Sanjeev Lal Vs CIT (Supreme Court) Sale deed execution within time-limit is not the only way to avail 54F exemption, agreement to sell sufficies

IN THE 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 the appeals are similar, at the request of the
learned counsel appearing for the parties, both the appeals had been
heard together.
3. Being aggrieved by the judgments delivered by the High Court of Punjab and Haryana in ITA Nos. 153 & 154 of 2012 dated 29th January, 2013, these appeals have been preferred by the assessees.
4. The facts giving rise to the present litigation, in a nutshell, are as under:
A residential house, being House No. 267 situated in Sector 9-C, Chandigarh, was a self acquired property of Shri Amrit Lal, who had executed a Will whereby life interest in the aforestated house had been given to his wife and upon death of his wife, the house was to be given in favour of two sons of his pre-deceased son
- late Shri Moti Lal and his widow. One of the above stated grand children and the daughter-in-law of Shri Amrit Lal are the appellants in these appeals. Upon death of Shri Amrit Lal, possession of the house was given to his widow. His widow, Smt. Shakuntla Devi expired on 29th August, 1993. Upon death of Smt. Shakuntla Devi, as per the Will, the ownership in respect of the house in question came to be vested in the present appellants and another grandchild of late Shri Amrit Lal.
The appellants had decided to sell the house and with that intention they had entered into an agreement to sell the house with Shri Sandeep Talwar on 27th December, 2002 for a consideration of Rs. 1.32 crores. Out of the said amount, a sum of Rs.15 lakhs had been received by the appellants by way of earnest money. As the appellants had decided to sell the house in question, they had also
decided to purchase another residential house bearing house No.528 in Sector 8, Chandigarh so that the sale proceeds, including capital gain, can be used for purchase of the aforestated House No. 528. The said house was purchased on 30th April, 2003 i.e. well within one year from the date on which the agreement to sell had been entered into by the appellants.

Ambiguity cleared regarding investment of 'a residential house'

Capital gains exemption in case of investment in a residential house property

The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act.

The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.

The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. 

These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.

Gist of latest important caselaws

Below are the recent important tax caselaws related to Income tax, Service tax in brief. The citation is made available for your benefit :

 INCOME TAX

SECTION 2(42A)

CAPITAL GAINS – SHORT-TERM CAPITAL ASSETS/GAINS

Period of holding as de facto owner should be considered for computing holding period of capital asset u/s 2(42A) - Commissioner of Income-tax v. A. Suresh Rao (2014) 41 taxmann.com 475 (Karnataka)     SECTION 10(23C) EDUCATIONAL INSTITUTIONS Where assessee, running a college for Arabic language affiliated to Madras University, claimed exemption under section 10(23C)(iiiad), said claim could not be rejected merely on ground that its students had to pray daily along with religious leader and they had specific dress code accordingly to Islamic specifications - Deputy Director of Income-tax (Exemptions)-III v. Madarasa E-Bakhiyath-Us- Salihath Arabic College (2014) 41 taxmann.com 8 (Chennai - Trib.)       SECTION 28(v) BUSINESS INCOME - NON-COMPETE FEE Position prior to 1-4-2003 : Since amendment in Finance Act, 2002 was not clarificatory but amendatory in nature, non-competition fee received under a negative covenant is taxable only with effect from 1-4-2003, and not retrospectively - Commissioner of Income-tax v. Prakash Ladhani (2014) 41 taxmann.com 22 (Karnataka) SECTION 32 DEPRECIATION - ALLOWANCE/RATE OF Foreign exchange rate difference : Assessee was entitled to depreciation in respect of an amount representing addition to cost of plant and machinery on account of foreign exchange rate difference - Additional Commissioner of Income-tax v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 40 taxmann.com 481 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Owning more than one residential house : Where an assessee on date of transfer of original asset, owns more than one residential house, he is not eligible for deduction under section 54F, even if other residential house is owned by assessee wholly or partially - Income-tax Officerv.Apsara Bhavana Sai (2013) 40 taxmann.com 528 (Hyderabad - Trib.)       SECTION 237 REFUNDS TDS : In pursuance of order passed by Supreme Court that shares allotted to employees under Employees Stock Option Scheme did not amount to perquisite and, thus, there was no liability to deduct tax at source in respect of same, amount so deducted in case of assessee-employee on aforesaid ground was to be refunded along with interest - K. Parthasarathy v. Commissioner of Income-tax (2014) 41 taxmann.com 16 (Madras)       SERVICE TAX SECTION 65(75) ON-LINE INFORMATION AND DATABASE ACCESS OR RETRIEVAL SERVICES Where assessee had only hired out infrastructure of broadband for use of customer and had not provided any data or information to customer, said activity did not amount to 'online information and data base access and/or retrievable services' - Gujarat State Petroleum Corpn. Ltd. v. Commissioner of Central Excise (2014) 41 taxmann.com 291 (Ahmedabad - CESTAT)

Recent important tax caselaws / judgements

SECTION 36(1)(vii)

