ito Vs. Smt. Anjali Mehra - Court Judgment

Excerpt:
1. both these appeals are by the revenue against the separate orders of commissioner (appeals)-xvi, mumbai, dated 20-6-2003 and 23-6-2003 relating to assessment years 1997-98 and 1998-99 respectively against the order under section 143(3) of the income tax act, 1961. both the appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of a convenience.2. the revenue has raised the following grounds of appeal in assessment year 1997-98: 1. on the facts and in the circumstances of the case and in law the ld. commissioner (appeals) erred in directing to grant exemption under section 54f of rs. 1,52,18,000 against capital gain even though the assessee was in possession of property, income form which was chargeable to tax as 'income from house property' on the date of transfer of the original asset.3. the revenue has raised the following grounds of appeal in assessment year 1998-99: 1. on the facts and in the circumstances of the case and in law the ld. commissioner (appeals) erred in directing to grant exemption under section 54f of rs. 63,02,650 against capital gain even though the assessee was in possession of property, income form which was chargeable to tax as 'income from house property' on the date of transfer of the original asset.4. mr. m.b. reddy, departmental representative appeared for the revenue and mr. prakash jotwani, learned counsel appeared for the assessee and put forward their rival submissions.5. the brief facts of the case are that during the year under consideration, the assessee had claimed exemption under section 54f of the income tax act against income from capital gains on sale of shares of mahindra & mahindra ltd., amounting to rs. 1,52,18,000. the said exemption claimed under section 54f of the income tax act was denied to the assessee as the assessee was in possession of a farm-house on the date of sale and as the farm-house was a residential house, the benefits of the section were not available to the assessee. during the appellate proceedings, the assessee claimed before the commissioner (appeals) that the said farm-house in haryana was in fact a plot of land at harnala where no farm-house or any other house existed. the assessee further stated that the land at harnala was leased to punjab state: electricity board (pseb) and certain residential buildings have been put up by the board for its staff quarters. the assessee filed a letter dated 7-7-2002 issued by dy. chief engineer, shanon power house, joginder nagar to the effect. the commissioner (appeals) directed the assessing officer that on-site verification should be carried out to re-examine the matter after consid-ering the evidence produced by the assessee and also the leased agreement with pseb. in the second round of assessment, no on-site verification was carried out by the assessing officer and after going through the lease agreement and the letter issued by dy. chief engineer, pseb and other documents, the assessing officer rejected the claim of the assessee holding it not eligible for the deduction under section 54f of the income tax act and the capital gains of rs. 1,52,18,000 was held to be taxable. during the course of second round of appellate proceedings the assessee clarified that at the time when the property was leased to pseb, the assessee was a minor and an application to the hon'ble court of district judge, bangalore under the hindu minority and guardianship act, 1956 was made seeking permission of the court to lease the property at harnala to pseb. the copy of the order dated 27-1-1977 was produced before the commissioner (appeals) which in-turn was forwarded to the assessing officer and the assessing officer in his remand report objected to the admission of the order, which was not furnished in the first round before the assessing officer but in the second round of assessment proceedings. the commissioner (appeals) after taking into consideration the submissions of the learned ar that it was prevented by a sufficient cause from non-production of the said documents before the assessing officer as the reassessment proceedings commenced on 11-3-2003 and order was passed on 31-3-2003 admitted the aforesaid order and after considering the evidence filed by the assessee concluded that after going through the different clauses of lease agreement and the order of the district judge, bangalore, there is no specific mention of the residential house but general words like hutments and out-houses. accordingly the commissioner (appeals) held that during the year under consideration, the assessee was not the owner of any property, income from which is taxable under the head income from the house property and as the other conditions for claiming the exemption under section 54f were satisfied, the assessing officer was directed to grant the exemption under section 54f of the income tax act. similar exemption was claimed under section 54f of the act to the extent of rs. 63,02,650 in assessment year 1998-99, which was also rejected by the assessing officer and allowed by the commissioner (appeals). the revenue is aggrieved and is in appeal before us.6. we have heard the rival submissions and perused the records. the assessee along with her brother shri martand singh mahindra were the owners of the property at harnala which was leased to pseb as per lease agreement dated 28-3-1977. the preamble of the lease provided as under: whereas the lessee has undertaken to occupy and take on lease the property known as harnala complex owned by the lessors and comprising of the land measuring 9 bigha 18 biswa along with all huts, outhouses buildings etc. without furniture attached thereto, situated on the road from shanan power house to harnala at harnala and bounded as under: more particularly described in the schedule and plan attached hereto for the purpose of construction in connection with pseb works.the assessee being a minor at the relevant time of execution of lease agreement permission was sought from district judge at bangalore to enter into the lease agreement. the district judge at bangalore vide its a order dated 27-1-1977 had reproduced the contentions of the assessee by way of petition moved before the assessee and clause (vii) stated as under: the petitioner who has got himself examined as p. w. i has sworn in his evidence that the minors miss anjali mahindra and master martand singh mahindra, aged 17 years old and 13 years old respectively and they are residing with the petitioner at yelakanka; that the immovable property known as harnala complex in himachal pradesh gifted to the minors by their grandfather, is about 9.9 bighas equivalent to about 2.5 acres, and it consists of some dwelling huts, out-houses, which are used as a cattle sheds; that the huts are in a dilapidated condition and they have never been used or occupied; that the petitioner is not getting any rents or income from those houses and sheds; that the property is within the compound of punjab state electricity board; that the property is not utilized for any other purpose....the district judge after consideration of the petition had held as under: from a consideration of the documents exte. p.l and producing-2 and the evidence of p.w.