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TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 749
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....o the assessee. The reason for selection in scrutiny in this case was large deduction claimed u/s 54F of the Act. The assessee during the year had sold 36,00,000 shares of Emami Ltd. on 13.07.2020at total sale consideration of Rs. 33,77,64,511/- resulting in long term capital gain of Rs. 26,77,72,881/-. The assessee claimed that, she had spent Rs. 53,86,80,198/- upto 31.03.2021 towards construction of her new residential property at 1 Queens Park, whose completion certificate was received on 09.06.2022 i.e. within three years from the date of long-term capital gain and therefore the entire capital gain earned from sale of shares was exempt u/s 54F of the Act. The AO during the course of assessment observed that, the assessee owned two immovable properties at 110, Southern Avenue and No.13, BT Road, both of which the assessee had claimed to have let out. The AO was of the view that, since the assessee already owned two residential properties, she was in violation of sub-clause (i) of the proviso to Section 54F of the Act, and therefore she was not entitled to claim exemption u/s 54F of the Act. The AO further observed that, the assessee had commenced the construction of the resident....
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....house must be completed within three years from the date of sale of long-term capital asset, which has been met in the present case. The Ld. AR placed reliance on the following decisions wherein it was held that, even if the construction began much prior to the sale of capital asset, but where the construction of residential property has been completed within three years from the date of sale of capital asset, the assessee is eligible for deduction u/s 54F of the Act: - CIT v. Smt. Beena K. Jain (75 taxmann.com 145) [Bom HC] - CIT v. Bharti Mishra (41 taxmann.com 50) [Del HC] - CIT v. J. R. Subramanya Bhat (28 taxmann.com 578) [Kar HC] - Bindu Premanandh v. CIT (144 taxmann.com 194) [Kerala HC] - C. Aryama Sundaram v. CIT (97 taxmann.com 74) [Mad HC] - ACIT v. Subhash Sevaram Bhavnani (23 taxmann.com 94) [ITAT Ahm] - ITO v. Narasimha Reddy Duthala (174 taxmann.com 1073) [ITAT Hyd] 8. The Ld. AR also relied on the following judicial precedents wherein it has been held that, there is no such condition laid down in Section 54/54F that the sale proceeds from sale of capital asset should be directly utilized in purchase/c....
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....DR appearing for the Revenue vehemently supported and reiterated the findings made in the orders of the lower authorities. The ld. DR added that, the fact that the AO of another member of the assessee's family had allowed exemption u/s 54F of the Act cannot be said to have any persuasive value in the present case. 11. After hearing the rival contentions and perusing the material on record, the undisputed facts as culled out form the records as placed before us are that, the assessee sold 36,00,000 shares of Emami Ltd on 13.07.2020 which yielded long term capital gain of Rs. 26,77,72,881/-, which was claimed as exempt u/s 54F of the Act. We note that the assessee have jointly constructed a new residential property at 1 Queens Park along with other family members which spanned over the year 2015 to 2022 and was completed on 09.06.2022. It is observed that, the cost of construction incurred upto 31.03.2021 was Rs. 53,86,79,823/- and therefore the entire capital gain derived from sale of shares was claimed exempt u/s 54F of the Act. The AO however denied the exemption on three grounds. The first and foremost reason given by the AO is applicability of proviso to Section 54F(1) of the....
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....enewal agreement dated 01.04.2018, whose relevant extracts are as follows:- Original Agreement dated 31.03.1997 "The Lessor has agreed to grant lease of the said plot to the Lessee and lessee has agreed to take on lease the same on the terms and conditions hereunder contained. ...... The Lessee shall bear and pay all existing and future municipal rates and taxes, outgoings and impositions of whatsoever nature on compensation thereof owner's and the occupier's share on or in respect of the demised premises and all further and /or other constructions that may be made in future thereon during the period of the lease. ...... The Lessee shall at its own costs have the right to demolish existing structures constructed by the Lessor and construct build re-build and re-construct and/or make additions and/or alterations to any existing or new building or buildings, constructions structures and/or erections of the demised premises or any part thereof and to do all acts deeds and things as be required thereof and/or in connection therewith. Provided however that, once the lessee demolishes any existing or future constructions, structures o....
