Beneficial Judgment : Capital gains exemption admissible even if Execution of sale deed and possession got delayed beyond stipulated period

 

Short Overview : Where consideration received on transfer of asset was invested by assessee for purchasing a new residential house, then merely because the registered deed was not executed and registered in favour of the assessee before the period stipulated, the assessee could not be denied the benefit of section 54F.

Assessee claimed exemption under section 54F on account of investment made for purchase of a new residential house. AO denied the said exemption on the ground that the execution of sale deed and possession by the assessee was much beyond the stipulated period. Assessee contended that merely because the registered deed was not executed and registered in his favour before the period stipulated, he could not be denied the benefit of section 54F.

it is held that Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from claiming benefit under section 54F. In the subject case, it was not in dispute that assessee made investment for purchase of a residential house and only the registered deed was executed after more than 4 years and the possession was also taken after more than 4 years but that would not disentitle assessee from claiming deduction under section 54F.

Decision: In assessee’s favour.

Followed: CIT & Anr. v. Sambandham Uday Kumar (2012) 345 ITR 389 (Ker): 2012 TaxPub (DT) 1804 (Karn-HC).

IN THE ITAT, BANGALORE BENCH

ARUN KUMAR GARODIA, A.M. & BEENA PILLAI, J.M.

Kondamma v. ITO

ITA No. 455/Bang/2019

13 September, 2019

Assessee by: H. Guruswamy, ITP

Revenue by: R.N. Siddappaji, Additional Commissioner (Departmental Representative)

ORDER

A.K. Garodia, A.M.

This appeal is filed by the assessee and the same is directed against the order of learned Commissioner (Appeals)-6, Bangalore, dated 30-11-2018 for assessment year 2012-13.

2. The grounds raised by the assessee are as under.

Grounds of Appeal		Tax effect relating to each Ground of appeal (see note below)
1.	The impugned Appellate order dated: 30-11-2018 passed by the learned Commissioner (Appeals), Bangalore-6 is opposed to law, facts and circumstances of the case.
2.	The learned Commissioner (Appeals) has erred in holding that the Appellant was not entitled for deduction under sections 54F of the Act since the New Asset being a Residential House was purchased through a Registered Sale Deed dtd: 24-06-2016 beyond the due date as prescribed under sections 54F of the Act.	Rs. 27,48,489
3.	The learned Commissioner (Appeals) has erred in holding that the Appellant is not entitled for deduction under sections 54F of the Act on the basis of an unregistered sale agreement dtd: 30-06-2012 and the same cannot be considered as transfer since the possession of the property was not obtained without appreciating the submission that a sum of Rs. 1,00,00,000 was appropriated before the due date for filing the return of income as required under sections 139(1) of the Act.	Same as above
4.	The learned Commissioner (Appeals) has erred in rejecting the Appellant’s claim for deduction under sections 54F of the Act without appreciating the fact that the intended purchase of property was mortgaged to Bharath Co-operative Bank Ltd. and the redemption of the mortgaged was beyond the reach and control of the Appellant.	Same as above
5.	The learned Commissioner (Appeals) has erred in holding that the Appellant was not entitled for deduction under sections 54F of the Act without appreciating the fact that the Mortgagee Bank has issued Mortgage Discharge Certificate on 7-06-2016 and thereafter a Registered Sale Deed was immediately executed on 24-06-2016.	Same as above
6.	The learned Commissioner (Appeals) has erred in not appreciating the delay in purchasing the property since the delay was beyond the reach and control of the Appellant.	Same as above
7.	The learned Commissioner (Appeals) has erred in holding that the Appellant has not mentioned the advance payment of Rs. 1,00,00,000 invested for purchase of a New property as per the sale agreement dtd: 30-06-2012 without appreciating the fact that the Appellant was not aware as to the statement alleged to have been recorded by the Investigation Authority since a copy of the statement was not provided to the Appellant who has stated the investment as per Sale Agreement dtd: 30-06-2012, but unfortunately it was not mentioned in the statement.	Same as above
8.	The Appellant craves leave to add, alter, amend and delete any of the grounds at the time of hearing
	Total tax effect (see note below)	Rs. 27,48,489

