High Court Of Karnataka
CIT vs. J. Palemar Krishna
Assessment Year : 1998-99
Section : 54EA
D.V. Shylendra Kumar And L. Narayana Swamy, JJ.
IT Appeal No. 605 Of 2004
October 6, 2009
JUDGMENT
D.V. Shylendra Kumar, J.-This appeal is by the Revenue under section 260A of the Income-tax Act, 1961, hereinafter referred to as the Act ; seeking to raise the following two questions of law for examination and answer on the premise that the Income-tax Appellate Tribunal, while passing the order dated May 18, 2004, in I. T. A. No. 835/Bang/2002 before it, had answered these questions erroneously and consequently it also erroneously allowed the appeal of the assessee and to correct the judgment in the present appeal.
“(i) Whether the Tribunal was correct in holding that the compensation received by the assessee on June 30, 1997, and July 15, 1997, and invested the same in UTI Monthly Income Scheme on July 5, 1997, and July 15, 1997, in respect of acquisition which had taken place in 1992 would be exempted from capital gains tax under section 54EA of the Act despite this section being made applicable as per section 54H of the Act with effect from April 1, 1999, i.e., for the assessment year 1999-2000 and not for the current assessment year ?
(ii) Whether the Assessing Officer was correct in holding that the compensation received during the current assessment year should be brought to tax under the head ‘Capital gains’ in accordance with section 45(5) of the Income tax Act ?”
2. The assessee is a real estate businessman involved in buying and selling of property and in the course of the same, had entered into an agreement executed in his favour for purchasing some agricultural lands, which later came to be acquired by the Government during the period relevant for the assessment year 1993-94.
3. So far as the present appeal is concerned, what is of significance is that the assessee received enhanced compensation in respect of the lands for which acquisition proceedings had begun in the year 1992, on three dates in the year 1997, namely, June 30, 1997, July 15, 1997, and November 6, 1997, because of his efforts to get additional compensation by taking up the matter before the higher forums and tasting success there.
4. The additional/enhanced compensation was received on the three dates, became the subject-matter of assessment ; for the assessment year 1998-99 in view of the provisions of sub-section (5) of section 45 of the Act, which reads as under :
“45.(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :-
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head ‘Capital gains’ of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration in enhanced or further enhanced by the court, tribunal or other authority shall be deemed to be income chargeable under the head ‘Capital gains’ of the previous year in which such amount is received by the assessee ;
(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, tribunal or other authority to be the full value of the consideration.
Explanation.-For the purpose of this sub-section,-
(i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil ;
(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988 ;
(iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head ‘Capital gains’, of such other person.”
5. The assessee filed the returns of income for this assessment year declaring the income of Rs. 58,32,220.
6. Having regard to the considerable amount of income, the Revenue thought it fit to take up the return for scrutiny, by issue of notice under section 143(2) of the Act.
7. The Assessing Officer noticed that the assessee had claimed the benefit of exemption available under section 54EA of the Act which reads as under:
“54EA. (1) Where the capital gain arises from the transfer of a long-term capital asset before the 1st day of April, 2000, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any of the bonds, debentures, shares of a public company or units of any mutual fund referred to in clause (23D) of section 10J specified by the Board in this behalf by notification in the Official Gazette (such assets hereafter in this section referred to as the specified securities, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the specified securities is not less than the net consideration, in respect of the original, asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the specified securities is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the specified securities bears to the net consideration shall not be charged under section 45.
(2) Where the specified securities are transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of their acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such specified securities as provided in clause (a) or clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head ‘Capital gains’ relating to long-term capital assets of the previous year in which the specified securities are transferred or converted (otherwise than by transfer) into money.
Explanation.-In a case where the original asset is transferred and the assessee invests the whole or any part of the net consideration in respect of the original asset in any specified securities and such assessee takes any loan or advance on the security of such specified securities, he shall be deemed to have converted (otherwise than by transfer) such specified securities into money on the date on which such loan or advance is taken.
(3) Where the cost of the specified securities has been taken into account ; for the purposes of clause (a) or clause (b) of sub-section (1), a rebate with reference to such cost shall not be allowed under section 88.
