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Rajiv Madhok, New Delhi v. ACIT, New Delhi
Judicial Summary — ITAT Delhi (29 May 2020)
Factual and Procedural Background
The assessee filed a return for assessment year 2012-13 declaring total income of Rs.1,70,06,340/-. The return was selected for scrutiny. The assessee had shown long-term capital gain (LTCG) of Rs.2,18,91,720/- arising on sale of shares. The assessee claimed exemption under section 54F of the Income Tax Act, 1961, to the extent of investment in a residential property (flat T-204/08-03 in Commonwealth Games Village, Delhi), asserting that purchase/construction occurred within the statutory time periods specified in section 54F.
The Assessing Officer treated the residential property as purchased on 29/09/2009 based on the buyer agreement and substantial payments made on that date, and therefore held that the purchase fell outside the time window prescribed by section 54F relative to the date of transfer of shares (accepted as 17/08/2011). The AO added the full LTCG in assessment completed on 27/03/2015. The Commissioner of Income Tax (Appeals) upheld the addition but reduced it, allowing exemption in part and disallowing Rs.2,07,62,580/- claimed under section 54F. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which heard the matter and pronounced the order on 29/05/2020.
Legal Issues Presented
- Whether the assessee was correctly denied exemption under section 54F for Rs.2,07,62,580/- on the ground that the residential property was "purchased" prior to the allowable period (AO/CIT(A) treating the buyer agreement date of 29/09/2009 as the date of purchase)?
- Whether, for the purpose of section 54F, the relevant date of purchase of a builder/ developer-constructed flat is the date of agreement/allotment or the date of obtaining title/possession/full payment within the statutory period (one year before or two years after the transfer; or construction within three years)?
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The assessee relied on the buyers agreement and subsequent events (final payment and possession/offer of possession) to contend that the residential flat was effectively purchased within the statutory period. The assessee took possession on 06/07/2012 and paid the final amount in April 2012, which falls within two years after the transfer date (17/08/2011), thereby satisfying section 54F timing requirements.
- The buyers agreement contained clauses (clause 46.0 in this case) showing that title would be conveyed only upon full payment and registration; hence, execution of the agreement itself did not vest title and the date of possession/full payment should be treated as the purchase date.
- The assessee relied on CBDT Circular No.471 dated 15/10/1986 and Circular No.672 dated 16/12/1993, arguing that the scheme of allotment and construction by cooperative societies/developers is similar to cases covered by those circulars and ought to be treated as "construction" for the purposes of sections 54/54F.
- The assessee placed reliance on several Tribunal decisions (Ayushi Patni v. DCIT; Smt. Ranjana R. Deshmuch v. ITO; ITO v. Shri Shiv Sunil Khanna; Smt. Ramita Mahendra Mehta v. ITO) and specifically on the Tribunal decision in Ayushi Patni which followed the Bombay High Court decision in CIT v. Smt. Beena K. Jain (217 ITR 363) treating date of possession/full payment as the date of purchase.
Respondent's (Revenue / Assessing Officer and CIT(A)) Arguments
- The Assessing Officer and the CIT(A) relied on the buyer agreement dated 29/09/2009 and substantial payments made on that date to treat the allotment as final and the flat as purchased on 29/09/2009; on that basis, the purchase fell outside the statutory period prescribed by section 54F relative to the 17/08/2011 transfer.
- The CIT(A) read the CBDT circulars as not supporting the assessee's contention that construction could be treated as having occurred before the date of transfer of the long-term asset; further, the CIT(A) stated that the circulars indicate that the date of payment of the first installment for allotment should be seen as the date of obtaining title and that issuance of an allotment letter confers title, with payments and possession being follow-up formalities.
- Accordingly, the revenue authorities considered that the assessee did not satisfy the timing requirements of section 54F and denied the claimed exemption (subject to the partial allowance ultimately reflected in the CIT(A) order).
