Sanjeev Lal v. Commissioner of Income-tax, Chandigarh & Anr
[Citation -2014-LL-0701-17]

Citation 2014-LL-0701-17
Appellant Name Sanjeev Lal
Respondent Name Commissioner of Income-tax, Chandigarh & Anr.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 01/07/2014
Judgment View Judgment
Keyword Tags long-term capital asset • hindu undivided family • long-term capital gain • self-acquired property • new residential house • revenue authorities • immovable property • sale of property • daughter-in-law • competent court • payment of tax • profit on sale • house property • life interest • earnest money • excess amount • civil suit • sale deed • new asset
Bot Summary: Upon transfer of the house property, long term capital gain had arisen, but as the appellants had purchased a new residential house and the amount of the capital gain had been used for purchase of the said new asset, believing that the long term capital gain was Page 3 4 not chargeable to income tax as per the provisions of Section 54 of the Income Tax Act, 1961, the appellants did not disclose the said long term capital gain in their return of income filed for the Assessment Year 2005-2006. In the assessment proceedings for the Assessment Year 2005-2006 under the Act, the Assessing Officer was of the view that the appellants were not entitled to any benefit under Section 54 of the Act for the reason that the transfer of the original asset, i.e. the residential house, had been effected on 24th September, 2004 whereas the appellants had purchased another residential house on 30th April, 2003 i.e. more than one year prior to the purchase of the new asset and therefore, the appellants were made liable to pay income tax on the capital gain under Section 45 of the Act. So as to substantiate his submissions, learned counsel for the appellants had submitted that the appellants wanted to transfer the property in question and therefore, they had entered into an agreement to sell on 27th December, 2002, but unfortunately they could not execute the sale deed on account of the litigation which was pending in respect of the property in question and due to an order restraining the appellants from dealing with the property. According to him, the appellants had sold the original asset on 24 th September, 2004 and had purchased a new house/new asset on 30 th April, 2003 i.e. one year before sale of the original asset and therefore, the benefit under Section 54 of the Act could not have been availed by the appellants and therefore, the Revenue Page 8 9 Authorities as well as the High Court were absolutely correct by not granting the benefit claimed by the appellants. The sale deed had been executed in pursuance of an agreement to sell which had been executed on 27th December, 2002 and out of the total consideration of Rs.1.32 crores, Rs. 15 lakhs had been received by the appellants by way of earnest money when the agreement to sell had been executed and a new residential house/new asset had been purchased by the appellants on 30th April, 2003. If one considers the date on which it was decided to sell the property, i.e. 27th December, 2002 as the date of transfer or sale, it cannot be disputed that the appellants would be entitled to the benefit under the provisions of Section 54 of the Act because long term capital gain earned by the appellants had been used for purchase of a new asset/residential house on 30th April, 2003 i.e. well within one year from the date of transfer of the house which resulted into long term capital gain. In the light of the aforestated facts and in view of the definition of the term transfer , one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in Page 12 13 accordance with law.


REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL Nos.5899-5900 OF 2014 (Arising out of SLP (c) Nos.16958-59 of 2013) Sh. Sanjeev Lal Etc. Etc. Appellants Versus Commissioner of Income Tax, Chandigarh & Anr. Respondents JUDGMENT ANIL R. DAVE, J. 1. Leave granted. 2. As facts of both appeals are similar, at request of learned counsel appearing for parties, both appeals had been heard together. 3. Being aggrieved by judgments delivered by High Court of Punjab and Haryana in ITA Nos. 153 & 154 of 2012 dated 29th January, 2013, these appeals have been preferred by assessees. Page 1 2 4. facts giving rise to present litigation, in nutshell, are as under: residential house, being House No. 267 situated in Sector 9-C, Chandigarh, was self acquired property of Shri Amrit Lal, who had executed Will whereby life interest in aforestated house had been given to his wife and upon death of his wife, house was to be given in favour of two sons of his pre-deceased son - late Shri Moti Lal and his widow. One of above stated grand children and daughter-in-law of Shri Amrit Lal are appellants in these appeals. Upon death of Shri Amrit Lal, possession of house was given to his widow. His widow, Smt. Shakuntla Devi expired on 29th August, 1993. Upon death of Smt. Shakuntla Devi, as per Will, ownership in respect of house in question came to be vested in present appellants and another grandchild of late Shri Amrit Lal. appellants had decided to sell house and with that intention they had entered into agreement to sell house with Shri Sandeep Talwar on 27th December, 2002 for consideration of Rs. 1.32 crores. Out of said amount, sum of Rs.15 lakhs had been received by appellants by way of earnest money. As appellants had decided to sell house in question, they had also decided to purchase another residential house bearing house No. Page 2 3 528 in Sector 8, Chandigarh so that sale proceeds, including capital gain, can be used for purchase of aforestated House No. 528. said house was purchased on 30 th April, 2003 i.e. well within one year from date on which agreement to sell had been entered into by appellants. validity of Will had been questioned by Shri Ranjeet Lal, who was another son of deceased testator Shri Amrit Lal, by filing civil suit, wherein trial court, by interim order had restrained appellants from dealing with house property. During pendency of suit, Shri Ranjeet Lal expired on 2 nd December, 2000 leaving behind him no legal heirs. suit filed by him had been dismissed in May, 2004 as there was no representation on his behalf in suit. 5. Due to interim relief granted in above stated suit, appellants could not execute sale deed till suit came to be dismissed and validity of Will was upheld. Thus, appellants executed sale deed in 2004 and same was registered on 24th September, 2004. 