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Friday, July 25, 2014

Sec. 54 of Income Tax Act - PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE. - agreement of sale for 1.32 crores in the year 2002 - sale effected in year 2004 due to pending of disputes - in the mean while in the year 2003 a new house was purchased by the income of selling of old house - exemption - as such not shown in income tax returns as not taxable - A.O. assessed tax as the sale was effected in the year 2004 but not in the year 2003 or prior to it - discarded the agreement of sale - Apex court held that In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. The appeals are, therefore, allowed with no order as to costs. The impugned judgments are quashed and set aside and the Authorities are directed to re-assess the income of the appellants for the Assessment Year 2005-2006, after taking into account the fact that the appellants were entitled to the relief, subject to fulfilment of other conditions.= Sh. Sanjeev Lal Etc. Etc. Appellants Versus Commissioner of Income Tax, Chandigarh & Anr. Respondents = 2014 – July. Part – http://judis.nic.in/supremecourt/filename=41729

      Sec. 54 of Income Tax Act -  PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE. - agreement of sale for 1.32 crores in the year 2002 - sale effected in year 2004  due to pending of disputes - in the mean while in the year 2003 a new house was purchased by the income of selling of old house - exemption - as such not shown in income tax returns as not taxable - A.O. assessed tax as the sale was effected in the year 2004 but not in the year 2003 or prior to it - discarded the agreement of sale - Apex court held that In our opinion, such  an act would not be in accordance with law because once an  agreement  to  sell is executed in favour of one person, the said person gets  a  right  to  get the property transferred in  his  favour  by  filing  a  suit  for  specific performance and therefore, without hesitation we can say  that  some  right, in respect of the said  property,  belonging  to  the  appellants  had  been extinguished   and  some  right  had  been  created   in   favour   of   the vendee/transferee, when the agreement to sell had been executed. Thus, a right in  respect  of  the  capital  asset,  viz.  the  property  in question  had  been  transferred  by  the  appellants  in  favour   of   the vendee/transferee on 27th December, 2002.    The  sale  deed  could  not  be executed for the reason that the appellants had been prevented from  dealing with the residential house by an order of  a  competent  court,  which  they could not have violated. In view of the aforestated peculiar facts of the case  and  looking  at  the definition of the term ‘transfer” as defined  under  Section  2(47)  of  the Act, we are of the view that the appellants were entitled  to  relief  under Section 54 of the Act in respect of the long term capital  gain  which  they had earned in pursuance of transfer  of  their  residential  property  being House No. 267, Sector 9-C, situated in Chandigarh and used for  purchase  of
a new asset/residential house. The appeals are,  therefore,  allowed  with  no  order  as  to  costs.   The impugned judgments are  quashed  and  set  aside  and  the  Authorities  are directed to re-assess the income of the appellants for the  Assessment  Year 2005-2006, after taking into account  the  fact  that  the  appellants  were entitled to the relief, subject to fulfilment of other conditions.=

Upon transfer of the house property, long term capital gain had arisen,  but
as the appellants had purchased a new residential house and  the  amount  of
the capital gain  had  been  used  for  purchase  of  the  said  new  asset,
believing that the long term capital gain was not chargeable to  income  tax
as  per  the  provisions  of  Section  54  of  the  Income  Tax  Act,   1961
(hereinafter referred to as ‘the Act’), the appellants did not disclose  the
said long term capital  gain  in  their  return  of  income  filed  for  the
Assessment Year 2005-2006.
In the assessment proceedings for the Assessment   Year   2005-2006   under
the Act, the Assessing Officer was of the view that the appellants were  not
entitled to any benefit under Section 54 of the Act for the reason that  the
transfer of the  original  asset,  i.e.  the  residential  house,  had  been
effected on 24th  September,  2004  whereas  the  appellants  had  purchased
another residential house on 30th April, 2003 i.e. more than one year  prior
to the purchase of the new asset and therefore,  the  appellants  were  made
liable to pay income tax on the capital gain under Section 45 of the Act.
“54. PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE.
(1)   Subject to the provisions of sub-section (2), where in the case of  an
assessee being an individual or a Hindu undivided family, the  capital  gain
arises from the transfer of a long-term capital asset,  being  buildings  or
lands appurtenant thereto, and being a  residential  house,  the  income  of
which is chargeable under the head “Income from house  property”  (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, then,  instead  of  the  capital
gain being charged to income-tax as income of the  previous  year  in  which
the transfer took place, it shall be  dealt  with  in  accordance  with  the
following provisions of this section, that is to say, –

