Month: March

•  Levy of interest u/s.234A was compensatory in character and was introduced for compensating the Government for the loss of revenue and as in the assessee’s case there was no loss of revenue, on payment by the assessee, no compensation was due to the Government.

• There was no deprival of resources for the State and in the absence of that it was not possible for it to seek damages for the same.

• The taxes paid by him on 25th September, 1995 should be treated as payment of advance tax.

• A separate provision, namely, S. 271F provided for the levy of penalty for the default of not filing the return of income by due date w.e.f. 1-4-1999.

• Simultaneous levies for the same period were unjust and resulted in double jeopardy.

• The provisions  must  be construed  liberally.

• In case of doubt, the benefit of doubt should be given to the assessee.

2.3 On behalf of the Revenue it was contended that by reason of S. 234A, interest was charged for default in filing return which did not cease or stop with payment of taxes. That not charging interest would defeat the very objective behind introduction of S. 234A.

2.4 The Delhi High Court upheld the contention of the assessee that no interest was to be charged u/ s.234A for the period commencing from 25th September 1995 for the following reasons:

• Penalty and interest both could not be charged for failure to perform a statutory obligation.

• Interest, was payable either by way of compensation or damages and penal interest could be levied only in the case of a chronic defaulter.

• The common sense meaning of ‘interest’ must be applied in interpretation of S. 234A of the Act and even if the dictionary meaning was to be taken recourse to, the Court was supported by the Collins Cobuild English Language Dictio-nary reprinted in 1991, which defined it as; “Interest is a sum of money that is paid as percentage of a larger sum of money, which has been borrowed or invested. You receive interest on money that you invest and pay interest on money that you borrow.”

• The question raised when considered from an-other angle was that interest was payable when a sum was due and not otherwise.

• The object of the amendment was to levy mandatory interest where the return was filed late and tax was also not paid. The provisions made an exception for deduction of the amount of the interest if the same had otherwise been paid or deposited. A statute must be construed having regard to its object in view.

• The Court noted that in Shashikant Laxman Kale v. UOI, 185 ITR 105, the Apex Court held that interest could not be charged when no tax was outstanding. It further noted that in Ganesh Dass Sreeram v. ITa, 159 ITR 221, it had been held that “Where the advance tax duly paid covers the entire amount of tax assessed, there is no ques-tion of charging the registered firm with inter-est even though the return is filed by it beyond the time allowed, regard being had to the fact that payment of interest is only compensatory in nature. As the entire amount of tax is paid by way of advance tax, the question of payment of any compensation does not arise.”

• Penalty could not be imposed in the absence of a clear provision. Imposition of penalty would ordinarily attract compliance with the principles of natural justice.

• Levy of penalty in certain situations would attract the principles of existence of mens rea. While a penalty was to be levied, discretionary power was ordinarily conferred on the authority. Unless such discretion was granted, the provisions  might be held to be unconstitutional.

• In situation of the nature involved in the case, the doctrine of purposive construction must be taken recourse to.

• The submission of the Revenue to the effect that payment of tax although the same could be made along with the return, could not be a ground for not charging interest in terms of S. 234A; if given effect to, the object and purpose of S. 234A would be defeated and, thus, the same could not be accepted. The object of S. 234A was to receive interest by way of compensation. If such was the intention of the Legislature, it could have said so in explicit terms.

• Judicial notice was required to be taken of the fact that the Legislature had enacted S. 271F with effect from April I, 1999, by the Finance (No. 2) Act of 1998, providing for penalty, in the case of a person who was required to furnish a return of his income as required U/ss.(I) of S. 139 of the Act who did not do so.

• When the statute provided that an interest, which would be compensatory in nature would be levied upon the happening of a particular event or inaction, the same by necessary implication would mean that the same could be levied on an ascertained sum.

• The definition of ‘Advance tax’ was not an exhaustive one. If the word ‘advance tax’ was given a literal meaning, the same apart from being used only for the purpose of Chapter XVII-C might be held to be tax paid in advance before its due date, i.e., tax paid before the due date. A person, who did not pay the entire tax by way of advance tax, might deposit the balance amount of tax along with his return.

2.5 The Court accordingly held that interest would be payable only in a case, where tax had not been deposited prior to the due date of filing of the income-tax return.

