IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 19/04/2006
Coram
THE HON'BLE MR.JUSTICE R.BALASUBRAMANIAN
AND
THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA
Tax Case (Reference) No.31 of 2001
& 32 of 2001
The Commissioner of Income Tax,
T.Nadu-I, Madras. ...Applicant
-Vs-
1. V.Pradeep Kumar
2. V.Praveen Kumar ...Respondents
Reference under Section 256(1) of the Income Tax Act, 1961 by Income
Tax Appellate Tribunal, Madras, 'A' Bench in I.T.A. Nos.244/Mds/91 and
245/Mds/91 for the assessment year 1986-87.
!For Applicant : Mrs.Pushya Sitaraman
For Respondents : Mr.R.Venkataraman,
Senior Counsel
:JUDGMENT
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 under sec.54F of the Income Tax Act?”
2. 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 under Section 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 under Section 143(1)(a). Later on, they filed
revised returns admitting taxable capital gains of Rs.1,63,487/-, each
claiming partial exemption under Section 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 under Section 148 in both cases and
reassessments were completed on 30.03.1990, under Section 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
under Section 54F.
3. 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 under Section 54F of the Act.
4. 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.
5. 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 con-
struction 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:
S.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 under section 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 under section 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:
1. Transfer of any long term capital assets not being a residential
house.
2. 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 under Section
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 under Section 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 under Section
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 under Section 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 87 ITR 370 in the case of C.I.T. Vs.
S.P.Jain and 37 ITR 151 in the case of Omar Salay Mohamed Sait Vs. C.I.T.,
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 C.I.T. Vs. Coromandel Indag Products
Limited, reported in 265 ITR 611, considered the scope of reference under
Section 256 of the Act and held as follows:
“As far as the decisions of the Supreme Court in Badal Ram Laxmi Narain v.
CIT [1991] 191 ITR 296 and CIT v. Cellulose Products of India Ltd. [1991]
192 ITR 155 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 under Section 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 under Section 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 Vs. T.N.Aravinda Reddy.
b) Calcutta High Court judgment reported in 132 ITR 150 in the case of
B.B.Sarkar Vs. Commissioner of Income-tax, West Bengal-IV.
c) Delhi High Court judgment reported in 132 ITR 661 in the case of
Addl. Commissioner of Income-tax, Delhi- II Vs. Vidya Prakash Talwar.
d) Madras High Court judgment reported in 181 ITR 101 in the case of
Commissioner of Income-tax Vs. P.V.Narasimhan.
e) Karnataka High Court judgment reported in 165 ITR 571, in the case of
Commissioner of Income-tax Vs. J.R.Subramanya Bhat.
f) Supreme Court judgment reported in 53 ITR 574 in the case of
Commissioner of Income-tax (Central), Calcutta Vs. Daulatram Rawatmull.
g) Supreme Court judgment reported in 254 ITR 216 in the case of J.
J.Enterprises Vs. Commissioner of Income-tax.
h) Allahabad High Court judgment reported in 202 ITR 728 in the case of
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.
6. In the foregoing reasons, we are of the opinion that there
were no construction and the claims made by the assessees for exemption under
Section 54F were factually unacceptable. Hence we answer the question in
favour of the Revenue and against the assessees. No costs.