-l, it is clear, that the property in question, belongs to the minors who are residing with their father at yelakanka, and property which is situated at himachal pradesh and consists of some dwelling houses and out-houses which are used as cattle-sheds, is not fetching any income to the minors, and the proposed lease of the petition schedule property in favour of punjab state electricity board, on lease on a rental value of rs. 2,000 per year for the period of fifty years, fetches a lump sum of rupees one lakh as advance of lease amount is beneficial to the interest of the minors. therefore, i am satisfied....the copy of the lease agreement is filed at pages 19 to 27 of the paper book and the copy of the order of the district judge at bangalore at pages 116 to 122 of the paper book.7. during the year under consideration, the assessee had sold shares of mahindra and mahindra ltd. and the capital gains arising on the sale of the said shares was claimed to be exempt by availing the deduction under section 54f of the income tax act on account of investment in another residential property during the years under consideration. the said exemption claimed by the assessee was denied by the assessing officer as the assessee was the owner of the property at harnala as against the claim of the assessee, no farm house exists on the agricultural land at harnala and only certain hutments existed in the dilapidated condition which the pseb was directed to demolish. as per the lease agreement between the assessee and the pseb, it was also agreed between the parties that certain residential quarters shall be constructed by pseb on the said piece of land which in-turn shall be demolished when the lessee i.e., pseb vacates the land. the assessing officer rejecting the claim of the assessee and denying the exemption under section 54f of the income tax act brought the capital gains arising on sale of shares to tax in both the assessment years 1997-98 and 1998-99. though the assessing officer was directed to make on-site verification but the same was not carried out by the assessing officer and the commissioner (appeals) after taking into consideration the documents produced by the assessee including the letters issued by pseb directed the assessing officer to allow the claim of the assessee in respect of deduction claimed under section 54f of the income tax act.8. the provisions of section 54f of the income tax act provides the exemption from capital gains on sale of any capital assets other than a residential property if the sale proceeds are invested in a residential house. the proviso to section 54f of the income tax act categorically provides the said exemption shall be allowed to the assessee only if the assessee does not own any other property on the date of transfer of the capital asset other than the one purchased by the assessee. the only question for our determination is whether the assessee was the owner of any residential property on the date of claiming set off of exemption on capital gains arising during the years under consideration. the perusal of the lease agreement very clearly talks of piece of land measuring 9 bigha and 18 biswa along with hutments, out-house buildings etc. and it also talks of property known as 'harnala complex'. before the district judge at bangalore the petition talks of immovable property known as harnala complex in himachal pradesh consisting of some dwelling hut, outhouses which were used as cattle sheds and the huts are in the dilapidated conditions. the district judge in his order after consideration of the documents and the evidence of witness concluded that the property in question situated at himachal pradesh consists of some dwelling houses and out-houses which are used as cattle sheds. during the course of reassessment proceedings, the assessing officer had written a letter on 13-3-2003 to pseb seeking clarification as to whether there were any structure including huts, out-houses etc. in the property as on the date of lease agreement dated 28-3-1997. the words used in the said letter were demolished/repaired which according to the assessing officer presum-ably gives indication that there was a house on the said land on the date of lease belonging to the assessee and pseb has merely done some repairing work on the existing structure and demolition for construction of new building. the primary piece of evidence to be considered in the present case is the order passed by the district judge at bangalore on 27-1-1977, which very categorically stated that the said piece of land is an agricultural plot consisting of huts and out-houses, which in-turn are being used as cattle sheds. it was further stated that the huts were in a dilapidated condition and had never been used or occupied by the petitioners. in view of the categoric finding of the district judge who in-turn had also taken the evidence of the witnesses, there is no merit in the stand of the assessing officer that a building existed of the aforesaid piece of land, without carrying out any on-site verification though directed by the commissioner (appeals). no doubt, there may be some huts and out-houses but the same cannot be interpreted as a residential property of the assessee. though at present there exists a building which has been constructed on the said piece of land by pseb but the same in no way gives right to the suspicion to any finding that any other building existed prior to the one constructed by the pseb. accordingly, we are of the view that during the years under consideration, the assessee was not the owner of any other residential property, income from which was taxable under the head 'income from house property'. in view of the totality of the facts and circumstances of the case, the assessee was entitled to the claim of the deduction under section 54f of the income tax act. the grounds raised by the revenue in both the assessment years are thus dismissed.