3.  Roshanlal Jain’s case:

3.1 The assesseein Roshanlal S. lain (AOP) v. DCIT, 220 CTR 38 (Guj.), had defaulted in payment of advance tax before the year end, but had paid the shortfall after the year end, and before the due date of filing return of income. The return was filed beyond the due date prescribed u/s.139(1) and the Assessing Officer had charged interest u/ s.234A and u/ s.234B including for the period commencing on the day when the shortfall was made up and ending with the due date prescribed for filing the return of income.

3.2 The assessee challenged the validity of interest charged u/ s.234A and u/ s.234B,besides the constitutional validity of the provisions to submit that S. 234A be held to be ultra vires the Constitution to the extent it required an assessee to pay interest even after the tax has been paid before filing of the return. In relation to S. 234B, it was submitted that when the said provision charged interest for the same period for which interest had already been charged u/ s.234A, the said provision should be held to be unreasonable and should be struck down. The assessee strongly relied on the decision of the Delhi High Court in the case of Dr. Pronnoy Roy, 254 ITR 755 in support of his contentions.

3.3 The Gujarat High Court negatived the contentions of the assessee to hold as under:

• On a plain reading of the provisions of S. 234A and S. 234B, it was apparent that S. 234A provides for the liability to pay interest for default in late furnishing of return or non-furnishing of return, while S. 234B levied interest for default in payment of advance tax.

• Both the provisions, i.e., S. 234A and S. 234Bpro-vided for payment of interest on the amount representing the difference between the amount of tax payable on the total income as determined u/s.143(1) or on regular assessment as reduced by the specified taxes.

• The scheme that emerged on a conjoint reading of S. 4, S. 2(1), S. 190 and S. 207, was that even though assessment of the total income might be made later in point of time, yet the liability to pay income-tax was relatable to the financial year immediately preceding the assessment year in question and such liability had to be dis-charged either by way of having tax deducted at source or collected at source, or by making payment by way of advance tax in accordance with the provisions of S. 208 to S. 219.

• S. 208 stipulated that advance tax should be paid during a financial year in every case where the amount of such tax payable by the assessee during that financial year, as computed in accordance with the provisions of Chapter XVIIof the Act, exceeded the prescribed limit.

• A statutory liability was cast on the assessee to pay advance tax during the financial year as provided by the legislative    scheme.

• In the instant case, the assessee did not dispute that there was default in payment of advance tax.

• Payment of tax on which the assessee was resting its case was admittedly made beyond the financial year and therefore, contrary to the legislative scheme. In the circumstances, the question that was to be posed and answered was whether an assessee who had acted contrary to the legislative scheme could seek an equity.

• For computing interest u/ s.234A, the difference of the amount on which interest became payable had to be worked out by deducting the advance tax paid, including any tax deducted or collected at source from the tax on the total income determined at the time of an assessment.

• In the instant case, the default in filing of return of income beyond the prescribed date was also admitted. Therefore, it was not possible to accept the contention of the assessee that the amount paid beyond the financial year should be deducted from the tax on the total income as determined on regular assessment. This has to be so, considering the definition of the term ‘advance tax’ as appearing in S. 2, which categorically stipulates that ‘advance tax’ means the advance tax payable in accordance with the provisions of Chapter XVII-CoEven if contextual interpretation is adopted considering the opening portion of 5.2 which states ‘unless the context otherwise requires’, the contention raised by the assessee did not merit acceptance; the context and setting of the aforesaid provisions do not even, prima facie indicate that any other law, like the one canvassed by the assessee, was possible.

• S. 140A stipulated that where any tax was payable on the basis of any return required to be furnished, such tax together with interest payable under any provision of the Act for any delay in furnishing return, or any default or delay in payment of advance tax before furnishing the return shall be paid. In other words, the Legislature had specifically provided that once there was default in either furnishing of return or in payment of advance tax or both, as regards the amount and the period, interest had to be worked out by the assessee himself. Thus, there is an inherent indication in the statutory scheme that any payment made beyond the financial year had to be considered, but such payment had to be accompanied by the interest payable for the default committed in filing of the return of income or default in payments of advance tax during the financial year. For this purpose, the Legislature had not equated both defaults, but had instead provided for computing interest separately for both the defaults. Therefore, merely because some amount was paid beyond the financial year but before the return was filed, the assessee could not plead that it was not liable to pay interest u/ s.234A; nor could it be given credit for such payment made beyond the financial year for the purpose of computing interest u/ s.234B for the default in payments of advance tax.

• There was no merit in the contention of the assessee that it had not incurred any liability to pay interest either u/ s.234A or u/ s.234B. It also could not contend that there was any overlapping of the period for which it could not be made liable for paying interest under both the provisions, considering the fact that both the defaults were independent of each other.

