Thursday 3 October 2013

Whether the term 'assessee' used in Sections 54B and 54F can also be extended to major married daughters - NO: ITAT

THE issues before the Bench are - Whether ther term 'assessee' used in Ss 54B and 54F can also be extended to major married daughters; Whether the assessee, the mother, can claim deduction under Ss 54B and 54F in case investments are made in the name of assessee's married daughters; Whether transfer of title can be completed only by executing a valid transfer deed and Whether for the purpose of allowing deduction u/s 54B, assessee includes legal representatives also. And the verdict goes against the assessee.
Facts of the case

Assessee is an individual. During the year, she sold 2 acres and 50 cents of wet agricultural land for a consideration of Rs.1,41,12,000/-. There was no dispute that the capital gain arising on sale of the above said agricultural land was assessable to income tax. Thereafter she had purchased one agricultural land and one flat in the name of her daughters. While computing LTCG on sale of agricultural land, assessee had claimed deduction u/s 54B in respect of the agricultural land purchased in the name of her younger daughter and also claimed deduction u/s 54F in respect of the flat purchased in the name of her eldest daughter. It was argued that the considerations for purchase of both the properties were given by her out of sale proceeds realized on sale of agricultural land. It was further submitted that she had entered into “possession purchase agreements with her two daughters to comply with the provisions of sec. 54B and 54F. It was further contended by the assessee that her daughters should be considered as her benamis. During assessment, AO held that the deduction claimed u/s 54B and 54F were not allowable as the properties were not registered in the name of the assessee. The claim of “Benami" was also rejected by the AO on the ground that the Benami Transactions Prohibition Act provides exemption to property purchased in the name of unmarried daughters only. The AO also refused to recognize both the Possession purchase agreement as they were unregistered document and they did not actually transfer the properties. Accordingly, the AO rejected the deductions claimed by the assessee u/s 54B and 54F.

On appeal before CIT(A), it was argued that the “Possession purchase agreement" gave right to the possession of the properties in terms of sec. 2(47)(v). It was further submitted that the consideration for purchase of properties in the name of her daughters had flown from her. Accordingly, the assessee contended that she had complied with the spirit of provisions of sec. 54B and 54F and hence her claim should be allowed. The CIT(A), however, held that the “possession purchase agreement" entered into between the assessee and her daughters did not convey any title to the assessee. In this regard, the CIT(A) placed reliance on the decision of SC in the case of Suraj Lamp & Industries Pvt. Ltd Vs. State of Haryana & Another (2011-TIOL-101-SC-MISC), wherein it was observed that immovable property can be legally and lawfully transferred / conveyed only by a registered deed of conveyance. Transactions of the nature of “GPA Sales" or “SA/GAP/Will Transfers" did not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immovable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. CIT(A) had affirmed the order passed by the AO.

Before Tribunal, AR had placed reliance on the decision of jurisdictional AP HC in the case of Late Mir Gulam Ali Khan Vs. CIT and submitted that the jurisdictional High Court in the above said case has held that the word “assessee" should be given a wide and liberal interpretation so as to include legal representatives also. Explaining the facts prevailing in the case of Late Mir Gulam Ali Khan, A.R submitted that the assessee, in the above said case, sold a residential house and thereafter entered into an agreement to purchase another house. Before completing the purchase transaction, the assessee died and subsequently his legal heirs completed the said transaction. The legal heirs claimed deduction u/s 54 of the Act, which was rejected by the ITO. The jurisdictional High Court allowed the claim of the assessee. On the other hand, DR had submitted that the reliance placed upon by the assessee in the case of Late Mir Gulam Ali Khan was misplaced. It was submitted that the said decision was rendered under peculiar facts prevailing in that case. It was further submitted that the assessee therein had sold a house property and he himself entered into an agreement to purchase another residential house. He also paid earnest money. However, before completion of the purchase transaction, he expired and hence his legal representative completed the transaction of purchase. Hence the legal representative claimed deduction u/s 54 against the capital gain arising on the property sold by the late assessee. Since the transaction of purchase was initiated by the assessee himself and further since the legal representative of the assessee completed the very same transaction, the HC had held that the legal representative was entitled to claim deduction u/s 54. He submitted that it is the legal representative, who is assessable as representative of the deceased assessee. Accordingly he submitted that the assessee could not place reliance on the said decision.

Having heard the matter, Tribunal held that,

++ we fully agree with the contention of the D.R that the decision rendered by the jurisdictional High Court in the case of Late Mir Gulam Ali Khan is based upon peculiar facts prevailing in that case. The vital point, in our view, is that the assessee (in the case of Late Mir Gulam Ali Khan) had entered into an agreement for purchasing a residential house and also paid earnest money in furtherance of the same. Unfortunately he passed away before completion of the purchase transaction. Hence, the legal representative of that assessee completed the process of purchase of property. Thus, in effect, the new house property was not purchased in the name of the assessee, who sold the old property. Since the said legal representative of the assessee is liable to be assessed in respect of the capital gain on the property sold by his father, he claimed the cost of new property as deduction u/s 54 of the Act. Thus, the facts prevailing in Late Mir Gulam Ali Khan case is peculiar and further, under section 159 of the Act, the legal representative is treated as assessee in respect of liability of the deceased person. Hence, under peculiar facts of the case, the jurisdictional High Court held that the term “assessee" shall include legal representative also. In our view, the liberal view taken by the High Court cannot be stretched in each and every case, where the property was not purchased in the name of the assessee, who sold the property. Accordingly, in our view, the assessee herein cannot derive support from the said case law;

++ in our view, the Courts have considered the investments made in the name of wife or minor daughter as an investment made by the assessee himself for the reason that there was no real intention to provide consideration for the benefit of wife/minor daughter alone. In the instant case, undisputedly, the investments have been made in the name of married daughters and apparently both of them are also majors. Thus, it is not a case of joint ownership along with the assessee. Both the daughters of the assessee shall have every right over the property purchased in their respective names. Thus, it cannot be said that the intention of purchasing the properties was not to give benefit to them. The assessee claims that she has entered into a purchase possession agreement with her two daughters. However, we tend to agree with the view of the CIT(A) that the said agreement does not actually effect transfer of assets to the name of the assessee. Further, as pointed out by the AO, the said agreements have been entered only to show some compliance with the provisions of sec. 54B/54F. Accordingly, in our view, the term “assessee" used in sec. 54B/54F cannot be extended to mean the major married daughters. Accordingly, we affirm the view taken by the CIT(A). In the result, the appeal filed by the assessee is dismissed.

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