Judgment:
1. Both these appeals are by the revenue against the separate orders of Commissioner (Appeals)-XVI, Mumbai, dated 20-6-2003 and 23-6-2003 relating to assessment years 1997-98 and 1998-99 respectively against the order under Section 143(3) of the Income Tax Act, 1961. Both the appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of A convenience.

2. The revenue has raised the following grounds of appeal in assessment year 1997-98: 1. On the facts and in the circumstances of the case and in law the Ld. Commissioner (Appeals) erred in directing to grant exemption under Section 54F of Rs. 1,52,18,000 against capital gain even though the assessee was in possession of property, income form which was chargeable to tax as 'Income from house property' on the date of transfer of the original asset.

3. The revenue has raised the following grounds of appeal in assessment year 1998-99: 1. On the facts and in the circumstances of the case and in law the Ld. Commissioner (Appeals) erred in directing to grant exemption under Section 54F of Rs. 63,02,650 against capital gain even though the assessee was in possession of property, income form which was chargeable to tax as 'Income from house property' on the date of transfer of the original asset.

4. Mr. M.B. Reddy, departmental Representative appeared for the revenue and Mr. Prakash Jotwani, learned Counsel appeared for the assessee and put forward their rival submissions.

5. The brief facts of the case are that during the year under consideration, the assessee had claimed exemption under Section 54F of the Income Tax Act against income from capital gains on sale of shares of Mahindra & Mahindra Ltd., amounting to Rs. 1,52,18,000. The said exemption claimed under Section 54F of the Income Tax Act was denied to the assessee as the assessee was in possession of a farm-house on the date of sale and as the farm-house was a residential house, the benefits of the section were not available to the assessee. During the appellate proceedings, the assessee claimed before the Commissioner (Appeals) that the said farm-house in Haryana was in fact a plot of land at Harnala where no farm-house or any other house existed. The assessee further stated that the land at Harnala was leased to Punjab State: Electricity Board (PSEB) and certain residential buildings have been put up by the Board for its staff quarters. The assessee filed a letter dated 7-7-2002 issued by Dy. Chief Engineer, Shanon Power House, Joginder Nagar to the effect. The Commissioner (Appeals) directed the assessing officer that on-site verification should be carried out to re-examine the matter after consid-ering the evidence produced by the assessee and also the leased agreement with PSEB. In the second round of assessment, no on-site verification was carried out by the assessing officer and after going through the lease agreement and the letter issued by Dy. Chief Engineer, PSEB and other documents, the assessing officer rejected the claim of the assessee holding it not eligible for the deduction under Section 54F of the Income Tax Act and the capital gains of Rs. 1,52,18,000 was held to be taxable. During the course of second round of Appellate Proceedings the assessee clarified that at the time when the property was leased to PSEB, the assessee was a minor and an application to the Hon'ble court of District Judge, Bangalore under the Hindu Minority and Guardianship Act, 1956 was made seeking permission of the court to lease the property at Harnala to PSEB. The copy of the order dated 27-1-1977 was produced before the Commissioner (Appeals) which in-turn was forwarded to the assessing officer and the assessing officer in his Remand Report objected to the admission of the order, which was not furnished in the first round before the assessing officer but in the second round of assessment proceedings. The Commissioner (Appeals) after taking into consideration