• The doctrine of double jeopardy envisaged by Article 20(2) of the Constitution or S. 300 of the Code of Criminal Procedure, 1973 could have no application in these proceedings. The defaults, and not offences, were not one; non-filing or late filing of return and non-payment or short-payment of advance tax could not be equated.

• The period for which the liability to pay interest arose, had to be computed in accordance with the term fixed by each of the provisions, viz., S. 234A and S. 234B.

• The contention, that if the statutory provision re-sulted in an absurdity or mischief not intended by the Legislature, the Court should import words so as to make sense out of the provisions, also did not merit acceptance, considering the fact that on a plain reading of the provisions, the discernible legislative intent could not be said to result in an absurdity.

• If the plea raised by the assessee was accepted, not only would it require the Court to give a go-bye to the entire statutory scheme, but it would also result in discrimination against majority of the assessees who complied with requirements of the statutory provisions. No person was entitled to seek any relief on the basis of inverse discrimination.

• There was also no merit in the contention  of the assessee that the provisions contained in S. 234A and S. 234B were ultra vires to the constitution. It was true that the nature of the levy of interest u/ s.234A and u/ s.234Bwas compensatory in character, but from that it was not possible to come to the conclusion that there was any arbitrariness or unreasonableness which would warrant striking down the provision.

3.4 The Gujarat High Court specifically dissented from the decision of the Delhi High Court in Dr. Pronnoy Roy’s case, 254 ITR 755 cited before the Court by the assessee and proceeded to dismiss the writ petition filed by the assessee. The submission of the assessee as to the binding nature of the precedent based on uniformity of expression of opinion on the ground of wise judicial policy also did not deserve acceptance. The Court agreed that there was no dispute about the proposition that in income-tax matters, which were governed by an all India statute, when there was a decision of a High Court interpreting a statutory provision, it would be a wise judicial policy and practice not to take a different view. However, this in the opinion of the Court was not an absolute proposition and there were certain well-known exceptions to it. In cases where a decision was sub silentio, per incuriam, obiter dicta or based on a concession or where a view taken was impossible to arrive at or there was another view in the field or there was a subsequent amendment to the statute or reversal or implied overruling of the decision by a High Court or some such or similar infirmity was manifestly perceivable in the decision, a different view could be taken by the High Court.

4. Observations:

4.1 There are several angles to the issue under consideration, prominent being:

• the true nature of interest charged u/ s.234A; whether the same is compensatory or penal or both,
• whether any interest can be charged where the State does not lose any revenue,
• whether interest can be charged without there being any basis. The base, normally, is the amount unpaid or delayed,
• the true meaning of the term ‘advance tax’, the true meaning of the term ‘interest’,
• whether the introduction of S. 271F for levy of penalty has made any difference,
• whether interest can be levied simultaneously under two different provisions for the same period,
• whether such simultaneous levies resulted in a case of double jeopardy,
• whether the levy was in violation of the Indian Contract Act, and
• whether the levy was in violation of the Constitution of India.

4.2 All these issues, including the issue of the binding nature of an available decision of the High Court, were considered in the above discussed judgments by the Courts in delivering the conflicting verdicts. The Courts have touched upon most of these aspects and have provided their views on the same. As these views so provided are conflicting, an attempt is made to express some views on the subject and reconcile some of them.

4.3 The provisions of S. 234A, S. 234Band S. 243C, replaced the provisions of S. 139(8),S. 215 and S. 216 which provisions in the past postulated for payment of interest. The new provisions are in pari materia with the said provisions. The old provisions were held to be compensatory and not penal in nature. The Courts time and again confirmed that the old provisions could not be anything except compensatory in character. The only material difference in the two situations is that while the old provisions conferred power to waive or reduce the levy of interest, the new provisions make the levy automatic.

4.4 The rationale of levy of interest and penalty has been succinctly stated by the Apex Court in crr v. M. Chandra Sekhar, 151 ITR 433, while considering S. 139(8) of the Act, which is in pari materia with S. 234A in the following terms:

“Now, it will be apparent that delay in filing a return of income results in the postponement of payment of tax by the assessee, resulting in the State being deprived of a corresponding amount of revenue for the period of the delay. It seems that in order to compensate for the loss so occasioned, Parliament enacted the provision for payment of interest.”

