Judgment:
1. This appeal of the assessee arises out of the order dated 14.12.1994 recorded by CIT(A)-III. Lucknow.
2. Facts giving rise to this appeal are that Smt. Rita Gaur, the assessee filed return for assessment year 1991-92 at an income of Rs. 1.83.390/- and the A.O. noted that the assessee was enjoying income from interest. dividend. salary and also capital gains on sale of equity shares. From the computation of the income, the A.O. noted that the assessee had sold 3,23,750 shares of jaiprakash Industries Limited (for short JIL) on 18.4.1990 @ Rs. 11.50 per share and also sold 10.000 shares of JIL on 4.8.1990 @ Rs. 24.75 ps. The long term capital gains worked out by the assessee was Rs. 39,70,625/-. The assessee asserted that she has purchased a residential plot at R.K. Puram on 24.6.1991 for Rs. 70.20 lakhs and claimed exemption u/s 54-F of Income-tax Act, 1961 (hereinafter referred to as the 'Act'). The assessee filed photocopy of registered deed for purchase of the plot. The A.O. called upon the assessee to show as to how the exemption u/s 54-F was admissible to her as the provision of Section 54-F of the Act requires investment into a residential house and in the case of the assessee, she had purchased a residential plot only. The assessee submitted that Section 54-F of the Act requires that the assessee must have constructed the residential house within a period of 3 years after the date on which transfer took place. The purchase of the house was to be regarded as an act in the process of construction of residential plot.
It was also contention of the assessee that entire sale proceeds of shares was invested in purchase of plot and requirement of Section 54-F stands satisfied. The assessee also placed reliance on the case of CIT Punjab vs. Alps Theatre. 58 ITR 192 and also C.B.D.T. Circular No. 667 dated 18.10.1993 issued by C.B.D.T. in which it was clarified that if the amount of capital gains for the purpose of Section 54 and net consideration for the purpose of Section 54-F is appropriated towards purchase of plot and also towards construction of a residential house there-upon. the aggregate cost should be considered for determining the quantum of deduction u/s 54-F of the Act provided that the acquisition of plot and also the construction thereon are completed within a period specified in the said sections. The A.O. noted from the facts of the case that the assessee had not constructed any house on the said plot till the date and reasons thereof given by the assessee was that a civil suit was pending at Agra and the assessee was restrained from raising construction on the said plot. The A.O. however, noted that more than 3 years have elapsed since the sales of shares and no construction of house could be made on the said plot and provision of Section 54-F were not complied with. Accordingly, the A.O. did not allow the claim of the assessee for exemption u/s 54-F and sale proceeds of the shares was assessed for tax purposes as per the provisions of the Act.
3. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and reiterated the same submissions, which were taken before the A.O.The contention was that the assessee had already purchased a plot in the residential colony for Rs. 70.20 lakhs and could not raise the construction within three years due to ad interim injuction passed by the Civil Court. Agra. Reliance was also placed on the C.B.D.T.Circular 667 dated 18.10.1993 in which cost of plot was also to be included in the cost of residential house. The other plea of the assessee was that the assessee had installed a tube well and constructed one room and boundary wall on the above plot and that was sufficient to prove the intention of the assessee to raise the construction of the residential plot and benefit u/s 54-F should not have been refused. The alternative plea was also raised by the assessee that in case the assessee was not able to raise construction by the end of previous year of assessment year 1991-92, the year under consideration, the capital gains could have been subjected to tax in assessment year 1994-95 after the expiry of period of three years from the end of financial year in which shares were transferred.
4. The ld. CIT (A) considered the submissions and noted that admittedly the assessee had not been able to construct a house on the said plot purchased by her within a period of three years from the date of transfer of shares. The house. it was pleaded by the ld. counsel for the assessee was not completed on account of injunction issued by Civil Court, Agra, but ld. CIT(A) was of the view that the benefit u/s 54-F of the Act can be extended only when the assessee is able to prove about construction of residential house on the plot. The installation of tube well. boundary wall or construction of one room will not be taken as complete compliance of the Section 54-F of the Act. The ld.CIT(A) also noted that circular no. 667 of the C.B. D.T. is also applicable in the cases where the assessee had constructed residential house, then only cost of the plot shall be included in the same, but here the assessee had not constructed any house and reliance on the said circular was not justified. About the alternative plea. the ld.CIT(A) noted that capital gains can be assessed in assessment year 1994-95 only when the assessee is able to prove on record that the assessee had complied with the requirement of Section 54-F(4) of the Act. The assessee had not deposited the amount of proceeds of transfer of assets as per provision of Section 54-F(4) and, thus the A.O. was justified to assess the capital gains in assessment year 1991-92.