3. The learned Departmental Representative of revenue supported the orders of authorities below whereas the learned Authorised Representative of assessee submitted that as per para no. 13 of the assessment order, it is noted by the assessing officer that this is the claim of the assessee that assessee has paid advance of Rs. 1 Crore on 30-6-2012 for purchase of new residential house and this is the only objection of the assessing officer that the sale deed was executed on 24-6-2016 and the possession was also taken of the new residential house on 24-6-2016 which is after four years nine months from the date of sale of original asset on 19-9-2011. He further pointed out that as per order of learned Commissioner (Appeals) also, this is noted by him in para 4.3 of his order that investment in new asset was beyond the time limit permitted under sections 54F. He submitted that the assessee has not disputed this factual aspect that the registered deed and possession is on 24-6-2016 but it was a submission that as per the judgment of Hon’ble Karnataka High Court rendered in the case ofCIT & Anr. v. Sambandam Udaykumar as reported in (2012) 345 ITR 389 (Ker) : 2012 TaxPub(DT) 1804 (Karn-HC), copy available on pages 45 and 46 of the paper book, if the assessee has invested the money for purchasing the new residential house or for constructing a new residential house then merely because the registered deed has not been executed and registered in favour of the assessee before the period stipulated, the assessee cannot be denied the benefit of section 54F of the Income Tax Act. He submitted that in the facts of present case, this judgment of Hon’ble Karnataka High Court is squarely applicable and therefore, the issue should be decided in favour of the assessee.
4. We have considered the rival submissions. We find that in the present case, this is the only objection of the department that the execution of sale deed and possession by the assessee is much beyond the stipulated period. In this regard, we reproduce para nos. 4.1 to 4.9 of the order of learned Commissioner (Appeals) for ready reference.

“4. Findings

4.1 I have considered the assessment order, the statement of facts and grounds of appeal filed by the appellant as well as the written submissions made After considering the same, the following findings are given.

4.2 Grounds of appeal nos.1 and 5, being general in nature, no specific adjudication is called for.

4.3 Grounds of appeal nos.2, 3 and 4 relate to the disallowance made by the assessing officer of the deduction of Rs. 70,84,063 claimed by the appellant under section 54F on the grounds that the investment in the new asset was beyond the time limit permitted under the section. In the assessment proceedings, the Authorised Representative has also conceded that the purchase of the new asset was beyond the time limit prescribed under section 54F. The relevant portion of the submission, dated 28-6-2017 is extracted below :–

“The Sale Consideration of the Original Property was required to be appropriated in purchasing a New Assets being a Residential House within the prescribed time limit of 2 years or 3 years as the case may be in the case of the Assessee a Built house was purchased on 24-06-2016 which was beyond the prescribed time limit of 2 years from the date of Transfer. In this regard the Assessee submits that even though the New Asset was Purchased beyond the Prescribed time limit it would not disentitle the Assessee from claiming the admissible deduction under sections 54F of the Act “

4.4 It is seen that the appellant sold a parcel of lard measuring 10.05 Guntas (11,440 Sq.ft) situated at Sy. No. 60 (60/3), Shettihalli Village, Yeshwanthpur, Bangalore vide absolute sale deed, dated 19-9-2011 to M/s. Suvilas Properties, a partnership firm for which she received Rs. 85 lakhs as advance in cash and Rs. 20 lakhs by demand draft at the time of signing of the above sale deed. Thereafter, the appellant entered into a sale agreement, dated 30-6-2012 with Shri M. Ramakrishna alias Kiran Krishna Reddy for purchase of a residential property at 1132, Katha No. 543, in Sy. No. 67, Kammagondanahalli village, 3rd Division, Yeshwanthapura hobli, Bangalore North Taluk for a consideration of Rs. 1 crore 5 lakhs. As per para 5 a of the above agreement the appellant paid Rs. 1 crore in cash by way of advance. The balance sale consideration of Rs. 5 lakhs was mentioned as payable at the time of registration of the sale deed. The appellant’s claim is that by payment of the advance of Rs. 1 crore, the transfer of the property in terms of section 2(47) of the Income Tax Act read with section 53A of the Transfer of Property Act had occurred. This claim of the appellant is to be examined in the light of the facts and the legal provisions with respect to the same. Nowhere in the sale agreement, dated 30-6-2012 is there any mention of conveyance of the property by the vendor to the appellant or giving the appellant any right of occupancy of the property. The appellant had stated to have paid Rs. 1 crore or 94% of the total consideration. However, the property remained in the possession of her son who was the vendor. The original title documents also were to have been handed over to the appellant only after registration of the sale deed after discharge of the mortgage held by the bank.