Explanation.-For the purposes of this section,-
(a) ‘cost’, in relation to any specified securities, means the amount invested in such specified securities out of the net consideration received or accruing as a result of the transfer of the original asset ;
(b) ‘net consideration’, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by the expenditure incurred wholly and exclusively in connection with such transfer.”
8. In respect of the entire additional compensation the assessee claimed relief by showing that the assessee had invested such enhanced compensation on July 5, 1997, and July 15, 1997, by purchase of units issued by the Unit Trust of India, one of the notified modes of investment for claiming the benefit under section 54EA of the Act.
9. However, the Assessing Officer on scrutinizing the returns being of the view that while section 54EA, no doubt extended a benefit to claim exemption in respect of the amount invested in the notified bonds or other modes to the extent as indicated in the section itself, that was subject to the condition that such investment should have been made within six months from the date of transfer of the original asset and in this case the land acquired by the Government and the acquisition said to have been resulted in transfer as on September 10, 1992 (wherein it appears, this notification had been issued, though the question as to whether this is the transfer is again debatable, as in the case of compulsory acquisition of land, the transfer takes place only on the award being passed and pursuant to the award, possession of the land being taken under section 16 of the Land Acquisition Act, 1894, and that being ascertainable from the record before this court, be that as it may), the date on which this notification had been issued.
10. Section 16(2) of the Land Acquisition Act, 1894, reads as hereunder :
“16 Power to take possession.-When the Collector has made an award under section 11, he may take possession of the land, which shall thereupon (vest absolutely in the Government, free from all encumbrances.
Karnataka.-(1) In section 16, for the word ‘Collector’, substitute the words ‘Deputy Commissioner’, and
(2) Section 16 of the Act shall be renumbered as sub-section (1) thereof, and after that sub-section, add the following sub-section, namely :-
‘(2) The fact of such taking possession may be notified by the Deputy Commissioner in the Official Gazette ; and such notification shall be evidence of such fact’.”
11. Therefore, the Assessing Officer was of the view that unless the investment in the notified mode of investment had been done within six months from this day, the benefit of section 54EA was not available and admittedly the investment being made on July 5, 1997, and July 15, 1997, that is, about five years after the date of transfer, an assessee cannot claim the benefit of section 54EA, rejected the benefit and concluded the assessment on such premise, in so far this aspect of the matter is concerned.
12. The assessee being aggrieved, appealed to the first appellate authority namely, the Commissioner of Income tax (Appeals).
13. The first appellate authority rejected the claim made by the assessee claiming a benefit under section 54EA of the Act, though reliance was placed on behalf of the assessee on many decided cases. The first appellate authority was of the view that, as on the date of transfer that is, during the year 1992, the said provisions of section 54EA were not even available on the statute book, and, therefore, the question of claiming the benefit of section 54EA by the assessee never arose and, therefore, dismissed the appeal and affirmed the assessment order.
14. The assessee carried the matter further to the Income-tax Appellate Tribunal and met with sweet success.
15. The Income-tax Appellate Tribunal ventured to examine and place importance on the provisions of section 54EA of the Act in preference to the provisions of sub-section (5) of section 45 of the Act and found that, if the receipt of enhanced compensation on the three dates, namely, June 30, 1997, July 15, 1997, and November 6, 1997, are to be taken as amounts received and taxable only during the assessment year relevant for these three dates falling within the corresponding previous year, in the wake of the provisions of sub-section (5) of section 45, such change brought about by the introduction of sub-section (5) of section 45 by the Legislature with effect from April 1, 1999, cannot be lost sight of for the purpose of extending the benefit of the provisions of section 54EA, as for the period relevant for the assessment year 1998-99, the provisions of section 54EA were very much on the statute book, having come into effect from October 1, 1996, by the Finance (No.2) Act, 1996, and this aspect coupled with the subsequent legislative changes brought in section 54H of the Act, which reads as under :
“54H. Notwithstanding anything contained in sections 54, 54B, 54D, 54EC and 54F, where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections for depositing or investing the amount of capital gain, in relation to such compensation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation :
Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend up to the 31st day of December, 1991.”
which again is the provision to treat the date of receipt of the additional compensation as the date of transfer for the purpose of investment being made within six months and, therefore, the investment made within six months from the date of receipt of the enhanced compensation would nevertheless be entitled to the benefit of section 54EA and such statutory changes brought in by the provisions of section 54H cannot be lost sight of and in this view of the matter, understood the provisions of section 54EA as whether to extend the benefit to an assessee who had received any additional or enhanced compensation who has made investment in terms of section 54EA of the Act within six months from that date, to be one for extending the benefit under this provision.
