Humayun Suleman Merchant vs. CCIT (Bombay High Court)

The facts of the appeal are as under: –

(a) On 29th April, 1995, the appellant sold a plot of land in Mumbai for a consideration of Rs.85,33,250/-.

(b) On 16th July, 1996, the appellant entered into an agreement to purchase a flat for a consideration of Rs.69,60,000/-.

(c) The appellant paid two installments of Rs.10,00,000/- each on 17th July, 1996 and 23rd October, 1996 to the developer / builder i.e. before the due date for filing of return of Income under Section 139(1) of the Act i.e. 31st October, 1996.

(d) On 1st November, 1996 the petitioner paid to the developer a further installment of Rs.15,00,000/- for purchase of flat pursuant to the agreement dated 16th July, 1996.

(e) On 4th November, 1996 the appellant filed his return of income for the Assessment year 1996-97. This was after the due date of filing the return of income.

(f) On 13th March, 2001, the Assessing Officer passed an Assessment Order under Section 143(3) read with Section 147 of the Act. The Assessment Order determined the net consideration at Rs.75.39 lakhs. Thereafter the Assessing Officer allowed a proportionate exemption of Rs.31.55 lakhs (out of Rs.35 lakhs paid till the filing of return) from Capital Gain Tax in terms of Section 54F of the Act. However, the balance consideration of Rs.43,84,334/- which was payable for purchase of the flat pursuant to the agreement dated 16th July, 1996 was brought to tax under the head ‘Capital Gains’. This on account of appellant’s failure to deposit the unutilized consideration for purchase of the flat in specified bank accounts in accordance with the scheme of Central Government as provided under Section 54F(4) of the Act.

(g) Being aggrieved, the appellant-assessee filed an appeal to the Commissioner of Income Tax (Appeals) (CIT(A)). By order dated19th October, 2001, the CIT(A) did record the fact that the appellant had obtained possession of the new flat on 27th January, 1997. However, the order of the Assessing Officer dated 13th March, 2001 was not disturbed.

(h) Being aggrieved the appellant carried the issue in further appeal to the Tribunal. By the impugned order, the Tribunal on an analysis of Section 54F(4) of the Act, came to the conclusion that the appellant had only utilized Rs.35,00,000/- of the net consideration received on sale of land towards purchase of a flat before the due date of filing the return of income. Further, the balance of the net consideration had not been deposited in the specified bank account as mandated by Section 54F(4) of the Act. Thus dismissing the appeal of the appellant-assessee.

On further appeal by the assessee to the High Court HELD dismissing the appeal:

(i) Section 54F(1) of the Act which grants exemption from Capital gain tax where a flat is purchased either within one year prior to the sale of capital asset or within 2 years after the date of sale of the capital asset or where a residential house is constructed within 3 years from the date of sale of the capital asset, is now subject to the provisions of Section 54F(4) of the Act. Thus, where the consideration received on sale of capital asset is not appropriated (where purchase was earlier than sale) or utilized (where purchase is after the sale) then the same would be subject to the charge of capital gain tax, unless the un-utilized amounts are deposited in specified bank account as notified in terms of Section 54F(4) of the Act. The exemption would be available to the un-utilized amounts only if the mandate of sub-section (4) of Section 54F of the Act is complied with. Further the proviso to sub-section(4) of Section 54F of the Act, safe guards the Revenue where the assessee had not invested the amounts chargeable to Capital Gains within the time prescribed under sub-section(1)of Section 54F of the Act. This by providing that in such cases, Capital Gain under Section 45 of the Act would be charged on the un-utilized amount as Income of the previous year in which the period of three years from the date of transfer of the capital asset expires.

(ii) The sale of capital asset took place on 29th April, 1995 for a consideration of Rs.85.33 lakhs. The agreement for purchase of construction of flat for consideration of Rs.69.90 lakhs was entered into by the appellant on 16th July, 1996. An amount of Rs.35 lakhs were utilized by the Appellant in purchase of flat before the return of income was filed on 4th November, 1996 under Section 139 of the Act. However, the mandate under sub Section (4) of Section 54F of the Act is that the amount not utilized towards the purchase of the flat has to be deposited before the due date of filing return of Income under Section 139(1) of the Act in the specified bank account. In this case admittedly the entire amount of capital gains on sale of asset which is not utilized has not been deposited in a specified bank account before due date of filing of return under Section 139(1) of the Act. Therefore where the amounts of capital gains is utilized before filing of the return of income in purchase / construction of a residential house, then the benefit of exemption under Section 54F of the Act is available. Before us it is an undisputed position that except Rs.35 lakhs, the balance of the amounts subject to capital gains tax has not been utilized before date of furnishing of return of income i.e. 4th November, 1996 under Section 139 of the Act. Therefore, on plain interpretation of Section 54F of the Act, it appears that the impugned order of the Tribunal cannot be faulted.