6. Upon transfer of house property, long term capital gain had arisen, but as appellants had purchased new residential house and amount of capital gain had been used for purchase of said new asset, believing that long term capital gain was Page 3 4 not chargeable to income tax as per provisions of Section 54 of Income Tax Act, 1961 (hereinafter referred to as Act ), appellants did not disclose said long term capital gain in their return of income filed for Assessment Year 2005-2006. 7. In assessment proceedings for Assessment Year 2005-2006 under Act, Assessing Officer was of view that appellants were not entitled to any benefit under Section 54 of Act for reason that transfer of original asset, i.e. residential house, had been effected on 24th September, 2004 whereas appellants had purchased another residential house on 30th April, 2003 i.e. more than one year prior to purchase of new asset and therefore, appellants were made liable to pay income tax on capital gain under Section 45 of Act. 8. Relevant portion of Section 54 of Act reads as under: 54. PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE. (1) Subject to provisions of sub-section (2), where in case of assessee being individual or Hindu undivided family, capital gain arises from transfer of long-term capital asset, being buildings or lands appurtenant thereto, and being residential house, income of which is chargeable under head Income from house property (hereafter in this section referred to as original asset), and assessee has within period of one year before or two years after date on which transfer took place purchased, or has within period of three years after that date constructed, residential house, then, instead of capital gain being charged Page 4 5 to income-tax as income of previous year in which transfer took place, it shall be dealt with in accordance with following provisions of this section, that is to say, (i) If amount of capital gain is greater than cost of residential house so purchased or constructed (hereafter in this section referred to as new asset), difference between amount of capital gain and cost of new asset shall be charged under section 45 as income of previous year; and for purpose of computing in respect of new asset any capital gain arising from its transfer within period of three years of its purchase or construction, as case may be, cost shall be nil; or (ii) If amount of capital gain is equal to or less than cost of new asset, capital gain shall not be charged under section 45; and for purpose of computing in respect of new asset any capital gain arising from its transfer within period of three years of its purchase or construction, as case may be, cost shall be reduced by amount of capital gain. 9. Upon perusal of Section 54(1) of Act, it is very clear that relief under Section 54 of Act in respect of long term capital gain can be availed only if residential house i.e. new asset is purchased within one year before or within two years after date on which transfer of residential house/original asset takes place. In instant case, residential house had been transferred by appellants-assessees on 24th September, 2004 whereas they had purchased another house on 30th April, 2003. Thus, new Page 5 6 asset was purchased more than one year prior to date on which transfer in respect of residential house had been effected. 10. For aforestated reasons, Assessing Officer did not grant benefit under Section 54 of Act and therefore, assessment order had been challenged by appellants before Commissioner of Income Tax (Appeals). appeal, so far as it pertained to benefit under Section 54 of Act was concerned, had been dismissed and therefore, appellants had approached Income Tax Appellate Tribunal. Tribunal also upheld orders passed by Commissioner and therefore, appellants had approached High Court by filing appeals under Section 260 of Act, which were dismissed by virtue of impugned judgments. Thus, appellants are in appeal before this Court. 11. learned counsel appearing for appellants had mainly submitted that authorities below and High Court had committed error in interpretation of Section 54 of Act. According to him, though property in question had been apparently transferred on 24th September, 2004 and new asset i.e. new residential house had been purchased on 30th April, 2003 i.e. more than one year prior to date on which property had been sold, authorities ought to have considered date on which agreement to sell had been effected by appellants for transfer of Page 6 7 property in question as date of transfer of house/original asset. said agreement had been signed on 27th December, 2002 i.e. which was well within period prescribed under Section 54 of Act. If one considers 27th December, 2002 as date on which property had been transferred or that right in property had been transferred, appellants would become entitled to benefit under Section 54 of Act. 12. So as to substantiate his submissions, learned counsel for appellants had submitted that appellants wanted to transfer property in question and therefore, they had entered into agreement to sell on 27th December, 2002, but unfortunately they could not execute sale deed on account of litigation which was pending in respect of property in question and due to order restraining appellants from dealing with property. In view of order passed by civil court, appellants could not execute sale deed and delay was only on account of factor which was beyond control of appellants. 