(i) If the amount of the capital gain  is  greater  than  the  cost  of  the
residential house so purchased or constructed  (hereafter  in  this  section
referred to as the new asset), the difference  between  the  amount  of  the
capital gain and the cost of the new asset shall be  charged  under  section
45 as the income of the previous year; and for the purpose of  computing  in
respect of the new asset any capital gain arising from its  transfer  within
a period of three years of its purchase or construction,  as  the  case  may
be, the cost shall be nil; or

(ii) If the amount of the capital gain is equal to or less than the cost  of
the new asset, the capital gain shall not be charged under section  45;  and
for the purpose of computing in respect of the new asset  any  capital  gain
arising from its transfer within a period of three years of its purchase  or
construction, as the case may be, the cost shall be reduced  by  the  amount
of the capital gain.”

Upon perusal of Section 54(1) of the Act,  it  is  very  clear  that  relief
under Section 54 of the Act in respect of the long term capital gain can  be
availed only if a residential house i.e. a new  asset  is  purchased  within
one year before or within two years after the date on which the transfer  of
the residential house/original asset takes place.  In the instant case,  the
residential house had been transferred by the appellants-assessees  on  24th
September, 2004 whereas they had purchased  another  house  on  30th  April,
2003.  Thus, the new asset was purchased more than one  year  prior  to  the
date on which the transfer in respect of  the  residential  house  had  been
effected.
For the aforestated reasons, the Assessing Officer  did  not  grant  benefit
under Section 54 of the Act and therefore, the  assessment  order  had  been
challenged  by  the  appellants  before  the  Commissioner  of  Income   Tax
(Appeals).=
Consequences of execution of the agreement to sell are also very  clear  and
they are to the effect that the appellants could not have sold the  property
to someone else.  In practical life, there are events when  a  person,  even
after executing an agreement to sell an immoveable  property  in  favour  of
one person, tries to sell the property to another.  In our opinion, such  an
act would not be in accordance with law because once an  agreement  to  sell
is executed in favour of one person, the said person gets  a  right  to  get
the property transferred in  his  favour  by  filing  a  suit  for  specific
performance and therefore, without hesitation we can say  that  some  right,
in respect of the said  property,  belonging  to  the  appellants  had  been
extinguished   and  some  right  had  been  created   in   favour   of   the
vendee/transferee, when the agreement to sell had been executed.
Thus, a right in  respect  of  the  capital  asset,  viz.  the  property  in
question  had  been  transferred  by  the  appellants  in  favour   of   the
vendee/transferee on 27th December, 2002.    The  sale  deed  could  not  be
executed for the reason that the appellants had been prevented from  dealing
with the residential house by an order of  a  competent  court,  which  they
could not have violated.
In view of the aforestated peculiar facts of the case  and  looking  at  the
definition of the term ‘transfer” as defined  under  Section  2(47)  of  the
Act, we are of the view that the appellants were entitled  to  relief  under
Section 54 of the Act in respect of the long term capital  gain  which  they
had earned in pursuance of transfer  of  their  residential  property  being
House No. 267, Sector 9-C, situated in Chandigarh and used for  purchase  of
a new asset/residential house.
The appeals are,  therefore,  allowed  with  no  order  as  to  costs.   The
impugned judgments are  quashed  and  set  aside  and  the  Authorities  are
directed to re-assess the income of the appellants for the  Assessment  Year
2005-2006, after taking into account  the  fact  that  the  appellants  were
entitled to the relief, subject to fulfilment of other conditions.

2014 – July. Part – http://judis.nic.in/supremecourt/filename=41729


                                     REPORTABLE

                        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.