(iii) Reliance placed by the Appellant upon the decision of this Court in Commissioner of Income Tax Vs. Mrs.Hilla J.B.Wadia
[1995] 261 ITR 376 to contend that the issue stands concluded in favour of the appellant-assessee is not acceptable. This for the reason that the only issue for consideration before the Court in the above case was the interpretation of Section 54 of the Act. In the above case the assessee had sold her residential property and invested a substantial amount in a Society for construction of a residential flat in the building to be constructed. The assessee therein had paid substantial amounts to the society and also acquired domain over the flat within a period of 2 years from the date of the sale of her house. At that point of time i.e. for the Assessment Year 1973-74 there was no requirement of depositing any un-utilized amount in a specified bank account as now provided under Section 54(2) of the Act (similar to Section 54F(4) of the Act). Therefore the Court had no occasion to consider the provisions of Section 54(2) of the Act which is similar to Section 54F(4) of the Act, with which we are concerned.

(iv) The argument that the Circular issued by the Central Board of Direct Taxes dated 15th October, 1986 in relation to construction of a home by Delhi Development Authority should also be extended to cities like Mumbai, as there is no control over the time taken by the developer / builder to construct the house and give possession of the same to the assessee is also not acceptable. The Central Board of Direct Taxes Circular dated 15th October, 1986 was issued only in the context of Section 54 and 54(F) of the Act to clarify that an investment in a flat under the self finance scheme of Delhi Development Authority would be treated as construction for the purpose of capital gain, where an allotment letter has been issued by the Authority and facility of payment in installment is provided for the purchase of flat. It did not even remotely concern itself with the provision of Section 54(2) and/or 54F(4) of the Act with which we are concerned. The Circular only extended the meaning of constructing a residential house within a period of three years from the sale of the capital asset. The subsequent Circular issued in 16thDecember, 1993 by the Central Board of Direct Taxes relied upon by the Appellant, only extended the meaning of “constructed within a period of three years” to allotment letters issued by the Co-operative Housing Society or other similar institution for the purpose of 54F of the Act. Therefore, it does not in any manner do away with and / or relax the statutory mandate of depositing the un-utilized amount in the specified bank account as required by sub section (4) of Section 54F of the Act. Therefore, neither the decision of this Court in Mrs. Hilla J. B.Wadia (supra) nor the Central Board of Direct Taxes Circulars dated 15th October, 1986 and 16th December, 1993 would govern the issue so as to conclude the issue in favour of the Appellant.

(v) The reliance upon the decision of the M. P. High Court in Smt. Shashi Varma Vs. Commissioner of Income Tax [1997] 224 ITR 106, also does not advance the case of the Appellant. We find that the facts in the above case are similar to the one in Mrs. Hilla J. B. Wadia (supra) and for the same reasons, will not govern the present dispute. In fact, the issue stood covered by the Circular dated 15th October, 1986 as the property purchased therein was of the Delhi Development Authority. Thus, the above decision has no application to the present facts.

(vi) The contention on the basis of the two Circulars dated 15th October, 1986 and 16th December, 1993 of the Central Board of Direct Taxes that once an allotment letter has been issued to the assessee, then it follows that the title of the constructed house has passed on to the assessee. Therefore the payment made subsequent to allotment letter installments would not in any manner affect the assessee having satisfied Section 54F(1) of the Act is also not acceptable. This submission ignores the fact that Sub Section (1) of Section 54F has been made subject to Sub Section (4) of the Act. The requirement under Section 54F(4) of the Act is the deposit of the unutilized amount in the specified bank account till it is utilized. This requirement has not been done away with in either of the above two Circulars dated 15th October, 1986 and 16th December, 1993 relied upon by the Assessee.

