Investment in name of other person results in denial of capital gain exemption

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Investment in name of other person results in denial of capital gain exemption

[2013] 37 taxmann.com 263 (Visakhapatnam – Trib.)

IN THE ITAT VISAKHAPATNAM BENCH

Ganta Vijaya Lakshmi

v.

Income-tax Officer, Ward -1(3), Vijayawada

MANMOHAN, VICE-PRESIDENT
AND B.R. BASKARAN, ACCOUNTANT MEMBER

IT APPEAL NO. 253 (VIZAG.) OF 2012
[ASSESSMENT YEAR 2008-09]

JULY  22, 2013

Section 54B, read with section 54F, of the Income-tax Act, 1961 – Capital gain – Transfer of land used for agricultural purposes not to be charged in certain cases [Assessee, connotation of] – Assessment year 2008-09 – Assessee sold agricultural land – It had made investment in purchase of an agricultural land and residential flat in name of her two married daughters who were also majors – While computing LTCG, assessee claimed exemption under sections 54B and 54F – Assessing Officer rejected exemption claimed by assessee on ground that properties were not registered in name of assessee – Whether expression ‘assessee’ used in section 54B/54F could not be extended to include major married daughters – Held, yes – Whether, therefore, assessee was not entitled to claim exemption in respect of investment made in name of her daughters – Held, yes [Para 15] [In favour of revenue]


FACTS:

The assessee sold agricultural land for a consideration of Rs. 1.41 crores and had invested money in purchase of an agricultural land and a residential flat in the name of her two married daughters who were also majors.

The assessee claimed exemption under section 54B in respect of agricultural land and also claimed exemption under section 54F in respect of the flat while computing long-term capital gain on sale of agricultural land.

The Assessing Officer held that exemptions claimed under sections 54B and 54F were not allowable as the properties were not registered in the name of the assessee. Accordingly, the Assessing Officer rejected the exemptions claimed by the assessee.

On appeal, the Commissioner (Appeals) affirmed the order passed by the Assessing Officer.

On second appeal:


HELD:

In the instant case, undisputedly, the investments have been made in the name of married daughters and apparently both of them are also majors. Thus, it is not a case of joint ownership along with the assessee. Both the daughters of the assessee shall have every right over the property purchased in their respective names. Thus, it cannot be said that the intention of purchasing the properties was not to give benefit to them. The assessee claims that she has entered into a purchase possession agreement with her two daughters. However, the view of the Commissioner (Appeals) was acceptable that the said agreement does not actually effect transfer of assets to the name of the assessee. Further, as pointed out by the Assessing Officer, the said agreements have been entered only to show some compliance with the provisions of section 54B/54F. [Para 14]

Accordingly, the term ‘assessee’ used in section 54B/54F cannot be extended to mean the major married daughters. Accordingly, the view taken by the Commissioner (Appeals) is affirmed. [Para 15]


CASE REVIEW

Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228/[1986] 28 Taxman 572 (AP.) (para 12) distinguished.

CASES REFERRED TO

Suraj Lamp & Industries (P.) Ltd. v. State of Haryana [2012] 340 ITR 1/[2011] 202 Taxman 607/14 taxmann.com 103 (SC)(para 5), CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 (Punj & Har.) (para 5), CIT v. V. Natarajan [2006] 287 ITR 271/154 Taxman 399 (Mad.) (para 5), DIT, International Taxation v. Mrs. Jennifer Bhide [2012] 349 ITR 80/[2011] 203 Taxman 208/15 taxmann.com 82 (Kar.) (para 5), CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi) (para 5), K.G. Vyas v. Seventh, ITO [1986] 16 ITD 195 (Bom.) (para 5), Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228/[1986] 28 Taxman 572 (AP) (para 6), State of Andhra Pradesh v. CTO [1987] 169 ITR 564 (AP) (para 6), CIT v. Kamal Wahal [2013] 351 ITR 4/214 Taxman 287/30 taxmann.com 34 (Delhi) (para 7), Vinay Mishra v. Asstt. CIT [2013] 30 taxmann.com 341 (Bang.) (para 7), Grandhi Kamaraj Mangaraj [IT Appeal No. 432/CIT(A)/VJA/10-11] (para 7), N. Ram Kumar v. Asstt. CIT [2012] 138 ITD 317/25 taxmann.com 337 (Hyd.) (para 7), Jai Narayan v. ITO [2008] 386 ITR 335 (Punj & Har.) (para 9), Prakash v. ITO [2009] 312 ITR 40/[2008] 173 Taxman 311 (Bom) (para 9), ITO v. Prakash Timaji Dhanjode [2003] 81 TTJ 694 (Nag.) (para 9), Darapaneni chenna Krishnayya (HUF) v. CIT [2007] 291 ITR 98 (AP) (para 10), CIT v. G.K. Devarajulu [1991] 191 ITR 211/56 Taxman 85 (Mad.) (para 10) and Vipin Malik (HUF) v. CIT [2011] 330 ITR 309/[2009] 183 Taxman 296 (Delhi) (para 10).