Table of Precedents Cited
| Precedent / Circular | Rule or Principle Cited For (as stated in the opinion) | Application by the Court in this case |
|---|---|---|
| Ayushi Patni v. DCIT (ITA No. 1424/Pun/2016) | Tribunal treated date of taking possession (and completion of payment) as the date of purchase for purposes of section 54F, following the Bombay High Court in CIT v. Beena K. Jain. | The ITAT relied on Ayushi Patni as directly applicable; found buyer agreement clause (46.0) identical to the clause in Ayushi Patni and applied the same ratio to hold that possession/full payment date falls within the two-year window, entitling the assessee to exemption under section 54F. |
| CIT v. Smt. Beena K. Jain, 217 ITR 363 (Bombay High Court) | The High Court upheld the Tribunal's approach that the relevant date for section 54F may be the date of full payment/possession when the substance of the transaction shows the purchase was substantially completed then; treated date of possession/full payment as date of purchase. | The ITAT applied the High Court's ratio as authoritative support for treating possession/full payment as the relevant date; this formed the principal legal foundation for allowing the exemption in the present case. |
| Bastimal K. Jain v. ITO (Mumbai Tribunal) | Under similar facts, the Tribunal allowed benefit under section 54 by following the Beena K. Jain ratio. | The ITAT noted this decision as consistent authority and used it to reinforce the applicability of the Beena K. Jain principle in similar factual settings. |
| Smt. Ranjana R. Deshmuch v. ITO (ITA No. 697/Mum./2017) | This decision was cited by the assessee (no specific rule stated in the opinion beyond being a cited authority). | The decision was listed among those relied upon by the assessee; the Tribunal's order does not record further detailed treatment of this specific decision. |
| ITO v. Shri Shiv Sunil Khanna (ITA No. 5857/Mum/2016) | Cited by the assessee (no detailed principle recorded in the opinion). | Listed as part of the assessee's authorities; no separate detailed application recorded by the Tribunal beyond reliance list. |
| Smt. Ramita Mahendra Mehta v. ITO (ITA No. 4535/Mum./2014) | Cited by the assessee (no detailed principle recorded in the opinion). | Listed among the authorities relied upon by the assessee; the Tribunal did not separately analyze this decision in the reported reasoning. |
| CBDT Circular No. 471 dated 15/10/1986 and CBDT Circular No. 672 dated 16/12/1993 | The assessee relied on these circulars to suggest that allotment/construction schemes by societies/developers could be treated as construction for the purpose of sections 54/54F; CIT(A) interpreted the circulars differently, noting they do not permit treating construction as occurring before transfer and indicating that date of payment of first installment may be seen as date of obtaining title. | The CIT(A) relied on the circulars to reject the assessee's contention. The ITAT, however, resolved the matter by applying case-law (Beena K. Jain / Ayushi Patni) and found the possession/full payment date controlling for the facts here. |
Court's Reasoning and Analysis
The Tribunal proceeded by first fixing the undisputed date of transfer of the shares as 17/08/2011 (the AO and CIT(A) had accepted this date based on the Share Purchase Agreement). It then set out the statutory timing rules under section 54F: purchase of a residential house within one year before or two years after the transfer, or construction within three years from the date of transfer.
The material facts relating to the residential property were summarized by the Tribunal from the paper book: a buyer agreement dated 29/09/2009 (with advance payment shown as rupees 2,03,32,669/- on that date), an intimation of possession dated 09/04/2012, a final payment in April 2012 (Rs.13,76,702/-), and offer/possession effectively taken on 06/07/2012. The AO and CIT(A) treated the buyer agreement date (29/09/2009) as the date of purchase, concluding that the purchase lay outside the section 54F window.
The assessee contested that interpretation, referring to clauses in the buyer agreement that showed the developer had to obtain permits and that the purchaser's title would vest only on full payment/registration (clause 46.0 in this case). The assessee relied on CBDT circulars and Tribunal and High Court decisions to support treating the date of possession/full payment as the decisive date for purchase.