Leave granted.
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.
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.
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.
The validity of the Will had been questioned by Shri Ranjeet  Lal,  who  was
another son of the deceased testator Shri  Amrit  Lal,  by  filing  a  civil
suit, wherein the trial court,  by  an  interim  order  had  restrained  the
appellants from dealing with the house property.   During  the  pendency  of
the suit, Shri Ranjeet Lal expired on 2nd December, 2000 leaving behind  him
no legal heirs.  The suit filed by him had been dismissed in  May,  2004  as
there was no representation on his behalf in the suit.
Due to the interim relief granted in the above stated suit,  the  appellants
could not execute the sale deed till the suit came to be dismissed  and  the
validity of the Will was upheld.  Thus, the  appellants  executed  the  sale
deed in 2004 and the same was registered on 24th September, 2004.
Upon transfer of the house property, long term capital gain had arisen,  but
as the appellants had purchased a new residential house and  the  amount  of
the capital gain  had  been  used  for  purchase  of  the  said  new  asset,
believing that the long term capital gain was not chargeable to  income  tax
as  per  the  provisions  of  Section  54  of  the  Income  Tax  Act,   1961
(hereinafter referred to as ‘the Act’), the appellants did not disclose  the
said long term capital  gain  in  their  return  of  income  filed  for  the
Assessment Year 2005-2006.
 In the assessment proceedings for the Assessment   Year   2005-2006   under
the Act, the Assessing Officer was of the view that the appellants were  not
entitled to any benefit under Section 54 of the Act for the reason that  the
transfer of the  original  asset,  i.e.  the  residential  house,  had  been
effected on 24th  September,  2004  whereas  the  appellants  had  purchased
another residential house on 30th April, 2003 i.e. more than one year  prior
to the purchase of the new asset and therefore,  the  appellants  were  made
liable to pay income tax on the capital gain under Section 45 of the Act.
Relevant portion of Section 54 of the Act reads as under:
“54. PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE.
(1)   Subject to the provisions of sub-section (2), where in the case of  an
assessee being an individual or a Hindu undivided family, the  capital  gain
arises from the transfer of a long-term capital asset,  being  buildings  or
lands appurtenant thereto, and being a  residential  house,  the  income  of
which is chargeable under the head “Income from house  property”  (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, then,  instead  of  the  capital
gain being charged to income-tax as income of the  previous  year  in  which
the transfer took place, it shall be  dealt  with  in  accordance  with  the
following provisions of this section, that is to say, –

(i) If the amount of the capital gain  is  greater  than  the  cost  of  the
residential house so purchased or constructed  (hereafter  in  this  section
referred to as the new asset), the difference  between  the  amount  of  the
capital gain and the cost of the new asset shall be  charged  under  section
45 as the income of the previous year; and for the purpose of  computing  in
respect of the new asset any capital gain arising from its  transfer  within
a period of three years of its purchase or construction,  as  the  case  may
be, the cost shall be nil; or

(ii) If the amount of the capital gain is equal to or less than the cost  of
the new asset, the capital gain shall not be charged under section  45;  and
for the purpose of computing in respect of the new asset  any  capital  gain
arising from its transfer within a period of three years of its purchase  or
construction, as the case may be, the cost shall be reduced  by  the  amount
of the capital gain.”

