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TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 991
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....estion was not transferred in a period stipulated under the Income Tax Act? 2. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the order of the CIT(A) denying deduction of 26,74,283/- u/s 54B of the Act by holding that the land in question was non-agricultural land and exemption under the section was only available to agricultural land?" 3. We proceed to consider the first question as regards the deduction of Rs. 40,74,793/- under Section 54F of the Act. 4. The Assessing Officer, while disallowing the exemption claimed by the assessee under Section 54F of the Act, observed as under : "The reply furnished by the assessee has been considered. The same is not acceptable. As stated hereinabove that for claiming exemption u/s.54F, the assessee has to purchase within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer [or from the date of receipt of compensation in the case of compulsory acquisition], one residential house. In the case of the assessee, the transfer of the land took place on 03/07/2012 and ....
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....ion in the case of Sanjeevlal (supra) are entirely different from the facts involved in the appellant's case. In the case of Sanjeevlal, the assessee had entered into an agreement to sell the house on December 27, 2002. But the sale deed could not be executed by him because of the fact that the will, by virtue of which he had inherited the house, had been challenged in the Court by another person and only after the decision in that case, the assessee could execute the sale deed. During the pendency of proceedings relating to challenge of the will, the Court had restrained the assessee from the dealing with the house property. Meanwhile the assessee had purchased another house on 30.04.2003 whereas the sale deed of the original house could be executed only on September 24, 2004. Under such peculiar circumstances, the Hon'ble Supreme Court held as follows: "In view of the aforestated peculiar facts of the case and looking at the definition of the term 'transfer" as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in purs....
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....t was created by virtue of sale agreement which can be considered as transfer with the meaning of Section 2(47) of the IT Act, 1961. " 6. In further appeal by the assessee to the ITAT, the Tribunal held as under : "We have heard the rival contentions and perused the material on record. The assesse has claimed exemption u/s. 54 of the act of Rs. 40,74,793/-. The assessing officer has noticed that according to the provisions of section 54F of the act, the said exemption is available if the assessee has purchased within one year before the date of transfer or two years after the date of transfer or constructed within 3 years after the date of transfer (or from the date of receipt of compensation in the case of compulsory acquisition) one residential house. In the light to the above provision, the assessing officer has observed that the transfer of the land was taken placed on 03/07/2012, however, the assessee had purchased the residential house on 22/04/2010 beyond the stipulated conditions laid down in section 54F of the act. The asssessee claimed that he has executed an agreement to sell the agricultural land to Smt. Aneetben M.Patel on 13-08- 2010 and the conveyance dee....
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....n 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. 25. In view of the aforestated peculiar facts of the case and looking at the definition of the term 'transfer" as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. 26. The appeals are, therefore, allowed with no order as to costs. The impugned judgments are quashed and set aside and the Authorities are directed to re-assess the income of the appellants for the Assessment Year 2005-2006, after taking into account the fact that the appellants were entitled to the relief, subject to fulfillment of other conditions." It is crystal clear that the decision in the case of Sanjeevlal was delivered after taking into account the peculiar fac....
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.... of the Act. In such circumstances, the claim of the assessee for exemption under Section 54F of the Act at Rs. 40,74,793=00 came to be disallowed. I. SUBMISSIONS ON BEHALF OF THE ASSESSEE : 7. Mr.B.S.Soparkar, the learned counsel appearing for the assessee, vehemently submitted that the Tribunal committed a serious error in concurring with the findings recorded by the Assessing Officer as well as the CIT(A). According to Mr.Soparkar, the law on the subject is well-settled. He submitted that the decision of the Supreme Court, in the case of Sanjeev Lal v. Commissioner of Income-tax, Chandigarh, (2014)46 taxmann.com 300 (SC), clinches the issue. He vehemently submitted that the Revenue authorities committed a serious error in distinguishing the decision of the Supreme Court in the case of Sanjeev Lal (supra) on facts while completely ignoring the principle of law, or rather the statement of law, that the date of agreement to sell should be taken as the date of transfer of the original asset in terms of Section 2(47) of the Act, 1961. Mr.Soparkar brought to our notice the following events : Date Event 03.11.1989 The Appellant Assessee purchased the agricultural land....
