Even in the absence of a title deed, taxpayers can hold the property. The point of time at which taxpayer holds the property is to be taken into consideration in determining the capital gain

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Even in the absence of a title deed, taxpayers can hold the property. The point of time at which taxpayer holds the property is to be taken into consideration in determining the capital gain

There are some cases which have wider repercussions and worth referring to in various income tax proceedings. One such case is related to Capital gains is Karnataka High Court in the case of CIT-III vs. A. Suresh Rao wherein the court has held as under:

  1. By hyper-technical or legalistic approach, such benefit conferred on an Assessee cannot be denied. Very fact that the law encourages an Assessee to make such investments to avoid payment of tax, such benevolent provision which is meant for such assesses has to be equitably interpreted and justly administered.
  2. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential houses.
  3. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to DE deducted. What remains thereafter is the capital gain.
  4. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favor of the Assessee.
  5. Even in the absence of a title deed, the Assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain.
  6. There is no dishonest or improper motive on the part of the Assessee in claiming said exemption. The facts seen from the social milieu of our society, it is in the natural course of conduct of any law abiding citizen. When capital gain is accrued in him instead of paying tax to the Government, he has invested the money in the aforesaid manner, which gives him the benefit of exemption from payment of capital gains. He satisfies the requirement of the law.
  7. The court referred Smt.Saroj Aggarwal vs. Commissioner of Income-Tax reported in (1985) 156 ITR 497 (SC), Commissioner of Income Tax vs. Smt.R.R.Sood reported in (1986) 161 ITR 92 (Bom) & Commissioner of Income Tax vs. MormasjiMancharjiVaid reported in (2001) 250 ITR 542 (Ouj) in its judgement.

The complete order of the case is as under:

 

COMMISSIONER OF INCOME TAX-III vs. A. SURESH RAO

HIGH COURT OF KARNATAKA

  1. KUMAR & RATHNAKALA, JJ.

ITA NO. 417 OF 2013

28th October, 2013

(2013) 86 CCH 0329 KarHC

(2014) 223 TAXMAN 0228 (Karnataka)

Legislation Referred to

Section54EC, 143(1), 2(42-A), 48

Case pertains to

Asst. Year2009-10

Decision in favour of:

Assessee

  1. KUMAR J.
  2. This appeal is by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore holding that the capital gain claimed by the assessee is to be treated as a long term capital gain and consequently he is entitled to the benefit of exemption from levy of tax as a capital gain under Sections 54EC and 54F of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’ for brevity).
  3. For the purpose of convenience, parties are referred to as they are referred in the original proceedings.
  4. The assessee is a chartered accountant. In the assessment year 2009 – 10, he filed the return of income on 29.09.2009 declaring income of Rs.11.63,410/-. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and notice under Section 143 (2) of the Act was issued. The assessee appeared in pursuance of the notice, produced the details called for. The material produced discloses that during the financial year 2009 -10, the assessee sold the property No.365-A, situated at Sector 6, Hosur – Sarjapur Road, Bangalore on 28.05.2008 for consideration of Rs. 1,13,00,000/-. The assessee worked out the income from long term capital gain as under:-
Sale consideration Rs. 1,13,00,000/-
(Less) Cost of property allotted on 21.09.1988 Rs. 1,20,510/-
Indexed cost of acquisitionRs. 1,20,510/- x 161/585 Rs. 4,37,878/-
Rs.1,08,62,122/-
(Add) Registration Fee etc.paid on 27.02.2008 Rs. 11,770/-
The total capital gain is Rs.1,08,73,892/-

Out of the consideration received by the assessee, lie invested an amount of Rs.28,00,000/- and Rs.22,00,000/- in REC bonds and National Highway Authority Bonds respectively. He also purchased an apartment, at Hebbal, Bangalore for a sum of Rs.56,03,596/- and offered the balance amount of Rs.2.70.296/- to tax under the head income from long term capital gain.