The Tribunal analyzed the authorities relied upon by the assessee, principally the Tribunal decision in Ayushi Patni which itself had followed the Bombay High Court's decision in CIT v. Smt. Beena K. Jain (217 ITR 363). Those authorities had found that, where the substance of the transaction showed that title/purchase was effectively completed on full payment and possession (and the agreement made clear that execution alone did not confer title), the date of possession/full payment could be treated as the date of purchase for section 54/54F purposes.
Finding that clause 46.0 of the buyer agreement in the present case was identical in effect to the clause considered in Ayushi Patni (and by extension the Beena K. Jain decision), the Tribunal concluded that the new asset (the flat) was effectively purchased within two years from the date of transfer of the shares. Applying the cited ratio, the Tribunal held that the assessee satisfied the timing condition in section 54F by virtue of final payment and possession in 2012 (within the two-year period after transfer on 17/08/2011).
On that basis, the Tribunal set aside the CIT(A)'s contrary finding and directed the Assessing Officer to allow the exemption under section 54F in the amount of Rs.2,07,62,580/-, which had been disallowed by the lower authorities.
Holding and Implications
Core Ruling: The appeal of the assessee is allowed. The Tribunal held that, on the facts of this case and following the ratio in Ayushi Patni and CIT v. Smt. Beena K. Jain (217 ITR 363), the date of full payment/possession is the relevant date of purchase for the purposes of section 54F and the assessee is entitled to exemption under section 54F amounting to Rs.2,07,62,580/-. The Tribunal directed the Assessing Officer to allow that benefit.
Implications: The direct consequence of the decision is that the Assessing Officer must grant the assessee the section 54F exemption of Rs.2,07,62,580/-. The Tribunal applied existing case law (Bombay High Court and Tribunal precedents) to the facts before it; the order implements those authorities on the present facts. The opinion does not purport to lay down a broader new precedent beyond applying the cited ratios to the case at hand.
Order pronounced in open court on 29/05/2020. Members: (Bhavnesh Saini) Judicial Member and (O.P. Kant) Accountant Member.
PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 31/01/2017 passed by the learned CIT(Appeals)-10, New Delhi [in short the Ld. CIT(A)] for assessment year 2012-13 raising following grounds:
1. That on facts and in the circumstances of the petitioners case, the learned Commissioner of Income Tax (Appeals)-10, New Delhi erred in law and on facts in upholding the order of the learned Assessing Officer and in sustaining the disallowance of the claim of Rs.2,07,62,580/- made in terms of the provisions contained in section 54F of the Income Tax Act, 1961.
2. That on facts and in the circumstances of the petitioners case, the learned Commissioner of Income Tax(Appeals)-10, New Delhi, erred in law and on facts in upholding the order of the learned assessing officer and in not allowing deduction under section 54F of the Act even for the amounts spent on construction of the residential house property after the date of long term capital gain/transfer of the original asset. ITA No. 2291/Del./2017
2. Briefly stated facts of the case are that the assessee filed return of income on 27/07/2012 declaring total income of Rs. 1,70,06,340/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices were issued and complied with. During the year under consideration, the assessee shown long-term capital gain of Rs. 2,18,91,720/- on sale of the shares on 02/09/2011, but same was claimed as not to be charged in terms of section 54F of the Act in view of the investment in purchase/construction of property bearing No.T- 204/08-03 in Common wealth Games, Village, Delhi. The assessee claimed that the property was purchased/constructed within the time period provided in the section 54F of the Act and thus, he is entitled for not charging of long-term capital gain to the extent of investment in purchase/construction of the residential house property. However, according to the Assessing Officer, the residential house has been purchased prior to the time period provided in section 54F of the Act and therefore assessee is not entitled for said benefit under section 54F of the Act. The Assessing Officer, accordingly completed the scrutiny assessment on 27/03/2015 after making addition for the long- term capital gain of Rs. 2,18,91,720/-. On further appeal, the Ld. CIT(A) upheld the addition, however, reduced the addition to Rs. 2,07,62,580/- i.e. the amount which was claimed as deduction under section 54F of the Act. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. The sole issue raised in both the grounds of the appeal is sustaining disallowance of claim of Rs. 2,07,62,580/- which was made under section 54F of the Act. ITA No. 2291/Del./2017
