Assessee can fulfil the requirement of s. 54 of depositing the unutilised portion of the capital gain on sale of residential property in notified scheme upto the expiry of time-limit for filing return under s. 139(4). From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139.
COMMISSIONER OF INCOME TAX vs. RAJESH KUMAR JALAN
HIGH COURT OF GAUHATI
D. Biswas & T. Nandakumar Singh, JJ.
IT Appeal No. 27 of 2001
Aug 9, 2006
(2006) 74 CCH 0599 GauHC
(2006) 206 CTR 0361, (2006) 286 ITR 0274, (2006) 157 TAXMAN 0398
Legislation Referred to
Section 54
Case pertains to
Asst. Year 1996-97
Decision in favour of:
Assessee
Interpretation of statutes—Beneficial provision—Purposive construction—In construing a beneficial enactment, the view that advances the object of the enactment and serves its purpose must be preferred to the one which obstructs the object and paralyses the purpose of the beneficial enactment—Kunal Singh vs. Union of India (2003) 4 SCC 524 applied (Para 2)
From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139. Under sub-s. (4) of s. 139, any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the assessee that the assessee could fulfil the requirement under s. 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1996-97 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139. In the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 on the entire amount received by him on account of sale of his house property. (Para 6)
Cases Referred to
A.R. Krishnamurthy vs. CIT (1989) 76 CTR (SC) 18 : (1989) 176 ITR 417 (SC)
Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. (2003) 2 SCC 111
R.K. Palshikar (HUF) vs. CIT (1988) 70 CTR (SC) 31 : (1988) 172 ITR 311 (SC)
State of Maharashtra vs. Santosh Shankar Acharya (2000) 7 SCC 463
Counsel appeared:
U. Bhuyan, for the Appellant : R.P. Agarwalla, R.L. Jain, M. Talukdar & U.K. Barthakur, for the Respondent
T. NANDAKUMAR SINGH, J.
Judgment
The appellant/CIT, Gauhati-I, preferred this appeal under s. 260A of the IT Act, 1961 against the common order dt. 18th April, 2001, passed by the Tribunal, Gauhati Bench, Gauhati, in ITA No. 328/Gau/1999 and ITA No. 49/Gau/2000 for the assessment year of the assessee 1996-97. By an order of this Court dt. 28th Feb., 2003, the appeal is admitted on the question : “Whether, in the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 of the IT Act, 1961, on the entire amount received by him on account of sale of his house property ?”
2. The respondent/assessee is an income-tax assessee and the status of the assessee is that of an individual trading in the business of truck plying. The assessment year under consideration is 1996-97.
The issue involved in the present appeal is the claim for benefit of exemption from being charged to income-tax on the sale of properties used for residence under s. 54 of the IT Act, 1961. Sec. 54 of the IT Act, 1961, is a beneficial provision of the IT Act, 1961 for the assessee in the matter relating with the sale of properties used for residence, it appears, for the constitutional goal of providing residence to the citizen of India. It is fairly well-settled that in construing a beneficial enactment, the view that advances the object of the beneficial enactment and serves its purpose must be preferred to the one which obstructs the objects and paralyses the purpose of the beneficial enactment. In this regard, we may refer to the decision of the apex Court in Kunal Singh vs. Union of India (2003) 4 SCC 524. Since s. 54 of the IT Act, 1961, is required to be read and discussed in the present appeal it would be more convenient to quote s. 54 of the IT Act, 1961, in entirety :
”54. Profits on sale of property used for residence.—(1) Subject to the provisions of sub-s. (2), where, in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of a long-term capital asset (to which the provisions of s. 53 are not applicable, omitted by the Finance Act, 1985 w.e.f. 1st April, 1985) being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head ‘Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under s. 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gains shall not be charged under s. 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-s. (1) of s. 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-s. (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-s. (1), then,—
