TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1195
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.... the decision of Hon'ble ITAT in assessee own case, in respect of the same transaction wherein it was held that demolition of asset by assessee voluntarily would not amount to transfer under the Income-tax Act, 1961 and hence denial of exemption u/s.54F is bad in law. 2. The learned CIT (A) erred in concluding that the purchase of bungalow was symbolic and not real as the same was not occupied by assessee after purchase though the Appellant had filed all the relevant documents to show that the bungalow was in a habitable condition and also filed Affidavit explaining the reason for not occupying the bungalow and the reason for demolishing it for reconstruction and that for claiming exemption u/s.54F assessee can be owner of more than one residential house at the time of purchase of new residential house and denial of exemption u/s.54F is bad in law. Section 54F(3) 3. Without prejudiced to the above, the learned CIT(A) failed to appreciate that the denial of exemption can be done only in the year of demolition of the asset in accordance with section 54F(3) and not in the year under consideration." 3. The brief facts of the case are that the assessee filed return of income....
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....t though the agreement made for new bungalow at Juhu has been purchased within one year but investments out of the sale proceeds of shop and garage is shown in individual capacity of both associates i.e. assessee and Smt. Chhaya Parekh, which actually belonged to M/s. Parekh Brothers, an Association of Persons(AOP). Since exemption u/s. 54F of the Act cannot be considered in the hands of M/s. Parekh Brothers, the claim is made in case of individuals. The agreements and several documents mentioned earlier evidently certify that the properties (shop and garage) ownership never stood in name of individual capacity of the assessee and his sister-in-law Mrs, Chhaya B. Parekh. Hence the exemption u/s. 54F of the Act was denied to the assessee. The assessee submitted that he had fulfilled all the conditions for claiming exemption u/s 54F of the Act which was furnished before the AO as reproduced hereunder:- "Note about fulfillment of conditions u/s 54F: I, Mr. Dilip M. Parekh has satisfied the following conditions for being eligible u/s 54F. 1. The assessee must be an individual and I am an individual assessee. 2. The asset transferred in Shop NO. 06 and Garage NO. 06-A of Tirupati....
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....ociation of person does not qualify for exemption in individual hands of the assessee and Mrs. Chhaya B Parekh and also the new asset has been demolished and no construction has been done within 3 years and hence exemption claimed u/s 54F of the Act was denied by the AO , vide re-assessment orders dated 23.12.2010 passed by the AO u/s 143(3) r.w.s. 147 of the Act. 4. Aggrieved by the re-assessment orders dated 23.12.2010 passed by the AO u/s 143(3) r.w.s. 147 of the Act., the assessee preferred an appeal before the CIT(A) which was allowed by the CIT(A) in the first round of litigation vide orders dated 04-07-2011 by holding that the Tribunal, Mumbai has in assessee's own case in earlier years has held that the said property was held on co-ownership basis and not as an AOP and the AO has assessed rental income in the hands of the assessee , there is no reason to change the settled position. The capital gains are held to be chargeable to tax in the hands of the assessee by the AO and hence the assessee will be entitled for deduction u/s.54F of the Act on acquisition of new asset in the individual name of the assessee. The CIT(A) also noted that in the case of other co-owner Mrs. Ch....
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....rs. Grace Collis (supra) wherein their lordships were concerned with the expression "extinguishment" in the context of amalgamating company by the order of the Court. The Tribunal further after considering decision of Hon'ble Apex Court in the case of Vania Silk Mills Pvt. Ltd. (supra) as well as the later decision of Hon'ble Madras High Court in the case of Neelamalai Agro Industries Ltd. (supra) arrived at that "any extinguishment on account of act of the assessee would amount to transfer" and the only exception provided therein was the extinguishment on account of act of God such as destruction of the capital asset in a fire, complete loss in the case of sinking of a vessel of the assessee etc. The Tribunal observed that in the instant case, it was not in dispute that the demolition of the building took place at the behest of the assessee and it was not an act of God in which event, it had to be said that demolition of house would fall within the definition of "transfer". The Tribunal further observed that this aspect was not properly analysed by the Tribunal in the case of co-owner Mrs. Chhaya B. Parekh since the subsequent decision of Hon'ble Supreme Court in the case of M....
