By TIOL News Service

BANGALORE, DEC 28, 2015: THE issue is - Whether benefit of Section 54 is to be given only when the assessee purchases a property one year prior to the sale of his property or two years after such sale. YES is the verdict.

Facts of the case

The assessee is an individual. During the concerned year, by an agreement the assessee had agreed to purchase 3 acres 39 guntas of land from one H R Gurappa @ Rs.310/- Sq. Ft., for which an advance of Rs.40.00 lakhs was paid by the assessee to the seller in terms of the agreement. However, because of certain disputes between the seller and one Vikas Housing, with whom also the seller and his brother had agreed to sell a large chunk of their land, including the land regarding which the agreement had been entered into with the assessee, and as an original suit had been filed relating to the said land, the sale deed could not be executed. The litigation between the parties relating to the land in question went up to the High Court and ultimately, a compromise was entered into between the parties, and in terms of the said compromise, instead of 3 acres 39 guntas of land which was to be sold in favour of the assessee for approximately Rs.4.80 crores, only 27 guntas of land was agreed to be sold to the assessee.

In terms of the said compromise, two sale deeds were executed in favour of assessee for a sum of Rs.41.00 lakhs, and after adjusting the advance of Rs.40.00 lakhs already paid to the seller in terms of the agreement, the balance amount of Rs.1 lakh was paid by the assessee at the time of execution of sale deed. The assessee thereafter sold the aforesaid 27 guntas land to a third party for a sum of Rs.1,02,50,000/- and paid tax on the same after claiming benefit of long term capital gains as defined u/s 2(42A) r/w/s 2(29A). The returns filed by assessee was processed u/s 143(1) but the AO subsequently issued notice u/s 148, and the assessment was finalized, wherein the sale amount was treated as short term capital gains, instead of long term capital gains as had been claimed by the assessee.

Having heard the parties, the High Court held that,

++ having considered the facts and circumstances of the case, and also keeping in view the decision of the Apex Court in the case of Sanjeev Lal, we are of the opinion that the assessee would be entitled to the benefit of long term capital gains, as had been claimed by him. In Sanjeev lal's case, the Apex Court has held that "the authorities ought to have considered the date on which the agreement to sell had been effected by the assessee for transfer of property in question as the date of transfer of the house/original asset". The benefit of Section 54 is to be given only when the assessee purchases a property one year prior to the sale of his property or two years after such sale. In the case before the Apex Court, even though the purchase of the property by the assessee was on 30.04.2003, which was not within one year prior to the execution of the sale deed dated 24.09.2004, yet the benefit was given by the Apex Court to the assessee on the ground that it was within two years of the agreement to sell executed on 27.12.2002. The facts of the present case are similar, if not on a stronger footing than that in the case of Sanjeev Lal. In the said case, while entering into an agreement to sell, an advance of only Rs.15.00 lakhs, out of Rs.1.32 crores, had been paid; whereas in the case at hand, an advance of Rs.40.00 lakhs had been given at the time of agreement entered into on 1.4.1995 out of the total sale price of Rs.41.00 lakhs, for which the sale deed was executed on 5.12.2002. Providing that short term and long term capital gains is a beneficial piece of legislation, whereby certain benefit in taxation is given to the assessee on fulfillment of certain conditions. Every such legislation is to be construed liberally in favour of the assessee, as it is for the benefit of the assessee. When the purpose is to give a benefit, then technicalities in law should not come in the way of such benefit being given. In the facts of the present case, applying the ratio of the decision of the Apex Court in the case of Sanjeev Lal, in our opinion, the assessee would be entitled to the benefit of long term capital gain.

(See 2015-TIOL-2897-HC-KAR-IT)