16. Accordingly, the Tribunal allowed the appeal of the assessee, set aside the orders of the Assessing Officer and the first appellate authority and directed the Assessing Officer to conclude the assessment and for consequential tax liability, being determined on the premise that the assessee was entitled to the benefit of section 54EA in respect of the investments made in buying the units on the three dates as referred to above.
17. It is aggrieved by this order of the Tribunal, the present appeal by the Revenue.
18. We have heard Sri Aravind, learned standing counsel for appellant Revenue and Sri Parthasarathi, learned counsel for the respondent-assessee.
19. The submission of Sri Aravind, learned standing counsel for the Revenue, with reference to the statutory provisions of section 54A and 54H, particularly by drawing our attention to the date, from which the provisions of section 54EA were introduced on the statute book, the date from which the provisions of section 54H is on the statute book and more importantly the date from which section 54H included within the provisions of sections 54EA and 54EB, which was brought into from April 1, 1999, in terms of the Finance (No. 2) Act, 1998, and incidentally has also drawn our attention to the provisions of sub-section (5) of section 45 of the Act and submitted that the Tribunal has committed a serious error in law in not only extending the non-existent benefit to an assessee, which was not available even in terms of the statutory provisions of section 54H of the Act as on the date when, the assessee had made investments in units, which was a period relevant for the year 1998-99. The submission is that sections 54EA and 54EB were conspicuously absent in the body of the provisions of section 54K which is a provision providing for substituting the date of transfer as is referred to in the various sections 54, 54B, 54D, 54E. 54EA, 54EB, 54EC and 54F of the Act which is relegated to the date of receipt of the amount in respect of assessees whose lands come in for compulsory acquisition for public purposes and to take the date of receipt of the additional compensation as the starting point, for reckoning the six months period within which if an investment in any notified mode as is indicated in any one of these sections is made, the assessee can avail of the benefit in terms of provisions and reduce the incidence of tax attributable to the capital gains resulting due to the transfer of capital asset ; is nothing but conferring a benefit not so provided in law.
20. It is, therefore, submitted by Sri Aravind, learned standing counsel that when section 54H of the Act did not include the provisions of section 54EA or 54EB for the period relevant for the assessment year 1998-99, extension of the benefit as indicated under section 54H was not available to an assessee who otherwise would be covered under sections 54EA and 54EB and as such the assessee could avail of the benefit of these statutory provisions if and only if they make an investment in accordance with the very statutory provisions, within six months from the date of actual transfer and the receipt of enhanced/additional compensation cannot have any bearing or significance in determining the starting point for reckoning the six months period within which the investment has to be made.
21. It is also submitted by Sri Aravind that the Tribunal has committed an error in not taking note of the fact that a provision like section 54H was not available to the assessee to extend the benefit and likewise the Tribunal has also committed an error in referring to the provisions of sub-section (5) of section 45 which again is akin to a deemed provision in the sense that the amount received by way of enhanced compensation/additional compensation, which otherwise, in the normal course may not be assessable with reference to the date of transfer and in the corresponding assessment year, is now taken to be the income of the assessment year relevant for the date of receipt of enhanced compensation and a deemed provision like this, by which an income otherwise assessable in the year of transfer is taken to be assessable in the year of receipt of the additional compensation cannot be extended or imported while understanding the provisions of section 54EA of the Act and a possibility of taking note of the date of receipt of the enhanced compensation for assessment in the corresponding assessment year should be confined to the provisions of section 45 and not imported to section 54EA and for this reason also the Tribunal is in error in drawing sustenance and making a reference to the provisions of sub-section (5) of section 45 of the Act for disturbing the view taken by the Assessing Officer and affirmed by the first appellate authority.
