2020 (5) TMI 49 - AT - Income Tax

Tax Appeal Outcomes: Disallowance of Rs. 55.4L under 54B Upheld; Rs. 50L under 54EC Allowed; Rs. 5L Brokerage Reversed.

Shri Radheshyam P. Trivedi (HUF) Versus The ACIT (OSD), Circle-10, Ahmedabad

Shri Radheshyam P. Trivedi (HUF) Versus The ACIT (OSD), Circle-10, Ahmedabad - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether deduction under section 54B of the Income Tax Act is allowable where the transferred land was not used for agricultural purposes as per local revenue report. 2. Whether investments made in section 54EC bonds on two dates falling in two different financial years (31.03.2007 and 07.12.2007 / 31.10.2007 in cited co-owner decisions) qualify for deduction where an amendment limiting investment to Rs. 50,00,000 per financial year took effect from 01.04.2007. 3. Whether brokerage paid in connection with the transfer of capital asset is an allowable deduction from capital gains or is disallowable as not being expenditure in connection with transfer. 4. Whether an amount included in income in a subsequent assessment year (unutilised portion of a capital gains deposit) can be deleted where that amount was previously taxed in an earlier assessment year following disallowance of the corresponding section 54B claim. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of deduction under section 54B when land is not used for agricultural purposes Legal framework: Section 54B provides deduction from long-term capital gains on transfer of land used for agricultural purposes, subject to conditions including that the land was used for agricultural purposes by the assessee or his parents. Precedent treatment: The Tribunal referenced co-ordinate bench decisions on identical facts involving co-owners, where the issue of allowability of deduction under section 54B was considered and decided in favour of the assessee(s) (cited co-ordinate bench decisions were relied upon in the present proceedings). Interpretation and reasoning: The Assessing Officer disallowed the section 54B claim relying on a report from the Talati that agricultural activities were not carried out. The CIT(A) sustained disallowance, reasoning that agricultural use is a basic condition for section 54B. On appeal to the Tribunal, the assessee's authorised representative drew attention to co-ordinate bench judgments on identical facts in respect of co-owners where section 54B relief was allowed. The Tribunal, respectfully following the co-ordinate bench findings in the other co-owners' matters on similar facts, dismissed the grounds raised by the assessee in the first appeal (i.e., denied relief) consistent with those co-ordinate bench outcomes stated in the order. Ratio vs. Obiter: The order treats the co-ordinate bench decisions as binding precedent for the present fact matrix. The Tribunal's adoption of the co-ordinate bench reasoning constitutes the operative ratio for the present assessment year appeal where identical factual matrix and legal question arose. Conclusion: Grounds challenging disallowance of deduction under section 54B (for the assessment year in which the report indicated no agricultural use) were dismissed following co-ordinate bench treatment of identical issues; section 54B relief was not allowed in that particular appeal (though note restoration in a subsequent appeal for verification - see Issue 4). Issue 2: Allowability of section 54EC investment made across two financial years given amendment effective 01.04.2007 Legal framework: Section 54EC permits deduction for investment of capital gains in specified bonds within six months of transfer, subject to statutory limits. An amendment effective 01.04.2007 introduced a ceiling of Rs. 50,00,000 for investment in a financial year. Precedent treatment: The Tribunal relied on co-ordinate bench decisions (involving co-owners) which held that the amendment effective from 01.04.2007 could not apply retrospectively to investments made before that date (e.g., 31.03.2007) and that the ceiling operates on a per financial year basis; investments in two different financial years each up to Rs. 50,00,000 are allowable. Interpretation and reasoning: The Assessing Officer disallowed Rs. 50,00,000 of the claimed section 54EC deduction treating the ceiling as applicable to the total investment within six months of transfer. The Tribunal, following the co-ordinate bench reasoning, observed (i) the amendment is effective only from 01.04.2007 and cannot be applied to investment made on 31.03.2007; (ii) the ceiling is with reference to a financial year and not a per assessee or per deduction ceiling across financial years; and (iii) investment made before the amendment date qualifies. A circular (cited in the