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[2009] 183 Taxman 296 (Delhi)/[2011] 330 ITR 309 (Delhi)/[2009] 227 CTR 66
(Delhi)[07-08-2009]

[2009] 183 Taxman 296 (Delhi)

HIGH COURT OF DELHI
Vipin Malik (HUF)
v.
Commissioner of Income-tax*
A.K. SIKRI AND VALMIKI J. MEHTA, JJ.
IT APPEAL NO. 1241 OF 2007
AUGUST 7, 2009

Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment
in residential house - Whether to claim benefit of section 54F, residential house which is
purchased or constructed has to be of same assessee whose agricultural land is sold - Held,
yes - Assessee - HUF sold its agricultural land in September, 1995 giving rise to a long-term
capital gain - It claimed to have purchased a flat in a co-operative group housing society
and, therefore, claimed benefit of section 54F - Admittedly, most of payments to co-
operative society with regard to said flat had been made before one year of sale of
agricultural land and amount invested for purpose of purchasing flat was not entire
amount of capital gain but only a part of it and balance was not deposited in specified
account in terms of sub-section (4) of section 54F - Whether since amount received from
sale of agricultural land was not utilized for purchase of flat, assessee could not be said to
have purchased a residential house within meaning of section 54F - Held, yes

FACTS

The assessee, an HUF, sold its agricultural land in September, 1995 giving rise to a long-term
capital gain. The assessee claimed to have purchased a flat in a co-operative group housing
society and, therefore, claimed the entitlement to the benefit of section 54F. Admittedly,
allotment of the said flat was made in terms of the allotment letter dated 27-10-1998 and most of
the payment to the co-operative society had been made before one year of the sale of the
agricultural land. Further, the amount invested for the purpose of purchasing the flat was not
the entire amount of the capital gain but only a part of it and the balance amount was not
deposited in the specified account in terms of sub-section (4) of section 54F. All the three
authorities, namely, the Assessing Officer, the Commissioner (Appeals) and the Tribunal declined
the benefit of section 54F to the assessee.

HELD
The facts clearly showed that the amount, which was available to be taxed as capital gain, was not
utilized for the purchase of the flat either one year before the sale of the agricultural land or two years
after the sale of the agricultural land inasmuch as most of the amount had already been paid to the co-
operative society before one year of the sale of the agricultural land. The assessee also could not be said
to have constructed a residential house within 3 years of the sale of the agricultural land, as the amount
received from sale of the agricultural land was not utilised for the purchase of the flat. The assessee,
therefore, could not be said to have purchased a residential house within the meaning of section 54F
either one year before the sale of the agricultural land or within two years after the sale of the
agricultural land. Looking at the ownership of the flat from the point of view of an allotment letter as per
draw of lots, it was clear that the allotment letter or the draw of lots was only in September/October,
1998, i.e., after two years of the sale of the agricultural land, whereas before the Tribunal, the assessee
took up a stand of his having constructed the flat within three years of the sale of the agricultural land
relying upon a circular of the CBDT which gave benefit of section 54F to an allottee of a DDA flat. The
scheme of the DDA, which was approved by the CBDT, was on the basis that the allotment letter was
issued and when payment of the first instalment of the cost of construction was made, then such
allotment was final unless it was cancelled or the allottee withdrew from the scheme. The allottee under
the DDA scheme of self-financing gets title on the issuance of the allotment letter. The said circular of the
CBDT was, therefore, inapplicable to the case of the appellant. [Para 8]

Independent of the above discussion, an aspect which overrode the above issue, was that, the agricultural
land, which was sold was of the HUF of the assessee but the flat purchased in the co-operative society
was not in the name of the HUF. The flat was in the individual name of the assessee along with his
mother. To claim the benefit of section 54F, the residential house which is purchased or constructed has
to be of the same assessee whose agricultural land is sold and it was not the case in the instant case.
[Para 9]

Clearly, therefore, there was no question of applicability of section 54F in the aforesaid facts and
circumstances. [Para 10]

In view of the detailed finding of facts arrived at by the three authorities below concurrently, no
substantial question of law arose and the appeal was to be dismissed. [Para 11]
S. Ganesh and Johnson Bara for the Applicant. N.P. Sahni and P.C. Yadav for the Respondent.
JUDGMENT

Valmiki J. Mehta, J. - The appellant/assessee, which is a HUF, sold its agricultural land for Rs.
14,28,400 in September, 1995 giving rise to a long term capital gain of Rs. 9,67,412. The assessee
claimed that the capital gain be not charged as it was entitled to the benefit of section 54F of the
Income-tax Act, 1961. The assessee claimed to have purchased a three bed room flat in Kanungo
Co-operative Group Housing Society and, therefore, claimed the entitlement for the benefit of
section 54F of the Act. All the three authorities below namely, the Assessing Officer (AO), The
Commissioner of Income-tax (Appeals) (CIT)(A) and Income-tax Appellate Tribunal (ITAT) have
declined the benefit of section 54F to the assessee.