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....lic as agreement clearly states that consideration was paid for purchase of bungalow and further the same was demolished in December, 2008 i.e. only four months before the completion of three years from the date of purchase. It was contended that the finding of the Tribunal that if the demolition was voluntary it will amount to transfer is contrary to the law laid down by the Hon'ble Bombay High Court in the case of the co-owner Mrs. Chhaya B Parekh , wherein it has been held that demolition will not amount to transfer. It was further submitted that the decision of the Hon'ble Bombay High Court in the case of the co-owner Mrs. Chhaya B Parekh was not available at the time of hearing before the Tribunal and the decision of the Hon'ble Bombay High Court which is a jurisdictional High Court is binding on the taxauthorities and hence it may be held that demolition will not amount to transfer. Without prejudice, it was submitted that there is no requirement to reconstruct the bungalow within 3 years as (a) there is no transfer in the first place (b) the entire net consideration from the sale of original asset is less than the purchase cost of right in land and bungalow thereon and (c) e....
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....e Collis (supra) and accordingly the assessee is not entitled for deduction u/s. 54F of the Act. The decision in the case of co-owner Smt. Chhaya B. Parekh by the Hon'ble High Court has been done without consideration of the later decision of the Hon'ble Apex Court in the case of Grace Collis and others (supra) wherein the decision in the case of Vania Silk Mills Pvt. Ltd. (supra) has been overruled by the three member bench of Hon'ble Apex Court in Grace Collis(supra). Accordingly in the humble view of the CIT(A) the decision of-Hon'ble Bombay High Court in the case of co-owner Smt. Chhaya B. Parekh would not have binding precedence in deciding the case on hand. The CIT(A) held that since there was only 'symbolic purchase of property' and not 'real purchase of property', deduction u/s 54F of the Act shall not be allowable, the question of transfer on account of demolition would not arise and is academic especially in the year under consideration. Thus, provisions of section 54F(3) of the Act will be applicable only in the assessment year 2009-10 as the bungalow was demolished in December 2008.The CIT(A) partly allowed the appeal of the assessee as set out above vide orders....
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....nths after its acquisition by the assessee and said Mrs Chhaya B. Parekh who is sister-in-law of the assessee. 7. The ld. D.R. submitted that the destruction of asset was involuntary due to fire in the case of Vaniya Silk Mills Private Limited(supra) while in the case of the assessee it was a voluntary act of demolition of the bungalow. There was a transfer of asset hence it is an extinguishment of right of the assessee in the bungalow.The CIT(A) has given a finding that it was due to intervention of the assessee that the Juhu bungalow (new asset) was demolished prior to completion of three years from the date of acquisition which has violated provisions of Section 54F(3) of the Act. The ld. DR also tried to distinguish the case of the assessee with that of Mrs. Chhaya B Parekh which was adjudicated by Hon'ble Bombay High Court. 8. The ld. AR submitted in rejoinder that judgment of Hon'ble Bombay High Court in the case of Mrs. Chhaya B Parekh has not been followed by CIT(A) despite being brought to the notice of the CIT(A). The facts in the case of Mrs Chhaya B Parekh and of the assessee are identical and hence the judgment of Hon'ble Bombay High Court in the case of Mrs Chhaya B....
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....law, the Tribunal was correct in confirming the order of CIT(A) allowing the assessees claim of exemption u/s 54F of the Act even though the Juhu Bungalow which the Assessee had purchased as co-owner had been demolished much before completing 3 years of purchase and no new bungalow was constructed thereby violating the condition u/s 54F(3) of the Act that the new property should not be transferred within a period of three years and also ignoring that the facts in the Supreme Court case of Vania Silk Mills P. Ltd. v. CIT (1991) 191 ITR 647 (SC) were clearly distinguishable from the facts of this case? 2. The basic dispute between the parties is whether the respondentassessee is entitled to benefit of section 54E of the Income Tax Act, 1961 (the Act) when the asset is demolished within a period of three years from its purchase. 3. The revenue does not dispute the entitlement of\ the respondentassessee under section 54F of the Act on the purchase of the bungalow property. However, the grievance of the revenue is that as the respondent had demolished the bungalow within 3 years of its purchase, the same would amount to transfer and would be hit by section 54F(3) of the Act. Consequ....
