IN THE ITAT PUNE BENCH ‘B’
Shetty G.D.
v.
Income-tax Officer, Wd 2(2), Pune
C.L. SETHI, JUDICIAL MEMBER
AND AHMAD FAREED, ACCOUNTANT MEMBER
IT APPEAL NOS. 1180(PN) OF 2002
AND 714 (PN) OF 2003
CO NO. 13 (PN) OF 2006
[Assessment year 1995-96]
February 28, 2007
Section 54F, read with section 271(1)(c), of the Income-tax
Act, 1961 - Capital gains - Exemption of, in case of investment in residential
house - Assessment year 1995-96 - Whether as per CBDT. Circular No. 471, dated
15-10-1986, since cases of allotment of flats under self-financing scheme of
any development authority have been treated to be cases of construction or
purchase of a house for purpose of allowing deduction in respect of capital
gain under section 54F, a similar anology shall equally apply while
interpreting word ‘own any residential house’ used in other part of same
section having same intent and object thereof - Held, yes - Whether further, in
view of decision of Supreme Court in case of CIT v. Podar Cement (P.) Ltd.
[1997] 226 ITR 625/92 Taxman 541, holding that for purpose of section 54F,
meaning of ‘own’ or ‘owner’ is to be understood in same sense in which it is
understood for purpose of sections 22 to 26, it could be said that any one in
possession of any residential house in his own title exercising such dominion
over residential house as would enable others being excluded therefrom and
having right to use and occupy same and/or to enjoy its usufruct in his own
right and/or is entitled to receive income from residential house in his own
right, would be owner of residential house, though a formal deed of title may
not have been executed and registered as contemplated by Transfer of Property
Act. Registration Act, etc. - Held, yes - During relevant year, assessee sold a
plot and claimed exemption of capital gains arising from sale under section 54F
on ground that entire consideration amount received on sale of plot was
deposited in capital gains account scheme in bank - Assessing Officer found
that assessee was residing in a flat which was allotted to him by State Housing
Authority - Thus, he disallowed assessee’s claim on ground that as he was
already on owner of a residential house property, he was not eligible for
deduction under section54F in view of proviso to section 54F - In addition,
Assessing Officer imposed penalty on assessee under section 271(1)(c) for
filing inaccurate particulars of income with regard to claim of deduction under
section 54F - Admittedly, assessee was in possession of residential flat in his
own title exercising dominion over property by excluding others therefrom and
had right to use and occupy property and/or to enjoy its usufruct in his own
right - Whether on facts, for purposes of section 54F, assessee could be deemed
to be owner of that flat, notwithstanding fact that a formal deed of title was
not executed and registered by State Housing authority in favour of assessee -
Held, yes - Whether therefore, assessee’s case was hit by proviso to section
54F and, thus, he was not entitled to any deduction under section 54F - Held,
yes - Whether, however, since assessee had not withheld any of relevant
particulars relating to his claim of deduction under section 54F, and in order
to claim said deduction, had infact deposited sale consideration into capital
gain account scheme with specified bank, which showed that assessee had no
intention to make a false claim, claim made by assessee under section 54F could
at best be considered to be not maintainable but it was not a case of false
claim warranting levy of penalty under section 271(1)(c) - Held, yes - Whether,
therefore, Assessing Officer was not justified in levying said penalty and same
was to be deleted - Held, yes
Words and Phrases
‘Owner of property’ as occurring in section 22 of the
Income-tax Act, 1961
Circular and Notifications:
CBDT, Circular No. 471, dated 15-10-1996
FACTS
During the
assessment year 1995-96, the assessee had sold a plot and claimed exemption of
the capital gains arising from said sale under section 54F for the reason that
the entire consideration amount received on sale of plot was deposited in
capital gains account scheme in the bank. The Assessing Officer found that the
assessee was residing in a flat which was allotted to him by the State Housing
Authority. Therefore, the Assessing Officer took the view that as the assessee
was already an owner of a residential house property, he was not eligible for
deduction under section 54F in view of the provisions contained in proviso to
section 54F. The assessee clarified to the Assessing Officer that he was not
the owner of the concerned flat allotted by the State Housing Authority, but he
was still a tenant of the said flat, inasmuch as the ownership of the flat was
not transferred to him by the Authority. The Assessing Officer found that the
flat was allotted to the assessee in 1971 on hire purchase basis, that the
assessee paid all the instalment till 1990 and the hire purchase was complete,
that the possession of the flat was with the assessee for the last many years
and it was occupied by him as residence, and that there was some dispute over
payment of service charges viz., electricity, water and, hence, the ownership
was not transferred to the assessee. In view of these facts, the Assessing
Officer held that the assessee was deemed owner of the property and, hence, not
eligible for exemption under section 54F. In addition, the Assessing Officer
initiated penalty proceedings under section 271(1)(c) against the
assessee for filing inaccurate particulars of income with regard to the claim of
deduction under section 54F. On appeal, the Commissioner (Appeals) upheld the
impugned disallowance. However, he reduced the quantum of penalty to some
extent.