Accordingly, the appeal of the assessee was dismissed on this ground.
5. The assessee being aggrieved from the findings of the ld. CIT(A) is in appeal before us and ground nos. 1 to 5 relates to the same controversy, which was before the A.O. and before the ld. CIT(A).
6. Shri Kanchan Kaushal, F.C.A. had taken the same arguments, which were before the A.O. and the ld. CIT(A). The first point argued by the learned counsel for the assessee is that the assessee had invested whole of the amount of sale proceeds of shares in purchase of plot no.3 with the Aradhna Enclave Burma Shell Coop. Housing Society Limited, Sector XIII, R.K. Puram, New Delhi, and the area of the lot was about 370 Sq. yards. It indicates that the assessee was intending to construct residential house over the said plot. The learned counsel filed the copy of C.B.D.T. Circular no.667 dated. 18.10.1993 issued by C.B.D.T., which is appearing at page no.7 of the paper book and submitted that cost of the residential house can be taken to include the cost of the plot also. The contention on the basis of this circular is that once the assessee had gone purchasing the plot, the cost thereof has to be included for getting the benefit u/s 54-F of the Act, because unless there is plot, no construction thereupon for residential house can be imagined. The learned counsel also submitted that the assessee was going to raise construction and for that purpose, the assessee had withdrawn Rs. 46,400/- from her account with Syndicate Bank, Vasant Vihar, New Delhi and Rs. 81,000/- from her account at Citi Bank, New Delhi and purchased cement and other material, the details of which were submitted before the ld. CIT (A)-III, Lucknow, vide written submission dated 13.9.1994, copy thereof are appearing at pages 8 & 9 alongwith the copies of bills of purchase of cement etc., which are appearing at pages 10 to 14 of paper book.
7. The ld. counsel for the assessee took the alternative plea that in case the assessee had not been able to prove construction of residential house during previous year relevant to assessment year 1991-92, then the capital gains was not chargeable to tax in assessment year 1991-92, but in the assessment year 1994-95, because the assessee was having an option to construct the house within three years from the date of transfer of assets, which expired in assessment year 1994-95.
Reference has been made to the decision of the Hon'ble Gujarat High Court in the case Harsut Rai J. Rawal vs. CIT, (2002) 255 ITR 315, in which the same view was laid down. The contention is that in case capital gain is chargeable, then the same will be in assessment year 1994-95, when three years period expires.
8. As against it, the ld. Senior DR placed reliance on the order of A.O. and the ld. CIT(A) and contended that the plea raised by the learned counsel had been dealt with at length by the authorities below.
The assessee had not constructed any residential house and mere purchase of plot will not be sufficient compliance for getting benefit u/s 54-F of the Act, which has rightly been denied to the assessee by the Assessing Officer and his action has rightly been confirmed by the ld. CIT(A).
9. We have considered the rival submissions and perused the records carefully and also gone through the case law. It is on record that the assessee herself had shown long term capital gain of Rs. 39,70,625/- on account of sale of shares of JIL, which took place on 8.4.1990 and 4.8.1990. It is also on record and not disputed by the Department that the assessee had purchased the residential plot in Aradhna Enclave Burma Shell Coop. Housing Society Limited, R.K. Puram, New Delhi, for an amount of Rs. 70.20 lakhs. It is also on record that till now the assessee had not been able to raise construction of residential house.
10. The first plea from the side of the assessee is that after purchase of the residential plot assessee started raising construction of the house and civil Judge at Agra issued ad interim injunction restraining the defendants including the assessee from raising any construction.
The copy of plaint filed by one Amit Babu in the Court of Civil Judge Agra, is appearing at pages 22 to 31 of the paper book alongwith the application moved by Amit Babu for seeking ad interim injuction restraining the defendant from rainsing construction or from transferring property including residential plot purchased by the assessee. Page no. 20 is the copy of the notice issued by Civil Judge.
Agra to the assessee and it contains an endorsement, which reads as under:- "Defendants are restrained from transferring any part of the property." 11. A perusal of the above shall show that it is wrong on the part of the assessee to assert that any ad interim injunction was issued by the Court prohibiting the assessee from raising the construction over the residential building. The Civil Judge, Agra, simply restrained the defendants including assessee from transferring any part of the property but there was no prohibition from raising construction of house etc. In view of this, it is wrong on the part of the assessee to plead that the assessee could not complete the construction of the residential house on account of injunction passed by the Court and, thus, this plea of the assessee had no force at all.
