RAJARAM v. INCOME TAX OFFICER
[Citation -1986-LL-0717-2]

Citation 1986-LL-0717-2
Appellant Name RAJARAM
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 17/07/1986
Assessment Year 1981-82
Judgment View Judgment
Keyword Tags new residential house • registered sale deed • date of registration • benefit of exemption • construction company • statutory period • conveyance deed • house property • capital asset • capital gain • legal title • new asset • new house
Bot Summary: The date of purchase for purposes of s. 54 need not necessarily be the date on which the legal title is vested in the purchaser. Construing s. 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. In Mrs. Shahzada Begum vs. ITO 5 ITD 292, Hyderabad Bench 'B' of the Tribunal had to consider whether for purposes of s. 54, date of agreement could be taken as date of purchase and whether the date of registration of sale deed for purchase is relevant or not. The term 'purchase' includes any contract to purchase or otherwise acquire securities, Exchange Act, s. 3. 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 s. 54. 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. 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 s. 54 as the Supreme Court in the case cited supra did not find any stress in the section on cash and carry.


G. SANTHANAM, A.M. ORDER This is appeal by assessee against order of CIT under s. 263(1) of IT Act, 1961. 2. assessee sold his residential flat on 5th March, 1981 and on 26th June, 1981 he entered into agreement to purchase residential flat from construction company known as Meridian construction Company. But, construction of flat was completed and conveyance deed in respect of that flat came to be executed in his favour and registered on 3rd March, 1983 after expiry of period of one year contemplated by s. 54. ITO had allowed exemption to assessee under s. 25 of Act. commissioner was however of view that assessee had not constructed new residential house as provided under Act for claiming exemption under s. 54 but had purchased flat which was registered on 3rd March, 1983 long after time limit and, therefore, he was not entitled for exemption allowed under s. 54 by ITO in assessment of assessee for asst. yr. 1981-82. 3. short point that arises for consideration in this appeal is whether appellant can be said to have purchased residential flat within period of one year after sale of residential property from which capital gains arose and therefore, whether appellant is entitled to benefit of exemption under s. 54 of IT Act. main contention urged on behalf of appellant before us is that commissioner erred in holding that date viz. 3rd March, 1983 on which sale deed was executed in favour of assessee and registered must be taken to be date of purchase of flat by appellant for purposes of exemption under s. 54. It was urged by Sri M.J. Swamy for assessee that provision in s. 54 for purchased of residential house within period of one year before or after transfer of capital asset from which capital gain had arisen is directory and not mandatory and, therefore, substantial compliance with that requirement is sufficient for assessee to be entitled to exemption under s. 54. It was further contended that where within statutory period of one year specified in s. 54, assessee had entered into agreement to purchase residential house, paying consideration wholly or in part and agreement had eventually resulted or crystallised in purchase under duly executed and registered conveyance deed, though such crystallisation took place after expiry of statutory period of one year, he must be deemed to have substantially complied with condition of purchase of residential flat within statutory period so as to be eligible for exemption under s. 54. Sri Swamy further submitted that word 'purchase, occurring in s. 54 must be construed liberally and not strictly so as to further object for which that provision has been made. It was his plea that Honourable Supreme Court in case of CIT vs. T.N. Aravinda Reddy (1979) 12 CTR (SC) 423 : (1979) 120 ITR 46 (SC) affirmed decision of Honourable Andhra Pradesh High Court in CIT vs. T.N. Arvinda Reddy (1979) 116 ITR 551 (AP) and construed release by co- owners whereby assessee therein obtained release of undivided interest of his brothers in property, as transaction of purchase within meaning of s. 54. He pleaded that if such liberal construction is adopted for purpose of effectuating intention of legislature, it is reasonable to construe date o f agreement of purchase as date of purchase in case where agreement has eventually crystallised into concluded purchase, though such crystallisation might have taken place after expiry of statutory period. 