the submissions of the learned AR that it was prevented by a sufficient cause from non-production of the said documents before the assessing officer as the reassessment proceedings commenced on 11-3-2003 and order was passed on 31-3-2003 admitted the aforesaid order and after considering the evidence filed by the assessee concluded that after going through the different clauses of lease agreement and the order of the District Judge, Bangalore, there is no specific mention of the residential house but general words like hutments and out-houses. Accordingly the Commissioner (Appeals) held that during the year under consideration, the assessee was not the owner of any property, income from which is taxable under the head income from the house property and as the other conditions for claiming the exemption under Section 54F were satisfied, the assessing officer was directed to grant the exemption under Section 54F of the Income Tax Act. Similar exemption was claimed under Section 54F of the Act to the extent of Rs. 63,02,650 in assessment year 1998-99, which was also rejected by the assessing officer and allowed by the Commissioner (Appeals). The revenue is aggrieved and is in appeal before us.

6. We have heard the rival submissions and perused the records. The assessee along with her brother Shri Martand Singh Mahindra were the owners of the property at Harnala which was leased to PSEB as per lease agreement dated 28-3-1977. The preamble of the lease provided as under: WHEREAS the lessee has undertaken to occupy and take on lease the property known as Harnala Complex owned by the lessors and comprising of the land measuring 9 Bigha 18 Biswa along with all huts, outhouses buildings etc. without furniture attached thereto, situated on the road from Shanan Power House to Harnala at Harnala and bounded as under: More particularly described in the schedule and plan attached hereto for the purpose of construction in connection with PSEB works.

The assessee being a minor at the relevant time of execution of lease agreement permission was sought from District Judge at Bangalore to enter into the lease agreement. The District Judge at Bangalore vide its A order dated 27-1-1977 had reproduced the contentions of the assessee by way of petition moved before the assessee and Clause (vii) stated as under: The petitioner who has got himself examined as P. W. I has sworn in his evidence that the minors Miss Anjali Mahindra and Master Martand Singh Mahindra, aged 17 years old and 13 years old respectively and they are residing with the petitioner at Yelakanka; that the immovable property known as Harnala Complex in Himachal Pradesh gifted to the minors by their grandfather, is about 9.9 bighas equivalent to about 2.5 acres, and it consists of some dwelling huts, out-houses, which are used as a cattle sheds; that the huts are in a dilapidated condition and they have never been used or occupied; that the petitioner is not getting any rents or income from those houses and sheds; that the property is within the compound of Punjab State Electricity Board; that the property is not utilized for any other purpose....

The District Judge after consideration of the petition had held as under: From a consideration of the documents exte. P.l and Producing-2 and the evidence of P.W.-l, it is clear, that the property in question, belongs to the minors who are residing with their father at Yelakanka, and property which Is situated at Himachal Pradesh and consists of some dwelling houses and out-houses which are used as cattle-sheds, is not fetching any income to the minors, and the proposed lease of the petition Schedule property in favour of Punjab State Electricity Board, on lease on a rental value of Rs. 2,000 per year for the period of fifty years, fetches a lump sum of rupees one lakh as advance of lease amount is beneficial to the interest of the minors. Therefore, I am satisfied....