(vii) The submission that the issue now stands concluded in favour of the Appellant by the decision of the Karnataka High Court in Commissioner of Income Tax Vs. K. Ramchandra Rao (2015) 277 CTR 0522 wherein an identical question came up for consideration and it was held that even where the assessee had not deposited the un-utilized Capital Gain in an account which was duly notified by the Central Government in terms of Section 54F(4) of the Act, the benefit of Section 54F(1) of the Act would still be available. The Court held that if the intention was not to retain the capital gains but was to invest it in construction of property within the period stipulated in Sub Section (1) of Section 54(F) of the Act then Section 54F(4) of the Act is not at all attracted. We are with respect unable to accept the reasoning adopted by Karnataka High Court in K. Ramchandra Rao (supra). The mandate of Section 54F(4) of the Act is clear that amount which has not been utilized in construction and/or purchase of property before filing the return of income, must necessarily be deposited in an account duly notified by the Central Government, so as to be exempted.

(viii) Further, Section 54F(4) of the Act specifically provides that the amounts which have not been invested either in purchase / construction of house have to be deposited in the specified accounts before the due date of filing of return of income under Section 139(1) of the Act. The aforesaid aspect it appears was not noticed by the Karnataka High Court. In any case, the entire basis of the decision of the Karnataka High Court in K. Ramchandra Rao (supra) is the intent of the parties. In interpreting a fiscal statute one must have regard to the strict letter of law and intent can never override the plain and unambiguous letter of the law. It is true that normally while construing an all India Statute like the Income Tax Act, we would not easily depart from a view taken by another High Court on an issue arising for our consideration. This on consideration of certainty and consistency in law. However, the view of the other High Courts are not binding upon us unlike a decision of the Apex Court or of Larger or a Co-ordinate Bench of this Court. Thus if on an examination of the decisions of the other High Court we are unable to accept the same, we are not bound to follow/accept the interpretation of the other High Courts leading to a particular conclusion. In this case we find that the decision of the Karnataka High Court in K. Ramchandra Rao (supra) was rendered sub-silentio i.e. no argument was made with regard to the requirement of deposit in notified bank account in terms of Section 54F(4) of the Act before the due date as provided in Section 139(1) of the Act. As observed in Salmond’s Jurisprudence 12th Edition : “The rule that a precedent sub silentio is not authoritative goes back at least to 1661(m) when Counsel said : ‘An hundred precedents subsilentio are not material’; and Twisden J agreed : ‘precedents sub-silentio and without argument are of no moment’. This rule has ever since been followed.”

(ix) In fact this Court in Commissioner of Income Tax vs. Thana Electricity Supply Ltd. 206 ITR 727 has observed that a decision of one High Court is not binding as a precedent on another High Court unlike a decision of the Apex Court. In support, reliance was placed in the above order upon the decision of the Apex court in Valliamma Champaka Pillai vs. Sivathanu Pillai AIR 1137 1979 (SC) 1937 to hold that it is well settled that decision of one High Court is not a binding precedent upon another High Court and at best can only have persuasive value. However, at the cost of repetition we must emphasize that the decision of another High court rendered in the context of an all India Act would have persuasive value and normally to maintain uniformity and certainty we would adopt the view of the other High Court. However, with the greatest respect, we find that the decision of Karnataka High Court in K. Ramchandra Rao (supra) has been rendered sub-silentio. Therefore, we cannot place any reliance upon it to conclude the issue on the basis of that decision.

(x) The argument that liberal / beneficial construction should be given to the provision of Section 54F of the Act as its object was to encourage the housing sector which would result in the benefit being extended to the assessee is also not acceptable. We find that observation of the Delhi High Court in Commissioner of Income Tax vs. Ravinder Kumar Arora [2012] 342 ITR 38 that Section 54F of the Act should be liberally construed was in the context of the benefit being denied as the name of the wife was added to purchase made by the assessee of a new flat. This denial was even though all the requirements of Section 54F of the Act stood satisfied. Therefore the observation of the Delhi High Court would have no application to the present facts.

(xi) It is a settled position in law that no occasion to give a beneficial construction to a statute can arise when there is no ambiguity in the provision of law which is subject to interpretation. Thus in the face of the clear words of the Statute the intent of parties and/or beneficial construction is irrelevant. In fact, the Apex court in Sales Tax Commissioner vs. Modi Sugar Mills [1961] 12 STC 182 reiterated the well settled principle of interpretation in the following words: “In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statute be interpreted on any presumption or assumptions….It must interpret a taxing statute in the light of what is clearly expressed …”

Recently, the Supreme Court in Mathuram Agrawal vs. State of Madhya Pradesh [1999] 8 SCC 667 has observed as under :-