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....n of law, which has been proposed, the same be answered in favour of the assessee. II. SUBMISSIONS ON BEHALF OF THE REVENUE : 10. Mr.Varun Patel, the learned standing counsel appearing for the Revenue, on the other hand, has vehemently opposed this Tax Appeal. According to Mr.Patel, none of the two questions formulated could be termed as the substantial questions of law. According to Mr.Patel, no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in taking the view that the assessee is not entitled to claim any exemption under Section 54F of the Act, 1961. Mr.Patel submitted that the reliance placed by the learned counsel appearing for the assessee on the decision of the Supreme Court in the case of Sanjeev Lal (supra) is completely misplaced. According to Mr.Patel, in the peculiar facts of the case, the Supreme Court, in the case of Sanjeev Lal (supra), thought fit to grant the benefit of exemption under Section 54F of the Act. Mr.Patel invited our attention to the decision of this Court in the case of Ushaben Jayantilal Sodhan v. Income Tax Officer, reported in (2018)407 ITR 276 (Guj), wherein a coordinate bench had the o....
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....(whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;" 12. Section 54F of the Act, 1961, reads as follows : "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], the capital gain arises from the transfer of any long-term capital asset not being a residential house (hereinafter 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....
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...., its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the cost of such new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date in which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under subsection (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with any scheme which the Central Government may, by not notification in the Official Gazette....
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....Rs. 10 lakh towards the earnest money was received by the appellant as part of the agreement. On 15th October 2011, the possession of the land was handed over by the appellant to the purchasers of the land. On 3rd July 2012, the sale-deed came to be executed by the appellant in favour of the purchaser of the land. If one considers the date on which it was decided to sell the land, i.e. 13th August 2010, as the date of transfer or sale, it cannot be disputed that the appellant would be entitled to the benefit under the provisions of Section 54 of the Act because long term capital gain earned by the appellant had been used for purchase of new asset on 22nd April 2010. 15. The question to be considered by this Court is, whether the agreement to sell which had been executed on 13th August 2010 can be considered as the date on which the property, i.e. the agricultural land, had been transferred. 16. In Sanjeev Lal (supra), the Supreme Court examined Section 54 of the Act in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December 2002 and had received Rs. 15 lakh by way of an earnest money and later received the balance sale conside....
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....been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word "transfer" is as under: '2(47) "transfer", in relation to a capital asset, includes,- (i) xxxx xxxx (ii) the extinguishment of any rights therein; or......' 21. Now in the light of definition of "transfer" as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforestated definition, let us look at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on 27th December, 2002 for transferring the residential house/original asset in que....
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....on transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income Tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 247 ITR 658/115 Taxman 69 this Court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing a....
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....#39; under Section 2(47)(ii), the agreement to sell would extinguish the rights in the property. The Supreme Court, in no uncertain terms, has observed that by virtue of the agreement to sell, some rights are given by the vendor to the vendee. Simultaneously, the Supreme Court also went into the facts of the cases and explained, why the appellant therein was not able to execute the sale-deed. We are not concerned with the facts of Sanjeev Lal (supra). We are only concerned with the principle of law as laid down in Sanjeev Lal (supra). 19. In our opinion, the Revenue authorities were not justified in distinguishing the case of Sanjeev Lal (supra) on facts. 20. Our attention was invited by the learned counsel appearing for the Revenue to the decision of this Court in the case of Ushaben Jayantilal Sodhan (supra). We take notice of the fact that the coordinate bench took the view that an agreement to sell is in the nature of a bilateral contract between the seller and the buyer. The bench took the view that an agreement to sell would not confer any right, title or interest in favour of the proposed purchaser and it would not extinguish the rights of the owner till a valid sale-d....
