Ranjit Narang vs Commissioner of Income Tax

The Income Tax Appellate Tribunal, Allahabad, has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally justified in holding that the capital gain arising from the transfer of shares, which was chargeable to tax in the assessment year 1990-91, but which, in view of the provisions of Section 54F of the Act became liable to be taxed in the assessment year 1993-94 should be computed in accordance with the law applicable to the assessment year 1993-94?

Briefly stated the facts giving rise to the present appeal are as follows:

The reference relates to the assessment year 1993-94

During the previous year relevant to the assessment year 1990-91, the assessee had sold 4000 shares of M/s. Ballarpur Industries Limited for a consideration of Rs. 6,68,150. The assessee wanted to avail of the benefit of Section 54F and in terms of Sub-section (4) thereof deposited the net consideration in the bank. However, as he failed to utilize the amount for the purchase or construction of the new asset within the period specified as per the proviso to Section 54F(4), the capital gains became liable to be charged u/s 45 of the Act as income of the previous year in which the period of three years from the date of the transfer of the original asset expired, i.e., the assessment year 1993-94. In the return of income filed by him for the assessment year 1993-94 while computing the capital gains the assessee claimed the basic exemption of Rs. 10,000 and further deduction of 60 per cent. of the amount of capital gain in excess of Rs. 10,000 as per the provisions to Section 48(1)(b) read with Section 48(2) of the Income Tax Act, as it stood applicable to the assessment year 1990-91, in which year the sale of the shares was effected. In his order dated November 30, 1993, the Assessing Officer took a view that since Section 48 of the Act had been amended with effect from April 1, 1993, the basic exemption of Rs. 10,000 and further deduction of 60 per cent. of the balance capital gains was not available. In appeal, the submission of the assessee before the Commissioner of Income Tax (Appeals) was that the second proviso to Section 48 providing for deduction of indexed cost of acquisition, applicable to the assessment year 1993-94, should be applied. Alternatively, it was submitted that the capital gains, as computed in the return (as per the provisions of Section 48 as it stood applicable to the assessment year 1990-91) should be accepted. Vide his order dated August 8, 1994, the Commissioner of Income Tax (Appeals) held that since as per the proviso to Section 54F(4) the assessee became liable to be taxed on capital gains in the assessment year 1993-94, the law, as it stood in the assessment year 1990-91 could not be applied for granting deduction. However, he held that the benefit of indexed cost should be given to the assessee according to the second proviso to Section 48 of the Act as it stood with effect from April 1, 1993.

The Tribunal has held that the position of law is that profit out of transfer of shares was chargeable to tax u/s 54F(4) of the Act for the assessment year 1990-91 itself. However, in view of the proviso to Section 54F of the Act it became chargeable to tax in the assessment year 1993-94.

We have heard Sri R.S. Dwivedi, learned senior counsel appearing on behalf of the assessee and Sri Shambhu Chopra, learned Counsel for the Revenue.

Dr. R.S. Dwivedi has submitted that the capital gains as arisen for the assessment year 1990-91, law is applicable for the year 1990-91 ought to have applied and not that of the year 1993-94 as the provisions cannot be said to have any retrospective effect.

Sri Shambhu Chopra, learned standing counsel for the Revenue, has, however, submitted that in view of the specific proviso to Section 54F of the Act if the assessee fails to construct a house within three years or fails to fulfil the conditions mentioned in Section 54F of the Act the capital gains is chargeable in the previous year on the expiry of three years from the date when sale of capital assets have been effected.

We have given thoughtful consideration and we find force in the submission made by Sri Shambhu Chopra. The proviso to Section 54F specifically deals with the situation where the assessee who in order to save himself from payment of tax of capital gains decided to either purchase a house or construct the house within the specified period and fails to do so in that event the statute provides as to when capital gains is to be treated and in which year it is to be taxed. It is because of postponement of capital gains the Income Tax Act takes care of such a situation. Not only in the case of capital gain but in other matters also. We may mention here that the petitioner has not challenged the validity of the proviso to Section 54F(4) by means of writ proceeding.

From a plain reading of Section 54F of the Act we are of the considered opinion that the amount of capital gains which has not been utilised u/s 54F has to be charged u/s 45 as income of the previous year, after the expiry of three years from the date of sale of the asset which in the present case is for the assessment year 1993-94.

That being the position we answer the question in the affirmative, i.e., in favour of the Revenue and against the assessee.

There shall be no order as to costs.