2. The relevant portion of section 54F reads as under:—

 "54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in
residential house.—(1) [Subject to the provisions of sub-section (4), where, in the case of an
assessee being an individual or a Hindu undivided family], the capital gain arises from the
transfer of any long-term capital asset, not being a residential house (hereafter in this
section referred to as the original asset), and the assessee has, within a period of one year
before or [two years] after the date on which the transfer took place purchased, or has
within a period of three years after that date constructed, a residential house (hereafter in
this section referred to as the new asset), the capital gain shall be dealt with in accordance
with the following provisions of this section....

******

(4) The amount of the net consideration which is not appropriated by the assessee towards
the purchase of the new asset made within one year before the date on which the transfer
of the original asset took place, or which is not utilised by him for the purpose or
construction of the new asset before the date of furnishing the return of income under
section 139, shall be deposited by him before furnishing such return [such deposit being
made in any case not later than the due date applicable in the case of assessee for
furnishing the return of income under sub-section (1) of section 139] in an account in any
such bank or institution as may be specified in, and utilised in accordance with, any scheme
which the Central Government may, by notification in the Official Gazette, frame in this
behalf and such return shall be accompanied by proof of such deposit...."

3. As per the claim made before the authorities below, the claim was with respect to 'purchase'
of a flat. This is important because section 54F contains two eventualities claiming for benefit,
one, is the purchase of the residential house and second is construction of a residential house.

4. Before us, the learned Senior Counsel Mr. S. Ganesh, on behalf of the assessee, has strongly
urged that the authorities below misdirected themselves in requiring that the purchase of the
property must be paid after the selling of the agricultural property inasmuch as the very
language of section 54F contains an eventuality of purchase of the residential house even before
one year of the sale of the agricultural land.

5. The proposition as canvassed by the counsel for the appellant is not in question and surely
the section itself says that the purchase of the new residential house can be made either before
one year of the sale of the agricultural land or after two years of the sale of the agricultural land.
However, in the present case, on facts, the proposition as urged does not apply.

6. The following facts have emerged as per the orders of the Assessing Officer, CIT(A) and ITAT :—

(i) The agricultural land was sold in September, 1995.

(ii) Allotment of the flat in the co-operative society was made in terms of the allotment
letter dated 27-10-1998, though the same was in pursuance of the draw of lots on 20-9-
1998.

(iii) Out of the total amount paid to the co-operative society of Rs. 6,41,014 till 28-7-1995.
The following sums were already paid from 1988 to 31-3-1995 as under:—
Year Amount (Rs.)
1988-89 18,125.00
1990-91 45,000.00
1992-93 90,000.00
1993-94 2,01,311.80
1994-95 2,32,577.00
1995-96 1,06,825.00
1996-97 4,370.00
1997-98 50,000.00
1998-99 1,00,000.00
1999-2000 1,325.44
8,49,534.24

Thus, most of the payment was already made before one year of the sale of the agricultural land
in September, 1995.

(iv)The amount invested for the purpose of purchasing the flat was not the entire amount of the
capital gain of Rs. 9,67,412 but only an amount of Rs. 6,41,014 till 28-7-1995.

(v)The balance amount of the capital gain was not deposited in the specified account in terms of
sub-section 4 of section 54F and also, consequently, no proof of such deposit was filed along
with the return.

7. A reading of the orders of the CIT(A) and the ITAT shows that the assessee has sought to bring
his case under the eventuality of 'purchase' or 'construction', at his own convenience before the
authorities. While before the CIT(A) the stand which was taken was that of purchase of a flat, the
stand which was taken up before the ITAT by the assessee was that of a construction of a house
within three years of sale of agricultural land. Before this court, once again the stand which has
been taken up was of purchase and not of construction within three years of the sale of
agricultural land.

8. The facts above clearly show that the amount which was available to be taxed as capital gain
was not utilized for the purchase of the flat either one year before the sale of the agricultural
land or two years after the sale of the agricultural land inasmuch as most of the amount had
already been paid to the co-operative society before one year of the sale of the agricultural land.
The assessee also cannot be said to have constructed a residential house within 3 years of the
sale of the agricultural land as the amount received from sale of the agricultural land was not
utilised for the purchase of the flat. The assessee, therefore, cannot be said to have purchased a
residential house within the meaning of section 54F either one year before the sale of the
agricultural land or within two years after the sale of the agricultural land. If we look at the
ownership from the point of view of an allotment letter as draw of lots, then the allotment letter
or the draw of lots is only in September/October, 1998, i.e., after two years of the sale of the
agricultural land. We may note that, and as already stated above, before the ITAT, the assessee
took up a stand of his having constructed the flat within three years of the sale of the
agricultural land relying upon a circular of CBDT which gave benefit of section 54F to an allottee
of a DDA flat. The scheme of the DDA which was approved by the CBDT was on the basis that the
allotment letter is issued and when payment of the first instalment of the cost of construction is
made then such allotment is final unless it is cancelled or the allottee withdraws from the
scheme. The allottee under the DDA scheme of Self-Financing gets title on the issuance of the
allotment letter. The said circular of the CBDT was, therefore, held inapplicable to the case of the
appellant rightly by the ITAT.