  1. The assessing authority was of the view that the sale deed executed in favor of the assessee was on 27.02.2008 and he sold the property on 29.05.2008 within four months from the date of purchase and therefore, the capital] gains arising there from cannot be construed as long term capital gain. Therefore, he disallowed the exemption claimed under Sections 54EC and 54F of the Act and raised a demand for a sum of Rs.45,94,750/-. Aggrieved by the said order, the assessee preferred an appeal with the Commissioner of Income Tax (Appeals). The Appellate Authority after referring the judgment to which the reliance is placed was of the view that the crux of the discussion is that the assessee was allotted a site on 25.08.1988 and lot of incidents happened before the final site was allotted to him. The capital asset involved was a site which was allotted and registered on 27.02.2008, even after applying the Board circular referred to by the assessee the date of allotment of this particular site is that which matters and not the earlier allotment and cancellation for the purpose of reckoning capital gams. The Appellate Authority also held that the property was sold within a period of three years and hence, it is liable to be taxed as snort term capital gain. Being aggrieved by the order of the First Appellate Authority, the assessee preferred an appeal before the Tribunal.
  2. The Tribunal interpreting the word “held by the assessee” in Section 2 (42-A) of the Act, held that it does not mean vesting of legal title to the property in the assessee. He acquired a right to hold the property when allotment was made for the first time on 25.8.1988. Because of the disputes between the Bangalore Development Authority and the original owners of the site allotted to the assessee, lie could not be conveyed a site without encumbrance and with clear title. Therefore, in the end, though the site was allotted on 15.2.2008 followed by a registered sale deed dated 27.2.2008, the claim of the assessee that he held the property from the year 1998 is to be accepted. As the sale has taken place beyond three years’ period, the capital gains accrued on such transfer constitutes a long term capital gain and therefore, he is entitled for the exemption sought for. Accordingly, the appeal was allowed. The impugned order passed by the Assessing Authority as well as the Appellate Authority was set aside. Aggrieved by the said order, the Revenue has preferred this appeal.
  3. In the light of the aforesaid facts, the substantial question of law that arises for our consideration in this appeal is as under:

Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that the expression “held by the assessee” in Section 2(42-A) of the Income Tax Act implies a person in whose favor an allotment of a site made in the first instance, when the entire consideration was paid in pursuance of such allotment?

  1. The learned Counsel appearing for the revenue contended that though initially the site was allotted on 21.9.1988 and an amount of Rs. 1,11,480/- was paid as consideration for the said site and sale deed also came to be executed on 6.10.2005, the same was cancelled on 18.9.2007. Subsequently, one more site was allotted in Hennur-Banaswadi Road, which allotment also came to be cancelled on 9,1.2008 and finally the site in question was allotted on 15.2.2008 followed by a registered sale deed dated 27.2.2008. Therefore, it is only on 27.2.2008 it can be said that the assessee held the capital asset. Therefore, when he sold the said capital asset on 29.5.2008 within three years from the date of purchase, the capital gains accrued thereon is a short term capital gain and therefore, the assessee is not entitled to exemption sought for under Section 54EC and Section 54F of the Act. The Tribunal was not justified in interfering with the order passed by the authorities and therefore, he submits that a case for interference is made.
  2. Per contra, learned Counsel appearing for the assessee submitted that, subsequent 10 the amendment of Section 2(47) of the Act, the word “transfer” has undergone substantial change, clauses (5) and (6) are introduced, which deal within its fall cfdefinition “transfer” any transaction which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, when once an allotment is made and the allotted has paid the requisite consideration, in other words, has paid the cost of acquisition of the asset, for the purpose of determining whether it is a long-term capital gain or short-term capital gain, it is the date of payment of cost of acquisition, which is to be taken into consideration as it is on that date, the assessee held the asset in view of the expanded definition of the word “transfer” and therefore, he submits that the order passed by the Tribunal is legal and valid and do not call for any interference.
  3. Both the learned Counsel have relied on several judgments of various courts apart from placing reliance on the statutory provisions, the circulars issued by the Department.
  4. The word “capital gains’’ is not defined under the Act. However. Section 48 of the Act provides for computation of the capital gains. The Act defines what is the“short-term capital asset’” and what is the “short-term capital gain.”

Section 2 (42A) of the Act defines “short-term capital asset” as under:

“2(42A): “short-term capital asset” means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:

Provided that in the case of a share held in a company or any other security listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of Section 10 or a zero coupon bond, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted.”