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....the said land. AND WHEREAS the Lease Deeds executed between the First Party as Lessee and the owners of the said land as the Lessors empowered the First Party to construct, build, reconstruct and rebuild new building over and upon such leased land upon demolition of structures existing on the aforesaid land during the relevant time, and accordingly, new building was constructed over and upon the said land area. ...... That the Landlord and the Tenant hereby agree that the instant Tenancy in respect of ALL THAT the piece and parcel of land measuring 5 Cottahs 4 Chittacks 29 Square Feet TOGETHER WITH structures / buildings standing thereupon being part of the premises no. 13, BT Road, Kolkata 7000106." 12. We further observe that the AO was also unable to disprove the confirmation issued by the tenant that it was the owner of the super-structure / factory constructed over the said land. Therefore, the AO had proceeded on mistaken fact that, the assessee had constructed and was the owner of the super structure on the said vacant land. In our considered view, the property at 13 BT Road comprised of vacant land owned by the assessee and therefore did not qu....
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....ssessee, he received 25% of the shares in the above property which happened in the month of March 2017 on mutation of the property. Therefore, on the date of transfer or original assets in August 2016, the assessee held only one property at Flat No.1002, F Building, Lankad Skylounge, D-Wing, Pune, therefore, assessee is allowed to claim benefit u/s 54F of the Act. After considering the same, the assessee should be owner of a residential property and as per provisions not more than one house property. In the given case, the assessee was the owner of one house at the time of transfer and he became owner of the property at New Friends Colony after mutation in the month of March 2017. Therefore, at the end of FY 2016-17 (AY 2017-18), the assessee was the owner of only one house property. Merely because the assessee had right to receive the rent w.e.f. 11.07.2015, the position does not change. The absolute ownership acquired by the assessee only after mutation. The relevant rent may or may not be receivable. Mere rights will not get the absolute ownership. Therefore, on the date of transfer, the assessee was the owner of only one property, hence eligible to claim the benefit u/....
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.... (supra). 19. We also note that on the identical facts, the Coordinate Bench of ITAT Mumbai, in the case of Ashok G. Chauhan, [2019] 105 taxmann.com 204 (Mumbai - Trib.) held that where Assessing Officer rejected assessee's claim for deduction under section 54F of the Act, on ground that at time of sale of capital asset, assessee was owner of more than one residential house properties, in view of fact that one residential property was co-jointly owned in name of assessee and his wife and he could not be treated as 'absolute owner' of said property, deduction under section 54F could not be denied to him. We note that Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd, 88 ITR 192(SC) held that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. Therefore, respectfully following the judgment of the Hon'ble Madras High Court in case of Dr. (Smt.) P. K. Vasanthi Rangarajan (supra), we allow ground No.2 raised by the assessee." 24. Respectfully following the aforesaid decision, we are inclined to allow the ground raised by the assessee." 16. For the above ....
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....within three years, which in our view is the date of completion of the constructed residential house habitable for the purpose of residence. According to us therefore, the fact that the assessee begun construction of the property much prior to the date of sale of capital asset will not disentitle her from claiming exemption u/s 54F of the Act, given the fact that the construction was completed within three years from the date of sale of capital asset. The case of the assessee finds support from the following decisions. In the case of CIT Vs. Bharti Mishra (supra) it was held as under: "5. Thus, the only issue, which is raised and has to be examined, is whether the respondent-assessee can be denied benefit of Section 54F because construction of the house had commenced before the sale of the shares i.e., on 17th September, 2008. 6. Commissioner (Appeals) and the tribunal have relied upon decisions of Allahabad High Court and Karnataka High Court in CIT v. H.K. Kapoor [1998] 234 ITR 753 (All.) and CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571/[1986] 28 Taxman 578 (Kar). These two cases deal with interpretation of Section 54 of the Act. The said Section is pari mater....
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....material that the construction of the new building was started before the sale of the old building. We fully agree with the view taken by the Karnataka High Court. The Appellate Tribunal was right in holding that capital gains arising from the sale of the Golf Link house to the extent it got invested in the construction of the Surya Nagar house, will be exempted under section 54 of the Act." 8. Commissioner (Appeals) in his order while accepting the plea of the assessee has referred to several judgments of the Tribunal thereafter in which the aforesaid reasoning and interpretation of Section 54/54F has been followed. Reference has been made to the judgment of Madras High Court in CIT v. Sardarmal Kothari, [2008] 302 ITR 286 in which it has been held as under:- "3. There is no dispute about the fact that the assessee's have invested the entire net consideration of sale of capital asset in the land itself and subsequently the assessee's have invested large sums of money in the construction of the house. The cost of investment in land and the cost of expenditure towards the construction of the houses is not in dispute. The one and only ground on which the Assessing O....
