1987-VIL-50-ITAT-AHM

Equivalent Citation: ITD 026, 001 TTJ 032, 110,

Income Tax Appellate Tribunal AHMEDABAD

Date: 02.12.1987

INSPECTING ASSISTANT COMMISSIONER.

Vs

JAYANTILAL CHIMANLAL (HUF).

BENCH

Member(s)  : U. T. SHAH., R. M. MEHTA.

JUDGMENT

Per Shri U. T. SHAH, Judicial Member - The revenue has come up in appeal against the order of the Commissioner (Appeals) wherein he has accepted the assessee's contention that it was entitled to exemption from capital gains as contemplated under section 54E of the Act.

2. The assessee is a HUF. The assessment year is 1981-82 and the relevant previous year is S. Y. 2036.

3. The assessee-HUF consisted of three brothers, viz., S/Shri Naresh J. Shah, Bipin J. Shah and Ashwin J. Shah. S/Shri Naresh J. Shah and Bipin J. Shah are married having two minor sons each. Shri Ashwin J. Shah is unmarried. The assessee HUF held properties including one immovable property situated at Elisbridge T. P. S. 3, city of Ahmedabad bearing Plot No. 516/1/B admeasuring about 1046 sq. yds. On 21-12-1979, there was a partial partition amongst the members of the assessee-HUF in respect of the said property. On the same date, the said property was sold for a consideration of Rs. 8,36,770. Each of the members of the assessee-HUF.received his share out of the sale realisations which was credited to their respective accounts in the books of Gujarat Pharmaceuticals & Chemicals Works, in which some of the members of the assessee-HUF were partners. The members of the assessee-HUF had made an application to the ITO u/s. 171 of the Act, to recognise the said partial partition. Since the said partial partition was effected after 31-12-1978, the ITO had declined to recognize the same in view of the provisions of section 171(9) of the Act. Each of the members of the assessee-HUF invested the sale realisation in the 7-Year National Rural Development Bonds on 18-6-1980, i.e., within six months of the date of sale of the property in question. The assessee-HUF, therefore, claimed exemption u/s. 54E of the Act, in respect of the capital gains arising out of the said transaction.

4. On the aforesaid facts, the ITO in his order under section 143(3) r. w. s. 144A of the Act, did not allow the exemption under section 54E of the Act, on the ground that the sale proceeds were not utilised for making investment in the 7-Year National Rural Development Bonds. In doing so, the ITO mainly relied on the directions issued by the IAC u/s. 144A of the Act. We find from the copy of the directions issued by the IAC that on scrutiny of the accounts of various members of the assessee-HUF in the books of Gujarat Pharmaceuticals & Chemicals Works, the IAC formed an opinion that investment made in the 7-Year National Rural Development Bonds was not out of the sale realisations inasmuch as on the date of investment in the said bonds, some of the members of the assessee-HUF had no sufficient funds in their respective accounts.

5. In appeal before the Commissioner (Appeals), the assessee strongly urged that the ITO/IAC were not justified in denying exemption to the assessee as contemplated u/s. 54E of the Act. In this connection, it was stated that once the application for recognition of partial partition was rejected by the ITO, and the members of the assessee-HUF had invested sale realisations in the said bonds, it has to be held that assessee-HUF had made the said investment. In this view of the matter, the assessee was entitled to claim exemption as contemplated u/s. 54E of the Act. The Commissioner (Appeals), in his order under appeal, after stating that he had upheld the action of the ITO in not recognizing the partial partition, accepted the assessee's contention in respect of exemption claimed u/s. 54 of the Act, in the following manner :-

"3. The above two views have been considered. I find that the following facts are established and are relevant to the issue in question :

(i) The claim of partial partition by the assessee-HUF has not been found valid as it was made after 31-12-1978 and the provisions of section 171(9) are applicable.

(ii) The sale of the immovable property has been affected by various coparceners of the HUF on 21-12-1979.

(iii) The receipt of sale proceeds by the representative sellers is not disputed by the Income-tax officer.

(iv) The investment for the purchase of 7-Year Rural Bonds has been made on 18-6-1980, i.e., within 6 months of the sale of the immovable property.

4. On the basis of the above facts the legal position regarding the claim of exemption under section 54E is in favour of the assessee because of the following reasons :-

(i) If the partial partition had been rejected the availability of the entire sale proceeds whether by one coparceners or his male descendant, shall be deemed to be with the assessee-HUF.

(ii) Similarly, as a corollary of the same, if the investments for the purposes of specified funds is made within 6 months, what is relevant is the totality of the funds available with the assessee HUF at the time of the investment in 7-Year Rural Bonds.

(iii) The findings of the ITO and the IAC are based only on the plea that at the time of investment the concerned coparceners had to borrow funds from other sources. These diversion of funds have otherwise been within constituents of the HUF. Therefore, the assessee-HUF had all along been in possession and control of the funds, which it received on the sale of the immovable property.

(iv) The investment in 7-Year Rural Bonds has been made within the time schedule of 6 months from the date of the sale of the property. Even if, theoretically speaking, it is argued that the assessee-HUF had to borrow funds.at the time of making the investment, this would not be relevant for deciding the applicability of exemption under section 54E.

