ORDER
G. Santhanam, Accountant Member
1. This is an appeal by the assessee against the order of the Commissioner under Section 263(1) of the Income-tax Act, 1961 (‘the Act’)-
2. The assessee sold his residential flat on 5-3-1981 and on 26-6-1981 he entered into an agreement to purchase a residential flat from a construction company known as Meridian Construction Co. But, the construction of the flat was completed and conveyance deed in respect of that flat came to be executed in his favour and registered on 3-3-1983 after the expiry of a period of one year contemplated by Section 54. The ITO had allowed exemption to the assessee under Section 54 of the Act. The Commissioner was of the view that the assessee had not constructed a new residential house as provided under the Act for claiming exemption under Section 54 but had purchased the flat which was registered on 3-3-1983 long after the time limit and, therefore, he is not entitled for exemption allowed under Section 54 by the ITO in the assessment of the assessee for the assessment year 1981-82.
3. The short point that arises for consideration in this appeal is whether the appellant can be said to have purchased the residential flat within a period of one year after the sale of residential property from which capital gains arose and, therefore, whether the appellant is entitled to the benefit of exemption under Section 54. The main contention urged on behalf of the appellant before us is that the Commissioner erred in holding that the date, viz., 3-3-1983 on which the sale deed was executed and registered in favour of the assessee must be taken to be the date of purchase of the flat by the appellant for purposes of exemption under Section 54. It was urged by Shri M.J. Swamy for the assessee that the provision in Section 54 for purchase of residential house within a period of one year before or after the transfer of the capital asset from which the capital gain had arisen is directory and not mandatory and, therefore, substantial compliance with that requirement is sufficient for the assessee to be entitled to exemption under Section 54. It was further contended that where within the statutory period of one year specified in Section 54, the assessee had entered into an agreement to purchase a residential house, paying the consideration wholly or in part, and the agreement had eventually resulted or crystallised in the purchase under a duly executed and registered conveyance deed, though such crystallisation took place after the expiry of the statutory period of one year, he must be deemed to have substantially complied with the condition of purchase of the residential flat within the statutory period so as to be eligible for exemption under Section 54. Shri Swamy further submitted that the word ‘purchase’ occurring in Section 54 must be construed liberally and not strictly so as to further the object for which that provision has been made. It was his plea that the Hon’ble Supreme Court in the case of CIT v. T.N. Aravinda Reddy [l979] 120 ITR 46, affirmed the decision of the Hon’ble Andhra Pradesh High Court in CIT v. T.N. Aravinda Reddy [l979] 116 ITR 551 and construed the release by co-owners whereby the assessee therein obtained a release of undivided interest of his brothers in the property, as a transaction of purchase within the meaning of Section 54. He pleaded that if such a liberal construction is adopted for the purpose of effectuating the intention of the Legislature, it is reasonable to construe the date of agreement of purchase as the date of purchase in a case where the agreement has eventually crystallised into a concluded purchase, though such crystallisation might have taken place after the expiry of the statutory period.
4. Alternatively, Shri Swamy contended that the agreement to purchase and the registered sale deed must all be construed as an intention and an attempt to construct a residential property in these days of skyscrappers, scarcity of land for construction and the difficulty of supervision and organising labour, etc. These agreements, though couched in terms of purchase and sale, should be construed as construction agreements with the builders and the construction having taken place within a period of two years from the date of sale of the house property, the assessee is entitled to exemption under Clause (ii) of Sub-section (2) of Section 54.
5. Shri N. Santhanam, the learned departmental representative, vehemently opposed the submissions of Shri Swamy. He submitted that the assessee had paid only Rs. 5,000 at the time of agreement and within one year from the date of sale of the flat by the assessee, nothing had happened except signing an agreement to purchase a residential flat. The payments towards the purchase were all made only after the expiration of one year from the date of sale. The residential flat was not in existence at the time of entering the agreement by the assessee with the construction company. The residential flat was conveyed to the assessee only on 3-3-1983 and till then the construction company was the owner of the flat. In the circumstances of the case, the conditions stipulated in Section 54(1) are not satisfied.
6. As regards the alternative plea of the assessee that these agreements should be construed as agreements for construction, Shri Santhanam contended that such an interpretation is not called for. Section 54 contemplates exemption to the assessee and the said section should be strictly construed. He relied on a number of decisions in support of his contentions, chief among them being M. Ramanamma v. CWT [1986] 157 ITR 555 (AP) and Dr. (Mrs.) Mrudula A. Talwar v. ITO [1984] 10 ITD 928 (Hyd.).
7. We have heard rival submissions and perused the records. Copy of the agreement of purchase and copy of the conveyance deed are on record. It is not in dispute that the residential property, viz., the flat had not been constructed on the date of the agreement. The learned departmental representative contends that there could be no agreement for purchase of property which was to come into existence. We do not agree with such a proposition, because there could be agreements for purchase of future rights in properties and, in effect, for the properties that are to come into existence. In fact, the assessee was given proportionate right in the land existing at the time of agreement. It is not in dispute that the assessee had sold his residential flat at L.N. Gupta Marg, Hyderabad, by a registered sale deed on 5-3-1981. It is also not in dispute that the assessee had paid the amounts to Meridian Construction Co. towards the cost of the new asset as follows :
Details of payments for purchase of flat at Meridian Apartments, Hyderabad:
(a) During the assessment year 1982-83 (i.e., from 1-4-1981 to 31-3-1982) :
Rs. Rs.