4.5 Considering the basis for calculation, the period of calculation and nature thereof implies that interest levy is compensatory in nature. The amount on which the interest is calculated is the amount payable by the assessee towards tax, less the amount already paid by him. The amount of tax which ought to have been paid by the assessee but was not paid because of the non-filing or the delayed filing only can attract interest.

4.6 The golden rule of interpretation of a statute is that it should be read liberally where a statute is capable of two interpretations, the principles of just construction should be taken recourse to. The issue surely admits of two meanings as is clear from the different meanings that the Courts have placed upon it. There is a room here for diverse construction and the provision can be construed to be ambiguous and in the circumstances a construction that leads to a result that is more just can be adopted.

4.7 No loss of revenue is suffered inasmuch as tax has already been paid. Interest is payable either by way of compensation or damages.

4.8 The insertion of S. 271F providing for levy of penalty for delay in filing the return of income abundantly clarifies that the levy of interest u/ s.234 A is compensatory in nature as the penalty, if any, for the default in filing the return of income has been provided by S. 271F. Once this is established, it is easier to accept the view that no compensation can be demanded in the absence of loss of revenue where the taxes are paid leaving no basis for calculation of interest. Two different provisions operating in the same field in the same statute is a proposition difficult to comprehend. If the Government itself has thought of introducing a provision of law levying penalty, having regard to the fact that no such provision existed earlier it cannot be interpreted differently by the Department as it is bound by interpretation supplied by the memorandum reproduced hereafter.

4.9 The memorandum explaining the insertion of S. 271F explains the objective behind its introduction; 231 ITR 228 (St) :

“Providing for penalty for non-filing of returns of income – Under the existing provisions, no penalty is provided for failure to file return of income. The interest chargeable u/ s.234A of the Income-tax Act for not furnishing the return or furnishing the same after the due date is calculated on the basis of tax payable.”

4.10 On a bare reading of the provisions of S. 234A it will be clear that in determining the amount on which interest is leviable, the amount paid by way of advance tax is to be reduced. On a careful reading, it will be clear that the term advance tax for the purposes of S. 234A has not been defined. This is clear from a simple comparison with the provisions of S. 234B which also provides for a similar reduction for the advance tax paid which clarifies that such tax is the one that is referred to in S. 208 and S. 210. In the circumstances, it is possible to take a view that any tax which is paid before the due date of filing the return of income is paid in advance and therefore represented ‘advance tax’. At the same time a note requires to be taken of S. 2(1) which defines the advance tax to mean the tax payable in accordance with the provisions of Chapter XVII-C. This conflict clearly establishes one thing and that is that the issue under consideration is debatable and in that view of the matter a view beneficial to the taxpayer requires to be adopted.

4.11 There also is a constitutionality angle to the issue that was examined by the Gujarat High Court specifically in Roshanlal [ain’s case. Whether Article 14 of the Constitution is violated in any manner, more so if it is found that the provisions of S. 234A provide for discriminatory treatment between persons of the same class placed in similar situations. In this connection the Court observed that a taxing statute enjoys a greater latitude and therefore it was difficult to uphold the proposition that the relevant part of S. 234A was unconstitutional. An inference in regard to contravention of Article 14 of the Constitution would, however, ordinarily be drawn if the provision sought to impose on the same class of persons similarly situated, a burden which led to inequality and the Court found that it was not so in the instant case. The assessee also in that case could not successfully contend that there was any unreasonable classification, considering the majority of assessees who comply with the statutory requirements.

4.12 Similarly the contention of the assessee, in Roshanlal [ain’s case, based on the provisions of S. 59 to S. 61 of the Indian Contract Act also could not carry the case of the assessee any further. The statutory scheme u/s.140A provides to make payment of tax and interest for the stated defaults before the return is filed and, therefore, to contend that the Assessing Officer could not have appropriated the amount paid towards interest did not merit acceptance. The Explanation U /ss.(l) of S. 140A specifically provides that where the amount paid by the assessee under the said sub-section falls short of the aggregate of the tax and interest payable U/ss.(l), the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable. In light of this specific provision under the Act, the general law under the Contract Act cannot be pressed into service by the assessee.

4.13 The views on the issue under consideration have been sharply divided and the conflict is strongly agitated by both the sides as is clear from the wide cleavage arising on account of the diametrically opposite views of the two High Courts. One must concede that both the views are tenable in law and the issue will continue to haunt the Courts unless the law is amended or the finality to the law is provided by a decision of the Apex Court. Sooner the better as the issue has an application to a very wide spectrum of taxpayers.