co-ordinate bench decision) permitting pre-transfer investment for qualification under analogous provisions was applied by analogy to strengthen the interpretation that investments made before the amendment date qualify for exemption under section 54EC. Ratio vs. Obiter: The Tribunal's acceptance of the co-ordinate bench's construction - that the Rs. 50,00,000 ceiling is applicable only to investments made on or after 01.04.2007 and operates per financial year - is treated as the ratio controlling the allowance of the second Rs. 50,00,000 investment. Conclusion: The Tribunal allowed the section 54EC claim for the full Rs. 1,00,00,000 where investments were made in two distinct financial years (one on 31.03.2007 and the other after 01.04.2007), holding the amendment and its ceiling does not retrospectively affect the investment made on 31.03.2007 and that the ceiling applies per financial year; ground relating to section 54EC was allowed following co-ordinate bench authority. Issue 3: Allowability of brokerage as expenditure in connection with transfer of capital asset Legal framework: Deduction from capital gains must be for expenditure 'in connection with' the transfer; whether brokerage constitutes such expenditure depends on the factual nexus between brokerage payment and the transfer transaction. Precedent treatment: The Tribunal referenced co-ordinate bench decisions on identical or closely similar facts (co-owners' matters) where the brokerage was held allowable. The CIT(A) had disallowed brokerage relying on a prior case where brokerage was not in connection with transfer but to secure a higher realisation (factually distinguishable). Interpretation and reasoning: The CIT(A) disallowed brokerage on the ground that it was not expenditure in connection with transfer, citing precedent where facts showed payment to broker tied to enhancement of sale consideration. The assessee argued factual differences and relied on judicial pronouncements supporting allowability where brokerage was in fact incurred for transfer. The Tribunal, following co-ordinate bench decisions that found brokerage allowable on similar facts, held that the brokerage expense was in connection with the transfer and should be allowed. Ratio vs. Obiter: The Tribunal's decision to allow brokerage as deduction in the present factual matrix, following co-ordinate bench precedents treating similar payments as connected to transfer, constitutes the operative ratio for brokerage allowability where facts correspond. Conclusion: The ground challenging disallowance of brokerage was allowed; brokerage was held to be an expenditure in connection with the transfer on the facts and thus allowable. Issue 4: Taxation in subsequent assessment year of unutilised capital gains deposit - double taxation and restoration for verification Legal framework: Amounts deposited under capital gains deposit schemes and subsequently applied/ unutilised affect taxable income in relevant assessment years; principles of avoidance of double taxation and proper attribution of amounts to appropriate years apply. Precedent treatment: The Tribunal dealt with interplay between the prior disallowance of section 54B in an earlier assessment year and the subsequent year's inclusion of the unutilised deposit amount in income. Interpretation and reasoning: The assessee had deposited Rs. 55,40,000 in the capital gains deposit scheme, utilised a portion (Rs. 17,90,000) and left Rs. 37,50,000 unutilised, which was included in the return for a later assessment year. The earlier assessment year's section 54B claim was disallowed and taxed; the assessee contended the unutilised amount should not be taxed again in the later year. The CIT(A) rejected the deletion for lack of relevant details. The Tribunal observed that since the section 54B claim for the earlier year had been decided against the assessee (and the amount taxed), the inclusion in the later year required verification to avoid double taxation. Accordingly, the Tribunal restored the issue to the Assessing Officer to allow the claim after verification of relevant material; the ground was allowed for statistical purposes. Ratio vs. Obiter: The Tribunal's direction to verify documents and reconsider deletion to prevent double taxation is an operative remedial order rather than obiter; it establishes that where an amount has been taxed in an earlier year due to disallowance, the Assessing Officer should verify before taxing the same amount again. Conclusion: The Tribunal restored the matter to the Assessing Officer for verification and appropriate action to ensure the unutilised deposit amount is not taxed twice; the ground was allowed for statistical purposes and remitted for verification.