TaxTMI 
TaxTMI 
2017 (3) TMI 329
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.... the property and showing capital gain in the individual case was a mistake. However, the assessee pointed out that the whole capital gain was exempt under section 54F because the same had been invested in capital gain account with State Bank of India as envisaged u/s. 54F(4) of the Act. As the entire capital gain was exempt, the HUF thought it fit not to file any return of income. 3. The Assessing Officer, however, issued a notice under section 148 of the I.T. Act, 1961 to the assessee on 29-2-2004, as according to him, the income of the HUF was included in the individual hand and the claim of deduction was not taken on the net consideration. In response to this notice, the assessee HUF filed return of income on 15-3-2004 declaring total income of Rs. 44,535/-, where the capital gain Income was offered at NIL. 4. During the course of assessment proceedings, the assessee submitted that the impugned land at Jalochi, Tal. Baramati, Dist. Pune belonged to the HUF and as per valuation report of architect M/s. Nitin Farsole & Associates Ltd. the value of the land in the year 1-4-1981 was shown at Rs. 100/- per sq.ft. It was pointed out that the land as on 1-4-1981 was agricultural lan....
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.....N. Arvinda Reddy reported in 120 ITR 46, where issue relating to interpretation of section 54 has been dealt with. In this decision, reference has also been made to the decision in the case of Bobshow Brothers Ltd. vs. Mayer (1956) 3 ALL ER 833. Thus, according to the assessee, in view of the Supreme Court decision in the case of T.N. Arvind Reddy (supra), release of rights of the members of the HUF in favour of the HUF amounted to utilization of the land in the construction of the residential house within the meaning of section 54 of the Act and, therefore, the resultant capital gain was exempt under the provisions of the law. The working of capital gains and investment of the consideration was furnished as under:- i. Sale proceeds Rs.23,00,000/- ii. Less : Indexed cost of acquisition (3,24,000 x 406/100) Rs.13,15,440 Development expenses Rs. 56,730 Rs.13,72,170/- Long Term Capital Gains Rs.9,27,830/- Investment of Net Consideration Rs.23,00,000/- 1) Cost of construction Rs.10,19,490 2) Further investment Rs. 3,00,000 3) Cost of land on which Construction has been put up Rs.9,30,00....
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....s case there was no total partition, nor did there any question of release of rights of other members in the land to the HUF arise. Therefore, the decisions relied on by the assessee are distinguishable. According to the Assessing Officer, as per section 54F, the net consideration was to be invested in the new asset and as such the land already in possession of the HUF could not be said to be a new asset. The Assessing Officer thus came to the conclusion that the assessee had not complied with the provisions of section 54F( 4) of the Act for availing the benefit. According to the Assessing Officer, the assessee was changing its stand according to the queries raised from time to time with an intention to avoid payment of taxes on capital gain arising on transfer of land. The Assessing Officer observed that as per the provisions of sec.54F(4), the net considerations, if not appropriated towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized, should be deposited in the specified savings account before due date of filing of the return and proof thereof ought to be attached with the return o....
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....eds of the land of Rs. 23,00,000/-. It was accordingly argued that the whole proceeds of the land were utilized for deposit in capital gains account scheme and in the construction of the new house property and therefore, the Assessing Officer was not legally justified in taxing long term capital gain of Rs. 12,23,780/-, since the assessee had fulfilled the conditions of both the sections 54F(2) and 54F(4) of the Act. 8. However, the CIT(A) was also not satisfied with the arguments advanced by the assessee. He observed that the assessee during the year has received an amount of Rs. 23 lakhs on account of sale of land admeasuring 1580 sq.mtrs out of which the assessee has deposited an amount of Rs. 10,19,940/- in the capital gain account scheme of the State Bank of India, Baramati Branch and there is no dispute to the above. The assessee claimed to have invested an amount of Rs. 3 lakhs for construction of residential house. The assessee also claimed that the residential house was constructed on the land remained with the HUF admeasuring 614 sq.mtrs. for which the assessee had adopted the valuation at Rs. 8,93,797/- on the basis of the sale of other part of the land admeasuring 1580....
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....ital gain is concerned he directed the Assessing Officer to adopt the cost of acquisition as on 01-04- 1981 at Rs. 100/- per sq.mtrs for indexation purpose as against Rs. 200/- per sq.mtrs claimed by the assessee. 12. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "1. On the facts and circumstances of the case and in law the Ld. C.I.T. (A) was not justified in rejecting the claim of the appellant that the release of land by the members of the HUF in favour of HUF for utilization in construction of residential property and therefore was required to be included in the exemption claimed u/s. 54-F of the Act. The decision of the Ld. CIT (A) was contrary to the provisions of law and without jurisdiction. The claim of the appellant be accepted. 2. On the facts and circumstances of the case and in law the Ld. C.I.T. (A) also erred in not accepting the claim of the appellant that an amount of Rs. 3,00,000/- was utilized towards construction of residential property and therefore, was required to be included in claim of exemption u/s. 54-F of the Act. The order of the Ld. C.LT. (A) is without jurisdiction being contrary to the prov....