  1. Subrahmaynamfor the Appellant. K.V.N. Charyafor the Respondent.

ORDER:

B.R. Baskaran, Accountant Member – The appeal of the assessee is directed against the order dated 30-03-2012 passed by Ld CIT(A), Vijayawada and it relates to the assessment year 2008-09.

2. The solitary issue urged in this appeal is whether the Ld CIT(A) is justified in holding that the assessee is not entitled to claim deduction u/s 54B and 54F of the Act in respect of investments made in the name of her daughters.

3. The facts relating to the issue are set out in brief. During the year under consideration, the assessee sold 2 acres and 50 cents of wet agricultural land located at Peda Pulipaka village for a consideration of Rs. 1,41,12,000/-. There is no dispute that the capital gain arising on sale of the above said agricultural land is assessable to income tax. Thereafter the assessee purchased following two properties in the name of her daughters.

(a) A wet agricultural land having an extent of 3 Acres and 94 cents in Kolavennu Village was purchased in the name of his younger daughter named Smt. Sodisetty Swapna for a consideration of Rs. 52.00 lakhs.
(b) One flat at Gochibowli Village, Serilingampalli Mandal, Ranga Reddy District was purchased in the name of her eldest daughter named Smt. Kapa Subhashini for a consideration of Rs. 58.00 lakhs.

While computing long term capital gain on sale of agricultural land located at Peda Pulipaka village, the assessee claimed deduction u/s 54B of the Act in respect of the agricultural land purchased in the name of her younger daughter and also claimed deduction u/s 54F of the Act in respect of the flat purchased in the name of her eldest daughter. The assessee claimed those deductions on the plea that the consideration for purchase of both the properties were given by her out of sale proceeds realized on sale of agricultural land. The assessee further submitted that she has entered into “possession purchase agreements” with her two daughters to comply with the provisions of sec. 54B and 54F of the Act. It was further contended by the assessee that her daughters should be considered as her benamis.

4.  The assessing officer held that the deduction claimed u/s 54B and 54F are not allowable as the properties were not registered in the name of the assessee. The claim of “Benami” was also rejected by the AO on the ground that the Benami Transactions Prohibition Act provides exemption to property purchased in the name of unmarried daughters only. The AO also refused to recognize both the “Possession purchase agreement” as they were unregistered document and the they do not actually transfer the properties. Accordingly, the AO rejected the deductions claimed by the assessee u/s 54B and 54F of the Act.

5. The assessee carried the matters in appeal filed before Ld CIT(A). The assessee claimed before him that the “Possession purchase agreement” gives her right to the possession of the properties in terms of sec. 2(47)(v) of the Act. She further submitted that the consideration for purchase of properties in the name of her daughters have flown from her. Accordingly, the assessee contended that she has complied with the spirit of provisions of sec. 54B and 54F of the Act and hence her claim should be allowed. The first appellate authority, however, held that the “possession purchase agreement” entered into between the assessee and her daughters do not convey any title to the assessee. In this regard, the Ld CIT(A) placed reliance on the decision of Hon’ble Supreme Court in the case of Suraj Lamp & Industries (P.) Ltd. v. State of Haryana [2012] 340 ITR 1/[2011] 202 Taxman 607/14 taxmann.com 103 (SC)and he has extracted the following observations made by the Hon’ble Apex Court in the above said case.

“16 We therefore reiterate that immovable property can be legally and lawfully transferred / conveyed only by a registered deed of conveyance. Transactions of the nature of “GPA Sales” or “SA/GAP/Will Transfers” do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immovable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property.”

Before Ld CIT(A), the assessee placed reliance on the following case law to support her claim for deduction u/s 54B and 54F in respect of properties purchased in the name of her daughters.