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....s part of the obligations, mainly, revolving around the payment of sale consideration on agreed terms. Such agreement to sale, however, has to culminate into a registered sale deed, so as to transfer the title of property in question from the seller to the buyer. There may be multiple reasons why such eventuality may never arise and these reasons could be entirely different from the seller refusing to perform his part of the obligations arising out of the contract or for some such reason, the transaction running into legal controversies. Some of the imaginable reasons could be the inability of the seller to clear the title of the property due to which the contract may be frustrated or rescinded with mutual consent or the refusal or inability of the purchaser to pay the sale consideration. 18. An agreement to sale immovable property does not cast obligations only on the seller. It is based on reciprocal promises to be performed by both sides. If the purchaser fails to discharge his obligations arising out of the contract, then the agreement may as well not culminate into a final sale deed. Depending on the terms of agreement, the seller may either forfeit the earnest money,....
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....er the date on which the transfer of residential house in respect of which the long term capital gain had arisen, has taken place. The Court, therefore, noted that looking to the relevant dates, if one considers the date on which the assessee had decided to sell the property as the date of transfer or sale, then the appellantassessee would be entitled to benefits under Section 54 of the Act. The Court, therefore, posed a question to itself whether the agreement to sale, which was executed on 27.12.2002, can be considered as a date on which the property, i.e. the residential house, had been transferred. The Court observed that in normal circumstances, by executing an agreement to sale of an immovable property, a right in personem is created in favour of the transferrer. In such situation, the vendee is restrained from selling the property to anyone else. However, the question still remains whether the entire property can be said to have been sold at the time when the agreement to sale was entered into. The Court was of the opinion that in normal circumstances, such question had to be answered in the negative. The Court, thereafter, referred to the provisions of Section 2(47....
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.... income tax. 22. The question is, whether the word "extinguishment" used in Section 2(47) of the Act would apply to such an agreement of sale ? In Black's Law Dictionary, 4th Edn., Page-696, the word "extinguishment" has been variously defined as meaning a complete wiping out, destruction, annihilation, termination, cancellation or extinction and it is ordinarily used in relation to right, title, interest, charge, debt, power, contract or estate (see Corpus Juris Secundum, volume 35, page 294). Also see CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 (Guj). The agreement to sell would also fall, according to Sanjeev Lal (supra), within the scope of the expression "extinguishment of rights" in a capital asset and would, thus, be a transfer of capital asset. 23. A Division Bench of the Allahabad High Court had the occasion to consider Sanjeev Lal (supra) in the case of Commissioner of Income-tax-II, Agra v. Shimbhu Mehra, reported in (2016)65 taxmann.com 142 (Allahabad). In the Tax Appeal before the Allahabad High Court, the question of law was as under : "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is legally justified in c....
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.... case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received Rs. 15 lacs by way of earnest money and subsequently received the balance sale consideration of Rs. 1.17 crores (total being Rs. 1.32 crores) when the sale deed was executed on 24th September, 2004. In the meanwhile, the assessee had purchased another house on 30th April, 2003. Benefit under Section 54 was denied by the High Court observing that the new house had been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient for the purpose of Section 2....
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....rior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient for the purpose of Section 2(47), which defines the term transfer in relation to a capital asset. In the light of the factual matrix, it was observed that the intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as ....
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....ment to sell had been effected by the appellants for transfer of property in question as the date of transfer of the house/original asset". 10. The benefit of Section 54 of the Act is to be given only when the assessee purchases a property one year prior to the sale of his property or two years after such sale. In the case before the Apex Court, even though the purchase of the property by the assessee was on 30.04.2003, which was not within one year prior to the execution of the sale deed dated 24.09.2004, yet the benefit was given by the Apex Court to the assessee on the ground that it was within two years of the agreement to sell executed on 27.12.2002. 11. The facts of the present case are similar, if not on a stronger footing than that in the case of Sanjeev Lal (supra). In the said case, while entering into an agreement to sell, an advance of only Rs. 15.00 lakhs, out of Rs. 1.32 crores, had been paid; whereas in the case at hand, an advance of Rs. 40.00 lakhs had been given at the time of agreement entered into on 1.4.1995 out of the total sale price of Rs. 41.00 lakhs, for which the sale deed was executed on 5.12.2002. 12. Providing for short term ....
