee for Qualifying Exemption Under Section 54F:The court clarified that for qualifying the exemption under Section 54F, it is necessary and obligatory that the investment in the residential house must be in the name of the assessee. The court emphasized that the scheme of Section 54F is intended to benefit the assessee who owns the original asset and subsequently purchases or constructs a residential house in his own name. The ownership and legal title over the new asset must be with the assessee, not with any other person, including legal heirs or adopted children.Conclusion:The court dismissed the appeal and the writ petition filed by the appellant, who was the adopted son and legal heir of the deceased assessee. The court upheld the order of the ITAT and the Assessing Officer, stating that the investment made in the name of the adopted son did not qualify for exemption under Section 54F. The court also vacated the interim relief granted earlier and allowed the appellant to take steps in accordance with the law. The proceedings under sections 156, 221, and 271(1)(a) of the Income-Tax Act were deemed lawful and valid.