On cross appeals :
HELD
From the
object and purpose of inserting section 54F, it is clear that the exemption
under section 54F has been granted to the assessee with a view to encourage
construction of one residential house. The construction or purchase of a house
other than one residential house are not covered by section 54F. It is also
clear that the concession provided under section 54F would not be available in
a case where the assessee already owns, on the date of the transfer of the
original asset, any residential house. Therefore, it is clear that emphasis has
been given on owning of one residential house only by any assessee. The
assessees, who already own, on the date of transfer of the original asset, any
residential house, are not eligible for the concession provided under section
54F even if any other residential house may be either purchased or constructed
by them. Therefore, concession has been given only to encourage that any
assessee should have his own one residential house. In other words, when any
assessee, who possesses or occupies any residential house in his own title
exercising such dominion over the residential house as would enable others
being excluded therefrom and having the right to use and occupy the said house
and/or to enjoy its usufruct in his own right should be deemed to be the owner
of a residential house for the purpose of section 54F. [
In order to
avail the benefit of section 54F, one of the essential conditions is that the
assessee should purchase within the specified period, or construct within the
specified period, a residential house. The various situations under which the
assessee can be said to have purchased within specified time, or constructs
within the specified time, a residential house so as to make him entitled to
avail the benefit of deduction under section 54 or 54F, have come for consideration
in some cases before the Courts. [
Further, the
CBDT vide its Circular No.471, dated 15-10-1986 has also clarified that
cases of allotment of flats under the self-financing scheme of the Delhi
Development Authority shall be treated as cases of construction for the purpose
of capital gains and, therefore, investment of capital gain in purchase of DDA
flats in the form of first instalment of purchase of flat within two years of
sale of original property would entitle the assessee to claim exemption in
respect of capital gain, even though construction of flat was not completed in
two years. [
From the
various decisions as well as from the CBDT Circular, it becomes clear that the
cases of allotment of flats under self-financing scheme of any development
authority where capital gain is invested in purchase of flats of development
authorities in the form of payment of first instalment of purchase of flat,
have been treated to be cases of construction or purchase of a house for the
purpose of allowing the deduction in respect of capital gain under section 54F
though a formal deed of title may not have been executed and registered as
contemplated by the Transfer of Property Act, the Registration Act, etc. It is,
thus, clear that for the purpose of granting the benefit of deduction under
section 54F on account of purchase or construction of any residential house
within the specified period, the requirement of the Transfer of Property Act,
the Registration Act, etc., has not been held to be compulsory. Applying the
rules of harmonious construction of a statute, a similar analogy should be held
to be applicable for interpreting the word ‘own’ of any residential house, used
in the other part of the same section. To put it differently, the ratio laid
down by the Courts and the position explained by the CBDT in its circular in
defining or interpreting the meaning of ‘purchase or construction of any
residential house by any assessee’ for the purpose of benefit granted under
section 54F, shall equally apply while interpreting the word ‘own any
residential house’ used in the other part of the same section having the same
intent and object thereof. Therefore, the reasoning given by the Courts and the
CBDT circular in the purpose of giving the meaning to the expression ‘purchases
or constructs’ occurring in same section 54F should be equally applied for the
purpose of finding out the true and correct meaning of the expression ‘own’
occurring in same section 54F. [
The
controversy arising in instant case could be viewed from one more angle. On
reading of the proviso to section 54F, it is seen that the expression ‘assessee
owns, on the date of transfer of the original asset, any residential house’ is
used in the proviso with reference to ‘the residential house, the income of
which is chargeable under the head ‘Income from house property’. In other
words, the expression ‘own any residential house’ is used with reference to the
income of which is chargeable under the head ‘Income from house property’. The
Legislature has inserted sections 22 to 26 for the purpose of determining the
income, which is chargeable under the head ‘Income from house property’.
Section 22 to section 26 provides the manner of computing the income from house
property chargeable to tax under the head ‘Income from house property’.
