The Commissioner of Income Tax vs V. Pradeep Kumar and V. Praveen Kumar

P.P.S. Janarthana Raja, J.—The Income Tax Appellate Tribunal, Madras, ''A'' Bench, referred the following question of law at the instance

of Revenue, under the direction of this Court in TCP Nos. 77 & 78 of 1998 dated 29.07.1998, for opinion of this Court,:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal had valid materials to give a finding that the assessee had

constructed a residential house before 21.06.1988 and thus eligible for exemption u/s 54F of the Income Tax Act?

The facts leading to the above question of law are as under: The relevant assessment year is 1986-87. The assessees are individuals, assessed

by the Income Tax Officer, City Ward III(4) on 22.06.19 85. They sold a house property at No. 40, Moore Street, Madras-1, which was jointly

owned by them and each claimed exemption u/s 54F in respect of 50% share of capital gain of Rs. 8,25,957/- in the original returns which were

filed on 12.09.1986 declaring their intention to construct a residential house within the specified period of three years i.e., before 21.06.1988. The

assessments were completed u/s 143(1)(a). Later on, they filed revised returns admitting taxable capital gains of Rs. 1,63,487/-, each claiming

partial exemption u/s 54F for the reason that they invested the capital gains in the new residential houses to an extent of Rs. 7,65,470/- only. The

assessments were reopened u/s 148 in both cases and reassessments were completed on 30.03.1990, u/s 143(3) read with Section 147, taxing

the entire capital gains of Rs. 8,25,957/- on the basis of the materials collected by the Assessing Officer. Aggrieved by the order of the Assessing

Officer, the assessees filed appeals before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) dismissed

the appeals and confirmed the order of the Assessing Officer. Aggrieved by the same, the assessees filed appeals to the Income Tax Appellate

Tribunal. The Tribunal allowed the appeals filed by the assessees and granted exemption u/s 54F.

The learned Standing Counsel appearing for the Revenue submitted that there were no new construction of residential houses by the assessees.

It is also brought to notice that there was an enquiry made by the Assessing Officer with the Madras Corporation and found that the assessees

applied for approval of the plan for construction on 27.1 2.1989. Further the order of approval for the construction was granted on 09.02.1990.

Further the assessee applied for approval for demolishing the above building on 27.12.1989 and the same was granted only on 09.02.1990.

Enquiry made by the Departmental Inspector as well as the local enquiry, revealed that there was only an old building and no new construction was

built at all. Hence there were no new construction by the assessees. Therefore the assessees are not entitled to exemption u/s 54F of the Act.

The learned Counsel appearing for the assessees submitted that there were new construction by both the assessees but they were unauthorised

construction and the same were demolished later. Further it was submitted that the buildings were constructed and plan was also made.

Subsequently, they were demolished for the purpose of modernisation. Since the buildings were constructed and substantial amount of money was

spent, the Revenue was not justified in bringing the whole amount of capital gain tax. Further it was contended that the Tribunal had given a factual

finding that there were construction of new buildings and hence this Court should not interfere with the factual finding of the Tribunal under

reference. It is also emphasised that Section 54F is a beneficial provision and hence the Court should construe the said provision liberally.

We heard the arguments of both the sides.

Certain dates are very much important for this case, which are as below:

V.Pradeep Kumar V.Praveen Kumar

1) Date of sale of property 22.6.1985 22.6.1985 in Moore Street (Purchase & construction to be completed before 22.6.1988)

2) Date of purchase of property 9.3.1988 6.4.1988 at Giri Road

3) Date of construction of two 15.4.1988 15.4.1988 individual property started from

4) Date of payment made to 10.6.1988 & 10.6.1988 & Contractor 20.6.1988 20.6.1988

5) Date of completion of construction by Contractor 20.6.1988 20.6.1988

6) Date of inspection by the valuer to the two separate buiding 29.6.1988 29.6.1988

7) Date of cost of construction and valuation report 30.6.1988 30.6.1988

Section 54F deals with capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. The section

reads as follows:

Section 54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.-(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

afte r 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 u/s 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 u/s 45:

Provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the original asset, or

purchases, within the period of one year after such date, 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 above section was inserted by the Finance Act of 1982 with effect from 1st March 1983. The conditions precedent for getting exemption are:

Transfer of any long term capital assets not being a residential house.

The assessee purchases within a period of one year before or two years after the date on which the transfer took place or construct within a

period of three years after the date of transfer, any residential house.