The copy of the lease agreement is filed at pages 19 to 27 of the paper book and the copy of the order of the District Judge at Bangalore at pages 116 to 122 of the paper book.

7. During the year under consideration, the assessee had sold shares of Mahindra and Mahindra Ltd. and the capital gains arising on the sale of the said shares was claimed to be exempt by availing the deduction under Section 54F of the Income Tax Act on account of investment in another residential property during the years under consideration. The said exemption claimed by the assessee was denied by the assessing officer as the assessee was the owner of the property at Harnala as against the claim of the assessee, no farm house exists on the agricultural land at Harnala and only certain hutments existed in the dilapidated condition which the PSEB was directed to demolish. As per the lease agreement between the assessee and the PSEB, it was also agreed between the parties that certain residential quarters shall be constructed by PSEB on the said piece of land which in-turn shall be demolished when the lessee i.e., PSEB vacates the land. The assessing officer rejecting the claim of the assessee and denying the exemption under Section 54F of the Income Tax Act brought the capital gains arising on sale of shares to tax in both the assessment years 1997-98 and 1998-99. Though the assessing officer was directed to make on-site verification but the same was not carried out by the assessing officer and the Commissioner (Appeals) after taking into consideration the documents produced by the assessee including the letters issued by PSEB directed the assessing officer to allow the claim of the assessee in respect of deduction claimed under Section 54F of the Income Tax Act.

8. The provisions of Section 54F of the Income Tax Act provides the exemption from capital gains on sale of any capital assets other than a residential property if the sale proceeds are invested in a residential house. The proviso to Section 54F of the Income Tax Act categorically provides the said exemption shall be allowed to the assessee only if the assessee does not own any other property on the date of transfer of the capital asset other than the one purchased by the assessee. The only question for our determination is whether the assessee was the owner of any residential property on the date of claiming set off of exemption on capital gains arising during the years under consideration. The perusal of the lease agreement very clearly talks of piece of land measuring 9 Bigha and 18 Biswa along with hutments, out-house buildings etc. and it also talks of property known as 'Harnala Complex'. Before the District Judge at Bangalore the petition talks of immovable property known as Harnala Complex in Himachal Pradesh consisting of some dwelling hut, outhouses which were used as cattle sheds and the huts are in the dilapidated conditions. The District Judge in his order after consideration of the documents and the evidence of witness concluded that the property in question situated at Himachal Pradesh consists of some dwelling houses and out-houses which are used as cattle sheds. During the course of reassessment proceedings, the assessing officer had written a letter on 13-3-2003 to PSEB seeking clarification as to whether there were any structure including huts, out-houses etc. in the property as on the date of lease agreement dated 28-3-1997. The words used in the said letter were demolished/repaired which according to the assessing officer presum-ably gives indication that there was a house on the said land on the date of lease belonging to the assessee and PSEB has merely done some repairing work on the existing structure and demolition for construction of new building. The primary piece of evidence to be considered in the present case is the order passed by the District Judge at Bangalore on 27-1-1977, which very categorically stated that the said piece of land is an agricultural plot consisting of huts and out-houses, which in-turn are being used as cattle sheds. It was further stated that the huts were in a dilapidated condition and had never been used or occupied by the petitioners. In view of the categoric finding of the District Judge who in-turn had also taken the evidence of the witnesses, there is no merit in the stand of the assessing officer that a building existed of the aforesaid piece of land, without carrying out any on-site verification though directed by the Commissioner (Appeals). No doubt, there may be some huts and out-houses but the same cannot be interpreted as a residential property of the assessee. Though at present there exists a building which has been constructed on the said piece of land by PSEB but the same in no way gives right to the suspicion to any finding that any other building existed prior to the one constructed by the PSEB. Accordingly, we are of the view that during the years under consideration, the assessee was not the owner of any other residential property, income from which was taxable under the head 'Income from house property'. In view of the totality of the facts and circumstances of the case, the assessee was entitled to the claim of the deduction under Section 54F of the Income Tax Act. The grounds raised by the revenue in both the assessment years are thus dismissed.