Upon perusal of Section 54(1) of the Act,  it  is  very  clear  that  relief
under Section 54 of the Act in respect of the long term capital gain can  be
availed only if a residential house i.e. a new  asset  is  purchased  within
one year before or within two years after the date on which the transfer  of
the residential house/original asset takes place.  In the instant case,  the
residential house had been transferred by the appellants-assessees  on  24th
September, 2004 whereas they had purchased  another  house  on  30th  April,
2003.  Thus, the new asset was purchased more than one  year  prior  to  the
date on which the transfer in respect of  the  residential  house  had  been
effected.
For the aforestated reasons, the Assessing Officer  did  not  grant  benefit
under Section 54 of the Act and therefore, the  assessment  order  had  been
challenged  by  the  appellants  before  the  Commissioner  of  Income   Tax
(Appeals).  The appeal, so far as it pertained to the benefit under  Section
54 of  the  Act  was  concerned,  had  been  dismissed  and  therefore,  the
appellants had approached the Income Tax Appellate Tribunal.   The  Tribunal
also upheld the  orders  passed  by  the  Commissioner  and  therefore,  the
appellants had approached the High Court by  filing  appeals  under  Section
260 A of the Act, which were dismissed by virtue of the impugned  judgments.
 Thus, the appellants are in appeal before this Court.
The learned counsel appearing for the appellants had mainly  submitted  that
the authorities  below  and  the  High  Court  had  committed  an  error  in
interpretation of Section 54 of the  Act.   According  to  him,  though  the
property in question had been  apparently  transferred  on  24th  September,
2004 and the new asset i.e. new residential  house  had  been  purchased  on
30th April, 2003 i.e. more than one year prior to  the  date  on  which  the
property had been sold, the authorities ought to have  considered  the  date
on which the agreement to sell had  been  effected  by  the  appellants  for
transfer of the property  in  question  as  the  date  of  transfer  of  the
house/original asset.  The said agreement had been signed on 27th  December,
2002 i.e. which was well within the period prescribed under  Section  54  of
the Act.  If one considers 27th December, 2002 as  the  date  on  which  the
property had been transferred or that a  right  in  the  property  had  been
transferred, the appellants would  become  entitled  to  the  benefit  under
Section 54 of the Act.
So as to substantiate his submissions, learned counsel  for  the  appellants
had submitted that  the  appellants  wanted  to  transfer  the  property  in
question and therefore, they had entered into an agreement to sell  on  27th
December, 2002,  but unfortunately they could not execute the sale  deed  on
account of the litigation which was pending in respect of  the  property  in
question and due to an order restraining the appellants  from  dealing  with
the property.  In  view  of  the  order  passed  by  the  civil  court,  the
appellants could not execute the  sale  deed  and  the  delay  was  only  on
account of a factor which was beyond the control of the appellants.
According to the learned counsel appearing for the appellants, the  date  on
which the agreement to sell had been executed ought to have been treated  as
the date of transfer.  He had referred to the provisions  of  Section  2(47)
of the Act which defines the term “transfer”.  The term “transfer” has  been
given  an  inclusive  definition  and  according  to  the  said  definition,
whenever there is an extinction of any right in respect of a capital  asset,
such an extinction would mean transfer of the property.  He had,  therefore,
submitted that by virtue of the agreement to sell, a right had been  created
in favour of the buyer of the property and certain right in respect  of  the
residential house, which the  appellants  had,  had  been  extinguished  and
therefore,  27th December, 2002 ought to have been considered  as  the  date
of transfer.
The learned counsel had also relied  upon  certain  judgments  delivered  by
different High Courts to support his submissions.
On  the  other  hand,  the  learned  counsel  appearing  for   the   Revenue
Authorities had vehemently submitted that by mere execution of an  agreement
to sell, right of the vendor/transferor in respect of  the  property  cannot
be extinguished.  According to him, no sale of the property in question  had
been effected, when  the  agreement  to  sell  had  been  executed  on  27th
December, 2002.  According to him, the  appellants  had  sold  the  original
asset on 24th September, 2004 and had purchased a  new  house/new  asset  on
30th April, 2003 i.e. one  year  before  sale  of  the  original  asset  and
therefore, the benefit under Section 54 of  the  Act  could  not  have  been
availed by the appellants and therefore, the Revenue Authorities as well  as
the High Court were absolutely correct by not granting the  benefit  claimed
by the appellants.
We had heard the learned counsel at length  and  have  also  considered  the
relevant provisions of the Act  and  the  judgments  cited  by  the  learned
counsel.
Upon plain reading of Section 54 of the Act, it is very clear that so as  to
avail the benefit  under  Section  54  of  the  Act,  one  must  purchase  a
residential house/new asset within one year prior or  two  years  after  the
date on which transfer of the residential house  in  respect  of  which  the
long term capital gain had arisen, has taken place.
In the instant case, the following three dates  are  not  in  dispute.   The
residential house was transferred by the appellants and the  sale  deed  had
been registered on 24th September, 2004.  The sale deed  had  been  executed
in pursuance of an agreement  to  sell  which  had  been  executed  on  27th
December, 2002 and out of the total consideration of Rs.1.32 crores, Rs.  15
lakhs had been received by the appellants by way of earnest money  when  the
agreement to sell had been executed and a new  residential  house/new  asset
had been purchased by the appellants on 30th April, 2003.  It  is  also  not
in dispute that there was a litigation wherein the Will of late  Shri  Amrit
Lal had been challenged by his son and the appellants  had  been  restrained
from dealing with the house in question by a judicial  order  and  the  said
judicial order had  been  vacated  only  in  the  month  of  May,  2004  and
therefore, the sale deed could not be executed before  the  said  order  was
vacated though the agreement to sell had  been executed on  27th  September,
2002.
If one considers the date on which it was  decided  to  sell  the  property,
i.e. 27th December, 2002 as the date of  transfer  or  sale,  it  cannot  be