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....the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is ill-founded and misconceived. The requirement of sub-section (4) is that if consideration was not appropriated towards the purchase of the new asset one year before date of transfer of the original asset or it was not utilised for purchase or construction of the new asset before the date of filing of return under Section 139 of the Act, the balance amount shall be deposited in an authorized bank account under a scheme notified by the Central Government. Further, only the amount which was utilised in construction or purchase of the new asset within the specified time frame stand exempt and not the entire consideration received. 14. Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Supreme Court in CCE v. Favourite Industries, [2012] 7 SCC 153 has succinctly obse....
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.... 15. In view of the aforesaid position, we do not find any merit in the present appeal and the same is dismissed." (ii) In the case of C. Aryama Sundaram v. CIT (supra) the operative part is as under: "20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable to the acquisition and/or construction of the residential house. 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new residential house should have been purchased within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has bee....
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.... the negative. No costs." (iii) Similarly in the case of Bindu Premanandh v. CIT (supra), it was held as under: "6. We have taken note of the rival contentions and examined the ratio laid down in the cases relied on by Mr A. Kumar. To appreciate the argument made in law, first, we would prefer to excerpt the consideration of the issue by the CIT (Appeals) which reads as follows: "In the instant case, there is no doubt about the fact, that the appellant started construction of a residential house, albeit prior to receipt of sale consideration from sale of land and the construction continued. The appellant deposited part of sale consideration in capital gains Accounts. Section 54 stipulates that a new residential house can be purchased either one year before the sale of asset or 2 years after the sale of asset. In case of construction, the construction should be completed within 3 years of sale of asset. From the plain reading of this provision, it is clear that it is not necessary to invest from the sale consideration as a new house can be purchased one year before the sale. In my opinion, on the basis of the facts on record, the appellant has fulfilled the cond....
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....f construction of a residential house three years from the sale of the original asset..." 19. The lower authorities are found to have placed reliance on the decision of the coordinate bench, Bangalore in the case of Parswanath Padmarajah Jain vs. ACIT (102 taxmann.com 92). We however find that the said decision is per incuria in light of the above judgments of the Hon'ble High Court(s). The Ld. AR has also placed before us a copy of the decision subsequently rendered by coordinate bench, Bangalore in the case of Shree Ramakrishna Nishtala vs. DCIT (ITA No. 164/Bang/2020) dated 30.09.2021 wherein the aforesaid decision of Parswanath Padmarajah Jain (supra) has been distinguished and it has been held that, even if the construction of the new residential property began much prior to the date of sale but where the construction is completed within three years from the date of sale, it would amount to substantive compliance of the condition laid down in Section 54F(1) of the Act. 20. We find that the above reasoning given by the lower authorities was influenced by the fact that the proceeds received upon sale of capital assets was not directly utilized from the construction of prop....
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....ould utilise the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset. 6. A reading of sections 53 and 54 of the Act would make it clear that a special provision is made in respect of capital gains arising out of transfer of particular type of capital asset, namely, house property which was being used by the assessee or a parent of his for the purpose of their residence. Entitlement of the exemption under section 54 relates to the cost of the acquisition of a new asset in the nature of a house property for the purpose of his own residence within the specified period." 17. Further, following the judgment of the Kerala High Court in K.C.Gopalan's case (supra), the Gauhati High Court in Rajesh Kumar Jalan's case (supra) [2006] held as under:- "11 .... We are of the view that the assessee had already appropriated the entire capital gain for purchase of the new asset within the stipulated time. In this regard, we find support from the decision of the Kerala High Court in the case of K.C. Gopalan wherein it was held that the assessee is entitled to exemption under Section 54 even though for the const....
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..../s 54F in his return of income and therefore it was also not a case that the shares were gifted to the assessee as because the assessee's husband's brother was not eligible to claim exemption u/s 54F of the Act. It is seen from the material placed before us that, the newly constructed property was acquired by the family of the assessee wherein the lead members were the females of the family and that, the act of acquiring and constructing a property in the name of the female members was influenced by their Hindu culture and traditions, where holding residential property in the name of the females of the house is considered to be auspicious. We also find that on similar facts, another female member, Smt. Rashmi Goenka had also claimed exemption u/s 54F in respect of the cost of construction incurred towards the property at 1 Queens Park against the long term capital gains derived on sale of shares of Emami Limited in AY 2020-21, and the NFAC after considering the same factual matrix, had accepted and allowed the exemption so claimed by the said assessee. 23. Considering the facts and circumstances of the assessee in the light of the above discussions, we hold that the assessee is ....