4. Alternatively, Sri Swamy contended that agreement to purchase and registered sale deed must all be construed as intention and attempt to construct residential property in these days of skyscrapers, scarcity of land for construction and difficulty of supervision and organising labour etc. These agreements though couched in terms of purchase and sale, should be construed as construction agreement with builders and construction having taken place within period of two years from date of sale of house property, assessee is entitled to exemption under cl. (ii) of sub-s. (1) of s. 54. 5. Sri N. Santhanam, ld. departmental representative, vehemently opposed submission of Sri Swamy. He submitted that assessee had paid only Rs.5,000 at time of agreement and within one year from date of sale of flat by assessee, nothing had happened except signing agreement to purchase residential flat. payments towards purchase were all made only after expiration of one year from date of sale. residential flat only after expiration of one year from date of sale. residential flat was not in existence at time of entering agreement by assessee with construction company. residential flat was conveyed to assessee only on 3rd March, 1983 and till then construction company was owner of flat. In circumstances of case, condition stipulated in s. 54(1) are not satisfied. 6 . As regard alternative plea of assessee that these agreement should be construed as agreement for construction, Sri Santhanam contended that such interpretation is not called for. Sec. 54 contemplates exemption to assessee and said section should be strictly construed. He relied on number of decisions in support of his contention, chief among them being M. Ramanamma vs. CWT (1986) 157 ITR 555 (AP) and Dr. Mrs. Mrudula A. Talwar vs. ITO (1984) 10 ITD 936 (Hyd). 7. We have heard rival submission and perused records. Copy of agreement of purchase and copy of conveyance deed are on records. It is not in dispute that residential property viz. flat had not been constructed on date of agreement. ld. departmental representative contends that there could be no agreement for purchase of property which was to came into existence. We do not agree with such proposition, because there could be agreement for purchase of future rights in properties and, in effect, for properties that are to come into existence. In fact assessee was given proportionate right in land existing at time of agreement. It is not in dispute that assessee had sold his residential flat at L.N. Gupta Marg, Hyderabad, by registered sale deed on 5th March, 1981. It is also not in dispute that assessee had paid amounts to M/s Meridian Construction Co. towards cost of new asset as follows : "Details of payments for purchase of Flat at Meridian Apartments, Hyderabad. (a) During asst. yr. 1982-83 (i.e. . . from 1-4-1981 to 31-3-1982) 25-6-1981 Cheque No. 385 2,500 . 25-6-1981 Cheque No. 386 2,500 . 26-3-1382 Cheque No. 332039 50,000 55,000 (b) During asst. yr. 1983-84 from . . 1-4-1982 to 31-3-1983) 7-4-1982 Cheque No. 102046 50,000 . 15-7-1982 Cheque No. 339771 59,000 . 6-8-1982 Cheque No. 339400 50,000 . 3-3-1983 Registration Charges & 21,116 . Stamps . . 1,71,116 Total . 2,26,116 Summary: Purchase Consideration Rs. 2,05,000 Registration and Stamps Rs. 21,116 . Rs. 2,26,116 Within two years from date of sale of residential flat, conveyance deed was executed and registered by M/s Meridian Construction Company in favour of assessee and assessee was put in possession of property on 3rd March, 1983, day sale deed was executed. On all these facts, there is no dispute. 8. dispute is with regard to construction that is to be placed on word 'purchase'. In our view, expression 'purchase' occurring in s. 54 is not synonymous with 'ownership' or 'transfer' of legal title' whereas in ss. 22 and 45 of IT Act, which are charging sections creating tax liability, words used are 'owner' and 'transferor' and there cannot be legal title. These words are conspicuous by their absence in s. 54 which provides exemption. Therefore, date of purchase for purposes of s. 54 need not necessarily be date on which legal title is vested in purchaser. Construing s. 54 liberally in order to effectuate object of legislature, date on which assessee had entered into transaction of purchase which eventually resulted or crystallised into purchase under duly registered conveyance deed, could be taken as date of purchase. No doubt, s. 47 of Registration Act provides that registration, as and when it takes place, takes effect from date of execution