22. Though no specific authority is referred to or relied upon by Sri Aravind, learned standing counsel, it is submitted that in understanding a taxing statute, the principles are fairly well established that a benefit cannot be extended by way of logic or similarity unless given by the Legislature itself and at any rate by a process of interpretation the benefit otherwise not available cannot be conferred on the assessee is the submission.
23. Contrary to such submissions, on behalf of the assessee, Sri Parthasarathi, learned counsel submits that while it is no doubt that the settled principle of law in taxation laws, is that a benefit not otherwise provided by the statute cannot be extended by courts, when the benefit is expressly provided under the statutory provisions, the scope and extent of the applicability of such provision, and when it becomes a matter for interpretation, should be interpreted in a manner as to advance the object of conferment of the concession of the benefit and it should not be unnecessarily restricted or curbed so as to deny the benefit which is otherwise possible or plausible on a proper understanding of the beneficial provisions like the provisions of section 54EA in the present case.
24. The submission of Sri Parthasarathi is that the benefit under section 54EA to an assessee is to reduce the tax liability attributable to the gains by the transfer of a capital asset and that is achieved by making investment in a specified or notified bond or units or securities as indicated in the statutory provisions starting from sections 54, 54B, 54D, 54E, 54EA, 54EB, 54EC and 54F and the purpose being to raise funds and revenue to the State by encouraging investment by the assessees in such modes, any interpretation of the provision should be to further the object of encouraging assessees to make investments and not to discourage it by saying that the benefit is not available in which event an assessee would not venture to make such investments at all.
25. It is also submitted that just because a reference is made to the provisions of section 54H and the subsequent legislative changes are taken as a guide or as an indication of things to follow, it does not mean that either the provisions of section 54H by themselves merge to either in section 54EA or that by a process of interpretation section 54EA is planted into the body of section 54H even before the Legislature had actually done that.
26. Sri Parthasarathi would submit that even on a principle of interpretation, while interpreting the taxing statute at that, a pragmatic, practical interpretation should be resorted to, an interpretation which could advance the object and even can promote equity and justice should be preferred to a technical approach or a pedantic approach and even in a situation giving rise to a resultant absurdity that should be avoided and in support of his submission has placed strong reliance on the judgment of a Division Bench of this court in the case of ITO v. H.P. Vishweswaraiah [2001] 250 ITR 863/[2002] 122 Taxman 60 (Kar.).
27. With reference to the facts of this case, learned counsel pointed out that similar situation had arisen earlier before this court in the context of understanding a provision of the Act, particularly section 54E of the Act and the provision again being for conferring concession or benefit to an assessee and what happened there was while transfer had taken place during the time when the statutory provisions were on the statute book. The assessee having received additional compensation after the section itself had come to be omitted was nevertheless interpreted in a manner as to extend the benefit to the assessee, as though the section had continued to exist, by construing that the additional compensation received should be deemed to be a compensation received on the date of transfer and this court having accepted such a claim of the assessee by the process of purposive and equitable interpretation, in the present situation also, both the fact situation and the legal position being analogous to the decided case by the Division Bench of this court in H.P. Vishweswaraiah’s case (supra) as above, following that, principle and interpretation of law, the present appeal should be dismissed and the interpretation as is sought to be placed on the provision of section 54EA on behalf of the assessee should be accepted and the benefit to be extended to the assessee in terms of section 54EA.
28. It is in this background of factual matrix this appeal is required to be examined.
29. We notice that the Legislature has introduced the statutory provisions of section 54EA to extend the benefit or concession in favour of the assessees whose gains are brought to tax as an income in the wake of the provisions of section 45 of the Act and more often than not concession is given if an assessee complies by investing the gains in a specified mode or an asset or in the notified bond or security and here again the object of the Legislature appears to encourage reinvestment in public funds, public bonds or in furthering the housing construction activities, etc., so that reinvested funds are available for welfare activities of the society. Of course sometime stipulations have been made like investment within six months from the date of transfer and later relaxed as under section 45(5) of the Act from the date of receipt of additional compensation in case of compulsory acquisition and such similar provisions even in section 54H where the reinvestment is taken to be from the date of receipt of additional compensation rather than the date of actual transfer, etc. All these provisions are with the main object of not only extending the benefit or concession to the assessee but also to ensure that social welfare activities got a fillip by the reinvestment of funds available with the assessee in the welfare activities undertaken by the State for such activities.