4. We have heard rival submission of the parties and perused the relevant material on record. In the case the assessee sold shares and shown long-term capital gain of Rs.2,18,91,720/-. Initially, in the documents filed before the Assessing Officer the assessee claimed to have sold the shares on 02/09/2011, however, based on share purchase agreement (SPA), the date of the sale was claimed as on 17/08/2011. The Assessing Officer and the Ld. CIT(A) has accepted the date of the sale as on 17/08/2011. Thus there is no dispute as far as date of the sale of the shares in the amount of long-term capital gain of Rs.2,18,91,720/- is concerned. 4.1 On sale of a capital asset, capital gain is charged as per provisions of section 45 of the Act. But if an assessee invest in certain new assets, the capital gain is not charged to the extent provided in the provisions of the Act. One of such provision is section 54F of the Act. In the case the dispute is regarding availing of benefit under section 54F of the Act. Under the provisions of the section 54F, the long-term capital gain is not charged, if any individual or HUF invest the entire sale consideration arising on transfer of any long-term capital asset (not being a residential house), i.e., original asset, into a purchase or construction of residential house (i.e new asset). If the cost of the new asset is less than the net consideration in respect of the original asset, the capital gain in proportion to the cost of the new asset bears to the net consideration, is not charged under section
45 of the Act. 4.2 For availing the benefit of section 54F, the investment in purchase/construction of residential house has to be made as under: ITA No. 2291/Del./2017 (a) Purchase of residential house within a period of one year before or two years after the date on which the transfer of the original asset took place, or (b) Construction of residential house within a period of three years from the date on which the transfer of the original assessee took place. 4.3 In the case of the assessee, the transfer of the shares has taken place on 17/08/2011 and therefore time period available to the assessee for purchase/construction for availing benefit of the section 54F works out as under: (a) Purchase within a period of one year before the transfer of shares (i.e. period between 17/08/2010 to 16.08.2011 or purchase within two years after the date of the transfer of shares (i.e. period between 17.08.2011 to 18.08.2013) or (b) Construction within a period of three years from the transfer of shares (i.e. period between 17.08.2011 to 18/8/2014) 4.4 Regarding the purchase/construction of the residential house the assessee provided following information:
(i) The assessee entered into buyers agreement for purchase of Apartment with builder/developer
i.e. Emmar MGF construction private limited and paid advance of rupees 2,03,32,669/- (Page 6-7 and 44 of PB) 29/09/2009
(ii) Letter of intimation of possession received on demand of final amount called by the builder/developer(page 50 of PB) 09/04/2012
(iii) Final amount of Rs 13, 76, 702/- paid to the Builder/developer( page
51 of PB) April , 2012 ITA No. 2291/Del./2017 4.5 The above facts related to investment in property are not in dispute. In view of the buyers agreement dated 29/09/2009 between the assessee and Builder/Developer, the Ld AO/CIT(A) are of the view that the flat was ready on the said date and thus transfer of the flat took place on 29/09/2009. The allotment was final on 29/09/2009 and grant of completion certificate/occupancy certificate upon which letter of intimation of possession was issued are follow up procedure to the purchase of flat. According, to the Ld. AO/CIT(A), the substantial payment of the flat was made before 29/09/2009 and thus title of the property transferred in favour of the assessee on 29/09/2009. 