Section 2(42B) of the Act defines what is the short-term capital gain. It reads as under:

“2(42B) : “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset.”

Section 2(29A) of the Act defines “long-term capital asset” as under:

“2(29A): “long-term capital asset” means a capital asset which is not a short-term capital asset”.

Section 2(29B) of the Act defines “long-term capital gain”, which reads as under:

“2(29B): “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset.”

The definition of “long-term capital gain” and “short-term capital gain” refers to “transfer”. The word “transfer” is also defined under the -Act at Section 2(47). This provision has undergone substantial amendment by Finance Act, 1987, which came into effect from 1.4.1988, where under clauses-5 and 6 were introduced. In the definition of “short-term capital asset” prior to the amendment, by Finance Act No.2 of 1977, which came into effect from 1.4.1978, the period prescribed was 60 months. By Finance Act, 1977, it was amended reducing the period to 36 months. In the memorandum explaining the provisions in the Finance(No.2) Bill, 1977, the reasons for enlargement of the scope of long-term capital gains is set out as hereunder:

“Enlarging the scope of “long-term capital gains”. – Any profits or gains arising from the transfer of any capital asset held by a tax payer for not more than 60 months immediately preceding the date of its transfer are treated as capital gains relating to a “short-term capital asset” and charged to tax as ordinary income. Gains arising from the transfer of a capital asset held by the tax payer for more than 60 months are treated as “long-term capital gains” and charged to tax on a concessional basis.As the holding period of 60 months is unduly long and adversely affects the investment climate, the Bill seeks to secure that gains arising from the transfer of any capital asset held by a tax payer for more than 36 months immediately preceding the date of its transfer are treated as “long-term capital gains” and, therefore, charged to tax on a concessional basis. ”

Similarly, the reason for introduction of clauses – 5 and 6 in the definition of the word “transfer” in Section 2(47) of the Act is contained in the circular No.495 dated 22.9.1987 by way of explanatory notes on the provisions of the Finance Act, 1997, which reads as under:

“11.1 The existing definition of the word “transfer” in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member of or acquiring shares in a co-operative society, company, or association of persons or by way of any agreement or any arrangement whereby such person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangement confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multistory constructions in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of the Transfer of Property Act, 1882. New sub-clauses (v) and (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above.

11.2 The newly inserted sub-clause (vi) of section 2(47) has brought into the ambit of “transfer”, the practice of enjoyment of property rights through what is commonly known as Power of attorney arrangements. The practice in such cases is adopted normally where transfer of ownership is legally not permitted. A person holding the power of attorney is authorized the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transfer or.

11.3 These amendments shall come into force with effect from 1-4-1988 and will accordingly apply to the assessment year 1988-89 and subsequent years. ”

Subsequent to the amendment, the Central Board of Direct Taxes issued a Circular No.471 dated 15.10.1986 explaining how capital gains from long-term capital asset is to recalculated in cases where the allotted gets title to the property on the issuance of allotment letter and the payment of installments though possession is not delivered and registered deed of conveyance is not disputed. It reads as under:

“474. Capital gains from long term capital asset – Investment in a flat under the self-financing scheme of the Delhi Development Authority – Whether to lie treated as construction for the purposes of capital gains

  1. Sections 54 and 54F provide that capital gains arising on transfer of a long-term capital asset shall not be changed to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.
  2. The Board had occasion to examine as to whether the acquisition of a flat by an allotted under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allotted. Under the SFS of D.D.A., the allotment letter is issued on payment of the first installment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allotted gels title to the property on the issuance of the allotment letter and the payment of installments is only a follow-up action and. taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allotted is to file a suit for recovery of possession.
  3. The Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allotted and that the transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in installments subject to the condition that the allotted has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position slated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains.”

Section 48 of the Act deals with mode of computation of capital gains, which reads as under:

“48. Mode of computation. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received, or accruing as a result of the transfer of the capital asset the following amounts, namely:-

(i) expenditure incurred wholly and exclusively in connection with such transfer,

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:

Provided….

Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian Company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted. ”

A reading of the aforesaid provisions makes it clear that for the purpose of determining the income chargcable under the head “capital gains”, the full value of the consideration received or accrued is to be taken inco account. Out of the said amount, deductions have to be made in respect of

(a) expenditure incurred v holly and exclusively in connection with such transfer;

(b) the cost of acquisition of the asset and the cost of any improvement thereto.

  1. For the said purpose, in the case of long term capital gain for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement”, are to be substituted. The same is defined in the Explanation to the said section. It is to be calculated as prescribed in the Explanation. Then it is to be deducted out of the full consideration received. Therefore, investment by way of a cost of acquisition of the asset, cost of improvement of the asset, any expenditure incurred wholly and exclusively in connection with such transfer and the said amount is being converted into indexed cost of acquisition or indexed cost of any improvement would in fact constitute the principal amount invested for acquiring the said asset. Any amount received by the assessee for the said investment is the gain which accrues to him by virtue of the transfer of capital asset. If the investment and subsequent transfer is after a period of three years of investment, it becomes a long-term capital gam and then such gain would be entitled to the benefit of exemption as provided under Section 54EC and 54F of the Act.
  2. The definition as contained in Section 2 (42A) of the Act, though uses the words, “a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer”, for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of “short-term capital gain, in fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multi storied constructions in big cities. The aforesaid new sub-clauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transfer or. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.471 goes to the extent of clarifying that for the purpose of Income Tax Act, the allotted gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow-up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in installments subject to the condition that the allotted has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt.Saroj Aggarwal -vs- Commissioner of Income-Tax reported in (1985) 156 ITR 497 (SC) wherein it is held as under:

“Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice.Toe hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered………………Courts should, whenever possible unless prevented by the express language of any section or compelling circumstances of any particular case, make benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country. ’’

Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very” clear. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to De deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favor of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain.

  1. Revenue relies on the case of Commissioner of Income Tax -vs- Smt.R.R.Sood reported in (1986) 161 ITR 92 (Bom), where the Court was dealing with an agreement to purchase a plot dated 25thMay 1963 and the amount paid under the said agreement. In that context, it was held that it was on the execution of the conveyance that the assessee acquired title to the said plot and it was only from the date of conversant that it can be said that assessee held the said plot as the owner thereof. When the assessee has disposed of or sold the said plot within 12 months of acquiring title to the same and holding the same as the owner thereof, the said portion is regarded as a short-term capital asset in the hands of the assessee.
  2. Again in the case of Commissioner of Income Tax -vs- MormasjiMancharjiVaid reported in (2001) 250ITR 542 (Ouj),a Full Bench of the Gujarat High Court was dealing with an agreement where leasehold rights were conferred under an agreement dated 3rd August 1968, In the said case, after referring to the definition of the same as contained in the Transfer of Property Act and then referring to the provisions of Section 45 of the Income Tax Act, it is held as under:

“21. In case of ownership, there is a transfer of capital assets. This is a case of lease. The transference was put in possession and was enjoying the property as a leaseholder. There cannot be different criteria for transfer of capital asset. For the purpose of tax even if document, i.e., conveyance is not executed but the transference exercises alt the rights of the true owner, one cannot emphasize for the taxation purpose that unless and until the deed of conveyance transferring the rights in property is executed, the transference is not liable though did everything which is required for acquiring a property. As pointed out, vendor is not permitted in law to dispossess or question the title of the vended.”

15 All the aforesaid judgments relied on by the Revenue are cases arising prior to the amendment to Section 2(47) of the Act. The very same judgments show, in particular the judgment of the Full Bench of the Gujarat High Court, the reasons for amendment i.e., even in the absence of a registered deed of transfer, if the transaction in question demonstrates the intention of the parties and after paying the entire consideration agreed upon, the purchaser enjoys the property. The fact that the transaction is not completed by execution of the registered sale deed makes no difference in the eye of law for the purpose of taxes. If the Revenue is entitled to collect tax on such capital gains, even in the absence of a registered document, on the same analogy, the assessee, who is liable to pay the capital gains, is also entitled to the exemption granted under the very Act on such capital gains. That is precisely what the Apex Court has said in Smt.Saroj Aggarwal’s case (supra) that facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Too hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. The Courts should place an interpretation making a benevolent and justice oriented inference and the facts must be viewed in the social milieu of a country. Now in this background, let us see the facts of this case.