12. The second plea of the assessee is that she has invested whole of the amount of sale proceeds of shares in the purchase of residential plot and cost of the plot is to be included in the cost of residential house and for that reliance has been placed on circular no.667 dated 18.10.1993. The relevant portion of that circular is reproduced as under:- "1. Sections 54 and 54F provide for a deduction in cases where an assessee has, within a period of one year before or two years after the date on which the transfer of a capital asset takes place, purchased, or has within a period of three years after that date constructed, a residential house. The quantum of deduction is itself dependent upon the cost of such new asset. It has been represented to the Board that the cost of construction of the residential house should be taken to include the cost of the plot, as in a situation of purchase of any house property, the consideration paid generally includes the consideration for the plot also.
2. The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also. The Board are of the view that the cost of the land is an integral part of the cost of the residential house, whether purchased or built. Accordingly, if the amount of capital gain for the purposes of Section 54, and the net consideration for the purposes of Section 54-F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction u/s 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections.
13. As evident from the emphasized portion, the cost of the plot can be included for the deduction u/s 54/54-F if the construction of the house is completed within a period specified in these sections. The time limit for constructing residential house is three years u/s 54-F of the Act and admittedly, the assessee had not proved on record about raising of construction of residential house and, thus, the benefit of the circular could have been extended to the assessee in case she was able to prove on record that she has completed the construction of residential house.
14. Other plea of the assessee was that she has installed a tube-well, constructed a room and also boundary wall over the plot in question. To prove this plea, the assessee has filed copies of three bills of supply of Badarpur. Cement etc., which are appearing at pages 10 to 14 of the paper book. The assessee has not been able bring any material on record as to what was the nature of construction of room. Mere construction of boundary wall or installation of tube-well, will not be sufficient for extending the benefit u/s 54-F of the Act. The construction of room is not established on record. Apart from it, mere construction of one room which is not proved on record, will not be sufficient as the assessee is to prove that she had constructed a residential house. A person, who is investing Rs. 70.20 lakhs in purchase of plot cannot be expected to construct residential house in the shape of one room. The very intention of the Legislature is that benefit can be extended only when assessee is able to prove on record that he has constructed a residential house. Here in the case in hand, the assessee has not been able to prove that mere construction of boundary wall, installation of tube well and even construction of one room will not be taken as construction of residential building and benefit u/s 54-F of the Act cannot be given to the assessee.
15. The alternative plea of the assessee was that Section 54-F provides a period of three years for construction of a house and in case the assessee is not in a position to prove in the first year of the transaction about construction of the house, then amount of capital gain can be charged to tax in the third year, which is assessment year 1994-95. This plea has rightly been repelled by the ld. CIT(A). Section 54-F reads as under:- "Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
54F. (1) (Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family), the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 (hereafter in this section referred to as the new asset). the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: (Provided that nothing contained in this sub-section shall apply where - (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".) "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of (two years) after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property". other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.) [(4) The amount of the net consideration 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 utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 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-section (1) of section 139) in an account in any such bank or institution as may be specified in, and utilised 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-section (1), the amount, if any, already utilised 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 utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, - (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as 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 the unutilised amount in accordance with the scheme aforesaid.
16. The requirement was that in case the assessee is not able to appropriate the amount of net consideration towards purchase of new asset within one year before the date on which transfer of the original asset took place, then the assessee was supposed to deposit that amount in such Bank or institution as the Central Government prescribed in the official gazette. The learned counsel has not been able to show that the assessee had complied with the said requirement of sub Section (4) of Section 54-F of the Act. Apart from it. the ld. CIT(A) had noted that inspite of expiry of three years from the date of transfer of shares, the assessee has not constructed any house over the plot in question and even today the assessee had not been able to show that construction of residential house on the plot was completed. In view of this, alternative plea of the assessee is not going to help the assessee.
17. The cumulative effect of the discussion above is that mere purchase of residential plot is not sufficient compliance of provisions of Section 54-F. What was expected from the assessee was to prove on record that the assessee had purchased or constructed a house within the period specified in Section 54-F, which the assessee had failed to prove on record. The A.O. rightly rejected the claim of the assessee and order of ld. CIT(A) is also on the correct footings, which requires no interference. The ground nos. 1 to 5 are rejected.
18. Ground no. 6 was not pressed at the time of arguments from the ld.counsel for the assessee.