In the case of
Podar Cement (P.) Ltd. (supra), the Supreme Court has held that for the purpose
of charging the income under the head ‘income from house property’, the owner
is a person who is entitled to receive income from the property in his own
right and the requirement of registration of the sale deed in the context of
section 22 is not warranted. Therefore, the meaning given to the words ‘owner
of house property’ for the purpose of charging income of which under the head
‘Income from house property’ by the Supreme Court is to be imported for the
purpose of defining the words ‘own any residential house’ occurring in section
54F. Therefore, for the purpose of section 54F the meaning of ‘own’ or ‘owner’ is
to be understood in the same sense in which it is understood for the purpose of
sections 22 to 26. [
Therefore, any
one in possession of any residential house in his own title exercising such
dominion over the residential house as would enable others being excluded
therefrom and having the right to use and occupy the same and/or to enjoy its
usufruct in his own right and/or is entitled to receive income from the
residential house in his own right, would be the owner of the residential
house, though a formal deed of title may not have been executed and registered
as contemplated by the Transfer of Property Act, the Registration Act, etc.
Further the definition of ‘owner of the house property’ defined in clauses (iii),
(iiia) and (iiib) of section 27 which are held to be
clarificatory and declaratory in nature by the hon’ble Supreme Court, shall be
equally applicable in the context of section 54F. [
In
the instant case, the facts, as found by the authorities below on the basis of
the various documents and papers collected during the assessment proceedings,
which had remained unrebutted or uncontroverted, were:
That
residential flat was allotted to the assessee in 1971 on hire purchase basis.
The
assessee had paid all the instalments by 1990 and the hire purchase was
completed.
The
assessee was allowed to possess the flat in his own right. No other person
other than the assessee had any right or interest to occupy or possess the
property.
The
Co-op Housing Society of the Members of Building No. 14 where the flat was
situated was duly formed and registered and assessee was allotted membership of
the Society.
(5)
Possession of the flat was with the assessee for the last many years, and it
was occupied by him as residence The property was in the nature of a
residential property.
(6)
The dispute between the Co-op. Housing Society formed of the members of the
building and the MHADA was only with regard to payment of certain electricity
and water charges and for which reason the execution and registration of any
deed required under the Transfer of Property Act. Registration Act, etc. was
not made by MHADA in favour of the Society.
(7)
No proceedings under section 66 of the Maharashtra Housing and Area Development
Act. 1976 were ever initiated against the assessee to evict him from the said
residential flat nor any final order under section 66 evicting the assessee
from the flat was ever passed against the assessee. [
It was, thus,
clear that the assessee was in possession of the residential flat in his own
title exercising dominion over the property by excluding others therefrom and
had the right to use and occupy the property and/or to enjoy its usufruct in
his own right, notwithstanding the fact a formal deed of title might not have
been executed and registered by State Housing Authority in favour of the
co-operative society formed by the members. [
The assessee
contended that he had acquired no right or title over the flat allotted to him
but he was merely a tenant thereof. In this respect the assessee gave a strong
emphasis on a certificate issued by the Estate Manager, Maharashtra Housing
& Area Development Authority saying that as the flat holders had not paid
arrears and had not complied with terms of the contract, the transfer of
property in their favour had not taken place, and it was only after the payment
and compliance of the terms of the contract that the sale deed with society and
land revenue agreement will be executed, and till such transfer of property was
taken place in favour of the society, the ownership of the building remained
with the MHADA. [
In order to
decide this issue, section 66 of the Maharashtra Housing and Area Development
Act, 1976 was to be referred. It is clear from section 66 that merely because
the occupier has not paid any rents or compensation or any amount lawfully due
from him within a specified time, it by itself would not make the occupier
disentitled for ever to occupy the house in his own right unless the
proceedings contemplated under section 66 are finally concluded or determined
against the occupier. In the instant case, no such action as contemplated under
section 66 was ever taken against the instant assessee. On the relevant date,
the assessee was not ordered to be evicted from the premises by the Competent
Authority by way of passing any valid order under section 66. Therefore, in the
light of the facts and circumstances of the case, and in the light of the
provisions contained in section 66. Merely by making a general reference to
section 66, it could not be said that the assessee had lost all his dominion or
control or possession over the flat in question as on the relevant date. Since
the flat in question was allotted to the assessee and possession was given to
the assessee and the assessee had paid the hire purchase instalments, and had
been in possession of the said flat since 1971 in his own right to the
exclusion of others till the relevant date, the assessee was to deemed to be
the owner of that flat as on the relevant date, for the purpose of section 54F.