Authors’ note:

As we go to press, the Supreme Court in 309 ITR 231, has upheld the decision of the Delhi High Court in the case of Pronnoy Roy, on the ground that interest levied u/s.234A is compensatory in nature. Therefore, according to the Supreme Court, since the tax due had already been paid, which was not less than the tax payable on the returned income which was accepted, the question of levy of interest did not arise.

Section 54F, which allows exemption to an assessee from capital gains tax upon reinvestment of sale proceeds into a residential property, has been prone to litigation. A new area of controversy is now emerging with conflicting decisions rendered by various tribunals – whether part or joint ownership of a property at the time of transfer of the original asset could be construed as ownership of “one” residential property as intended under the proviso to section 54F(1). In this article, the authors discuss the conflicting tribunal judgments and their interpretation on this issue.

Issue for Consideration

An assessee, being an individual or a HUF, is exempted from payment of income tax on capital gains arising from the transfer of an asset, not being a residential house, u/s. 54F of the Income-tax Act on reinvestment of the net consideration in purchase or construction of a residential house, within the specified period. This exemption from tax is subject to fulfillment of the other conditions specified in section 54F, one of which is that the assessee should not own more than one residential house, other than the new house, on the date of transfer of the said asset. This condition prescribed by item (i) of Clause (a) of the Proviso to section 54F(1) reads as under; “Provided that nothing contained in this sub-section shall apply where – (a) the assessee, – (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or…..”. Till assessment year 2000-01, the condition was that the assessee should not own any other residential house on the date of transfer, other than the new house.

An ownership of more than one house is fatal to the claim of exemption from tax on capital gains. The term ‘more than one residential house’ and the term ‘owns’ are not defined by section 54F or the Income-tax Act. Whether the Income-tax Department, while applying these terms, is required to establish that the assessee is the sole owner of a whole house, absolutely to the exclusion of other persons or is it sufficient if it establishes the co-ownership or joint ownership of the house or a part of the house by the assessee held together with the other persons, is the question that is being debated by the different benches of the tribunal. The issue involves the interpretation of these terms on which the different benches of the tribunal have taken conflicting stands that require due consideration. The Mumbai and the Chennai benches of the tribunal have taken a stand that the co-ownership of a house at the time of transfer does not amount to ownership of a house and is not an impediment for the claim of exemption u/s. 54F, while the Hyderabad and the Chennai benches of the tribunal have denied the benefit of section 54F in cases where the assessees have been found to be holding a share in the ownership of the house as on the date of transfer of the asset.

Rasiklal N. Satra’s Case

The issue first came up for consideration of the Mumbai bench of the tribunal in the case of Rasiklal N. Satra, 98 ITD 335. In that case, the assessee had derived capital gains of Rs. 6,68,698 for A.Y. 1998-99 on sale of shares in respect of which gains, an exemption u/s. 54F was claimed on the strength of purchase of a house at Vashi, Navi Mumbai. The AO in the course of assessment noticed that the assessee was the co-owner of a house at Sion on the date of transfer of the said shares which co-ownership was held to be in violation of one of the conditions of section 54F. The AO accordingly denied the claim of exemption, on the ground that the assessee owned another house on the date of transfer of the shares.

Before the CIT (Appeals) it was contended that a shared interest in the property did not amount to ownership of the property, a contention that was accepted by the CIT (Appeals) who allowed the claim of the assessee for exemption from tax.

In the appeal by the AO to the tribunal, the Income-tax Department contended that a share in the ownership of a house amounted to the ownership of house and as such the assessee had violated the condition in section 54F and as a result was not eligible for the claim of exemption from tax. The assessee reiterated his contention that a shared interest in the property was not equivalent to the ownership of the house. He also relied on the provisions of section 26 of the Act to contend that the joint owners were to be assessed in the status of an AOP unless the shares of the owners were definite and ascertainable. He contended that he had no definite share in the house and he could not be held to be the owner of the house.

The tribunal noted that the only issue before it was as to whether the assessee could be said to be the owner of the Sion house or not. In the context, it observed that the Legislature had used the word ‘a’ before the words ‘residential house’ which must mean a complete residential house and would not include a shared interest in a residential house; where the property was owned by more than one person, it could not be said that any one of them was the owner of the property; in such a case no individual person, of his own, could sell the entire property though no doubt, he could sell his share of interest in the property but as far as the property was considered, it would continue to be owned by co-owners; joint ownership was different from absolute ownership; in the case of a residential unit, none of the co-owners could claim that he was the owner of a residential house; ownership of a residential house meant an ownership to the exclusion of all others and where a house was jointly owned by two or more persons, none of them could be said to be the owner of that house.

