TaxTMI 
TaxTMI 
2025 (8) TMI 275
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.... 2 On the facts and in the circumstances of the case and in law the Ld. CIT(A) has grossly erred in upholding the decision of the Ld.AO of disallowing the commission expenses and cost of improvement cumulatively amounting to Rs. 19,70,132/- from the long-term capital gain earned by the assessee during the year and whereas such expenses being directly related thereto .. 2. The brief facts of the case are that The assessee has filed return of income for the relevant AY on 03.11.2015 declaring total income at Rs. 9,53,760/- after claiming deduction under Chapter VI-A. Subsequently, the return was processed u/s. 143(1) of the income tax act (the Act) determining total income at Rs. 9,53,760/-. Subsequently the case was selected for scrutiny and assessment was completed and order was passed u/s. 143(3) of the Act vide order dated 08.12.2015 assessing the total income at Rs. 3,55,68,840/-. Thereby denying the claim of the assessee u/s 54 of the Act. 3. Aggrieved by the order of the assessment the assessee filed appeal but the same was also dismissed by the CIT(A). Against this order, the assessee has now preferred present appeal before us and the grounds mentioned hereinabove. ....
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....perty Act, 1882. The Ld.AO was of the opinion that since the appellant had not acquired the lawful ownership of any asset hence the deduction u/s 54 of the Act could not be availed by the appellant. Further on enquiry u/s 133(6) of the Act, from the vendor of the said premises they have stated by that they have not offered the same amount as capital gain as the transfer was not complete for want of transfer permission from Aamby Valley. To furtherance the claim of disallowance of deduction u/s 54 of the Act, the Ld. AO relied upon the decision of the Hon'ble Supreme court in the case of Suraj Lamp and Industries Private Limited vs State of Haryana wherein the Hon'ble Supreme Court held that as per section 54 of the Transfer Of Property Act 1882 it is clear that a contract of sale i.e an agreement of sale does not itself create in a charge of such property, it is thus clear that a transfer of immovable property by way of sale can only be by deed of conveyance. The Ld.AO thus while finalizing the assessment disallowed the appellant's claim of deduction u/s 54 of the Act of Rs. 3,26, 44,944/-. 4. Being aggrieved by the order of the Ld.AO the appellant filed an app....
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....or the purpose of section 54 of the Act what has to be seen is whether the appellant has invested the capital gains toward the purchase of property which in case of the appellant has been fulfilled. The appellant submits that section 54 of the Act is a beneficial provision and substantial compliances have been made by the appellant. The AO and CIT (A) were not justified in disallowing the appellant's claim u/s 54 of the Act. 10. The appellant relies on the decision of Hon'ble Bombay High Court at Goa, Tax Appeal no 66 of 2015 in case of CIT v/s Shri Girish L. Raga (Copy of which was submitted during the course of hearing). The facts in the present case are similar to those in the case referred above. The possession was not delivered by the developer nor was the deed of conveyance executed due to litigation. However, the Hon'ble High Court came to the conclusion that "the purchase would be completed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of litigation." The Hon'ble High Court dismissed the appeal of the r....
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....m 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. Commissioner of Income Tax [(2001) 3 SCC 359] 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 any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax, Considering the aforestated observations and the principles with regard to the interpretation of Statute pe....
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....t is not correct when it states :- "31. The word 'purchase' is not defined under the Act and therefore, has to be construed in the commercial sense. In many dictionaries, the word 'purchase' means the acquisition of property by party's own act as distinguished from acquisition by act of law. In the context in which the expression issued by the Legislature requires first to be understood and interpretation that suits the context requires to be adopted. Exemption of capital gains under Section 54G of the Act can be claimed on transfer of assets in cases of shifting of industrial undertaking from urban area to any other non-urban area. This exemption may be claimed if the capital gains arising on transfer of any of assets of existing industrial unit is utilized within one year or three years after the date on which the transfer took place for purchase of new machinery or plant for the purposes of the business of the industrial undertaking in the area to which the said undertaking is shifted. The Legislature consciously has not used the expression 'towards the purchase of plant and machinery as in Section 54(4) of the Act in contrast to Section 54(2) of....
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....ground also, the assessee is liable to succeed. The appeals are, accordingly, allowed and the judgment of the High Court is set aside.. " 15. Without prejudice to the above, the appellant submits that as per section 54 (2) exemption to the extent to the amount utilized for construction or purchase is to be granted in the year of transfer of assets & the consideration of completion of construction is to be looked into only after the window period provided by the Act of 2/3 years expires. The appellant submits that the Ld.AO was not justified in disallowing the claim u/s 54 of the Act in the current Assessment Year. 16. The appellant relies upon the decision of the Hon'ble ITAT Mumbai in the case of Shri Hasmukh N. Gala v/s ITO (ITA No 7512/Mum/2013) AY 2010-11. Copy enclosed. Wherein, the Hon'ble ITAT has observed in para 7.3 as under: "7.3 The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid d....
