TaxTMI 
TaxTMI 
2015 (6) TMI 674
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....ssessment was completed U/s. 143(3) of the Act. Following additions were made to the returned income: Returned Income 2,09,08,576 Add : Disallowance of Deduction U/s. 54F 49,27,996 Disallowance of Interest Paid in Computing Long Term Capital Gain 7,82,394 Assessed Income 2,66,18,966 4. In the return of income filed, among others, the assessee had returned gross Long Term Capital Gain of Rs. 1,65,57,000 on sale of shares. This gain arose on account of sale of shares of Musigma Inc., consideration for which was received on 04.09.2008. Out of the above gain a sum of Rs. 49,27,996 was claimed as deduction u/s. 54F on account of investment in residential property. On 21.11.2006, the assessee had entered into two agreements with M/s. Total Environment Building Systems Private Limited as follows:- a) Land agreement for purchase of land at Hoodi Village for a consideration of Rs. 79,63, 872/-. b) Construction agreement for construction of residential house for a consideration of Rs. 45, 14,712. Against the above agreements, during the Financial Year 2008-09, following payments were made by the assessee. Rs . 08.06.2008 : 56,70,0....
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.... Aggrieved by the order of CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal. The grounds of appeal raised by the Revenue read as follows:- "2. The ld. CIT(A) ought to have appreciated that the assessee had failed to fulfil the requisite conditions stipulated u/s. 54F for claiming deduction under the said section. 3. The ld. CIT(A) erred in directing the AO to allow the deduction u/s. 54F when there is no explicit provision regarding investment in construction of the property for the purpose of claim of deduction under the said section in the statute. 4. The ld. CIT(A) had erred in considering the agreement for 'construction of building' which had not even been registered for reckoning the period prerequisite for claim of deduction u/s. 54F." 8. The provisions of section 54F of the Act read as follows:- "54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of o....
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....ration and valid title, as a condition for availing exemption u/s. 54F(1). The purport of the section is investment in construction of a property and the fact that provisions of section 54F(1) does not use that expression will not mean money spent for construction of residential property will not be eligible for deduction u/s. 54F of the Act. It is therefore clear that none of the grounds raised by the Revenue in the grounds of appeal has any merit and accordingly the appeal by the Revenue is dismissed. 10. The reasons given by the AO for rejecting the claim of the Assessee for deduction u/s.54F of the Act and our observations on those reasons are as follows:- (a) The construction agreement with M/s. Total Environment Building Systems Pvt. Ltd. was dated 2l November, 2006. According to the AO, the Assessee received Rs. 1,65,75,000 on sale of shares on 4th September, 2008. Section 54F stipulates that the new asset that is the residential house should be purchased within the period of one year before or two years after the date on which the transfer took place. According to the AO therefore the Assessee has not purchased within the stipulated time as it is only a contract for const....
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....ligible to claim deduction under section 54F. This objection in our view is also unsustainable. The requirement of the section in the case of utilization of capital gain for construction of house is to deposit the unutilized capital gain in capital gains account before the due date for filing return u/s.139 of the Act. This is clear from the language of section 54F(4) which uses the following expression. "capital gain which is not appropriated by the assessee towards... the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139" The Hon'ble Karnataka High Court judgment in the case of Fatima Bai v. ITO, [2009] 32 DTR 243 (Kar). In the aforesaid case, the facts were that the capital gains were invested on or before the due date specified u/s. 139(4) of the Act, but the unutilized capital gain had not been deposited in the specified bank account on or before the due date prescribed u/s. 139(1) of the Act. On the above facts, the Hon'ble Karnataka High Court held as....
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....0 03.11.2008 : 16,97,333 12.11.2008 : 12,00,000 85,67,333 The above dates are well within the due date for filing return u/s.139 of the Act, for AY 09-10. The objection of the AO in this regard is therefore without any merit. (d) According to the AO, the information furnished by M/s. Total Environment Building System Pvt. Ltd. u/s 133(6), showed that the registration of the said property was made only in May 2011 as evidenced by the sale deed dt. 2nd May, 2011. According to the AO, u/s 54F(4) deduction is allowable only has within a period of three years after receipt of full value of consideration on transfer of capital asset giving raise to long term capital gain constructed a residential house, it is only then the cost of the new asset would be allowed as deduction in computing the capital gain. Since the assessee's case the construction commenced in November 2006, the AO held that the requirements of Sec.54F are not complied with by the Assessee. In our view, this objection is also without any merit. The Assessee has utilized the consideration received on transfer on which exemption is claimed u/s.54F in construction of the property. The requi....