4.6 In view of above observation, according to the Ld. AO, the residential house (flat) was purchased on 29/09/2009, which is beyond the period of purchase of residential house (i.e 17/08/2010 to 18/08/2013) and thus, the assessee was not entitled for the benefit of section 54F of the Act. 4.7 The assessee, however, referred to various clauses of the buyer agreement and submitted that on the date of the buyer agreement, the developer was yet to obtain all required permits and approval for construction, commissioning and development of the project [clause A(X)]; the super area of the flat was tentative and was to be confirmed after construction of project (clause 1.2); layout plans were subject to change (clause 1.7a); proposed building plans, design etc. were tentative (clause 8.2); if completion of the flat (project) delayed for the reasons beyond the
(iv) Offer of possession of the flat (new asset) received by the assessee from the builder and position of the flat received. (page 52 of PB) 06/07/2012 ITA No. 2291/Del./2017 control of developer, then developer was to be entitled for extension of time (clause 9.4.1). In view of the clauses of the buyers agreement and possession handed over in April, 2012, the assessee contested that the flat was constructed before April, 2012 and it was within the period construction of three years after the sale of original asset ( i.e. 18/08/2014). He relied on the CBDT Circular No. 471 dated 15/10/1986 and Circular No. 672 dated 16/12/1993 and submitted that in terms of scheme of the allotment and construction of the flat/house by the co-operative societies or the other institution are similar to those mentioned in para 2 of CBDT circular No. 471/Dated 15/10/1986 and thus such cases might be treated as the construction of the flat for the purpose of section 54 and 54F of the Act. 4.8 The Ld. CIT(A) rejected the contention of the assessee and held as under: 4.2.8 Close reading of above circulars, nowhere mentioned that in order to get exemption construction could take place before the date of transfer of long term assets. On the other hand, section 54/54F makes it clear that the construction of house must complete within 3 years of the transfer. Further, circular makes it clear that the date of payment of first installment for the allotment of flats is to be seen as the date of obtaining the title of the property. The allottee gets title in the property on the issuance of the allotment letter and the payment of installment is only a follow up action and taking the delivery of the possessing is only a formality. 4.9 Before us, the learned counsel of the assessee has submitted that date of possession of the flat should be treated as the date of purchase of the new asset in view of the following decisions: a. Ayushi Patni Vs. DCIT (ITA No. 1424/Pun/2016) b. Smt. Ranjana R. Deshmuch Vs. ITO (ITA No. 697/Mum./2017) c. ITO vs. Shri Shiv Sunil Khanna (ITA No. 5857/Mum/2016) d. Smt. Ramita Mahendra Mehta Vs. ITO (ITA No. 4535/Mum./2014) ITA No. 2291/Del./2017 4.10 Accordingly, submitted that in view of the possession of the flat taken on 06/07/2012, which is well within period of two years from the transfer of the original asset (i.e. between 18.08.2011 to 18.08.2013) and thus the assessee is entitled for the benefit of section 54F of the Act. 4.11 The Tribunal in the case of Ayushi Patni (supra) after following the decision of the Honble Bombay High Court in the case of CIT Vs Smt. Beena Jain, 217 ITR 363, treated the date of the taking possession as the date of the purchase of the flat and allowed benefit of section 54F of the Act observing as under:
6. We have heard the submissions made by rival sides and have perused the orders of authorities below. We have also perused the decisions on which the ld. A.R. has placed reliance. The solitary issue raised in the present appeals by the assessee and Revenue is: Whether the assessee is eligible for claiming exemption u/s 54F in respect of residential flat / house for which the assessee has entered into an agreement for purchase more than one year before the date of transfer of capital asset ? The dates qua, transfer of capital asset, execution of agreement for purchase of residential flat and possession of the flat are not in dispute.
7. The contention of the assessee is that since final consideration was paid and the possession of flat was received within a period of one year prior to the date of transfer of capital asset, the same should be considered as the date of purchase. Whereas, the stand of Department is that the date of execution of agreement for purchase of flat should be considered as the date of purchase.