disputed that the appellants would be entitled  to  the  benefit  under  the
provisions of Section 54 of the Act because long term  capital  gain  earned
by the appellants had been used for  purchase  of  a  new  asset/residential
house on 30th April, 2003 i.e.  well  within  one  year  from  the  date  of
transfer of the house which resulted into long term capital gain.
The question to be considered by this Court  is  whether  the  agreement  to
sell  which had been executed on 27th December, 2002 can be considered as  a
date on which the property i.e. the residential house had been  transferred.
 In normal circumstances by executing an agreement to sell in respect of  an
immoveable property, a right  in  personam  is  created  in  favour  of  the
transferee/vendee.  When such a right is created in favour  of  the  vendee,
the vendor is restrained from selling the  said  property  to  someone  else
because the vendee, in whose favour the right in personam is created, has  a
legitimate right to enforce specific performance of the  agreement,  if  the
vendor, for some reason is not executing the sale deed.  Thus, by virtue  of
the agreement to sell some right is given by the vendor to the vendee.   The
question is whether the entire property can be said to  have  been  sold  at
the  time  when  an  agreement  to  sell  is  entered   into.    In   normal
circumstances, the aforestated question has to be answered in the  negative.
 However, looking at the provisions of  Section  2(47)  of  the  Act,  which
defines the word “transfer” in relation to a  capital  asset,  one  can  say
that if a  right  in  the  property  is  extinguished  by  execution  of  an
agreement  to  sell,  the  capital  asset  can  be  deemed   to  have   been
transferred.   Relevant  portion  of  Section  2(47),  defining   the   word
“transfer” is as under:
“2(47) “transfer”, in relation to a capital asset, includes,-
(i)…………….
(ii) the extinguishment of any rights therein; or
………………………………”
Now in the light of definition  of   “transfer”  as  defined  under  Section
2(47) of the Act, it is clear that when any right in respect of any  capital
asset is extinguished and that right is transferred  to  someone,  it  would
amount to transfer of a capital asset.  In  the  light  of  the  aforestated
definition, let us look at the facts of the present case where an  agreement
to sell in respect of a capital asset had been executed  on  27th  December,
2002 for transferring the residential house/original asset in  question  and
a sum of Rs. 15 lakhs had been received by way  of  earnest  money.   It  is
also not in dispute that the sale deed could  not  be  executed  because  of
pendency of the litigation between Shri Ranjeet Lal  on  one  hand  and  the
appellants on the other as Shri Ranjeet Lal had challenged the  validity  of
the Will under which the property had  devolved  upon  the  appellants.   By
virtue of an order passed in  the  suit  filed  by  Shri  Ranjeet  Lal,  the
appellants were restrained from dealing with the said residential house  and
a law-abiding citizen cannot be expected  to  violate  the  direction  of  a
court by executing a sale deed in  favour  of  a  third  party  while  being
restrained from doing so.  In the circumstances, for a  justifiable  reason,
which was not within the control of the appellants, they could  not  execute
the sale deed and the sale deed had been registered only on 24th  September,
2004, after the suit filed by Shri Ranjeet Lal, challenging the validity  of
the Will, had been dismissed.  In the light of the aforestated facts and  in
view of the definition of the term “transfer”, one can come to a  conclusion
that some right in respect  of  the  capital  asset  in  question  had  been
transferred in favour of the vendee and  therefore,  some  right  which  the
appellants had, in respect of  the  capital  asset  in  question,  had  been
extinguished because after execution of the agreement to  sell  it  was  not
open to the appellants to sell the property to someone  else  in  accordance
with law.  A right in personam had been created in favour of the vendee,  in
whose favour  the  agreement to sell had been  executed  and  who  had  also
paid Rs.15 lakhs by way of earnest money. No doubt, such  contractual  right
can  be  surrendered  or  neutralized  by  the  parties  through  subsequent
contract or conduct leading to no transfer of the property to  the  proposed
vendee but that is not the case at hand.
In addition to the fact that the term  “transfer”  has  been  defined  under
Section 2(47) of the Act, even if looked at the provisions of Section 54  of
the Act which  gives  relief  to  a  person  who  has  transferred  his  one
residential house and is purchasing another residential house either  before
one year of  the  transfer  or  even  two  years  after  the  transfer,  the
intention of the Legislature is to give him relief in the matter of  payment
of  tax on the long term capital gain.  If a person, who  gets  some  excess
amount  upon  transfer  of  his  old  residential  premises  and  thereafter
purchases or constructs a new premises within  the   time  stipulated  under
Section 54 of the Act, the Legislature does not  want  him  to  be  burdened
with tax on the long term capital gain and therefore, relief has been  given
to him in respect of paying income tax on the long term capital  gain.   The
intention of the Legislature or the purpose with which  the  said  provision
has been incorporated in the Act,  is also  very  clear  that  the  assessee
should be given some relief.  Though  it  has  been  very  often  said  that
common sense is a stranger and an incompatible partner  to  the  Income  Tax
Act and it is also said that equity and tax are  strangers  to  each  other,
still this Court has often observed that purposive interpretation should  be
given to the provisions of the Act.  In the case of Oxford University  Press
v. Commissioner of Income Tax [(2001) 3 SCC 359]  this  Court  has  observed
that a purposive interpretation of the  provisions  of  the  Act  should  be
given while considering a claim for exemption from tax.  It  has  also  been
said that harmonious construction  of  the  provisions  which  subserve  the
object and  purpose  should  also  be  made  while  construing  any  of  the
provisions of the Act and more  particularly  when  one  is  concerned  with
exemption from payment of tax.   Considering  the  aforestated  observations
and the principles with regard to the interpretation of  Statute  pertaining
to the tax laws, one can very well interpret the provisions  of  Section  54
read with Section 2(47) of the Act,  i.e. definition  of  “transfer”,  which
would enable the appellants to get the benefit under Section 54 of the  Act.

