Capital gain deduction-House Sale-purchase from family members. Everybody entitled to arrange his affairs within law even if it results into reduction of tax liability-ITAT
ABCAUS Case Law Citation:
ABCAUS 1090 (2016) (12) ITAT
Important Case Laws relied upon:
UOI vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC).
The present case involves Cross Appeals filed by the Assessee as well as Revenue against the order passed by the Commissioner of Income Tax (Appeals).
The Revenue was aggrieved by the deletion of disallowance on account of setting off of long term capital loss against long term capital gain on sale of property, on the ground that apparently, the transaction of purchase of property from spouse was a sham transaction to claim deduction u/s. 54.
The assessee was aggrieved by not allowing the claim under section 54 for purchase of a residential flat from family member.
Brief Facts of the Case:
The assessee filed her return of Income declaring net income of Rs. 28,42,810/-. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (the Act). Later, the case was selected for scrutiny and statutory notice u/s 143(2) of the Act was issued.
During the year under consideration, the assessee had declared Long Term Capital Loss on sale of property (property one) , on which benefit of indexation had been taken. Further, the assessee hasd shown Long Term Capital Gain (LTCG) on sale of residential house (property two) on which apart from benefit of Indexation, the assessee had claimed deduction u/s 54 as well as u/s 54EC.
The Long Term Capital Loss on sale of property one had been set-off against LTCG on sale of property two . The Assessing Officer (AO) found that the property one was sold by the assessee to her husband. AO also found that the claim for a deduction u/s 54 was with reference to purchase of a residential house (property three) purchased by her from her daughter vide an Agreement to Sell on a non-judicial stamp paper of Rs.50/-, which was signed by both the parties without any witnesses.
Accordingly, the AO issued a questionnaire to the assessee stating that this whole story appeared to be a manufactured one, to off-set and minimize the Capital Gain tax. All the properties remained within the family of the appellant and all the transactions were within the family. The AO required the assessee to explain why transaction for sale of property one and property three may not be treated as bogus sales.
The AO was not convinced with the reply of the assessee that sale of 60% portion of her property one to her own husband was genuine and the sale deed of the property was registered at Circle Rate and Stamp Duty was duly paid thereon. The AO also did not accept the alleged sale of property three by the assessee’s daughter to her mother, since, the sale deed with reference to this property was not registered and the Agreement to Sell was only on a non-judicial stamp paper of Rs.50/- without any witnesses.
Thus, the AO held that both these transactions were bogus transactions, entered into by the assessee to minimize the tax incidence on Long Term Capital Gain earned by the assessee on sale of her property two. Therefore, the AO brought to tax the capital gain earned by the assessee on sale of property two, after disallowing the capital loss claimed by the assessee on sale of property one and deduction u/s 54 for purchase of residential flat (property three).
Further, while calculating the capital gains with regards to the property two, the AO restricted the cost of improvement and additions of Rs.17,40,000/- pertaining to F.Y. 1992-93 to Rs.10 lacs only.
Aggrieved with the aforesaid assessment order, assessee preferred an appeal before the CIT(A), who upheld the action of the AO of not allowing the exemption u/s 54.
Contentions of the Assessee:
Defending his grounds, It was stated on behalf of the assessee that the exemption u/s 54 in respect of flat purchased by the assessee from her daughter was disallowed on the ground that the house was not registered in the name of the assessee.
It was contended that Section 54 requires that the house should be purchased and it is a settled law that it is not necessary that the housel should be registered in the name of the assessee.
It was further stated that everybody is entitled to arrange his affairs within the parameters of law, even if it results into the reduction of total tax liability as per the decision of the Hon’ble Supreme Court of India.
Observations made by the ITAT:
Set Off of Capital Loss against LTCG
The Tribunal observed that the CIT(A) had given the factual finding that husband of the assessee had purchased 60% share in property one and got the deed registered and that such transaction was legal transaction as per the Transfer of Property Act, and the payment of Rs. 1.20 crores was made as per the circle rate and stamp duty had been paid and that though assessee and her husband were staying together but they are not on good terms.
The ITAT endorsed the CIT(A) view that AO could not have denied the legality of the transaction between the assessee and her husband whereby, the assessee had sold 60% of her share in property one to her husband and accordingly, the AO had no option but to allow the resultant Long Term Capital Loss to the assessee.
Cost of Improvement
The Tribunal observed that the complete details of the expenses incurred on improvement was provided to the AO including the receipt issued by the contractor. The expenses were incurred around twenty years back in F.Y. 1992-93. Also the Completion Certificate was issued by Noida Authority in 1994.
The Tribunal opined complete agreement with the opinion of the CIT(A) that the AO should not have restricted the cost of additions/improvements to Rs.10 lacs on estimate basis as he was not technically competent to do so and he had done this by giving a vague argument saying that “It would not be feasible to allow such a huge expense on the basis of such casual receipts.”
Exemption u/s 54
The Tribunal observed that Section 54 only requires that the house should be purchased and the settled law is that it is not necessary that the house should be registered in the name of the assessee.
The Tribunal opined that everybody is entitled to arrange his affairs within the parameters of law, even if it results into the reduction of total tax liability which is fully supported by the Hon’ble Supreme Court decision
The claim of the assessee under section 54 allowed.
The set off of capital loss against long term capital gain upheld.
Full indexation on full amount of improvement claimed upheld.