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....rises for consideration are as follows. One, M/s. Concorde Housing Corporation (hereinafter referred to as "Concorde Housing"), a developer of residential layout of sites as well as builder, developed housing sites known as Silicon Valley in Sy. Nos. 85, 164, 165 & 166 of Doddathogur Village, Begur Hobli, Bangalore South Taluk. The assessee purchased a house site bearing No.197. Concorde Housing also agreed to convey the land and construct a Villa for the assessee. One of its sister concerns, Concorde Shelters Pvt. Ltd. (hereinafter referred to "Concorde Shelters") agreed to construct a villa on the site sold by Concorde Housing to the assessee. By a registered sale deed dated 21.10.2004, the site was conveyed to the assessee for a sale consideration of Rs. 9 lakhs. The cost of construction of Villa was Rs. 24,39,526. The assessee had to pay the cost of construction of Villa in instalments as set out in the agreement dated 4.10.2004 between the assessee and Concorde Shelters. Ultimately construction of Villa got completed in the year 2008 only. The assessee agreed to sell the land as well as Villa under an agreement for sale dated 5.5.2008 to one Shakti Mohan for a consideration of....
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....n shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) cost of acquisition of asset and the cost of any improvement thereto. In view of the above provision, he was of the view that the sum of Rs. 7,82,394 claimed as deduction cannot be allowed as it is neither cost of acquisition or improvement to the land nor is it wholly and exclusively incurred in connection with the transfer. The AO therefore added the said amount to capital gains and brought to tax. 17. Aggrieved by the order of AO, the assessee preferred appeal before the CIT(Appeals). The CIT(Appeals) had to address the question as to whether the interest paid on loans borrowed for acquiring the property which was not allowed as a deduction while computing capital gain, can be allowed as a deduction? The CIT(A) without going into this question, went into the question of correctness of the assessee having bifurcated the capital gain on sale of land and Villa into long term and short term capital gains. According to CIT(A), the transaction for purch....
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.... issue in dispute here is not whether the sale consideration received from Sakthi Mohan could have been bifurcated into consideration for 'land' and 'building' with separate treatment of each. The issue, essentially, is the period of holding in respect of the component of 'land' comprised in the property sold to Sakthi Mohan. Since the period of holding of both the land and the constructed villa thereon was less than 36 months as discussed above, the proceeds of the transfer are to be considered for computation of Short Terms Capital Gains only." 19. The CIT(Appeals) ultimately directed the AO to assess the entire gain as short term capital gain by adopting the full value of consideration on transfer at Rs. 58,96,006. 20. Aggrieved by the order of CIT(Appeals), the assessee has preferred ITA No.573/Bang/2012 appeal before the Tribunal. This Tribunal by an order dated 20.3.2015 has held as under:- "15. "We have given a very careful consideration to the rival submissions. From a perusal of agreement dated 4.10.2004 between the assessee and Concorde Shelters, it is clear that Concorde Shelters agreed to construct a Villa on the plot sold by Concorde Housing. Clause 5 of the said a....
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....Vs. Ramachandra Rao, 236 ITR 51 (Mad) had an occasion to deal with identical case. The Hon'ble Court held as follows:- "8. We have carefully considered the rival contentions of both parties. The expression "capital asset" is defined in s. 2(14) of the Act as under : "Capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include - (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or professions, .......... (iii) agricultural land in India, etc. The key words of the definitions of capital asset found in s. 2(14) are the property of any kind and the term comprehends and includes within itself any interest in the property. It may be movable or immovable property or any interest thereon. The term 'short-term capital asset' is defined in s. 2(42A) of the Act as under : "Short-term capital asset" means a capital asset held by an assessee for not more than sixty months immediately preceding the date of transfer". During the relevant period, s. 2(42A) of the Act prescribed the period of thirty six months. The emphasis that is ....
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....nit, if the lands are held by the assessee for a period more than that prescribed under s. 2(42A) of the Act. It is not possible to say that by construction of the building, that the land which was a long-term capital asset, has ceased to be a long-term capital asset. The land is an independent and an identifiable capital asset, and it continues to remain as an identifiable capital asset even after construction of building and at the time of the sale of the house. Since the land was held by the assessee for a period exceeding 36 months, the land cannot be regarded as a short-term capital asset only by virtue of the construction of building thereon. Hence we are unable to accept the contentions of learned counsel for the Revenue that it is not possible to bifurcate the capital asset into two. We are of the opinion that the Tribunal has come to a correct conclusion that it is possible to work out capital gain with reference to sale of building and land separately. The decision of the Supreme Court in State of Kerala vs. P. P. Hassan Koya (supra) relied on by the learned counsel for the Revenue has no application to the facts of this case as it deals with the case where compensation w....