Consequences of execution of the agreement to sell are also very  clear  and
they are to the effect that the appellants could not have sold the  property
to someone else.  In practical life, there are events when  a  person,  even
after executing an agreement to sell an immoveable  property  in  favour  of
one person, tries to sell the property to another.  In our opinion, such  an
act would not be in accordance with law because once an  agreement  to  sell
is executed in favour of one person, the said person gets  a  right  to  get
the property transferred in  his  favour  by  filing  a  suit  for  specific
performance and therefore, without hesitation we can say  that  some  right,
in respect of the said  property,  belonging  to  the  appellants  had  been
extinguished   and  some  right  had  been  created   in   favour   of   the
vendee/transferee, when the agreement to sell had been executed.
Thus, a right in  respect  of  the  capital  asset,  viz.  the  property  in
question  had  been  transferred  by  the  appellants  in  favour   of   the
vendee/transferee on 27th December, 2002.    The  sale  deed  could  not  be
executed for the reason that the appellants had been prevented from  dealing
with the residential house by an order of  a  competent  court,  which  they
could not have violated.
In view of the aforestated peculiar facts of the case  and  looking  at  the
definition of the term ‘transfer” as defined  under  Section  2(47)  of  the
Act, we are of the view that the appellants were entitled  to  relief  under
Section 54 of the Act in respect of the long term capital  gain  which  they
had earned in pursuance of transfer  of  their  residential  property  being
House No. 267, Sector 9-C, situated in Chandigarh and used for  purchase  of
a new asset/residential house.
The appeals are,  therefore,  allowed  with  no  order  as  to  costs.   The
impugned judgments are  quashed  and  set  aside  and  the  Authorities  are
directed to re-assess the income of the appellants for the  Assessment  Year
2005-2006, after taking into account  the  fact  that  the  appellants  were
entitled to the relief, subject to fulfilment of other conditions.


                                        …………………….J.
                                        (ANIL R. DAVE)



                                        ……………………..J.
                                             (SHIVA KIRTI SINGH)
NEW DELHI
JULY 01, 2014.

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