13. According to learned counsel appearing for appellants, date on which agreement to sell had been executed ought to have been treated as date of transfer. He had referred to provisions of Section 2(47) of Act which defines term transfer . term transfer has been given inclusive Page 7 8 definition and according to said definition, whenever there is extinction of any right in respect of capital asset, such extinction would mean transfer of property. He had, therefore, submitted that by virtue of agreement to sell, right had been created in favour of buyer of property and certain right in respect of residential house, which appellants had, had been extinguished and therefore, 27th December, 2002 ought to have been considered as date of transfer. 14. learned counsel had also relied upon certain judgments delivered by different High Courts to support his submissions. 15. On other hand, learned counsel appearing for Revenue Authorities had vehemently submitted that by mere execution of agreement to sell, right of vendor/transferor in respect of property cannot be extinguished. According to him, no sale of property in question had been effected, when agreement to sell had been executed on 27 th December, 2002. According to him, appellants had sold original asset on 24 th September, 2004 and had purchased new house/new asset on 30 th April, 2003 i.e. one year before sale of original asset and therefore, benefit under Section 54 of Act could not have been availed by appellants and therefore, Revenue Page 8 9 Authorities as well as High Court were absolutely correct by not granting benefit claimed by appellants. 16. We had heard learned counsel at length and have also considered relevant provisions of Act and judgments cited by learned counsel. 17. Upon plain reading of Section 54 of Act, it is very clear that so as to avail benefit under Section 54 of Act, one must purchase residential house/new asset within one year prior or two years after date on which transfer of residential house in respect of which long term capital gain had arisen, has taken place. 18. In instant case, following three dates are not in dispute. residential house was transferred by appellants and sale deed had been registered on 24th September, 2004. sale deed had been executed in pursuance of agreement to sell which had been executed on 27th December, 2002 and out of total consideration of Rs.1.32 crores, Rs. 15 lakhs had been received by appellants by way of earnest money when agreement to sell had been executed and new residential house/new asset had been purchased by appellants on 30th April, 2003. It is also not in dispute that there was litigation wherein Will of late Shri Amrit Lal had been challenged by his son and appellants had been Page 9 10 restrained from dealing with house in question by judicial order and said judicial order had been vacated only in month of May, 2004 and therefore, sale deed could not be executed before said order was vacated though agreement to sell had been executed on 27th September, 2002. 19. If one considers date on which it was decided to sell property, i.e. 27th December, 2002 as date of transfer or sale, it cannot be disputed that appellants would be entitled to benefit under provisions of Section 54 of Act because long term capital gain earned by appellants had been used for purchase of new asset/residential house on 30th April, 2003 i.e. well within one year from date of transfer of house which resulted into long term capital gain. 20. question to be considered by this Court is whether agreement to sell which had been executed on 27th December, 2002 can be considered as date on which property i.e. residential house had been transferred. In normal circumstances by executing agreement to sell in respect of immoveable property, right in personam is created in favour of transferee/vendee. When such right is created in favour of vendee, vendor is restrained from selling said property to someone else because vendee, in whose favour right in personam is created, has legitimate right Page 10 11 to enforce specific performance of agreement, if vendor, for some reason is not executing sale deed. Thus, by virtue of agreement to sell some right is given by vendor to vendee. question is whether entire property can be said to have been sold at time when agreement to sell is entered into. In normal circumstances, aforestated question has to be answered in negative. However, looking at provisions of Section 2(47) of Act, which defines word transfer in relation to capital asset, one can say that if right in property is extinguished by execution of agreement to sell, capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining word transfer is as under: 2(47) transfer , in relation to capital asset, includes,- (i) . (ii) extinguishment of any rights therein; or 21. Now in light of definition of transfer as defined under Section 2(47) of Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of capital asset. In light of aforestated definition, let us look at facts of