  1. The a,ssessee was allotted a site on 21.9.1988 in R.M.V.Extension, Bangalore. The assessee paid a sum of Rs. 1,11,480/- on such allotment. He was also put in possession of the property and possession certificate was issued. On compliance with other legal requirement, a registered sale deed came to be executed on 6.10.2005 in his name. However, the said site was the subject matter of litigation and therefore, when the assessee was not allowed to enjoy the said property in obedience of the orders passed by the courts, the BDA cancelled the sale deed dated 6.10.2005 by executing a deed of cancellation dated 18.9.2007. Thereafter in lieu of the site, which was cancelled, a fresh allotment was made in Hennur-Banaswadi road. When the assessee after the site being allotted, went to the spot, he found that there was a construction, which was also involved in a legal dispute. In spite of the orders of the court to demolish the structure, it has not been done. When he reported the matter to the authorities, the allotment of site in Hennur-Banaswadi road was cancelled on 9.1.2008 and in lieu of the same, the present site was allotted on 15.2.2008. A registered sale deed came to be executed on 27.2.2008. No consideration was paid under the said sale deed. The consideration paid on 21.9.1988, which was acknowledged in the sale deed dated 6.10.2005, was treated as a consideration for the same on 27.2.2008. It is thereafter the assessee transferred the site by way of a registered sale deed in favor of a purchaser on 29.5.2008 and received a consideration of Rs.1 crore 13 lakhs. This site, which was transferred, he was holding it from 21.9.1988, when he paid the consideration on intimation of allotment. Merely because the original site which was allotted was cancelled, yet another site was allotted and the said site was also cancelled and thereafter the present site was allotted, in law would make no difference. Admittedly, the consideration paid on 21.9.1988 is treated as the consideration for the sale dated 27.2.2008. In other words, the cost of acquisition of the asset was paid on 21.9.1988 and no cost was paid either on the date of allotment i.e., on 15.2.2008 or on the date of registered sale deed on 27,2.2008. For the purpose of computing the capital gains under Section 48 of the Act, it is the date of acquisition of the asset, which is to be taken into consideration and the said cost of acquisition is to be converted as the indexed cost of acquisition as defined in the Explanation to Section 48 of the Act and, the said amount is to be deducted out of the sale consideration to arrive at the capital gain. Accordingly, after deducting the cost of acquisition and the registration fee, the capital gain after the transfer of the said asset was Rs. 1,08,73,892/- as it was a long-term capital gain. He invested an amount of Rs.28 lakhs in Rural Electrification Corporation Limited and an amount of Rs.22 lakhs in the National Highways Authority of India in terms of Section 54EC of the Act. Similarly he purchased an apartment at Hebbal, Bangalore, for a sum of Rs.56,03,590/- in terms of Section 54F of the Act and sought an exemption. For the balance of Rs.2,70,296/-, he has paid the long-term capital gain. Therefore, the assessee has rightly claimed the benefit of exemption under Sec tron 54EC and 54F of the Act.
  2. In that view of the matter, if we look at the facts in a natural perspective, there is no dishonest or improper motive on the part of the assessee in claiming said exemption. The facts seen from the social milieu of our society, it is in natural course of conduct of any law abiding citizen. When capital gain is accrued in him instead of paying tax to the Government, he has invested the money in the aforesaid manner, which gives him the benefit of exemption from payment of capital gains. He satisfies the requirement of the law. By hyper technical or legalistic approach, such benefit conferred on an assessee cannot be denied. Very fact that the law encourages an assessee to make such investments to avoid payment of tax, such benevolent provision which is meant for such assesses has to be equitably interpreted and justly administered.
  3. In that view of the matter, we do not see any infirmity committed by the Tribunal in passing the impugned order extending the benefit which the law has extended to an assessee. Therefore, there is no merit in this appeal. The substantial question of law is answered in favor of the assessee and against the Revenue.

Appeal is dismissed.

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