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....se has to be interpreted in a wider sense. 19. In view of the above submission the appellant submits that since it has invested the entire capital gains towards the purchase of a constructed timber chalet at Aamby Valley. However, due to circumstances beyond the control of the appellant the registration for the purchase nor the possession of the property could not be taken. The Ld.AO &Ld. CIT(A) were not justified in disallowing the claim of the appellant u/s 54 of the Act. 6. On the contrary, the Ld. DR relied upon the orders passed by the revenue authorities. 7. We have heard the counsels of both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records, we noticed that during the year under consideration the assessee had sold his flat at Mumbai and earned a Long- Term Capital Gain of Rs. 3,26,44,994/- which was claimed as exempt u/s 54 of the act on account of investment into a new residential unit by way of purchase of a residential house property located at Amby Valley City, Taluka Mulshi, District- Pune, Maharashtra and admittedly submitted the following corroborative ev....
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....on the decision of Honorable Supreme Court in the case of Suraj Lamp and Industries Pvt Ltd vs. State of Haryana under civil jurisdiction dealing with the provisions of "Transfer of Property Act". However, such decision is not relevant in the present case as the same as not been dealt with the exemption provisions u/s. 54 and 54F of "the act". Further, the Ld AO has also disallowed the expenditure amounting to Rs 19,70,132/- on account of expenses in relation to earning of long-term capital gains for want of nature of expenses. 8. After having gone through the facts of the case, we noticed that the claim of the assessee u/s 54 of the Act was disallowed on account of the fact that the assessee had not taken possession of the said property neither the said property was registered with the registration authority as per the Transfer of Property Act, 1882 and according to the revenue, since the assessee had not acquired the lawful ownership of any asset, hence deduction u/s 54 of the Act was not found to be available to the assessee and in this regard AO relied upon the decision of Hon'ble Supreme Court in the case of Suraj Lamp and Industries Pvt Ltd Vs. State of Haryan....
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....512/ Mum/2013) 6. Bhavan Cuccria Vs. ITO (ITO No. 341/Chd/2017) 12. We have gone through the decision of Hon'ble Bombay High Court at Goa in Tax Appeal No. 66 of 2015 in the case of CIT Vs. Shri Girish L. Raga, wherein it was held as under: Tax Appeal no 66 of 2015 in case of CIT v/s Shri Girish L. Raga (Copy of which was submitted during the course of hearing). The facts in the present case are similar to those in the case referred above. The possession was not delivered by the developer nor was the deed of conveyance executed due to litigation. However, the Hon'ble High Court came to the conclusion that "the purchase would be completed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of litigation." The Hon'ble High Court dismissed the appeal of the revenue and allowed the deduction u/s 54 of the Act on such facts of the cases. 13. We have gone through the decision of the Hon'ble Karnataka High Court in the case of CIT v/s Mrs. Shakuntala Devi and others (2016, 389 ITR, 366 KAR). Wherein it was he....
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....e 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. Commissioner of Income Tax [(2001) 3 SCC 359] 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 any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax, Considering the aforestated observations and the principles with regard to the interpretation of Statute pertaining to the tax laws, one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of "transfer", which would enable the appellants to get the benefit under Section 54 of the Act. Consequences of execution of the agreement to sell are also very clear and they are to the effect that the app....
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....ains under Section 54G of the Act can be claimed on transfer of assets in cases of shifting of industrial undertaking from urban area to any other non-urban area. This exemption may be claimed if the capital gains arising on transfer of any of assets of existing industrial unit is utilized within one year or three years after the date on which the transfer took place for purchase of new machinery or plant for the purposes of the business of the industrial undertaking in the area to which the said undertaking is shifted. The Legislature consciously has not used the expression 'towards the purchase of plant and machinery as in Section 54(4) of the Act in contrast to Section 54(2) of the Act wherein the words 'towards is used before the word 'purchase'. The expression 'purchased' used in sub-clause (a) of section 54G of the Act requires to be understood as the domain and control given to the assessee. In the present case, it is not in dispute that the assessee has paid advance amount for acquisition of land, plant, building and machinery, etc., within the time stipulated in the Section, but it is not the case of the assessee that after such payment of advance a....
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.... for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee's claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provisions also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year." We have also gone through the decision of Hon'ble ITAT Chandigarh in the case Bhavana Cuccria Vs. ITO, in ITA No. 341/Chd/2017, wherein it was held as under: "11.5 Even otherwise we find that section 54 gives a window period of three years, from the date of transfer of original asset, for the construction of a new house and two years for purchasing a new house. Further as per the section the amount utilized for the said purpose alongwith the amount deposited in a specif....