present case where agreement to sell in respect of capital asset had been executed on 27th December, 2002 for transferring residential Page 11 12 house/original asset in question and sum of Rs. 15 lakhs had been received by way of earnest money. It is also not in dispute that sale deed could not be executed because of pendency of litigation between Shri Ranjeet Lal on one hand and appellants on other as Shri Ranjeet Lal had challenged validity of Will under which property had devolved upon appellants. By virtue of order passed in suit filed by Shri Ranjeet Lal, appellants were restrained from dealing with said residential house and law-abiding citizen cannot be expected to violate direction of court by executing sale deed in favour of third party while being restrained from doing so. In circumstances, for justifiable reason, which was not within control of appellants, they could not execute sale deed and sale deed had been registered only on 24th September, 2004, after suit filed by Shri Ranjeet Lal, challenging validity of Will, had been dismissed. In light of aforestated facts and in view of definition of term transfer , one can come to conclusion that some right in respect of capital asset in question had been transferred in favour of vendee and therefore, some right which appellants had, in respect of capital asset in question, had been extinguished because after execution of agreement to sell it was not open to appellants to sell property to someone else in Page 12 13 accordance with law. right in personam had been created in favour of vendee, in whose favour agreement to sell had been executed and who had also paid Rs.15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by parties through subsequent contract or conduct leading to no transfer of property to proposed vendee but that is not case at hand. 22. In addition to fact that term transfer has been defined under Section 2(47) of Act, even if looked at provisions of Section 54 of Act which gives relief to person who has transferred his one residential house and is purchasing another residential house either before one year of transfer or even two years after transfer, intention of Legislature is to give him relief in matter of payment of tax on long term capital gain. If person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs new premises within time stipulated under Section 54 of Act, Legislature does not want him to be burdened with tax on long term capital gain and therefore, relief has been given to him in respect of paying income tax on long term capital gain. intention of Legislature or purpose with which said provision has been incorporated in Act, is also very clear that Page 13 14 assessee should be given some relief. Though it has been very often said that common sense is stranger and incompatible partner to Income Tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to provisions of Act. In case of Oxford University Press v. Commissioner of Income Tax [(2001) 3 SCC 359] this Court has observed that purposive interpretation of provisions of Act should be given while considering claim for exemption from tax. It has also been said that harmonious construction of provisions which subserve object and purpose should also be made while construing any of provisions of Act and more particularly when one is concerned with exemption from payment of tax. Considering aforestated observations and principles with regard to interpretation of Statute pertaining to tax laws, one can very well interpret provisions of Section 54 read with Section 2(47) of Act, i.e. definition of transfer , which would enable appellants to get benefit under Section 54 of Act. 23. Consequences of execution of agreement to sell are also very clear and they are to effect that appellants could not have sold property to someone else. In practical life, there are events when person, even after executing agreement to sell Page 14 15 immoveable property in favour of one person, tries to sell property to another. In our opinion, such act would not be in accordance with law because once agreement to sell is executed in favour of one person, said person gets right to get property transferred in his favour by filing suit for specific performance and therefore, without hesitation we can say that some right, in respect of said property, belonging to appellants had been extinguished and some right had been created in favour of vendee/transferee, when agreement to sell had been executed. 24. Thus, right in respect of capital asset, viz. property in question had been transferred by appellants in favour of vendee/transferee on 27th December, 2002. sale deed could not be executed for reason that appellants had been prevented from dealing with residential house by order of competent court, which they could not have violated. 25. In view of aforestated peculiar facts of case and looking at definition of term transfer as defined under Section 2(47) of Act, we are of view that appellants were entitled to relief under Section 54 of Act in respect of long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated Page 15 16 in Chandigarh and used for purchase of new asset/residential house. 26. appeals are, therefore, allowed with no order as to costs. impugned judgments are quashed and set aside and Authorities are directed to re-assess income of appellants for Assessment Year 2005-2006, after taking into account fact that appellants were entitled to relief, subject to fulfilment of other conditions. .J. (ANIL R. DAVE) ..J. (SHIVA KIRTI SINGH) NEW DELHI JULY 01, 2014. Page 16 Sanjeev Lal v. Commissioner of Income-tax, Chandigarh & Anr
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