(i) the amount not so utilized shall be charged under s. 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
3. The facts which would suffice for deciding the present appeal are that the respondent/assessee sold his 1/4th share in a residential property known as “Jalal House” at Rehabari, Guwahati, for a consideration of Rs. 40,00,000 (rupees forty lakhs) only to the Government of Meghalaya for the sale deed No. 348 dt. 21st Dec., 1995. Admittedly, the indexed cost of the property was worked out at Rs. 10,26,925 (rupees ten lakhs twenty-six thousand nine hundred and twenty-five) and thus, there was a capital gain of Rs. 29,73,048 (rupees twenty-nine lakhs seventy-three thousand and forty eight) earned by the respondent/assessee and it was also not disputed. The respondent/assessee with the money for the sale of his residential property known as “Jalal House” decided to purchase a residential flat No. 4B on the fourth floor of a multistoreyed building situated at Bally High, 1, Ballygunge Park Road, Calcutta-19, from Shri Radha Krishna Jalan and Smt. Anguri Devi Jalan on 8th Feb., 1996, each having one-half share of ownership of the residential flat. The respondent/assessee negotiated with the above two owners to purchase their residential flat for a consideration of Rs. 30,00,000 (rupees thirty lakhs) and accordingly entered into two agreements dt. 9th May, 1996, and 17th May, 1996, and under the said two agreements, the respondent/assessee had taken physical possession of the said residential flat. From the two agreements of purchase, it is clear that each of the co-owners agreed to transfer and assign their respective shares or interest in the said flat together with a car park space for a consideration of Rs. 30,00,000 (rupees thirty lakhs) in total.
4. The AO under his assessment order rejected the respondent/assessee’s claim for exemption under s. 54 of the IT Act, 1961, for the reason that (a) the appellant/assessee has taken only a sub-lease of the property vide indenture of sub-lease dt. 17th Jan., 1998, in between him and M/s Agarwal Co. Ltd. and the said indenture has been executed in pursuance of the letter dt. 28th Aug., 1961, written by Shri R. K. Jalan and Smt. Anguri Devi Jalan to the said lessee; (b) the sub-lease cannot be taken as a clear purchase as per the meaning of the provisions of s. 54(1) of the IT Act and also that there was no transfer of property as claimed and the same was merely a sub-lease; (c) the appellant/assessee had not complied with the provisions of s. 54(2) of the IT Act by not depositing the unappropriated amount of capital gain in the Capital Gains Deposit Scheme, 1988, within the stipulated time of furnishing the return of income-tax under s. 139(1) of the IT Act.
The respondent/assessee preferred the first appeal being Appeal No. Guwa-75/99/2000 against the assessment order of the AO to the CIT(A), Guwahati. The first appellate authority had partly allowed the appeal by passing the final order dt. 24th Sept., 1999, wherein the first appellate authority held that even a lease also amounts to a transfer within the meaning of the Transfer of Property Act, 1882, by referring to two decisions of the Supreme Court in R.K. Palshikar (HUF) vs. CIT (1988) 70 CTR (SC) 31 : (1988) 172 ITR 311 (SC) and A.R. Krishnamurthy vs. CIT (1989) 76 CTR (SC) 18 : (1989) 176 ITR 417, 421 (SC), and as such the transfer in question between the respondent/assessee on the one side and Shri Radha Krishna Jalan and Smt. Anguri Devi Jalan on the other side is the transfer of capital asset within the provisions of s. 2(47)(v) of the IT Act. But the first appellate authority held that the respondent/assessee could utilise only Rs. 14,43,254 (rupees fourteen lakhs forty-three thousand two hundred and fifty-four) upto 31st Aug., 1996, towards the purchase of the property and balance amount of capital gain of Rs. 15,29,794 (rupees fifteen lakhs twenty-nine thousand seven hundred and ninety-four) was not deposited in a separate capital gain account with the bank by construing sub-s. (2) of s. 54 of the IT Act, 1961, in such a manner that the appellant/assessee did not deposit the unutilized portion of the capital gain before the date of furnishing the return of income-tax under s. 139(1) of the IT Act, 1961.