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....otification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 : 1990 SCC (Tax) 422] and Mangalore Chemicals and Fertilisers Ltd. v. Dy. CCT [1992 Supp (1) SCC 21] to which reference has been made earlier.)" 22. In G.P. Ceramics (P.) Ltd. v. Dy. Commissioner, Trade Tax (2009) 2 SCC 90], this Court has held: (SCC pp. 101-02, para 29) "29. It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See CTT v. DSM Group of Industries [(2005)1 SCC 657] (SCC para 26); TISCO Ltd. v. State of Jharkhand [(2005)4 SCC 272] (SCC paras 42-45); State Level Committee v. Morgardshammar India Ltd. [(1996)1 SCC 108]; Novopan India Ltd. v. CCE & Customs [1994 Supp....
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....question was non agricultural land. In this case, it is fact that the land sold by the assessee is a non agricultural land as such exemption under section 54B of the Act is not allowable to the assessee. Exemption under section 54B of the Act is eligible only out of capital gain arising from the transfer of land, being used by an individual or his parents or Hindu Undivided Family for agricultural purpose for a period of 2 years, immediately preceding the date of transfer, if the assessee has purchased another land for agricultural purpose within a period of 2 years from the date of such transfer." 31. The aforesaid findings of the Assessing Officer came to be affirmed by the CIT(A) holding as under : "...on account of the fact that at the time of execution of the sale agreement, the land was agriculture in nature, no legal transfer of the same to the purchaser was possible. Hence, it is evident that no legal right, of the purchaser was created in land by such agreement as this agreement was invalid and hence, is required to be ignored. Consequently, there was no extinguishment of any of the appellant's rights in this land at the time of the execution of the agreement t....
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....hin a period of two years after the date of transfer or not. Applying the spirit of the circular of the Board, it could be said that the investment made prior to the date of transfer would also be eligible and should be considered as investment made out of sale proceeds into sale transaction of agricultural land only. As a matter of convenience and just to expedite the conversion process, buyer requested the assessee to get the land converted into non agricultural land. The buyer has also agreed to bear all the conversion expenses. Only upon request of the buyer and for the benefit of buyer, the assessee converted land from agriculture to non agriculture. The assessee recovered entire conversion expenses from the buyer. The agreement to sale was of agriculture land only and the intention of the assessee is quite clear to sale agricultural land only. But for the smooth processing of the sale transaction, the assessee required to convert the land into non agricultural land." 32. Thus, the CIT(A) took the view that the assessee is not entitled to claim exemption under Section 54B of the Act, as on the date of the transfer the land was non-agricultural. The aforesaid findings of the....
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.... can be said to be agricultural land, at least, prima facie, as agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stopgap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user or ordinary use or intention to use the land for agricultural purposes or land is meant to be used for agricultural purposes, it would be 'agricultural land'. Secondly, potential use of the land as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should be to consider the question from the point of view of presumption arising from entries ....
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....he date of the sale raises a prima facie presumption that it was agricultural land." At page 931, it was further observed : "It is true that permission to sell the land to Tarakkunj Cooperative Housing Society Ltd. was granted on condition that the land would be used for residential purposes and the application for permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was applied for on the footing that, after the sale, the land would be used for residential purposes. But that only goes to show that, after the date of the sale, this land was to cease to be agricultural land. The permission granted by the City Deputy Collector under section 63 of the Bombay Tenancy and Agricultural Lands Act clearly goes to show that in case the land did not cease to be agricultural land, the permission would be treated as cancelled and, therefore, the sale in favour of Tarakkunj Co-operative Housing Society Ltd. would be infructuous and the land would revert back to the assessee. In such an eventuality, the land would still continue to be agricultural land because the permission to sell to a non-agriculturist would be treated as cancelled. That eventuality has not....