MERILYN SHIPPING REFUSES TO SINK

According to the ld. Advocates present in the court room no 6 of the Calcutta high court on 24 th june ,the present tax bench comprising of the hon’ble justice Indira banerjee and the hon’ble justice A. R Saraswati was not convinced with the reasoning of the earlier division bench’s  view in the case of  CIT vs. Crescent Export Syndicate, Order dated 03.04.2013 and also in the case of CIT vs. Md. Jakir Hossain Mondal, Order dated 4.4.2013 . In these two cases, the same High Court had taken a view contrary to the view taken by ITAT , Spl. Bench in Merilyn Shipping & Transports 146 TTJ 1 (Viz) (SB), where the Spl. Bench ITAT held  that the disallowance u/s 40(a)(ia) could be made only for the expenditure that is “payable” as on 31st March and not for the amounts that have already been “paid” during the year.

In keeping with the judicial discipline, the bench has referred the matter at hand, being ITAT 101/2013 in the case of CIT vs. Sk. Mahasin Ali to the hon’ble chief justice to constitute a larger bench for reconsidering the judgement rendered in the aforesaid two cases.

Deduction U/S. 54F On Investment In More Than One Flat - Case Studies

By Subash Agarwal,Advocate

Fact situation

An assessee has sold his Landed Property (Non-agricultural Land) and wants to purchase two nos. of House Property. Can he claim any exemption in the following situations-

Situation - 1, He already owns a residential house at the time of transfer of the above landed property and he wants to purchase two residential house.

Situation- 2, He does not have any residential house at the time of transfer of the above landed property and he wants to purchase two residential house.

Situation-3, His father & he jointly owned a residential house at the time of transfer of the above landed property and wants to purchase two residential house.

Analysis

Where long term capital gains arise from transfer of an asset other than a residential house, the assessee is entitled to the benefit of section 54F i.e., exemption from capital gains on purchase of a residential house within the specified period. As per the said provision, the benefit is not available if the assessee owns more than one residential house on the date of transfer of asset in question.

In the three situations narrated above, the assessee is not owning more than one residential house on the date of sale. So, there is no impediment in claiming exemption u/s. 54F. Now, the question arises – whether the assessee can claim exemption in respect of two residential houses.

The view of the courts in general is that where two or more flats are acquired in the same apartment/complex and they are contiguous (adjoining) to each other and used as single residential unit, the exemption can be allowed for the cost of all those flats. However, where the flats are situated in different locations, then the exemption will be allowed only for one of the flats at the option of the assessee.

Important case laws are as under –

(i)         CIT vs. D. Ananda Basappa 309 ITR 329 (Kar.)

This was a case of multiple flats in the same complex used as one unit and the exemption under section 54 was allowed. The SLP filed by the Department against this decision was rejected by the Supreme Court [ 320 ITR (St.) 19]

(ii)        CIT vs. K.G. Rukminiamma 331 ITR 211 (Kar.)

In this case, there were  four residential units, but all of them were in the same building acquired in pursuance of a development agreement. Held, the exemption was allowable.

 (iii)      CIT vs. Raman Kumar Suri 212 Taxman 411 (Bom)

In this case, the assessee purchased a duplex flat. The A.O. held that it was not one flat but two flats which have been joined into one flat. He restricted the exemption to half of the investment made. It was held that the assessee is entitled to exemption for the entire investment made.

(iv)       Hon’ble Punjab and Haryana High Court in the case of Pawan Arya vs. CIT 49 DTR 123 restricted the benefit to one house since in this case, two new houses were acquired  in different locations.

(v)        In the case of Smt. Myrtle D’Souza vs. ITO 53 SOT 236 (Mum) the exemption was restricted to the value of one of the flats since in that case, two flats in different floors of the complex were acquired.

However, recently in Gita Duggal’s case 257 CTR 208 (Del) liberal view has been taken in respect of purchase of residential units in the same building but at different floors. It was held that section 54/54F uses the expression “a residential house” and not “a residential unit”. It was held that there is nothing in these sections which require the residential house to be constructed in a particular manner. This judgement, however, is on different factual plane. In this case, the assessee had entered into a collaboration agreement with developer. The builder was to construct three floors at his cost and first two constructed floors were to be given to the assessee in lieu of land and third floor was to be retained by the builder. The assessee had claimed that if the cost of construction was to be treated as sale price, the same should also be correspondingly taken to have been invested in the residential house namely, the two floors that the assessee was entitled to. The case of the assessee was accepted by the ITAT and the High Court.

Whether Gifts From Nana / Nani fall Under Exempted Category U/s 56(2)?

By Subash Agarwal,Advocate

The issue is not free from doubt. As per section 56(2)(vii), r.w. Explanation thereto, any gift from, interalia, lineal ascendant / descendant is not taxable as IFOS. The term used has not been defined in the Act. Colloquially, the term is meant to indicate lineal movement of relationship on the paternal side upwards and downwards. However, a closer analysis indicates a wider movement on the maternal side as well.

As per Tomlin’s Law Dictionary, lineal descent is a term used to designate a descent from father to son or grandfather to grandson. Thus, lineal ascendant will move in reverse manner i.e., son to father or father to grandfather or son to grandfather . As per Black’s Law Dictionary Parents, grandparents and great grand parents are lineal ascendant.

As per “The Oxford Large Print Dictionary”, grandfather is the father of a person’s father or mother and grandmother is the mother of a person’s father or mother. As per Law Lexicon (General Editor: Justice Y.V. Chandrachud), the term “Lineal descendant” includes all the descendants and is not restricted to male descendants. Thus, in my view the relationship of “Nana”/ “Nani” is covered in the exempted category and gifts received from them are exempt from tax.