(a) CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 (Punj & Har.)
(b) CIT v. V. Natarajan [2006] 287 ITR 271/154 Taxman 399 (Mad.)
(c) DIT, International Taxation v. Mrs. Jennifer Bhide [2012] 349 ITR 80/[2011] 203 Taxman 208/15 taxmann.com 82 (Kar.)
(d) CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi).
(e) K.G. Vyas v. Seventh, ITO [1986] 16 ITD 195 (Bom.)

In the cases of (a), (c), (d) and (e), referred above, the Ld CIT(A) noticed that the assessees’ therein had purchased the eligible property in joint names, i.e., in their name and in the name of relatives. In the case of (b) referred above, the property was purchased in the name of wife of the assessee. Hence the Ld CIT(A) held that the assessee could not place reliance on the above said case laws. Accordingly, he affirmed the order passed by the assessing officer. Aggrieved, the assessee has filed this appeal before us.

6. The Ld Counsel for the assessee placed reliance on the decision of Hon’ble jurisdictional Andhra Pradesh High Court in the case of Mir Gulam Ali Khanv. CIT [1987] 165 ITR 228/[1986] 28 Taxman 572 and submitted that the jurisdictional High Court in the above said case has held that the word “assessee” should be given a wide and liberal interpretation so as to include legal representatives also. Explaining the facts prevailing in the case of Mir Gulam Ali Khan (supra), the Ld A.R submitted that the assessee, in the above said case, sold a residential house and thereafter entered into an agreement to purchase another house. Before completing the purchase transaction, the assessee died and subsequently his legal heirs completed the said transaction. The legal heirs claimed deduction u/s 54 of the Act, which was rejected by the ITO. The jurisdictional High Court allowed the claim of the assessee. The Ld A.R invited our attention to the following observations made by the Hon’ble jurisdictional High Court.:—

‘Relying upon the expression “assessee” occurring in s. 54 of the Act, it is contended for the Department that in order to claim the exemption, the person who sold the house must be the same as the person who purchased the house, that is, the assessee must be one and the same person. The identity must be the same. We are unable to accept this contention. The object of granting exemption under s. 54 of the Act is that a person who sells a residential house for the purpose of purchasing another convenient house must be given exemption so far as capital gains are concerned. As long as the sale of house and purchase of another house are part of the same scheme, the lapse of some time between the sale and purchase makes no difference. The word “assessee” must be given a wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting the exemption and what is more, in the instant case, the very same assessee immediately after the sale of the house, entered into an agreement for purchasing another house and paid a sum of Rs. 1,000 as earnest money and subsequently the legal representative completed the transaction within the period of one year from the date of the death of the deceased. The sale and purchase are two links in the same chain. We are fortified in this view by a decision of the Madras High Court in C.V. Ramanathan v. CIT (1980) 17 CTR (Mad) 322 : (1980) 125 ITR 191 (Mad) : TC22R.230.’

‘Relying upon the expression “assessee” occurring in s. 54 of the Act, it is contended for the Department that in order to claim the exemption, the person who sold the house must be the same as the person who purchased the house, that is, the assessee must be one and the same person. The identity must be the same. We are unable to accept this contention. The object of granting exemption under s. 54 of the Act is that a person who sells a residential house for the purpose of purchasing another convenient house must be given exemption so far as capital gains are concerned. As long as the sale of house and purchase of another house are part of the same scheme, the lapse of some time between the sale and purchase makes no difference. The word “assessee” must be given a wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting the exemption and what is more, in the instant case, the very same assessee immediately after the sale of the house, entered into an agreement for purchasing another house and paid a sum of Rs. 1,000 as earnest money and subsequently the legal representative completed the transaction within the period of one year from the date of the death of the deceased. The sale and purchase are two links in the same chain. We are fortified in this view by a decision of the Madras High Court in C.V. Ramanathan v. CIT (1980) 17 CTR (Mad) 322 : (1980) 125 ITR 191 (Mad) : TC22R.230.’

The Ld Counsel further submitted that the decision of the jurisdictional High Court is binding on the Tribunal and in this regard, he invited our attention to another decision rendered by the jurisdictional High Court in the case of State of Andhra Pradesh v. CTO [1987] 169 ITR 564 (AP).

  1. The Ld A.R, apart from placing reliance on the case law relied upon before the Ld CIT(A), also placed reliance on the following decisions:
    (a)

    CIT v. Kamal Wahal [2013] 351 ITR 4/214 Taxman 287/30 taxmann.com 34 (Delhi). In this case, the assessee purchased a property in the name of his wife and claimed exemption u/s 54F of the Act. The High Court allowed the said claim.