4.5 The appellant states that the reason for delay in registering the sale deed was because the property was mortgaged to the bank. The relevant portions of the sale agreement, dated 30-6-2012 are reproduced below :–

“9. whereas the Vendor and the purchaser have mutually agreed that the Execution of the Sale. Deed and its Registration shall be made after redemption of the schedule property from the Mortgagee Bank as soon as the borrowed amount was discharged by the Vendor to the Mortgagee Bank.

11. Whereas the Vendor has handed over the copies of this Documents of the schedule property to the purchaser and the Purchaser Acknowledged the said documents today the 30-6-2012 and the Vendor has assured that the Original documents of the Schedule property shall be delivered after obtaining the Original Documents from the Mortgagee Bank (The Bharath Co-operative Bank Limited) after redemption of the Registered Mortgage Deed dt: 2009-10-2006 payment of the entire amount of loan borrowed from the Mortgagee Bank.

11. Whereas the Vendor has assured the Purchaser that he would get the Schedule Property redeemed from the Mortgagee Bank as early as possible and thereafter he has assured that the Registered Sale Deed would be executed in favor of the Purchaser and the limitation of time if any under any law for the time being in force is not an essence of this Contract being the Sale Agreement.”

If as the appellant has claimed, she had paid Rs. 1 crore to the vendor on 30-6-2012. and the mortgage amount was Rs. 15 lakhs only and further, the vendor had assured the appellant that the mortgage would be redeemed as early as possible, there is no reason why the vendor should have waited 4 years and 9 months to obtain the discharge note from the bank and then get the sale deed registered.

4.6 The claim of the appellant is that by virtue of the agreement for sale, dated 30-6-2012 and payment of Rs. One crore, there was a transfer to her of the new property as per the provisions of section 2(47) of the Act. Section 2(47(v) deals with a transfer of immovable property as a result of part performance of a contract as per section 53A of the Transfer of Property Act reproduced below :–

Section 53A in The Transfer of Property Act, 1882

1(53A. Part performance.-Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that 2(***) where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.)

From the above provision it is clear that the key element in the transfer in part performance of a contract is the taking over of possession of the property by the transferee. In the instant case, as evident from the terms of the contract, no possession of the property was given to the appellant by the vendor nor has the appellant adduced any evidence that she had taken or was in possession of the said property. It was only when the sale deed was registered on 24-6-2016 that the transfer took place.

The relevant paras of the above sale deed are reproduced below :–

“13. The Vendor has today relinquished all his rights, title, interest claims whatsoever in respect of the Schedule Property in favour of the Purchaser and the Purchaser herein afterwards shall possess and enjoy the Schedule Property as an absolute owner with the power of alienation and thereby paying all the future taxes, cesses ets., to the Competent Government authorities concerned and from this day onwards the Vendor or his Successors have no manner of any rights, title, interest and claims whatsoever in respect of the Schedule Property.

16. The Vendor has this day delivered the peaceful and vacant possession of the Schedule Property along with the relevant original document to the Purchaser and the purchaser has accordingly taken over the delivery of the peaceful possession of the Schedule Property with the relevant original title Deeds.”

Thus it is very clear that the transfer has taken place only on 24-6-2016 and not on 30-6-2012 as claimed by the appellant. In light of the above facts, the appellant’s claim that she had invested the sale consideration in a new property within the time limit prescribed under section 54F is rejected.