From a reading of the above, what we have to see in this case is whether the assessees had constructed residential houses within a period of three

years after the date of transfer or not. From the above tabular column, it is clear that the date of sale of property was on 22.06.1985 and the date

of purchase of property was on 09.03.1988 in the case of Sri.V.Pradeep Kumar in Tax Case No. 31 of 2001 and 06.04.1988 in the case of

Sri.V.Praveen Kumar in Tax Case No. 32 of 2001. The assessees stated that they commenced the construction of new residential houses from

15.04.1988 and completed the construction on 20.06.198 8. The due date for completing the construction was on 20.06.1988. The findings given

by the Tribunal for each construction of new houses are as below:

Actually the assessees applied to the Corporation of Madras vide their letter dated 23-12-89. Along with this letter, they enclosed photostat copy

of the sale deed, copy of property transfer issued by the Corporation, seven copies of the demolition plan, seven copies of construction plan and

indemnity bond and affidavit. In one blue print, the plan of the proposed new construction of 5085 sq.ft. was exhibited. The said building was

proposed to be constructed in ground floor as well as first floor. In this plan, the Architect Savitha Chowdhry put the date as 4-12-1989. In

another blue print the building to be demolished was shown. The total area to be demolished was shown at 1852 sq.ft. In the said blue print, the

Architect Savitha Chowdhry put the date as 17-10-89. In the said blue print for which demolition was applied for, the old building as it existed as

per the sale deed dated 9-3-88 was shown. The actual claim of these assessees is that Shri Pradeep Kumar had undertaken some n ew

construction by way of extension to the old existing building both in the ground floor and in the first floor. This can be seen at pages 71 and 71A in

coloured portion in paper book No. 1 filed by Shri Pradeep Kumar. Shri Praveen Kumar claimed to have constructed a small building of 382

sq.ft. by demolishing the old existing A.C.C. Roofed outhouse of 324 sq.ft. described in the sale deed dated 6-4-88. They further claimed that

they were unauthorised constructions / extensions and that there were no applications for approval to the Corporation of Madras and that they

were later pulled down to enable them to go in for an approval and authorised construction.

We have gone through all the materials available on record and we find that there was an inspection on 14.02.1990 by the Assessing Officer and

contemporary photographs of the existing buildings were taken on 16.02.1990 and in consequence of the above, the Revenue rightly established

that there were not in existence of any such constructed house properties, instead the old building from which the doors and windows have been

removed as could be seen from the photographs which are in possession of the Department. It is clear from the contemporaneous evidence

available on record that there were no new residential houses exhibited on the plot in question. Further, we have also seen that the assessees got

approval from the Corporation of Madras only on 09.02.1990 for demolishing the old existing building at the said plot, and the completion of the

full demolition has been carried out by the assessee only at the end of March 1990. This evidence clearly go to prove that the existing old building

which was purchased, was completely demolished in March 1990 only. The burden is on the assessees to prove that they had actually constructed

new residential houses for purpose of the exemption u/s 54F of the Income Tax Act. It is stated by the counsel for the assessees, that the

assessees had constructed new residential houses, but they were unauthorised construction and the same unauthorised construction were later

demolished for purpose of modernisation. In this case, there is no tangible material to even infer that a residential house was constructed. One of

the assessees say there was an extension to an existing structure and the other says the out-house was demolished; a new construction was put up

in its place and both being unauthorised, have been pulled down on their own voluntarily. Section 54F emphasises construction of residential

house. The said construction must be real one. It should not be a symbolic construction. Further it is seen from the finding of the Tribunal that the

assessee Sri.Pradeep Kumar had undertaken an extension work in the old building in the ground floor and first floor. From the above finding it is

clear that there is no residential house and it is only an extension of the old building. A mere extension of the existing building will not give benefit to

the assessee as contemplated u/s 54F of the Act. In the case of Sri. Praveen Kumar, it was stated by the Tribunal that he had constructed a small

building measuring 382sq.ft. by demolishing the existing A.C.C. roofed outhouse of 324 sq.ft. We have already noted that there is no acceptable

proof for such construction. Mere construction by way of extension of the old existing house would not mean constructing a residential house as

contemplated u/s 54F of the Act. The argument of the counsel for the assessees about the construction of residential houses is not based on any

valid material and is not entitled to the benefit of Section 54F of the Act. Also, there is no evidence or contemporaneous documents available to

show that there were construction. In our opinion, the assessees failed to satisfy the conditions contemplated u/s 54F of the Act. The other

argument of the counsel is that, when the Tribunal had come to a conclusion based on evidence, this Court normally will not interfere under

reference. In this case, the finding of the Tribunal was based on no material and evidence. The Tribunal had considered only irrelevant materials

and the order of the Tribunal is a perverse one. In such circumstance, the Court can interfere under reference. The Supreme Court judgments

reported in The Commissioner of Income Tax, Bihar and Orissa, Patna Vs. S.P. Jain, and Omar Salay Mohamed Sait Vs. Commissioner of