“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the Legislature…..” (emphasis supplied)

Similarly this Court in Thana Electricity (Supra) had observed as under:

“If the provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted. This is a well accepted view of law. It is the satisfaction of the court interpreting the law that the language of the taxing statute is ambiguous or reasonably capable of more meanings than one, which is material. If the court does not think so, the fact that two different views have been advanced by the parties and argued forcefully or that one such view which is favourable to the assessee has been accepted by some Tribunal or High Court, by itself will not be sufficient to attract the principle of beneficial interpretation”

In the present facts the provision of Section 54F(4) of the Act are very clear. There is no ambiguity. Thus, there is no occasion to apply liberal / beneficial construction while interpreting the Section as contended by the Appellant.

(xii) The contention that the word “appropriation” used in Section 54F(4) of the Act would also apply in the present case where the capital asset has been sold and sale proceeds are earmarked to be invested in construction of house is also not acceptable. A plain reading of Section 54F(4) of the Act militates against it. As pointed out by Mr.Malhotra, learned Counsel appearing for the revenue, Section 54F(4) of the Act deals with two classes of cases, one where purchase of new residential house is within a period of one year before the date on which capital asset is sold by assessee and second class of cases where the amount subjected to capital gains are utilized for purchase/ constructing a flat, post the sale of the capital asset. In the present facts we are concerned with the second class i.e. purchase post the sale of the capital asset.

(xiii) Parliament has used the word “appropriated” in the first class of cases i.e. where property has already been purchased prior to the sale of capital asset and the amount received on sale of capital asset is appropriated towards consideration which has been paid for purchase of the flat. In this case we are concerned with the purchase / construction of residential housing, after the sale of capital asset. This requires the amount -which is to be subjected to capital gain has to be utilized before the date of filing of return of Income under Section 139 of the Act by the assessee. Section 54F(4) of the Act itself clearly states that the amount not utilized in purchase / construction of flat / house should be deposited in the specified Bank notified by the Government. Thus the plain language employed in Section 54F(4) of the Act makes a clear distinction between cases of appropriation (purchase prior to sale of capital asset) and utilization (purchase/construction after the sale of capital asset). Therefore the word “appropriated” would have no application in cases of purchase / construction of a house after the sale of capital asset with which we are concerned.

(xiv) The submission that as the entire amount has been paid to the developer/builder before the last date to file the return of Income under Section 139 of the Act, the exemption is available to the appellant under section 54F(4) of the Act is also not acceptable. The Gauhati High Court in Rajesh Kumar Jalan was concerned with the interpretation of Section 54 of the Act. It construed the provision of sub Section (2) of Section 54 of the Act which is identically worded to sub section (4) of Section 54F of the Act The Court in the aforesaid decision held that the requirement of depositing before the date of furnishing of return of Income under Section 139 of the Act has not to be restricted only to the date specified in Section 139(1) of the Act but would include all sub section of Section 139 including sub section (4) of the Act. On the above basis it concluded that if the amount is utilized before the last date of filing of the return under Section 139 of the Act then the provision of Section 54(2) of the Act would not hit the assessee before it. It is not very clear in the above case whether the amounts were utilized before the assessee filed its return of income or not.

(xv) However, the factual situation arising in the present case is different. The return of income is admittedly filed on 4th November, 1996. In terms of Section 54F(4) of the Act as interpreted by the Gauhati High Court in Rajesh Kumar Jalan (supra) the amounts subject to capital gain on sale of the capital asset for purpose of exemption, has to be utilized before the date of filing of return of income. In this case 4th November, 1996 is the date of filing the return of Income. It is not disputed that on 4th November, 1996 when the return of income was filed, the entire amount which was subject to capital gain tax had not been utilized for the purpose of construction of new house nor were the unutilized amounts deposited in the notified Bank Accounts in terms of Section 54F(4) of the Act before filing the return of income. It is also to be noted that in line with the interpretation of Gauhati High Court on Section 54F(4) of the Act, the Assessing Officer had taken into account all amounts utilized for construction of a house before filing the return of income on 4th November, 1996 for extending the benefit of exemption under Section 54F of the Act. Therefore, in the present facts, the decision of the Gauhati High Court in Rajesh Kumar Jalan (supra) would not apply so as to hold that the appellant had complied with the Section 54F(4) of the Act.

(xvi) In the above view question no. 2 is also answered in the affirmative i.e. in favour of the revenue and against the appellant assessee.