5. The respondent being aggrieved by the findings of the first appellate authority, i.e., the CIT(A), that the respondent/assessee was eligible for exemption under s. 54 of the IT Act, 1961, to the extent of only Rs. 14,43,254 (rupees fourteen lakhs forty-three thousand two hundred and fifty-four) and direction to the AO to levy the capital gains tax on the amount of Rs. 15,29,794 (rupees fifteen lakhs twenty-nine thousand seven hundred and ninety-four) only in place of Rs. 29,73,048 (rupees twenty-nine lakhs seventy-three thousand and forty-eight) under s. 54 of the IT Act also preferred an appeal against the order of the first appellate authority dt. 24th Sept., 1999, before the Tribunal, Gauhati Bench, Gauhati. The Department also preferred an appeal against the order of the learned first appellate authority, i.e. the learned CIT(A) dt. 24th Sept., 1999, before the learned Tribunal, Gauhati Bench, Gauhati. By a common order dt. 18th April, 2001, the Tribunal had allowed the appeal preferred by the respondent/assessee and rejected the appeal preferred by the appellant/CIT, Gauhati Bench. The basis on which the Tribunal, Gauhati Bench, allowed the appeal preferred by the respondent/assessee is that s. 54 of the IT Act being the beneficial provision, it should be construed liberally to advance the object of giving benefit to the assessee by exempting the capital gain on the sale of property used for residence from being charged to income-tax and also that sub-s. (2) of s. 54 of the IT Act, 1961, simply mentions that the unutilized portion of the capital gain on the sale of the property used for residence could be deposited by the assessee before the date of furnishing return of income-tax under s. 139 of the IT Act and also that the sub-s. (2) of s. 54 of the IT Act does not mention that the date of furnishing of return of income-tax should be construed within the meaning of s. 139(1) of the IT Act, 1961. The learned Tribunal, Gauhati Bench was of the view that the date of furnishing of return of income-tax contemplated in sub-s. (2) of s. 54 should also include sub-s. (4) of s. 139 of the IT Act inasmuch as sub-s. (2) of s. 54 of the IT Act mentions only s. 139 of the IT Act without any further restriction or without confining to sub-s. (1) of s. 139 of the IT Act, 1961. The operative portion of the order of the learned Tribunal, Gauhati Bench, Gauhati, dt. 18th April, 2001, reads as follows :
”9. We have carefully considered the submissions of the learned representatives of the parties. We have also gone through the orders of the authorities below and the copies of the documents to which our attention was drawn by the learned representatives of the parties at the time of hearing of the appeals.
10. There is no dispute that the assessee entered into two separate agreements with Shri Radha Krishna Jalan dt. 9th May, 1996; and Smt. Anguri Devi Jalan dt. 17th May, 1996, for purchase of undivided 1/2 share of each in the said flat together with the said undivided share in the land for a consideration of Rs. 15 lakhs to each aggregating to Rs. 30 lakhs. We also observe from the said agreement that the said vendors agreed to transfer and assign in favour of the assessee all their rights and interest in the said flat with the absolute ownership without any objection, obstruction and/or hindrance whatsoever on their part or any person claiming through under or on their behalf. We also observe that the assessee was liable to pay all future maintenance charges, municipal rates and taxes and other outgoings in respect of the said flat. Not only this, there is no dispute that the assessee got the possession of the said flat in May, 1996. We further observe that in the balance sheet, a copy of which is placed at pp. B-1 to B-6 of the paper book the assessee had shown in the list of investments in Sch. E the total investment in the properties in respect of the said flat at Rs. 30 lakhs and the balance amount payable to Sri Radha Krishan Jalan and Smt. Anguri Devi Jalan was shown as unsecured loans. Clause (v) of s. 2(47) of the Act reads as under :
‘any transaction involving the allowing of possession of any immovable property to be taken or retain in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1882), or,……….’