30. If an assessee bona fide has made such investment in terms of the statutory provisions in the normal course, the assessee should get the benefit and the tenor of the judgment of this court in H.P. Vishweswaraiah’s case (supra), is to extend the benefit of this nature to an assessee who has bona fide made reinvestment, than to deny the benefit or concession by taking a too technical view of the matter.
31. We are quite conscious that if we approach the present situation too technically in the background of the statutory provisions as was prevalent and as has been very emphatically made clear by Sri Aravind, learned standing counsel for the Department, on the dates relevant for the assessment year 1998-99 section 54H of the Act did not contain reference to the provisions of section 54EA of the Act and, therefore, section 54H is of no avail for the present assessee for the assessment year 1998-99 and this aspect if one should go by it, the provisions of section 54H alone is the correct legal position.
32. But the matter does not end with that. We are essentially concerned with a situation where the assessee has claimed a benefit in terms of section 54EA of the Act and for which purpose he is claiming the benefit of this provision in the background of the provisions of sub-section (5) of section 45 of the Act. We may at once notice that under sub-section (5) of section 45, the enhanced/additional compensation are brought to tax in the assessment year corresponding to the dates on which such enhanced compensation is received, that is, the assessment year relevant to the date of transfer but only the assessment year relevant to the date of receipt of additional or enhanced compensation. While section 54EA of the Act has been prevalent on the statute book and very much available even for the assessment year 1998-99, whether the benefit of this statutory concession should be deprived to the assessee only for the reason that the investment made is not within the period of six months from the date of original transfer, which is of the year 1992, and relevant for the year 1993-94 and, therefore, the assessee is not entitled for the benefit.
33. In our view, this definitely is a very incongruous situation and possibly giving rise to absurdity as was noticed by the Division Bench of this court in H.P. Vishweswaraiah’s case (supra).
34. Even when the provisions of section 54A was there in the statute book before the period relevant to the assessment year 1998-99 to enable the assessee to avail of the benefit to have made an investment within six months from September 10, 1992, in respect of an additional/enhanced compensation received by the assessee on June 30, 1997, July 15, 1997, and November 6, 1997, is not only an impossible thing but undoubtedly a ridiculous expectation bordering on absurdity, it is for this reason, we are unable to accept the submissions on behalf of the Revenue to hold that the provision should be interpreted in such a way as to only deny the benefit to the assessee and by technically viewing the date of transfer as is mentioned in section 54EA to be only the date on which the acquisition has taken place and not with reference to the date of receipt of the additional/ enhanced compensation.
35. The intention on the part of the Legislature is to extend the benefit even for this period relevant for the year 1998-99 which is obvious and is reflected with the statutory provisions of sections 54EA, 54EB being on the statute book. It is only the duty of the court to effectuate this provision and if need be by a process of interpretation and if the interpretation as is urged by Sri Aravind, learned standing counsel for the Department is to be accepted, it is an interpretation not for furthering the object of introduction of section 54EA which is not only to provide the benefit to the assessee but also to ensure an investment of the kinds specified in the modes so that funds being available to the Government for rehabilitation, welfare and developmental work, but to the contrary.
36. We are of the clear view that an interpretation to extend the benefit intended by the Legislature should definitely be preferred to an interpretation to deny the benefit by resorting to technical interpretation.
37. Though the Tribunal might not have expressed precisely as we have indicated in this judgment, but the tenor of the approach and the conclusion of the Tribunal is not different and it is for this reason, we are not inclined to disturb the judgment of the Tribunal, but affirm it and on the matter of interpretation we do indicate that the provisions of section 54EA is available to the assessee for the period relevant for the assessment year 1998-99 notwithstanding the provisions of section 54H not containing or not making reference to the provisions of section 54EA of the Act for the period corresponding to the assessment year.
38. Accordingly, the first question posed for our answer is answered in favour of the assessee and against the Revenue. The second question is neither relevant nor deserves a separate answer in the wake of our answer given to the first question and, therefore, the second question is left as it is not warranting any independent answer.
39. In the result, the appeal is dismissed.
[Citation : 342 ITR 366 ]