[
Therefore, the
order of the Commissioner (Appeals) holding that the assessee’s case was hit by
the proviso to section 54F inasmuch as, on the date of the transfer of the
plot, the assessee owned a residential house and thus, the assessee was not
entitled to any deduction under section 54F was to be upheld. [
As regards the
imposition of penalty under section 271(1)(c). It is clear that in case
the assessee had been able to prove and establish that all the facts material
to the computation of assessee’s income were fully and truly furnished before
the Assessing Officer, and the explanation offered by the assessee is not found
to be false, but is a bona fide one, the penalty under section 271(1)(c)
would not be imposed. Section 271(1)(c), in its Explanation,
refers to the explanation offered by the person being found to be false or not
being one which the person offering the explanation is unable to substantiate.
A penalty can only be imposed in case the Explanation is found to be
false and not bona fide one. It is also well settled that when two views
are possible, no penalty can be imposed. It is also settled position of law
that merely because the assessee’s claim has been disallowed without establishing
anything more that the assessee has made a false claim and the assessee had
failed to furnish relevant details and particulars thereof, it would not be
justified for the authority concerned to levy a penalty under section 271(1)(c).
[
In the instant
case, the issue was centered around the controversy as to meaning of the word
‘own’, ‘owner’ or ‘owned’ used in the context of section 54F. The assessee’s
claim of deduction under section 54F had been rejected by resorting to the
interpretation of the word ‘own’, ‘ownership’, or ‘owned’. The assessee claimed
that the flat allotted to him by Maharashtra Housing and Area Development
Authority on hire purchase basis could not be said to be owned by the assessee
as understood in the context of the Maharashtra Housing and Area Development
Act, 1976 read with the Transfer of Property Act and Registration Act, etc. The
dispute in issue was undoubtedly a debatable one. The assessee’s claim of
deduction under section 54F was found to be not maintainable after making
extensive deliberation on the definition of ‘owner’, for the purpose of section
54F. But that by itself would not lead to a conclusion that the assessee’s
claim of deduction under section 54F was a false one. All the relevant
particulars relating to his claim of deduction under section 54F had not been
withheld by the assessee, but rather had been fully placed before the
authorities below in the course of proceedings before them. It was also
pertinent to note that in order to claim a deduction under section 54F, the
assessee had even deposited the sale consideration into capital gain account
scheme with the specified bank, which showed that the assessee had no intention
to make a false claim. It was not a case where a false claim as distinct from a
wrong claim, under section 54F was made by the assessee. The claim made by the
assessee under section 54F could at best be considered to be not maintainable
and allowable in the light of the interpretation given by the Courts to the
word ‘owner’, ‘owned’ or ‘own’ used in the Act. Therefore, it was not a case of
false claim, but a case where a claim was not found to be maintainable in the
eyes of law after making exhaustive deliberation on the dispute. Therefore, it
could be said that the assessee had been able to discharge his burden that lay
upon him by Explanation 1 to section 271(1)(c), inasmuch as all
the particulars relating to the assessee’s claim of deduction under section 54F
were duly furnished by the assessee and the assessee’s claim was not found to
be false. In the penalty order, the Assessing Officer had failed to give any
finding to the effect that explanation offered by the assessee was false or was
otherwise found to be not bona fide one. The Commissioner (Appeals) had
confirmed the Assessing Officer’s order by saying that there was no bona fide
belief on the part of the assessee that he was not owner of the residential
house at the time of transfer of the land, but failed to understand as to how
the assessee’s claim could be considered to be not bona fide one, when
there existed two possible and reasonable meaning of a particular term used in
the statute. Therefore, the Commissioner (Appeals) was not right in holding
that the assessee had no bona fide belief in making the claim of deduction
under section 54F. It was also not in dispute that if one took into account the
general law contained in the Transfer of Property Act, Registration Act, etc.,
the assessee might not be found to be an owner of a house allotted to him by
the housing society till final deed of sale was executed in favour of the
assessee. From this point of view also, it was more than clear that the
assessee’s claim could not be said to be false and non bona fide one. [
Therefore, in
the instant case, no penalty under section 271(1)(c) was leviable in
respect of the assessee’s claim of deduction under section 54F. Therefore, the
penalty imposed under section 271(1)(c) was to be deleted. [
In the result,
both the assessee’s as well as the revenue’s appeal were to be dismissed.
CASE
REVIEW:
CIT v. Podar
Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC) followed.