8. The ld. A.R. has drawn our attention to Clause (12) of the deed of agreement between the assessee and the builder for purchase of flat. The said clause is reproduced herein below : "12. Nothing contained in this Agreement shall be construed to as to confer upon the Purchaser any right whatsoever into or over the said property or the said new building or any part thereof including the said premises on execution of this agreement. It is agreed by and between the parties that conferment of title in respect of the said premises shall take place in favour of the Purchasers only on the Purchaser's ITA No. 2291/Del./2017 making full payment of consideration to the Developers and complying with the terms and conditions of this Agreement and on the Purchaser being admitted as a member of the said society as herein provided." The aforesaid clause makes it unambiguously evident that the assessee has no right whatsoever in the property on mere execution of agreement. The assessee shall be conferred title of property only on making full payment of consideration to the builder. In the instant case, full consideration has been paid by the assessee for purchase of residential flat within a period of one year before the date ITA Nos.1424 & 1707/PUN/2016 of transfer of capital asset. Thereafter, actual possession of the flat was delivered to assessee on 17.09.2010 i.e., within a period of one year prior to the date of transfer of capital asset. It is an un-rebutted fact that at the time of execution of agreement, the residential property was not in existence. Therefore, taking into consideration facts of the case, the date of possession of flat is the date of actual purchase for the purpose of claiming exemption u/s 54F of the Act.
9. We find that similar issue had come up before the Hon'ble Bombay High Court in the case of CIT Vs. Smt. Beena K. Jain (supra). The Hon'ble High Court in the appeal by Department, upholding the order of Tribunal and allowed the benefit of exemption u/s 54F to the assessee. The substantial question for consideration before the Hon'ble High Court was : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing exemption of Rs.11,04,423/- under section 54F of the Income Tax Act, 1961, considering the date of possession of the new residential premises instead of the date of sale agreement and the date of registration ?" The Hon'ble High Court decided the issue in favour of the assessee by answering the question as under : "2. Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long- term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, the agreement for purchase of the new flat was entered into more ITA No. 2291/Del./2017 than one year prior to the sale. Hence, petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day."
10. The Mumbai Bench of the Tribunal in the case of Bastimal K. Jain Vs. ITO (supra) under similar set of facts had allowed the benefit of exemption u/s 54 to the assessee by following the ratio laid down in the case of CIT Vs. Smt. Beena K. Jain (supra).
11. Thus, in view of undisputed facts of the case and the decision rendered in the case of CIT Vs. Smt. Beena K. Jain (supra), we hold that the assessee is eligible for claiming exemption u/s 54F on the entire amount of capital gain utilized for purchase of residential property. Consequently, the appeal of the assessee is allowed and the appeal of Revenue is dismissed. 4.12 In the instant case before us also, the assessee has brought of attention to clause 46.0 of the buyers agreement (which is available on page 41 of the paper book), which is identical to clause 12 in the case of Ayushi Patni (supra) reproduced in para
8 of the decision. The relevant clause 46.0 of the buyers agreement is reproduced as under: 46.0 The Allottee understands and confirms that the execution of this Agreement shall not be construed as sale of transfer under any applicable law and the title to the Allottee hereby allotted shall be conveyed and transferred to the Allottee only upon his fully discharging all the obligation undertaken by the Allottee including payment of the entire sale price and other applicable charges/dues, as mentioned herein and only upon the registration of the conveyance/sale deed in his favour. Prior to such conveyance, the allottee shall have no right or title in the apartment. ITA No. 2291/Del./2017
9. In view of the identical facts and circumstances, the ratio of the above decision in the case of Ayushi Patni (supra) is squarely applicable over the facts of the instant case and thus accordingly, we hold that the new asset i.e. residential house has been purchased within two years from the date of transfer of the original asset i.e shares, and thus, the assessee is entitled for benefit of section 54F of the Act. The finding of the Ld. CIT(A) on the issue in dispute is accordingly set aside and the Assessing Officer is directed to allow the benefit of section 54F of the Act amounting to Rs.2,07,62,580/-. The grounds of the appeal of the assessee are accordingly allowed.
10. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 29th May, 2020. Sd/- Sd/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/05/2020. RK/-(D.T.D.S) Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR Asst. Registrar, ITAT, New Delhi
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