The tribunal fortified its views with the judgment of the Supreme Court in the case of Seth Banarsi Dass Gupta vs. CIT, 166 ITR 833, wherein, it was held that a fractional ownership was not sufficient for claiming even fractional depreciation u/s. 32 of the Act. It observed that because of the said judgment, the Legislature had to amend the provisions of section 32 with effect from 01-04-1997 by using the expres-sion ‘owned wholly or partly’. It held that the word ‘own’ would not include a case where a residential house was partly owned by one person or partly owned by other person(s). It further observed that after the judgment of Supreme Court in the case of Seth Banarsi Dass Gupta (supra), the Legislature could have also amended the provisions of section 54F so as to include part ownership and since, the Legislature had not amended the provisions of section 54F, it had to be held that the word ‘own’ in section 54F would include only the case where a residential house was fully and wholly owned by assessee and consequently would not include a residential house owned by more than one person. In the present case, admittedly the house at Sion, Mumbai, the tribunal further noted, was purchased jointly by assessee and his wife. As it was nobody’s case that wife was a benami of assessee, as such it had to be held that assessee was not the owner of a residential house on the date of transfer of original asset. Consequently, the exemption u/s. 54F could not be denied to assessee.

Holding of a share or a part ownership in the house was not considered by the tribunal to be representing the ownership of a house for the purposes of compliance of conditions contained in the Proviso to section 54F(1) of the Act. The benefit of section 54F conferred on the assessee by the CIT (Appeals) was confirmed by the tribunal.

Apsara Bhavana Sai’s Case

The issue recently came up for consideration of the Hyderabad bench of the tribunal in Apsara Bhavana Sai’s case, 40 taxmann.com 528.

In this case, the assessee had claimed an exemption u/s. 54F in respect of long term capital gains arising from sale of shares, for A.Y. 2008-09. During the course of assessment, the AO noticed that the as-sessee owned two houses, i.e. more than one house, as she had declared income from these two houses under the head ‘Income from House Property’. He was of the opinion that the assessee had violated the condition of section 54F(1) that prohibited her from owning more than one house on the date of transfer of shares. He accordingly called upon the assessee to explain her case for the exemption.

The assessee, inter alia, claimed that one of the houses at ‘My Home Navadeep’ was held jointly by her with her husband. Relying on the decision in the case of Rasiklal N. Satra (supra), she argued that a share in a house, per se, was not equated with the ownership of the house and her co-ownership of the said house, should not be a ground for denial of benefit of section 54F to her.

The AO noted that the assessee, as a joint owner, was holding the rights of ownership over the house and could not be said to be not the owner of the property, more so where the entire rental income of the house was offered for taxation in her hands. Relying on an unreported decision of the Chennai bench of the tribunal, in the case of Dr. P. K. Vasanthi Rangrajan dated 25-07-2005 in ITA No. 1753/MDS/2004, the AO denied the exemption to the assessee. He also relied on the decision of the Gujarat High Court in the case of Chandanben Maganlal, 245 ITR 182 to support his action.

Before the CIT(A), the assessee reiterated that a share in the joint property should be regarded as a share only and not as an ownership, relying on the decisions in the cases of Rasiklal N. Satra (supra) and Seth Banarsi Dass Gupta, 166 ITR 783 (SC) where it was held that a co-owner was a person entitled to a share in the property but could not be recognised as the single owner. The decisions in the cases of Shiv Narain Chaudhary, 108 ITR 104 (All.) and in T. N. Aravinda Reddy, 120 ITR 46 (SC) were also relied upon. The assessee further contended that the decision of the tribunal in the case of Rasikal N. Satra (supra) was not contested further, and therefore, shall be considered as final. She maintained that part ownership of the house property could not be a disqualification for claiming exemption u/s. 54F as a joint ownership in a house should not be considered in counting the numeric strength of the house property as envisaged under the provisions for claiming exemption u/s. 54F. The assessee submitted that that the share in a joint ownership in the property at ‘My Home Navadeep’ should be excluded and not considered as disqualification for claiming exemption u/s. 54F of the Act.

The CIT(A) observed that;

•    admittedly the house was jointly owned by the assessee with her husband and the question, therefore, was whether the part ownership of the assessee of the said flat could be considered as ownership of the flat.