11. Therefore, for the purpose of transfer the possession of the flat in part performance of the contract under s. 53A of the Transfer of Property Act is essential. Further, under the provision of s. 54(1) of the Act, it is stipulated that a person is entitled to take the benefit if the purchase has been made within the stipulated period of one year before or two years after the date on which the transfer took place. In the case before us, the assessee has undisputedly entered into agreement for purchase of the flat and taken possession within one year from the date of sale of the old residential house. Therefore, we agree with the learned Authorised Representative of the assessee that the assessee has complied with the requirements as laid down in s. 54(1) of the Act by purchasing the flat at a cost of Rs. 30 lakhs as against the capital gain of Rs. 29,73,048. Therefore, we agree with the learned Authorised Representative of the assessee that there has been no necessity to comply with the conditions for availing of the benefit from tax of the capital gain, as laid down under s. 54(2) of the Act, i.e., to deposit the unpaid amount in a separate bank account under the capital gain account scheme. We are of the view that the assessee had already appropriated the entire capital gain for purchase of the new asset within the stipulated time. In this regard, we find support from the decision of the Kerala High Court in the case of ITO vs. K.C. Gopalan (2000) 162 CTR (Ker) 566 wherein it was held that the assessee is entitled to exemption under s. 54 even though for the construction of the new house, the amount that was received by way of sale of his old property as such was not utilised. It was held by the Kerala High Court that no provision is made by the statute that the assessee should utilise the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset. It was held that s. 54 only provides that the assessee has to purchase a house property for the purpose of his own residence within a period of one year before or after the date on which the transfer of his property took place or he should have constructed a house property within a period of two years after the date of transfer. It was further held that entitlement of exemption under s. 54 relates to the cost of acquisition of a new estate in the nature of a house property for the purpose of his own residence within the specified period.
12. In the case before us, the ratio laid down by the Hon’ble Kerala High Court squarely applies to the case before us as the assessee had acquired the house at a cost more than the capital gains within the specified period.
13. Therefore, we hold that the assessee is entitled for the exemption under s. 54 of the Act for the entire long-term capital gain of Rs. 29,73,048. Accordingly, we allow the ground of appeal of the assessee and reject the ground of appeal of the Department.”
6. From a plain reading of sub-s. (2) of s. 54 of the IT Act, 1961, it is clear that only s. 139 of the IT Act, 1961, is mentioned in s. 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139 of the IT Act. Sec. 139 of the IT Act, 1961, cannot be meant only as s. 139(1) but it means all sub-sections of s. 139 of the IT Act, 1961. Under sub-s. (4) of s. 139 of the IT Act any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the respondent/assessee that the respondent/assessee could fulfil the requirement under s. 54 of the IT Act for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1997-98 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139 of the IT Act, 1961.
7. The apex Court in State of Maharashtra vs. Santosh Shankar Acharya (2000) 7 SCC 463 held that it is too well known a principle of construction of statutes that the legislature engrafted every part of the statute for a purpose. The legislative intention is that every part of the statute should be given effect. The legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the legislature will not be accepted except for compelling reasons.
8. The apex Court in Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. (2003) 2 SCC 111, held that it is the basic principle of construction of statute that statutory enactment must ordinarily be construed according to their plain meaning and no words should be added, altered or modified unless it is plainly necessary to do so to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute. Paras 24 and 25 of the Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. read as follows :
”24. True meaning of a provision of law has to be determined on the basis of what it provides by its clear language, with due regard to the scheme of law.
25. Scope of the legislation on the intention of the legislature cannot be enlarged when the language of the provision is plain and unambiguous. In other words statutory enactments must ordinarily be construed according to its plain meaning and no words shall be added, altered or modified unless it is plainly necessary to do so to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute.”
9. For the reasons discussed above, we answer the question formulated in the present case in positive. Accordingly the order of the learned Tribunal, Gauhati Bench, Gauhati, dt. 18th April, 2001, passed in ITA No. 328/Gau/1999 and ITA No. 49/Gau/2000 is not interfered with and the appeal is dismissed.
Parties are to bear their own costs.