    (b)

    Vinay Mishra v. Asstt. CIT [2013] 30 taxmann.com 341 (Bang.). In this case, the assessee purchased a house property in USA. The exemption claimed u/s 54F of the Act was allowed by the Tribunal.

    (c)

    Grandhi Kamaraj Mangaraj (ITA No.432/CIT(A)/VJA/10-11). In this case, the very same Ld CIT(A) allowed the claim of deduction u/s 54 of the Act in respect of the property purchased in the joint name of assessee and his wife.

    (d)

    N. Ram Kumar v. Asstt. CIT [2012] 138 ITD 317/25 taxmann.com 337 (Hyd.). In this case, the Hyderabad bench of Tribunal allowed the claim of deduction u/s 54F of the Act in respect of the house purchased in the name of assessee’s minor daughter.

He submitted that, in all these cases, the object of granting exemption under sec. 54/54F was taken into account by the Courts in order to decide the issue in favour of the assessee. The Ld Counsel, in this regard, invited our attention to the following observations made by Hon’ble Delhi High Court in the case of Kamal Wahal (supra):—

“9. It thus appears to us that the predominant judicial view, including that of this Court, is that for the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee’s wife.”

  1. The Ld D.R, on the contrary, strongly defended the order passed by Ld CIT(A). He submitted that the reliance placed upon by the assessee in the case of Mir Gulam Ali Khan(supra) is misplaced. He submitted that the said decision was rendered under peculiar facts prevailing in that case. He submitted that the assessee therein had sold a house property and he himself entered into an agreement to purchase another residential house. He also paid earnest money. However, before completion of the purchase transaction, he expired and hence his legal representative completed the transaction of purchase. Hence the legal representative claimed deduction u/s 54 of the Act against the capital gain arising on the property sold by the late assessee. Since the transaction of purchase was initiated by the assessee himself and further since the legal representative of the assessee completed the very same transaction, the Hon’ble Court has held that the legal representative was entitled to claim deduction u/s 54 of the Act. He submitted that it is the legal representative, who is assessable as representative of the deceased assessee. Accordingly he submitted that the assessee could not place reliance on the said decision.
  2. The Ld D.R further submitted that the benefit of exemption u/s 54B and 54F could be given to an assessee only if the new property is purchased in his own name. In this regard, the Ld D.R placed reliance on the following case law. We are extracting the Head notes of the said case law also below:-
(a)

Jai Narayan v. ITO [2008] 386 ITR 335 (Punj & Har.). – Capital gains – Exemption under s. 54B – Investment in the names of assessee’s son and grand son – Sec. 54B nowhere suggests that the legislature intended to advance the benefit of the said section to an assessee who purchases agricultural land even in the name of a third person – Term “assessee” is qualified by the expression “purchased any other land for being used for agricultural purposes”- This necessarily means that the new asset has to be in the name of the assessee himself – Therefore, purchase of agricultural land by the assessee in the name of his son or grandson does not qualify for exemption under s. 54B.

(b)

Prakash v. ITO [2009] 312 ITR 40/[2008] 173 Taxman 311 (Bom). – Capital gains – Exemption under s. 54F – Purchase of new property in the name of son – New property must be owned by the assessee having legal title over the same – Assessee admittedly purchased the new property in the name of adopted son with clear intention to transfer the property to him – Thus, he transferred the property before the prescribed period as per the scheme of the section, and the son became owner of the property for all purposes – Assessee had no domain and / or right whatsoever in the said property – Therefore, he is not entitled to exemption under s. 54F.

(c)

ITO v. Prakash Timaji Dhanjode [2003] 81 TTJ 694 (Nag.) – Capital gains – Exemption under s. 54F – condition precedent – Investment has to be made in the name of assessee – Sale proceeds not invested in the name of assessee but in the name of his adopted son – Assessee not entitled to exemption under s. 54F. (This decision of Tribunal has been approved by Hon’ble High Court of Bombay in the preceding decision).

The Ld D.R further submitted that the various case law relied upon by the assessee are not applicable to the facts of the instant case, since in those cases the property was purchased either in the joint names of assessee and others or in the name of wife or minor daughters of the assessee.

  1. The Ld D.R submitted that the provisions of sec. 54B/54F should be construed in a strict manner hence deduction could be given under those provisions, only if all the conditions prescribed therein are complied with properly. In this regard, he placed reliance on the following case law:—
    (a)

    Darapaneni chenna Krishnayya (HUF) v. CIT [2007] 291 ITR 98 (AP) – Capital gains – Exemption under s. 54B – Allowability to HUF – Benefit under s. 54B is available only to an individual and not HUF – CIT v. G.K. Devarajulu [1991] 191 ITR 211/56 Taxman 85 (Mad.) concurred with.