9. Independent of the above discussion, an aspect which overrides the above issue, is that, the
agricultural land which was sold was of Vipin Malik HUF and the flat purchased in the co-
operative society was not in the name of the HUF. The flat was in the individual name of Vipin
Malik along with his mother Smt. Chanan Devi Sachdeva. To claim the benefit of section 54F the
residential house which is purchased or constructed has to be of the same assessee whose
agricultural land is sold and which is therefore, not the case here. The following paragraph 12 of
the order of the ITAT effectively and exhaustively sets out these facts and we reproduce the
same below:—
"12. We have considered the rival submissions and also perused the relevant material on
record. It is observed that the claim of the assessee for exemption under section 54F was
disallowed by the authorities below on various grounds. First of all, it was held by the
Assessing Officer that the investment claimed to have been made by the assessee in the
residential property/flat in Kanungo Co-operative Group Housing Society Ltd. was not in its
name but the same was in the joint name of two individuals viz., Smt. Chanan Devi Sachdeva
and Shri Vipin Malik. Before us, the learned DR has strongly supported and substantiated
this ground given by the Assessing Officer for disallowing the claim of the assessee for
deduction under section 54F by referring to the various certificates and receipts issued by
the said society wherein the names of individuals were appearing without any indication of
HUF. The learned counsel for the assessee, on the other hand, has relied on the possession
certificate issued by the society on 30-4-2000 wherein both the individual names were
appearing with Shri Vipin Malik being mentioned as Karta of M/s. Vipin Malik, HUF. He has
also contended that Smt. Chanan Devi Sachdeva being the oldest member of the assessee-
HUF, her name was given as member for the sake of convenience. After careful examination
of all these documents as well as keeping in view all the facts and circumstances of the case,
we find it difficult to agree with the stand taken on behalf of the assessee on this issue. In
this regard, a reference can be made at the outset to the certificate issued by the society
bearing No. 237/4135/92 dated 22-7-1992 (copy at page 17 of assessee's paper book) which
certifies that as per the records of the society, the membership 237 stands in the joint name
of Smt. Chanan Devi Sachdeva and Shri Vipin Malik, resident of S-370, Greater Kailash, Part-II,
New Delhi. There is no mention whatsoever to suggest or indicate any involvement of HUF in
the said membership or Vipin Malik holding the membership as Karta of the assessee-HUF.
Page 11 of the paper book is a letter issued by the said society on 19-10-1995 giving details of
amounts deposited by them aggregating to Rs. 6,41,014 up to 19-10-1995 which again was
addressed to Smt. Chanan Devi Sachdeva and Shri Vipin Malik without there being any
mention or indication of HUF. Pages 12, 14 and 15 are the Photostat copies of the receipts
 issued by the said society for payments made by the assessee on 31-10-1995, 12-6-1998 and
19-5-1999 which again are issued in the name of two individuals without there being any
mention of HUF. Page 13 is the ledger account extract from the books of the society for the
period 1-4-1996 to 31-3-1997 with a title of account being "Chanan Devi Sachdeva and Vipin
237" which again goes to show that the membership was stated to be held jointly by the said
individuals without there being any indication of HUF. The only document which contains the
name of HUF with reference to Shri Vipin Malik as Karta of HUF is a possession certificate
issued by the society on 30-4-2000 and a perusal of the copy of the said certificate placed at
page No. 16 of the assessee's paper book shows that the words "(Karta), M/s. Vipin Malik-
HUF" are written in capital letters against the name of Shri Vipin Malik which appears in small
letters. Even the manner in which the said words are written in the said certificate shows
that the same are apparently added/inserted afterwards. Having regard to this patent
anomaly apparent from the said certificate as well as keeping in view the fact that all the
letters, certificates and receipts issued by the said society earlier did not contain any
reference to HUF, we find it difficult to accept the stand of the assessee that the
membership in the said society was held by it in the capacity of HUF and the investment
made in construction of the said property was in its own name. On the contrary, the
documentary evidence placed on record clearly shows that the said membership was
standing in the joint name of Smt. Chanan Devi Sachdeva and Shri Vipin Malik in their
individual capacity and an attempt to show the same as held on behalf of the HUF on the
basis of possession certificate was clearly made as an afterthought to claim deduction under
section 54F from the capital gain arising from sale of property belonging to HUF."

10. Clearly, therefore, there was no question of applicability of section 54F in the aforesaid facts
and circumstances.

11. In view of the detailed finding of facts arrived at by the three authorities concurrently below,
no substantial question of law arises and the appeal is, therefore, dismissed.

■■

*In favour of revenue.