|COURT:||Karnataka High Court|
|CORAM:||Aravind Kumar J, Vineet Saran J|
|CATCH WORDS:||capital gains, exemption, new residential house|
|DATE:||July 13, 2015 (Date of pronouncement)|
|DATE:||October 20, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 54F is a beneficial provision & must be interpreted liberally. It does not require that the construction of the new residential house has to be completed, and the house be habitable, within 3 years of the transfer of the old asset. It is sufficient if the funds are invested in the new house property within the time limit|
Immediately after sale of the property on 06.10.2008, the assessee purchased another residential plot on 13.10.2008 and on 02.06.2010 she obtained approval of the building plan from the local authority and commenced the construction. However, it was not completed within 3 years i.e., on or before 05.10.2011. The assessing officer rejected the claim of the assessee for deduction u/s 54F towards the benefit of Long Term capital gain only on the ground that the construction has not been completed. The assessee produced photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction. The CIT(A) amd Tribunal followed the principles enunciated while interpreting Section 54F of the Act in Commissioner of Income Tax Vs Sambandam Udaykumar reported in (2012) 81 CCH 0151 whereunder it came to be held that said provision has to be construed liberally for achieving the purpose for which it was incorporated, allowed the appeal of assessee. On appeal by the department to the High Court HELD dismissing the appeal:
Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respect “that by itself would not disentitle the assessee to the benefit flowing from Section 54F” (Commissioner of Income Tax Vs Sambandam Udaykumar reported in (2012) 81 CCH 0151, CIT Vs Sardarmal Kothari (2008) 302 ITR 286 (SLP dismissed in CC No.3953-3954/2009 on 06.04.2009).
That”s a fair judgment.There are many occasions due to the builder not keeping up the word the assessees loose the benefit.The officer by a long drawn out argument does not allow the benefit. Why should an income tax officer think in an imperial manner . After all he has to encourage the citizens to comply with the law and look into the fact if he has complied with the law. which in this case he has but technically he did not comply with it . that is where the discretionary power of the officer does come and help the citizen to be tax compliant .I hope that the courts will come out with such judgments and infringe of the rights of a law abiding citizen.Let us remember that we are not any longer under the british rule where the administers were working for the king of England and not for the Indian people
Sir, It is a very fair judgement. Your views on how the officers should behave in a helpful and non adversarial fashion are appreciable.
There are a lot of constraints under which an order is passed by an AO. The Prime necessity of AO is to look at ACT first and whether the same has followed by the assessee in letter and spirit. There is no discretion allowed here and any leniency shown here will be questioned by audit and AO has to reopen the assessment to redo the assessment. That will be a bigger harassment as sufficient number of years would have gone by then. So it is better that the AO concludes an assessment based on the exact wording of the Act and assessee gets the relief at the appellate stages
There are a lot of constraints under which an order is passed by an AO. The Prime necessity of AO is to look at ACT first and whether the same has been followed by the assessee in letter and spirit. There is no discretion allowed here and any leniency shown here will be questioned by audit and AO has to reopen the assessment to redo the assessment. That will be a bigger harassment as sufficient number of years would have gone by then. So it is better that the AO concludes an assessment based on the exact wording of the Act and assessee gets the relief at the appellate stages
A small typographic mistake in the post does not infringe
good judgement indeed.
Fundamental rights guarantee one properties, even under Art 300A, though Art 31 had been messed up by government constitutional amendment.
Besides, Art 265 clearly guarantees ‘procedure established by law’, after all no statute can be bereft of beneficial effects, vide the term procedure established by law when once we read Art 265 r/w Art 14.
Income tax Act 1961 must be by necessary implication is a beneficial legislation. That means its sections must by necessary implication need be appreciated as friendly to tax payers.
here sec. 54F need necessarily be read in a citizen/tax payer friendly manner – in a meaningful beneficial manner, in this case…
when you stipulated within 3 years you need to put the effects of capital gains be used for another property , the Revenue per force ensure if the effects are deployed that way only and nothing more, the AO obviously seems to be some arbitrary person, and he has no place in democratic india, in fact such arbitrary officers need be discharged from service as they could not rightly dispense the be beneficial legislation, if the legislation has some defects in rendering beneficial impacts, the public servant need to bring to the notice of such a defect before the relevant authorities concerned for rectification and thus protect the beneficial nature of any legislation, after all, india today is a vibrant democracy, that way ‘public servants’ need to function.
No public servant could meaninglessly offend the genuine tax payers, and the officer should ensure all the necessary rights of tax payer is well protected by him while he tries to tax him, taxation should not be harsh under any circumstances, for the tax payer is only helping ensuring the governments to run their obligations to the very citizens, tax money is not to right of government but it is the right of citizens only.