(v) For the purpose of section 54E the only test is the quantum of the sale proceeds, the date of the sale and the arrear investment of an equivalent amount within a period of 6 months for the savings specified in section 54E. These conditions have been fully satisfied in the case of the assessee-HUF.

5. In view of the above unassailable position I hold that the assessee-HUF is entitled for the exemption under section 54E."

6. Being aggrieved by the order of the Commissioner (Appeals), the revenue has come up in appeal before the Tribunal with the following grounds :-

"1. The learned CIT(A) has erred in law and on facts that for the purpose of section 54E, the only test is the quantum of sale proceeds, the date of the sale and the arrear investment of an equivalent amount within a period of six months for the savings specified in section 54E. He has further erred in holding that the conditions for the exemption u/s. 54E have been fully satisfied by the assessee-HUF and therefore, the assessee-HUF is entitled to the exemption u/s. 54E.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in considering that for the purpose of section 54E, it is not necessary that the net consideration for the transfer itself is required to be invested or deposited in the specified asset.

3. On the facts and in the circumstances of the case, the learned CIT(A) ought to have upheld the order of the Income-tax Officer.

4. It is, therefore, prayed that the order of the learned CIT(A) may be set aside and that of the Income-tax Officer may be restored to the above extent."

7. The learned representative for the department strongly relied on the order of the ITO as well as the directions issued by the IAC u/s. 144A of the Act and vehemently argued that the Commissioner (Appeals) was not justified in accepting the assessee's contention regarding exemption u/s. 54E of the Act. According to him, in order to claim exemption u/s. 54E of the Act, the person should be the same for realising sale consideration and investing the same in the Rural Bonds. However, in the instant case, according to him, the person who had realised the sale consideration were different from the persons who had invested in the Rural Bonds. He also took us through the IAC's directions issued u/s. 144A of the Act, with a view to strengthen the case of the re venue that in respect of some of the members of the assessee-HUF they have no sufficient fund on the date on which they made investment in the Rural Baonds. He, therefore, urged that the order of the Commissioner (Appeals) should be reversed. The learned counsel for the assessee, on the other hand, strongly supported the order of the Commissioner (Appeals). In this connection, he further submitted that once the assessee's application for partial partition was rejected by the ITO, we have to carry the case to its logical conclusion. Since the members of the assessee-HUF had invested the sale realisations in the Rural Bonds, it has to be treated as if the same were invested by the assessee-HUF. He further submitted that the IAC had unnecessarily laboured in rejecting the assessee's claim for exemption u/s. 54E of the Act, without properly appreciating the provisions of the said section. If the investment is made in the Rural Bonds within six months of the sale transaction, the assessee would be entitled to claim exemption as contemplated under that section irrespective of the fact as to from which source the assessee had invested in the Rural Bonds. In other words, he wanted to impress upon us that since the money cannot be earmarked, it was not necessary that the sale realisations received should themselves be invested in the Rural Bonds. In this view of the matter, he submitted that since the assessee-HUF had fulfilled all the conditions laid down/s. 54E of the Act, the Commissioner (Appeals) was fully justified in accepting the assessee's claim for exemption under that section. He, therefore, urged that we should uphold the order of the Commissioner (Appeals).

8. We have considered the rival submissions of the parties and we are constrained to observe that the revenue ought not to have come up in appeal in the present case in view of the fact that there is no ambiguity in understanding the provisions of section 54E of the Act. During the course of his argument, the learned counsel for the assessee has rightly pointed out that the purpose of section 54E of the Act was to arrest inflation. The Legislature itself has appreciated the fact that it would not always be possible to invest the sale realisations immediately after the sale transaction. Therefore, six months' time is given for the investment in the Rural Bonds. It is not expected of an assessee to keep the sale realisations intact and invest the same money in the Rural Bonds within a period of six months. In this view of the matter, we entirely agree with the submissions made on the matter, we entirely agree with the submissions made on behalf of the assessee that in order to qualify for exemption u/s. 54E of the Act, it would be sufficient if investment is made in the Rural Bonds equivalent to the sale realisation, irrespective of the fact from which funds such investment is made. In this connection, we may observe that the learned counsel for the assessee was fully justified in relying on Circular No. 359 dated 10-5-1983 issued by the Central Board of Direct Taxes giving clarification regarding the provisions of section 54E of the Act. In the said circular, the Board has expressed the view that "if the assessee invests the earnest money or the advance received in specified asset before the date of transfer of asset, the amount so invested will qualify for exemption u/s. 54E of the Income-tax Act, 1961". This clearly shows that the provisions of section 54E of the Act are to be interpreted liberally. If the earnest money is qualified for exemption u/s. 54E of the Act, we fail to appreciate why the assessee should be denied such exemption when it had in fact, invested the sale realisations in the rural Bonds within stipulated period. In this view of the matter, we have no hesitation in upholding the order of the Commissioner (Appeals).

. In the result, the appeal is dismissed.

 

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