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....years 8 months of its acquisition. The CIT(A) is bound to follow the decision of the Hon'ble Bombay High Court in the case of the assessee's sister-in-law Mrs Chhaya B Parekh as the facts are identical in the case of the assessee to that of the assessee's sister-in-law Mrs Chhaya B. Parekh case, whereby Hon'ble Bombay High Court has refused to admit the question of law referred by the Revenue and instead approved the orders of the Tribunal dismissing the Revenue appeal in the case of Mrs. Chhaya B Parekh. When the Mumbai-Tribunal set aside the issues to the file of the CIT(A) in assessee's own case in first round of litigation vide its orders dated 30-01-2013 in ITA No. 6596/Mum/2011 and CO no. 37/Mum/2012 , it did not had the benefit of judgment of Hon'ble Bombay High Court in the case of Mrs Chhaya B Parekh which judgment in ITA(L) No.1583 of 2012 was pronounced on 24-01-2013 , while hearing by the Mumbai-Tribunal in the afore-stated appeal and CO stood concluded on 11-01-2013 i.e. prior to the pronouncement of judgment of the Hon'ble Bombay High Court in the case of Mrs Chhaya B. Parekh(supra). The CIT(A) while rendering its order on 30-08- 2013 clearly had the benefit of afore-....
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....xist after the transfer by anyone of those modes. 8. 'Capital gains' is dealt with in Chapter IV of the Act in sections 45 to 55A. Section 45 of the Act refers to profits or gains arising from the transfer of a capital asset. The section which brings the capital gains to charge of tax is section 45. What is to be taxed is the profit or the gain arising from the 'transfer of a capital asset'. This also implies the continued availability of the asset even after the transfer. The extent of the gain is to be ascertained with reference to the cost of acquisition of the asset. The continued availability of the asset even after the transfer, though not stated in so many words, is clearly implicit in the definition of 'transfer', as also in the charging section. 9. When a thing is destroyed by fire or when a ship sinks into the sea, the capital asset is no longer available for being owned, used or enjoyed by anyone including the assessee. With the destruction of the asset, the rights of the assessee in that asset also would be destroyed. The destruction of such rights in an asset consequent upon the assets ceasing to exist is a situation which is not contemplated either in the definiti....
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....ther there is a transfer of the shares when the amalgamation of the Company whose shares are held by the assessee is ordered by the Court with another Company. The Court held that the rights of the assessee in the capital asset, viz., the shares in the amalgamating Company stood extinguished upon the amalgamation of the amalgamating Company with the amalgamated Company and that, "There was, therefore, a transfer of the shares in the amalgamating Company within the meaning of Section 2(47). It was, therefore, a transaction to which section 47(vii) applied and, consequently, the cost to the assessees of the acquisition of the shares of the amalgamated company had to be determined in accordance with the provisions of section 49(2), that is to say, the cost was deemed to be the cost of acquisition by the assessees on their shares in the amalgamating company." 13. On the amalgamation of one company with another, the assets and liabilities of the amalgamating company are taken over by the amalgamated company. Those assets and liabilities do not cease to exist when amalgamation takes place. They continue to exist. The ownership of those assets stand transferred to the amalgamated com....
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....sion in Vania Silk Mills (P.) Ltd.'s case [1991] 191 ITR 647 was to this extent orbiter dicta". It is only to the extent of that orbiter dicta, that the decision rendered in the case of Mrs. Grace Collis (supra) can be said to be at variance with the decision rendered in the case of Vania Silk Mills (P.) Ltd. (supra). In the case of Mrs. Grace Collis (supra), the Court considered the terms 'extinguishment of any rights therein' and the definition of 'transfer' in section 2(47) of the Act. The Court did not approve limiting the effect of the words 'extinguishment of any rights therein' in the definition of 'transfer' in section 2(47) of the Income-tax Act, to extinguishment on account of transfer. The Court held, "As we read it, therefore, the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer." 18. In the case of Mrs. Grace Collis (supra), the Court did not have occasion to go into the question as to whether the destruction of a capital asset which as a consequence brings about the extinguishment of the rights of the assessee-owner in such asset, would amount to transfer. The Court did not hold tha....