4.7 It is also seen from the assessment record that the appellant had submitted before the Income Tax Officer(Inv.) Unit-2(1)on 19-6-2015 a statement of computation of capital gain from the sale of land to M/s. Suvilas Properties, in whose case a survey under section 133A had been conducted. In the computation of capital gains, the appellant had deducted the cost of acquisition and the cost of improvement of the land and arrived at the capital gains of Rs. 68,36,980. As noted by the assessing officer, this admission of her liability to pay tax on capital gains, dated 19-6-2015 was much after the alleged investment in the new property claimed to have been made by the appellant through the unregistered agreement for sale, dated 30-6-2012. Hence this fact ought to have been disclosed to the income tax authorities in 2015 itself and the claim of deduction under section 54F made in the computation of capital gains submitted at that time. The fact that the agreement to sale, dated 30-6-2012 was not made on stamp paper as per State government regulations also diminishes the evidentiary value of the same. The appellant has herself admitted that the purchase of the new asset was completed only on 24-6-2016 which is well beyond the time stipulated for claiming deduction under section 54F

4.8 The appellant has also placed reliance on certain case laws of the jurisdictional high Court. I find that the facts of these particular decisions differ from those of the appellant. In the case of CIT & Anr. v. Sambandham Uday Kumar (2012) 345 ITR 389 (Ker) : 2012 TaxPub(DT) 1804 (Karn-HC), the Hon’ble Karnataka High Court had held that even if construction of the new asset had not been completed in all respects within the time-limit stipulated under section 54F, the appellant would be given the benefit of the same. However, in that case the assessee had taken possession of the new property and the construction of the new residential house was also substantially complete. In the appellant’s case as discussed supra, there is no evidence that she had been given possession of the new property or that she had occupied the same. In CIT & Mr. v. Smt. B.S. Shanthakumari in ITA No. 165/2014, the Ho’ble High Court of Karnataka had placed reliance on its judgment in CIT & Anr. v. Sambandham Uday Kumar and allowed the claim of the assessee. Thus it is clear that the appellant’s reliance on the above case laws is misplaced

4.9 In light of the above discussion, I uphold the disallowance made by the assessing officer of the deduction claimed under section 54F of Rs. 70,84,063.”

5. From the above paras reproduced from the order of learned Commissioner (Appeals), it is seen that in para 4.7 of the order, this is the only objection noted by learned Commissioner (Appeals) that purchase of new asset was completed only on 24-6-2016 which is well beyond the time stipulated for claiming deduction under sections 54F. In para 4.8 of his order, he has referred to certain judgments of Hon’ble Karnataka High Court.

In the light of this factual position, we examine the applicability of the judgment of Hon’ble Karnataka High Court rendered in the case of CIT & Anr. v. Sambandam Udaykumar (supra). Para no. 11 of this judgment of Hon’ble Karnataka High Court is relevant and hence, the same is reproduced hereinbelow.

“11. Section 45 of the Act makes it very clear that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save or otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H is chargeable to income tax under the head ‘capital gains’ and shall be deemed to be income of the previous year in which the transfer took place. The aforesaid sections which form part of section 54 of the Act are cases where capital gain on transfer of capital asset not to be charged in those cases. Section 54F of the Act is a beneficial provision of promoting the construction of residential house.

Therefore, the said provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law, The words used in the section are ‘purchased’ or ‘constructed’. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said provision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house, If after making the entire payment, merely because a registered side deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from the said benefit.”

6. From the above para of the judgment of Hon’ble Karnataka High Court reproduced above, it is seen that as per this judgment of Hon’ble Karnataka High Court, it is held that once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from the said benefit. In the present case, this is not in dispute that the assessee has made investment of Rs. 1 Crore for purchase of residential house and only the registered deed was executed after more than 4 years and the possession was also taken after more than 4 years but as per the judgment of Hon’ble Karnataka High Court, the assessee will not disentitled from claiming deduction under sections 54F of the Income Tax Act. Respectfully following this judgment of Hon’ble Karnataka High Court, we hold that assessee should be allowed deduction under sections 54F to the extent of Rs. 70,84,063 as claimed by the assessee because investment in purchase of a new residential house made by the assessee is of Rs. 1 Crore and it was made by the assessee on 30-6-2012 whereas the transfer of the original asset took placed on 19-9-2011. There is no dispute on these factual aspects because the same are noted by the assessing officer also in para 14 of the assessment order and there is no observation of the assessing officer that these facts are not correct. Hence we hold that deduction claimed by the assessee under sections 54F is allowable and we delete the disallowance.
7. In the result, the appeal filed by the assessee is allowed.