of deed. That may be 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 way of taking date of agreement to purchase as date of purchase for purposes of s. 54 in case where agreement has eventually crystallised into purchase, though after statutory period of one year. In fact, Supreme Court in CIT vs. T.N. Aravinda Reddy (1979) 120 ITR 46 (SC) (supra) held that acquisition through release from other co-owners amounts to purchase within meaning of s. 54(1). In that case, Honourable Supreme Court found no reason to divorce meaning of word 'purchase' as buying for price or equivalent of price by payment in kind or adjustment towards old debt or for other monetary consideration, from legal meaning of that word in s. 54(1). Their Lordships further observed : "The purpose is plain, symmetry is simple, language is plain. Why mutilate meaning by lexical legalism. We see no stress in section on 'cash and carry'." 9 . In Mrs. Shahzada Begum vs. ITO (1983) 5 ITD 292 (Hyd), Hyderabad Bench 'B' of Tribunal had to consider whether for purposes of s. 54, date of agreement (to purchase) could be taken as date of purchase and whether date of registration of sale deed for purchase is relevant or not. Bench had t o further consider whether word 'purchase' is synonymous with word 'own'. It was held in that case that word 'purchase' is not synonymous with word 'own' and to claim exemption under s. 54, one need not become complete owner of newly acquired property. It was further held that for purposes of s. 54, date of purchase could be taken to be date on which agreement for purchasing new house property was obtained by assessee even though registration took place long after period stipulated in s. 54. In this connection, we notice following observations under head in s. 54. In this connection, we notice following observations under 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, s. 3". 1 0 . In view of above, we hold that date of agreement of purchase should be taken as date of purchase for purposes of s. 54. 11. ld. departmental representative, pointed out that major part of consideration towards purchases was paid after expiry of one year and, therefore, assessee was not entitled to exemption under s. 54(1). Supreme Court in case cited supra observed that "we see no stress in section on 'cash and carry'. Even though major part of consideration had not been paid within period of one year, assessee is not disentitled to exemption, because there is nothing to suggest in s. 54 that consideration should be paid in cash within one year. 12. case of M. Ramanamma vs. CIT (1986) 157 ITR 555 (AP) (supra) relied on by ld. departmental representative is not applicable to issue on hand. In that case, one of issues was whether agricultural lands covered by agreement to sell entered into by assessee belonged to assessee or not. Honourable High Court held that in absence of sale deed duly registered conveying property to agreement-holders, property continued to belong to assessee. In case before us, we are not concerned with ownership of property. 13. Another case relied on by ld. departmental representative is case of Dr. (Mrs.) Mrudula A. Talwar vs. ITO (1984) 1 ITD 928 (Hyd). In that case, issue was whether, where assessee acquires no interest in land but only carpet area of flat, possession of which is to be entered into on completion of construction, it is case of construction by assessee and not purchase. It was held in that case that assessee did not construct but only purchased flats which are already constructed in 1982 and time limit of one year from date of sale of old residential house applied. issue whether date of agreement of purchase should be construed as date of purchase even though conveyance deed was executed after expiry of one year, was never argued before Tribunal. At best, this case could be answer to alternative plea of Sri M.J. Swamy that all these agreements, etc., should be treated as construction agreements. 14. In conclusion, we hold that term 'purchase' should be construed liberally in terms of dicta of Supreme Court in case cited supra, that date of agreement of purchase should be taken as date of purchase even though conveyance was given after expiry of one year from date of sale of residential flat and that mere fact that major part of consideration was paid after expiry of one year would not disentitle assessee to exemption under s. 54 as Supreme Court in case cited supra did not find any stress in section on "cash and carry". 15. In result, order of CIT is vacated. appeal is allowed. *** RAJARAM v. INCOME TAX OFFICER
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