If the officer committed this error first time, he can be strictly censured, if he did more than trice in such assessments he could be discharged from service, that way the honorable constitutional courts need to judge is my view, why if were I on the bench I would have recommended so.
After all public service means one needs to see a lot of pros and cons.
One needs to know when a public servant like an AO if he acts under some section, as if the section meant so, but without right support of any judgement in any beneficial legislation, courts need to follow the principle what judge Mr. Peckham followed in USSC in Ex parte Young v st of Minnesota (1908)…. ‘when an Act or section void, if used by an official illegally, he acts in his independent capacity rather than as a state official = public servant in india.
The state, he reasoned, had no power to grant such a person, ” any immunity from responsibility to the supreme authority of the United states’.
Like wise, if in india we find any AO acts illegally naturally, he shall not have immunity from responsibility, as the state has no power to grant sch a person here AO ‘any immunity’.
if the court reads reasonably, naturally no AO would exceed his powers as he would be personally liable, and the tax payers moneys could not be charged, to provide that so called official some so called immunity.
the hon courts need to instill such element of real personal responsibility on such official or officer as the state is without power to grant any such immunity whatsoever, the state has to work within the limitation of power what a particular grants, nothing more, nothing less.
Art 14 is misinterpreted in India.
see for example when Mandal commission in fact misinterpreted art 14, and it gave reservations, that means art 14 is universal for whole of india, not only amenable to backward classes only, it is like Liberty in American constitution fourteenth amendment.
Oliver Wendell Holmes rightly interpreted in Lochner New York (1905)….when he wrote dissenting opinion in that case.
He in his first paragraph said, ‘a constitution is not intended to embody a particular economic theory’; and in his second paragraph, he said, focusing on the meaning of Liberty without without mentioning the justifications for the New York state (law) statute that other dissenters had discussed at length, that is not relevant here.
Holmes later chief chief justice of USSC rightly said , ‘I think the word ‘liberty’ in the Fourteenth Amendment is perverted when it is held ‘to prevent’ the natural outcome of a dominant opinion, unless it can be said , ‘that a rational (natural) and fair man necessarily would admit, that the statute proposed would ‘infringe’ fundamental principles ( read here – first paragraph – a constitution is not intended to embody a particular economic theory’), as they have been understood by traditions of our people and our law’ ( read here..tradition honored ‘Merit’ in any one, that all people if fair and reasonable must necessarily agree ‘Merit’ is vital for any meaningful development of any man or his country…no one would say ‘merit’ is not required, like in a class room, you cannot give dullard 10 marks if he secures just Zero… but perception in reservation in India is any one , (especially in backward classes) securing very low percentage could be elevated to a meritorious person of any general community, is a preposterous proposition, simply thinking constitution is proposing some so called particular economic theory).
His dissent is rightly accepted even today as a mst vibrant thought…
indians say they are really wisest if so where is their wisdom?
Now bring that back from deep down the valleys, and rise up is a suggestion to constitutional courts , i know politicians would play but courts need to dispense justice per constitutional basic tenets.
Like that ensure tax law interpreation are enforced.
Problem in india is reasonably meritless get positions they get into arbitrary superiority perceptional syndromes, that only cause a lot of ordinary people are taken for granted.
None says, if you are meritorious from any community take positions of authority like chandra gupta mauriya and rule..else meritless would behave like mahapadmanandin at the cost of people, would the people of india like them to be administered by meritless ? first decide india, else some where some chanakya would be born and would invite some Alexander the great to help restore meaningful india is the thought is brought out here, that is all.
think, think, and think, what IBM HQ has that vision statement on its building.
What if the entire capital gains amount does not get invested even after the expiry of the three years from the date of sale of the original flat.
The reason that the entire cap gain is not invested is because the builder has not got approvals and therefore has not demanded the second instalment.
As the payment schedule has to be in line with the constructionn work progress and since construction has got delayed and therefore builder has not asked for further instalement, about 50% of the cap gain amount is still lying in the nationalised bank as rqd by section 54.
Now if the builder is late on his work and therefore has not demanded further payment, the assesse can not purposely go and throw her money by giving to the builder even though the work is not progressing!
So 50% money is given to the builder for which official receipts are with the assessee. Due to lack of approvals, builder has not executed the agreement of sale. Email communication and offical receipts clearly give the flat no. booked by the assesse. 50% amount is lying in natinalised bank. Three years have passed.
Can you all experts pls help me out with some solace, case laws to support my appeal for allowing the exemption.
Thanking you in advance.