BAD DEBTS

Conditions precedent : Deduction on account of bad debts was allowable to assessee since debts were outstanding since long and assessee wrote off same as irrecoverable in its books - Radhu Palace v. Additional Commissioner of Income-tax (2014) 41 taxmann.com 281 (Delhi - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Bad debt : Where trade advances becoming unrealizable, provision was made and profit was loss account was debited in earlier year, same was to be allowed when written of in subsequent year - Commissioner of Income-tax v. Indian Explosives Ltd. (2014) 41 taxmann.com 264 (Calcutta) SECTION 41(1) REMISSION OR CESSATION OF TRADING LIABILITY Time-barred liabilities : Where assessee had outstanding creditors for goods and Assessing Officer made addition in income of assessee under section 41(1) on basis that with respect to 14 creditors liability was outstanding for more than three years, Assessing Officer was not justified in his view - Commissioner of Income-tax v. Puridevi Mahendrakumar Chaudhary (2014) 41 taxmann.com 329 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not complete in all respects within stipulated period, benefit of section 54F, should not be rejected - Income-tax Officer v. Smt. B.S. Shanthakumari (2014) 41 taxmann.com 325 (Bangalore - Trib.)       SECTION 251 COMMISSIONER (APPEALS) - POWERS OF Power to admit additional evidence : Where assessee was prevented by sufficient cause in not appearing before Assessing Officer while framing assessment due to confusion relating to jurisdiction of Assessing Officer, in such circumstances, Commissioner (Appeals) as well as Tribunal relying upon additional evidence produced by assessee were justified in deleting a part of addition made by Assessing Officer - Commissioner of Income-tax v. Safari Bikes Ltd. (East) (2014) 41 taxmann.com 282 (Punjab & Haryana)       SECTION 271(1)(c) PENALTY - FOR CONCEALMENT OF INCOME Surrender of income : Where Assessing Officer had conducted enquiries into matter of sale of shares prior to surrender made by assessee and duly established on record that said share transactions were sham and bogus, he was justified in levying penalty under section 271(1)(c) in respect of addition made for those transactions - Deputy Commissioner of Income-tax v. Mukesh Kumar Agarwal, (HUF) (2014) 41 taxmann.com 269 (Agra - Trib.)    Source : Taxmann

SECTION 35

SCIENTIFIC RESEARCH EXPENDITURE

Where assessee-company, apart from rendering technical services to its clients, did research in field of development of wind power at its own, which was used for benefit of public, scientific research expenditure was to be allowed - Assistant Commissioner of Income-tax -1(1) v. Consolidated Energy Consultants Ltd. (2014) 41 taxmann.com 379 (Indore - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Software : Where assessee-company purchased application software, expenditure incurred towards purchase of software could not be treated as revenue expenditure - Srinivasa Resorts v. Assistant Commissioner of Income-tax (2014) 41 taxmann.com 350 (Hyderabad - Trib.)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : In terms of section 54F, when assessee invests sale consideration in purchase of a residential property within prescribed time period, he is entitled to claim deduction and, in such a case, extent of construction of residential building and facilities provided in such building are not relevant - Commissioner of Income-tax v. Dr. R. Balaji (2014) 41 taxmann.com 411 (Karnataka)     SECTION 158BG BLOCK ASSESSMENT IN SEARCH CASES Where Assessing Officer as a result of search conducted under section 132 upon assessee passed a block assessment order on him, no opportunity of hearing was required to be given to assessee by Commissioner while granting approval under section 158BG - Commissioner of Income-taxv.Dr. K.P. Singh (2014) 41 taxmann.com 406 (Allahabad)       SECTION 194C DEDUCTION OF TAX AT SOURCE - CONTRACTORS/SUB-CONTRACTORS PAYMENT TO Lounging and Catering service : Where consolidated payment was made towards lounging and catering services as a part of single arrangement, it was not permissible to artificially bifurcate payment so made towards two limbs or component services in view of two attracting differential tax and same would fall under generalized contractual category under section 194C - Assistant Commissioner of Income-tax (TDS) -2(2) v. Qantas Airways Ltd. (2014) 41 taxmann.com 383 (Mumbai - Trib.) Cargo handling charges : Where assessee was engaged in business of clearing and forwarding of cargo, etc. and it made payments towards cargo handling charges to two parties and work involved was mainly labour oriented work with help of various machineries and equipments, TDS provisions of section 194C would be applicable with respect to said payments - Commissioner of Income-tax (TDS)v.Aditya Marine Ltd. (2014) 41 taxmann.com 381 (Gujarat)       SECTION 254 APPELLATE TRIBUNAL - ORDER OF Duties of Tribunal : Whenever any decision has been relied upon and/or cited by assessee and/or any party, Tribunal is bound to consider and/or deal with same and opine whether in facts and circumstances of particular case, same will be applicable or not - Dattani And Co. v. Income Tax Officer (2014) 41 taxmann.com 360 (Gujarat)     DIRECT TAX LAWS Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income - Clarification on disallowance of expenses under section 14A in cases where corresponding exempt income has not been earned during the financial year - CIRCULAR NO.5/2014 (F.NO.225/182/2013-ITA.II), DATED 11-2-2014 Section 119, read with section 115R of the Income-tax Act, 1961 - Income-tax Authorities - Instructions to subordinate authorities - Tax on distributed income to unit holders - Clarification on scope of additional income-tax on distributed income under section 115R - CIRCULAR NO.6/2014 (F.NO.225/182/2013-ITA.II), DATED 11-2-2014       Source : Taxmann