Whether Sec 54F benefit is not available merely because assessee had initiated construction of house property before sale of shares - NO: Delhi HC

THE issue before the Bench is - Whether Sec 54F benefit is not available merely because assessee had initiated construction of house property before sale of shares. And the answer goes against the Revenue.

Facts of the case

The assessee, an individual, had sold shares and the sale proceeds of Rs.54,86,965/- were invested in construction of house property. Exemption was claimed u/s 54F in the return of income filed for AY 2009-10. Amount of Rs.37,99,000/- was utilised in the construction before date of filing of return and Rs.16,87,965/- was deposited in a capital gains account in the prescribed bank before the due date of filing of the return. During assessment, AO rejected the claim for benefit u/s 54F on two grounds. Firstly, AO held that the construction of the house had commenced before the date of sale of shares and secondly, the construction was not completed within three years after the date of said sale. On appeal, CIT(A) had recorded a contrary factual finding that the construction of the house was completed within a period of three years from the date of sale of shares. The shares were sold on 17th September, 2008 and the construction was completed in June, 2011. The aforesaid factual findings were not challenged and questioned by the Revenue before the Tribunal and also before HC. Thus, the only issue, which was raised and had to be examined, was whether the assessee can be denied benefit of Section 54F because construction of the house had commenced before the sale of the shares.

CIT(A) and Tribunal had relied upon decisions of Allahabad HC and Karnataka HC in CIT versus H.K. Kapoor (Decd.), (1998) 234 ITR 753 (All.) and CIT versus J.R. Subramanya Bhat, (1987) 165 ITR 571 (Kar). These two cases deal with interpretation of Section 54. The said Section was pari materia to Section 54F. The only distinction being that Section 54 applies to investment in a new house where the original asset sold was/is residential property and provisions of Section 54F were/are applicable to all other assets, not being a residential house. In J.R. Subramanya Bhat, Karnataka HC noticed language of Section 54 which stipulated that the assessee should within one year from the date of transfer purchase, or within a period of two years thereafter, construct a residential house to avail of concession under the said Section. The contention of the Revenue that construction of the new building had commenced earlier to the sale of the original asset, it was observed, cannot bar or prevent the assessee from taking benefit of Section 54. It was immaterial when the construction commenced, the sole and important consideration as per the Section was that the construction should be completed within the specified period.

Held that,

++ for the satisfaction of the third condition, it is not stipulated or indicated in the Section that the construction must begin after the date of sale of the original/old asset. There is no condition or reason for ambiguity and confusion which requires moderation or reading the words of the said sub-section in a different manner. The apprehension of the Revenue that the entire money collected or received on transfer of the original/capital asset would not be utilised in the construction of the new capital asset, i.e., residential house, is ill-founded and misconceived. The requirement of sub-section (4) is that if consideration was not appropriated towards the purchase of the new asset one year before date of transfer of the original asset or it was not utilised for purchase or construction of the new asset before the date of filing of return u/s 139, the balance amount shall be deposited in an authorized bank account under a scheme notified by the Central Government. Further, only the amount which was utilised in construction or purchase of the new asset within the specified time frame stand exempt and not the entire consideration received;

++ section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. The Supreme Court in CCE versus Favourite Industries, (2012-TIOL-30-SC-CX) has succinctly observed that literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 = (2002-TIOL-455-SC-CX) and Mangalore Chemicals and Fertilisers Ltd. v. CCT [1992 Supp (1) SCC 21] = (2002-TIOL-234-SC-CX) to which reference has been made earlier.)” In G.P. Ceramics (P) Ltd. v. CTT [(2009) 2 SCC 90], this Court has held that it is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See CTT v. DSM Group of Industries [(2005) 1 SCC 657] (SCC para 26); TISCO Ltd. v. State of Jharkhand [(2005) 4 SCC 272] = (2005-TIOL-02-SC-CX) (SCC paras 42-45); State Level Committee v. Morgardshammar India Ltd. [(1996) 1 SCC 108] ; Novopan India Ltd. v. CCE & Customs [1994 Supp (3) SCC 606] = (2002-TIOL-89-SC-CX); A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala [2007) 2 SCC 725] and Reiz Electrocontrols (P) Ltd. v. CCE. [(2006) 6 SCC 213] = (2006-TIOL-84-SC-CX)”. In view of the aforesaid position, we do not find any merit in the present appeal and the same is dismissed.