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....ven at Para 5 of the order. We find the Assessing Officer in the assessment order allowed only the investment in capital gain account scheme amounting to Rs. 10,99,490/- as deduction u/s.54F. After allowing the development expenses of Rs. 33,730/- and commission of Rs. 23,000/- being expenditure incurred for the transfer of the land, the Assessing Officer determined the long term capital gains at Rs. 12,23,780/-. 16. We find in appeal the Ld.CIT(A) upheld the action of the Assessing Officer in disallowing the investment of Rs. 3 lakhs towards construction of the house. He also rejected the claim of the assessee that the release of land by the members of the HUF in favour of the HUF be considered as utilization in construction of residential property and thereby eligible for deduction u/s.54F of the Act. He however directed the Assessing Officer to adopt the cost of acquisition of the land as on 01-04-1981 for the purpose of indexation @ Rs. 100/- per sq.mtr as against Rs. 200/- per sq.mtr claimed by the assessee. 17. We do not find any infirmity in the above observation of the Ld.CIT(A. So far as the issue relating the admissibility of deduction u/s.54F of the land received by wa....
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....des as under: "54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.-(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 one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportio....
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....n of Special Bench of ITAT, Delhi in the case of Twenty First Century steels Ltd. (94 ITD 258), the decision of Supreme Court in the case of Gwalior Rayon Silk Mfg. Co. Ltd. (196 ITR 149). The relevance and applicability of these authorities to the facts of the present case are now examined. 5.4.3 In the case of T.N. Aravinda Reddy, four brothers, members of Hindu coparcenary, partitioned their family properties, leaving a common house in the occupation of their mother. The assessee (the eldest brother) sold his own house attracting charge to capital gains tax. He, however, acquired the' common house from his three brothers who executed three separate release deeds for a consideration of Rs. 30,000 each, adjusted towards the extra share agreed to be given. The question raised by Revenue was whether said release deeds in favour of assessee would constitute "purchase" of a house property by him making him eligible for relief within the ambit of section 54(1). In that background, the Apex Court held that there is no reason to divorce the ordinary meaning of the word "purchase" as buying for a price or equivalent of price by payment In kind or adjustment towards an old debt or for....
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.... for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the As per the above Board circular, if the amount of capital gain for the purposes of section 54, and the net consideration for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections. In the present case, there is no such appropriation towards cost of the plot as no consideration was paid for alleged release of land and the appellant has taken only estimated cost based on the consideration received from sale of other part of the land. In such circumstances, it is not known as to how the board circular is applicable to the facts of the case. 5.4.5 In the case of Twenty First Century ste....
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....ould be construed reasonably and in favor of the assessee. When the admissibility of deduction under sec 54F is subject to certain conditions including utilization of sale proceeds towards purchase or construction of a new house, it cannot be said that the deduction should be allowed by liberal construction or interpretation of such provisions even when basic conditions for deduction are not fulfilled. In this connection, reference can be made to the decision of the Apex Court in the case of Petron Engineering Construction (P) Ltd. Vs. CSDT reported in 175 ITR 523 wherein it is observed as under:- " .... It is true that an exemption provision should be liberally construed but this does not mean that such liberal construction should be made doing violence to the plain meaning of such exemption provision. Liberal construction will be made whenever it is possible to be made without impairing the legislative requirement and the spirit of the provision. ... " Thus, none of the decisions and the Board circular relied upon by the appellant are applicable to the facts of the present case 5.4.7 For the foregoing reasons, the claim of the appellant that there was transfer of land by rele....
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....irmity in the order of the CIT(A) rejecting the claim of the assessee that an amount of Rs. 3 lakhs was utilized towards construction of the house property. The request of the Ld. Counsel for the assessee to set aside the issue to the file of the Assessing Officer also does not have any merit in absence of any material before us. Ground of appeal No.2 by the assessee is accordingly dismissed. 20. So far as the third ground is concerned, i.e. estimating the cost of acquisition @ Rs. 100/- per sq.mtr as on 01-04-1981 for the purpose of indexation as against Rs. 200/- per sq.mtr claimed by the assessee we find the Ld.CIT(A) while deciding the issue has dwelt upon the issue at para 6 of the order which reads as under: "6. The next ground of the appeal relates to not allowing the claim of indexed cost of acquisition while computing the long term capital gains in the assessment order. As per the details placed on record, the cost of the land as on 01/04/1981 was taken on estimate basis @ 150 per sq. mtr., in the individual return filed whereas in the HUF return the same was taken at Rs. 200/- per sq. mtr. on the ground that the cost of the land had doubled due to conversion of part of ....
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....t be accepted as what is relevant to be considered is the FMV of the property as on 01/04/1981 and not in the year 1998 when the conversion was granted by the Town Planning Commission. The conversion in the subsequent year i.e. in the. year 1998 does not enhance the fair market value in the year 1981 and what is to be reckoned is the FMV of the land as on 01/04/1981 which the valuer has estimated @ Rs. 100/- per sq. mtr. Therefore, the new claim of the, assessee that the cost of acquisition is Rs. 200/- per sq. mt. as on 01/04/1981 is only an afterthought after the issue of notice u/s.148 to the assessee. The cost of acquisition as on 01.04.1981 as estimated at Rs. 100/- in the valuer's report also appears to be reasonable given the fact that the land sold in April 2000 fetched Rs. 1455/- per sq. mtr. Accordingly, the FMV of the property as on 01/04/1981 is taken at Rs. 100/- per sq. mtr. and the capital gains on transfer of the property is worked out as under:- Net sale consideration as per asst. order Rs.22,43,270 Less : cost of acquisition as on 01-04-1981 is Rs.1,58,000/- @ Rs. 100 per sq.mt Indexed cost of acquisition = Rs.1,58,000 x 406/100 ....