25-6-1981 Cheque No. 385 2,500
25-6-1981 Cheque No. 386 2,500
26-3-1982 Cheque No. 332039 50,000 55,000
7-4-1982 Cheque No. 102046 50,000
15-7-1982 Cheque No. 339771 50,000
6-8-1982 Cheque No. 339400 50,000
3-3-1983 Registration charges and stamps 21,116 1,71,116
Total 2,26,116
Summary
Purchase consideration 2,05,000
Registration and stamps 21,116
Total 2,26,116
Within two years from the date of sale of the residential flat, the conveyance deed was executed and registered by Meridian Construction Co. in favour of the assessee and the assessee was put in possession of the property on 3-3-1983, the day the sale deed was executed. On all these facts, there is no dispute.
8. The dispute is with regard to the construction that is to be placed on the word ‘purchase’. In our view, the expression ‘purchase’ occurring in Section 54 is not synonymous with ‘ownership’ or ‘transfer of legal title’ whereas in Sections 22 and 45 of the Act, which are the charging sections creating tax liability, the words used are ‘owner’ and ‘transferor’ and they connote legal title. These words are conspicuous by their absence in Section 54 which provides exemption. Therefore, the date of purchase for purposes of Section 54 need not necessarily be the date on which the legal title is vested in the purchaser. Construing Section 54 liberally in order to effectuate the object of the Legislature, the date on which the assessee had entered into the transaction of purchase which eventually resulted or crystallised into purchase under a duly registered conveyance deed, could be taken as the date of purchase. No doubt, Section 47 of the Registration Act provides that registration, as and when it takes place, takes effect from the date of execution of the deed. That may be the position so far as transfer of legal title is concerned. Here, we are not concerned with ownership and hence this legal position does not stand in the way of taking the date of the agreement (to purchase) as the date of purchase for the purposes of Section 54 in a case where the agreement has eventually crystallised into purchase, though after the statutory period of one year. In fact the Supreme Court in T.N. Aravinda Reddy’s case (supra), held that acquisition through release from other co-owners amounts to purchase within the meaning of Section 54(1). In that case, the Hon’ble Supreme Court found no reason to divorce the meaning of the word ‘purchase’ as buying for a price or the equivalent of price by payment in kind or adjustment towards old debt or for other monetary consideration, from the legal meaning of that word in Section 54(1). Their Lordships further observed :
… The purpose is plain ; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on ‘cash and carry’ . … (p. 48)
9. In Mrs. Shahzada Begum v. ITO [1983] 5 ITD 292 (Hyd.), Bench ‘B’ of the Tribunal had to consider whether for purposes of Section 54, date of agreement (to purchase) could be taken as date of purchase and whether the date of registration of sale deed for purchase is relevant or not. The Bench had to further consider whether the word ‘purchase’ is synonymous with the word ‘own’. It was held in that case that the word ‘purchase’ is not synonymous with the word ‘own’ and to claim exemption under Section 54, one need not become a complete owner of the newly acquired property. It was further held that for purposes of Section 54, the date of purchase could be taken to be the date on which the agreement for purchasing a new house property was obtained by the assessee even though the registration took place long after the period stipulated in Section 54. In this connection, we notice the following observations under the head ‘Purchase’ at page 1110 of Black’s Law Dictionary viz., “The term ‘purchase’ includes any contract to purchase or otherwise acquire. Securities : Exchange Act, Section 3.”
10. In view of the above, we hold that the date of the agreement of purchase should be taken as the date of purchase for purposes of Section 54.
11. The learned departmental representative pointed out that the major part of the consideration towards the purchase was paid after the expiry of one year and, therefore, the assessee was not entitled to exemption under Section 54(1). The Supreme Court in the case cited supra observed that “we see no stress in the section on ‘cash and carry’ “. Even though the major part of the consideration had not been paid within a period of one year, the assessee is not disentitled to exemption, because there is nothing to suggest in Section 54 that the consideration should be paid in cash within one year.
12. The case of M. Ramanamma (supra) relied on by the learned departmental representative is not applicable to the issue on hand. In that case, one of the issues was whether the agricultural lands covered by the agreement to sell entered into by the assessee belonged to the assessee or not. The Hon’ble High Court held that in the absence of a sale deed duly registered conveying the property to the agreement holders, the property continued to belong to the assessee. In the case before us, we are not concerned with the ownership of the property.
13. Another case relied on by the learned departmental representative is the case of Dr. (Mrs.) Mrudula A. Talwar’s case (supra). In that case, the issue was whether, where the assessee acquires no interest in land but only a carpet area of a flat, possession of which is to be entered into on completion of construction, it is a case of construction by the assessee and not purchase. It was held in that case that the assessee did not construct but only purchased the flats which were already constructed in 1982 and the time limit of one year from the date of sale of old residential house applied. The issue whether the date of agreement of purchase should be construed as the date of purchase even though the conveyance deed was executed after the expiry of one year, was never argued before the Tribunal. At best, this case could be an answer to the alternative plea of Shri Swamy that all these agreements, etc., should be treated as construction agreements.
14. In conclusion, we hold that the term ‘purchase’ should be construed liberally in terms of the dicta of the Supreme Court in the case cited supra, that the date of agreement of purchase should be taken as the date of purchase even though conveyance was given after the expiry of one year from the date of sale of residential flat and that the mere fact that the major part of the consideration was paid after the expiry of one year would not disentitle the assessee to exemption under Section 54 as the Supreme Court in the case cited supra did not find any stress in the section on ‘cash and carry’.
15. In the result, the order of the Commissioner is vacated. The appeal is allowed.