•    in the case of Dr. P. K. Vasanthi Rangarajan (supra), wherein it had been held that if an assessee owned a part of a residential property, though not fully, it amounted to owning of a residential property as envisaged in section 54F and the assessee became disqualified for exemption u/s. 54F,

•    Mumbai bench in the case of Rasiklal N. Satra (supra) had taken a view that ownership was different from absolute ownership and that none of the co-owners could claim that he was the owner of the residential house as the ownership of a residential house meant ownership to the exclusion of all others relying on the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta (supra), holding that fractional ownership was not sufficient for claiming even fractional depreciation u/s. 32 of the Act.

•    the said decision in the case of Rasiklal N. Satra (supra) was not contested further,

•    the Chennai bench of the tribunal, in a later decision in the case of Asstt. CIT vs. K. Surendra Kumar in ITA No. 1324/Mds/2010 dated 12-08-2011, had followed the same decision of the Mumbai bench going against the decision of their co-ordinate bench in the case of Dr. P.K. Vasanthi Rangarajan (supra), wherein the tribunal noted that the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta (supra) had not been considered in Dr. P.K.Vasanthi Rangrajan’s case, whereas the same was considered by the Mumbai bench in the case of Rasiklal N. Satra (supra).

•    the Chennai bench in the said K. Surendra Kumar ‘s case held that since in the said case the assessee was only a part owner of the two residential properties, he could not be said to be owning a residential house as required for the purpose of benefit u/s. 54F of the Act.

The CIT(A) held that as the assessee was only a part owner of the property at ‘My Home Navadeep’, in the light of the decisions of the Mumbai and Chennai benches, the assessee could not be considered as owning the said property, to the exclusion of the joint owner, i.e., her husband, so as to be called the ‘owner’ for the purpose of section 54F of the Act. The CIT(A) held that the assessee could be said to be owning only one property as on the date of sale of shares, and therefore, was eligible for deduction u/s. 54F and accordingly, decided the grounds raised by the assessee in her favour and directed the Assessing Officer to revise the computation of income.

Against the order of the CIT(Appeals), the Income tax Department filed an appeal before the tribunal wherein it was pleaded; that the CIT(A) wrongly granted deduction u/s. 54F of the Act, though the assessee was owning more than one residential house; that the assessee being partial owner of the property at ‘My Home Navdeep’ and absolute owner of the other house situated at Meenakshi Royal Court, was owning more than one house and was not entitled for deduction u/s. 54F of the Act; even fractional or partial ownership of the immovable property disentitled the assessee for claiming deduction u/s. 54F of the Act ; that the judgments relied on by the assessee were relating to granting of deduction u/s. 32 and the language used therein was entirely different from section 54F of the Income- tax Act and these judgments were not applicable to the facts of the case; that the assessee was to be treated as owning more than one residential house and she could not granted deduction u/s. 54F of the Act in view of the judg-ments in the cases of CIT vs. Ravinder Kumar Arora, 342 ITR 38(Delhi), Mrs. Kamlesh Bansal vs. ITO, 26 SOT 3 (Delhi) (URO), Madgul Udyog vs. CIT, 184 ITR 484 (Cal.)and Dy. CIT vs. Greenko Energies (P.) Ltd. in ITA Nos. 3-7/Hyd/13 dated 10.5.2013.

The tribunal, on due consideration of the material on record, observed that the exemption u/s. 54F had been granted to the assessee with a view to encourage construction of one residential house and the construction/purchase of a house other than one residential house was not covered by section 54F of the Act; that the concession provided u/s. 54F w.e.f. 01-04-2001 would not be available in a case where the assessee already owned, on the date of transfer of the original assets, more than one residential house; it was clear that emphasis had been given on owning more than one residential house by an assessee and the assessees who already owned more than one residential house on the date of transfer of the original asset, were not eligible for the concession provided u/s. 54F of the Act even if the other residential house might be either owned by the assessee wholly or partially. In other words, when any assessee who owned more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act and that the proviso to section 54F of the Act clearly provided that no deduction shall be allowed if the assessee owned on the date of transfer of the residential asset more than one residential house.

For concluding the case in favour of the Income tax Department, the tribunal relied upon the decisions in cases of Smt. Bhavna Thanawala vs. ITO, 15 SOT 377 (Mum), Ravinder Kumar Arora vs. Asstt. CIT, 52 SOT 201(Delhi) and V. K. S. Bawa vs. Asstt. CIT, 56 ITD 232 (Delhi).