    (b)

    Vipin Malik (HUF) v. CIT [2011] 330 ITR 309/[2009] 183 Taxman 296 (Delhi) – Capital gains – Exemption under s. 54F – Purchase/Construction of new house – Assessee had paid most of the amount to the co-operative society for the purchase of flat more than one year before the sale of agricultural land in September, 1995 – Allotment letter or the draw of lots took place only in September/October, 1998 i.e., after two years of the sale of agricultural land – Therefore, assessee cannot be said to have purchased a residential house within the meaning of s. 54F either within one year before the sale of agricultural land or within two years after the sale – That apart, agricultural land that was sold belonged to assessee HUF whereas the flat was purchased in the individual name of the Kartha along with his mother – Thus, the new house was not purchased by the same assessee who sold the agricultural land – Hence, exemption under s. 54F was not allowable.

  1. We have heard the rival contentions and carefully the record. Sub section (1) of sec. 54B of the Act reads as under:—

“54B(1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax….”

Sub-section (1) of sec. 54F reads as under:—

“54F(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 (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. …”

The question that arises for our consideration is whether the expression “assessee” meant only the person who sold the property, which was subjected to Capital gain, i.e., whether the new asset should necessarily be invested in the name of the person who sold the property.

  1. In the instant case, the assessee has invested money in purchase of an agricultural land (eligible for deduction u/s 54B of the Act) and a residential flat (eligible for deduction u/s 54F of the Act) in the name of her two daughters, both are apparently majors and also married. The Ld A.R placed his reliance on hosts of case law, more particularly upon the decision of Hon’ble jurisdictional High Court of Andhra Pradesh in the case of Mir Gulam Ali Khan(supra). We fully agree with the contention of the Ld D.R that the decision rendered by the jurisdictional High Court in the case of MirGulam Ali Khan (supra) is based upon peculiar facts prevailing in that case. The vital point, in our view, is that the assessee (in the case of Mir Gulam Ali Khan (supra)) had entered into an agreement for purchasing a residential house and also paid earnest money in furtherance of the same. Unfortunately he passed away before completion of the purchase transaction. Hence, the legal representative of that assessee completed the process of purchase of property. Thus, in effect, the new house property was not purchased in the name of the assessee, who sold the old property. Since the said legal representative of the assessee is liable to be assessed in respect of the capital gain on the property sold by his father, he claimed the cost of new property as deduction u/s 54 of the Act. Thus, the facts prevailing in Mir Gulam Ali Khan (supra) case is peculiar and further, under section 159 of the Act, the legal representative is treated as assessee in respect of liability of the deceased person. Hence, under peculiar facts of the case, the Hon’ble jurisdictional High Court held that the term “assessee” shall include legal representative also. In our view, the liberal view taken by the High Court cannot be stretched in each and every case, where the property was not purchased in the name of the assessee, who sold the property. Accordingly, in our view, the assessee herein cannot derive support from the said case law.
  1. We have gone through all other case law, which were relied upon by Ld A.R during the course of his arguments. We notice that, in all those cases, the new property was either purchased in joint names, i.e., in the name of the assessee and others, or it was purchased in the name of spouse or minor daughter. In our view, the Courts have considered the investments made in the name of wife or minor daughter as an investment made by the assessee himself for the reason that there was no real intention to provide consideration for the benefit of wife/minor daughter alone.
  2. In the instant case, undisputedly, the investments have been made in the name of married daughters and apparently both of them are also majors. Thus, it is not a case of joint ownership along with the assessee. Both the daughters of the assessee shall have every right over the property purchased in their respective names. Thus, it cannot be said that the intention of purchasing the properties was not to give benefit to them. The assessee claims that she has entered into a purchase possession agreement with her two daughters. However, we tend to agree with the view of the Ld CIT(A) that the said agreement does not actually effect transfer of assets to the name of the assessee. Further, as pointed out by the AO, the said agreements have been entered only to show some compliance with the provisions of sec. 54B/54F of the Act.
  3. Accordingly, in our view, the term “assessee” used in sec. 54B/54F of the Act cannot be extended to mean the major married daughters. Accordingly, we affirm the view taken by the Ld CIT(A).
  4. In the result, the appeal filed by the assessee is dismissed

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