Income Tax, Madras, , held that the High Court has undoubted jurisdiction to interfere with the findings of the Tribunal if it appears that either the

Tribunal has arrived at a finding based on no evidence or its finding is inconsistent with the evidence on record or it has acted on material partly

relevant and partly irrelevant or it draws upon its own imagination and imports facts and circumstances not apparent from the record or it bases its

conclusion on mere conjectures or surmises or no person judicially acting or properly instructed as to the relevant law could have come to the

determination reached by the Tribunal. This Court, in the case of The Commissioner of Income Tax Vs. Coromandel Indag Products P. Ltd., ,

considered the scope of reference u/s 256 of the Act and held as follows:

As far as the decisions of the Supreme Court in M/s. Badal Ram Laxmi Narain Vs. Commissioner of Income Tax , Lucknow, and Commissioner

of Income Tax, Gujarat Vs. M/s. Cellulose Products of India Ltd., are concerned, it is axiomatic that the High Court should not interfere with the

Tribunal''s finding of fact even if another view is possible. The Supreme Court has also held that the High Court hearing a reference under the

Income Tax Act does not exercise appellate or revisional or supervisory jurisdiction over the Appellate Tribunal and that it acts in a purely and

advisory capacity. We are of the view that if the Tribunal, after considering the evidences produced before it on a question of fact, records the

finding, this Court will not interfere with such finding unless the said finding is not supported by any evidence or is perverse or patently

unreasonable.

In the present case, the finding of the Tribunal is not based on any evidence. The order of the Tribunal is perverse and it is patently erroneous and

unreasonable, because it has overlooked the materials produced by the Assessing Officer and in the absence of any material, the Tribunal had

come to an erroneous conclusion, and hence the Court can interfere under reference. The documents relied on by the assessees before the

Tribunal were mere letters addressed by Y.R. Srinivasan, who is the architect. The said architect had given a quotation and bill dated 27.06.1988

and his acknowledgement of the receipt of a sum of Rs. 75,000/- from each of these two assessees, which are not sufficient to prove that there

were construction of residential houses. The said documents and other evidences were produced first time before the Income Tax Appellate

Tribunal. But the Revenue had relied on Inspection Report and also verified with the Madras Corporation and further they have taken photographs

of the place and all these documents reveal that there were only an extension of old building. Further the learned Counsel submitted that Section

54F is a beneficial provision and the same should be construed liberally. For the purpose of exemption u/s 54F, the assessees must construct

residential houses within three years from the date of transfer. The question here is whether the assessees constructed residential houses or not. In

this case, there is no proof for the construction of the same and hence the assessees are not entitled to relief u/s 54F of the Act. The argument that

construing the provision liberally does not arise here when we are concerned with the factual issue. The learned Counsel for the assessees relied on

a number of judgments to support his arguments and they are as under:

a) Supreme Court judgment reported in 120 ITR 46 in the case of Commissioner of Income Tax v. T.N. Aravinda Reddy.

b) B.B. Sarkar Vs. Commissioner of Income Tax, .

c) Addl. Commissioner of Income Tax, Delhi-II Vs. Vidya Prakash Talwar, .

d) Commissioner of Income Tax Vs. P.V. Narasimhan, .

e) Commissioner of Income Tax Vs. J.R. Subramanya Bhat, .

f) Commissioner of Income Tax (Central), Calcutta Vs. Daulatram Rawatmull, .

g) J.J. Enterprises Vs. Commissioner of Income Tax, .

h) Commissioner of Income Tax Vs. Cupro Industrial Corporation, .

We have gone through the above judgments and they are not relevant to the facts of this case and hence we are not dealing with the same.

In the foregoing reasons, we are of the opinion that there were no construction and the claims made by the assessees for exemption u/s 54F

were factually unacceptable. Hence we answer the question in favour of the Revenue and against the assessees. No costs.