Observations

Section 54F on its original enactment by the Finance Act, 1982 disentitled an assessee for the claim of exemption from tax in a case where he owned any one other house as on the date of transfer, other than the new house. Realising the genuine difficulties faced by the assesses, a relaxation was made by the Finance Act, 2000 with insertion of the Proviso in s/s. (1) so as to enable an assessee to own one residential house as on the date of the transfer of the asset. The sum and the substance of the Proviso is that an assessee is not disentitled from claiming an exemption on account of his ownership of one house as on the date of transfer.

The issue is two dimensional. The Income-tax Department has to cross two hurdles, not one, before it can successfully deny the benefit of exemption to the assessee. One, it has to establish that the term ‘owns’ include an ownership of a ‘part ownership’ or a ‘joint or co-ownership’ of the house. Second, it has to establish that the term ‘one’ includes within its ambit ‘a fraction of one’. In our opinion, the tribunal has not considered the other equally important aspect of the condition stipulated and have emphasised the first aspect of the issue only, while deciding the issue either way.

On a reading of the said Proviso, it is evident that the legislature, unlike other provisions, has not expressly stated that the term ‘owns’, or for that matter the term ‘one residential house’, shall include a co-ownership of a part of the residential house. The Act, at many places, clearly provide that a part of a building is also included in the building. For example; Explanation (b) of section 194IA, 269UA(d)(i) and (ii), section 32, etc.. In the absence of an express provision, it is inappropriate to read the Proviso in a manner so as to include the ownership of a part of the house therein and circuitously hold that such an interpretation represents the legislative intent.

The decisions relied upon by the AO and by the Hyderabad tribunal in the cases of Chandanben Maganlal (Guj) and Ravindar Kumar Arora (Del) are the cases that involved the issue of eligibility of an assessee for exemption u/s. 54F on the strength of acquiring co-ownership rights in a new house on transfer of an asset other than a residential house. These cases, therefore, dealt with the interpretation of the main provision of s/s. (1) which employs a different language than the Proviso and are therefore distinguishable. The main provision requires ‘purchase’ of ‘a’ residential house while the Proviso restricts ownership to ‘one’ residential house. The terms employed are not only different, they are used in different context for different objective and should be interpreted in a manner that facilitates the objective and not frustrate the incentive provisions. While ‘a’ house may include a part of the house, it is very difficult, if not impossible, to state that ‘one’ includes a part of one, as well. Section 54F(1), in three places, has used different terminologies conveying the different objectives of the legislature. At one place in main sub-section (1), it has used ‘a residential house’; in the Proviso ‘one residential house’ is used in Items (a)(i) and (b) while in Items (a)(ii) and (iii) ‘any residential house’ has been used.

Section 13 of the General Clauses Act provide that ‘single’ includes ‘plural’ and the ‘plural’ includes ‘single’. It does not provide that ‘one’ includes a fraction of one. ‘One’ is a full and complete number; an integer; a whole number, complete in itself; single and integral in number, the lowest cardinal number; not capable of being substituted by a part i.e. an incomplete number.

The fact that the different benches have taken conflicting views and even the Chennai bench has taken conflicting views in two different cases clearly indicate that more than one view is available. It is by now a settled a proposition of taxation laws that a view beneficial to the assessee should be adopted in a case where two views are possible. Vegetable Products Ltd. 88 ITR 192 (SC). It is also a settled po-sition in law that an incentive provision should be liberally interpreted to facilitate the conferment of an incentive on the assessee. Bajaj Tempo Ltd. 196 ITR 188 (SC) and Strawboard 177 ITR 431 (SC).

It may be possible to hold that a co-owner or a part owner is also the owner of a house but the same may not be true while supplying a meaning to ‘one’ house. A part of a house cannot be treated as one house and ownership of a part of house cannot be considered as the ownership of one house.

A useful reference may also be made to the provisions of section 32 which expressly covers the cases of the whole or part ownership of an asset for grant of depreciation. The term ‘wholly or partly’ used before the term ‘owned’ in section 32(1) clearly convey the legislative intent of covering an asset that is partly owned for grant of depreciation. In its absence, it was not possible for a co-owner of an asset to claim the depreciation as was held in the case of Seth Banarasi Dass Gupta (Supra). In that case, a fractional share in an asset was not considered as coming within the ambit of single ownership. It was held that the test to determine a single owner was that “the ownership should be vested fully in one single name and not as joint owner or a fractional owner”.

The better view, in our considered opinion is to ignore the case of co-ownership for the purposes of application of restrictions contained in Proviso to section 54F(1) of the Income-tax Act so as to enable the claim of exemption.