Delhi High Court

Jagdish Chander Malhotra vs Income Tax Officer on 24 September, 1997

Equivalent citations: (1998) 62 TTJ Del 314

ORDER

B.M. Kothari, A.M.

These cross-appeals - one by the revenue and the other by the assessee - are directed against the order of Commissioner (Appeals) dated 19-4-1991 for assessment year 1989-90.

2. We will first deal with the assessees appeal.

3. The first ground raised by the assessee in his appeal is that the Commissioner (Appeals) has erred in assessing Rs. 2,15,000 as income from other sources and not allowing the benefit under section 54F of Income Tax Act, 1961.

3.1. The facts relating to the aforesaid ground, as discussed in the assessment order, are as under

3.2. During the year, the assessee had purchased a house property No. F-3, Nitin Apartments, 17 Bela Road, Civil Lines for Rs. 8,50,000. The assessee also claimed exemption under section 54F of the Act in respect of the Long Term Capital Gain arising out of sale of interest in property No. 02 in 75/22, Punjabi Bagh, New Delhi and interest in Flat No. 102 of the same property.

3.3 The assessing officer required the assessee to explain as to why the exemption claimed under section 54F be not denied as the profit on sale of residential property is not eligible for grant of such exemption. In reply to the said notice, it was contended on behalf of the assessee that the interest in flat transferred by the assessee cannot be treated as sale of residential house, as actual possession of the flat in Punjabi Bagh property was never taken by the assessee. The assessee had simply transferred the interest in the property. It was also stated that the properties were given back to the original builder and the letter of allotment given by the builder has been returned back to the builder. The assessee, is therefore, eligible for grant of exemption under section 54F.

3.4. The assessing officer also required the assessee to explain as to why the profit on sale of interest in the aforesaid two flats be not treated as income from business, as such, interest in flats were held by the assessee as stock-in-trade. It was submitted on behalf of the assessee that he is not a dealer of the properties nor he has shown any profit or loss in the properties. Therefore, the question of treating these properties as stock-in-trade does not arise. The assessing officer did not accept the aforesaid explanations submitted on behalf of the assessee. He has given the details of various flats and plots of lands acquired by the assessee in his own name as well as in the name of his wife and other members of the family. He has arrived at the conclusion that profits arising out of sale of these two flats cannot be treated as capital gain but the same will be assessable as income from business. Consequently, the assessing officer also denied the benefit under section 54F. Accordingly, addition of Rs. 2,25,000 was made by the assessing officer as assessees income from flats business.

3.5 The Commissioner (Appeals) came to the conclusion that the appellant did not carry on any business of flats. The income derived from sale of interest in flats cannot be treated as income from business or as speculation income as observed by the assessing officer. He, however, held that extra amount received by the assessee from the assignment of rights in the aforesaid flats cannot be treated as capital gain. The assessee at no stage had taken possession of the flats and the flats had not been transferred in his name. The flats in question were under construction or otherwise incomplete for human habitations. The appellant could not have transferred any possession to the builder/promoters. He, therefore, held that profit arising due to sale of rights in booking of the flats should be assessed under the head "Income from other sources". The Commissioner (Appeals) thus denied the assessees claim for exemption under section 54F and held that the profit on sale of interest in these flats originally assessed by the assessing officer at Rs. 2,25,000 and subsequently rectified under section 154 to Rs. 2,15,000, should be assessed as Income from other sources.

3.6. The assessee preferred an appeal before the Tribunal. The appeal was originally dismissed by the Tribunal vide order dated 21-7-1994 in Income Tax Appeal No. 4957/Del/91. Thereafter the assessee submitted Miscellaneous Application under section 254(2) on 29- 9-1994, inter alia stating that the order was passed by the Tribunal on 21-7-1994, whereas the appeal was heard on 6-4-1994. There has thus been an undue gap of 3/2 months from the date of hearing, and the date of disposal of the said appeal. It was also stated in the said Miscellaneous Application. that after hearing the appeal for only about 10 minutes, the then ld. President openly announced that the matter is squarely covered in favour of the assessee by the judgment of Honble Bombay High Court in the case of CIT v. Vijay Flexible Containers (1990) 186 ITR 693 (Bom). Therefore, the matter was neither heard nor argued at great length. The assessee has also mentioned that the judgment of the Honble Delhi High Court relied upon by the Tribunal in the aforesaid decision is surely distinguishable from the facts of the present case.

3.7. The Tribunal vide its order dated 30-3-1995 in M.A. No. 150/Del/94 recalled the said order and the case was directed to be fixed for hearing.

3.8. In these circumstances, the matter has come up before us for a fresh hearing.

3.9. The learned Counsel for the assessee submitted that the Commissioner (Appeals) has given a finding of fact that the income from transfer of interest in flats cannot be treated as business income. The interest in flats which the assessee acquired by obtaining letters of allotment, constitutes "Capital Assets" within the meaning of section 2(14) of Income Tax Act, 1961. Section 2(14) of the Act defines "Capital Assets" means property of any kind held by the assessee. The exceptions in relation to property which cannot be treated as capital assets have been specifically carved out in section 2(14) itself. The interest in flats is not covered by such exception enumerated in section 2(14). The ld. Lawyer invited out attention towards the judgment of Honble Supreme Court in the case of Ahmed G.H. Ariff v. CWT (1970) 76 ITR 471 (SC) to support his contention that Property is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which the person can clearly hold or enjoy.

3.10. The learned counsel also drew out attention towards a recent judgment of the Honble Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC), in which the Honble Apex Court held that for the purposes of section 9 of Income Tax Act, 1922, corresponding sections 22 to 27 of Income Tax Act, 1961, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right. The Honble Supreme Court further observed that under the common law, "owner" means a person who has got valid title legally conveyed to him after complying with requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income Tax Act, having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, "to tax the income", the owner is a person who is entitled to receive income from the property in his own right. The ld. Counsel submitted that the Commissioner (Appeals) has, therefore, erred in observing that there could be no capital gains as flats have not been transferred in assessees name.

3.11. The learned counsel further invited our attention towards a copy of application dated 19-12-1983 for allotment of proposed residential flat at 22/75, Punjabi Bagh, New Delhi, which shows that the assessee had submitted application for allotment of the said flat to M/s. Lion Builders Pvt. Ltd. and had also given a cheque for Rs. 40,000 on 19-12-1983 for allotment of flat No. 02 on First Floor having an area of 1210 sq ft. The learned counsel also invited out attention towards receipt No. 205 dated 15-2-1984 placed at page 20 of the Paper Book showing that Rs. 25,000 was deposited towards instalment for flat No. 102 at 22/75, Punjabi Bagh, New Delhi. He also drew our attention towards copy of a receipt dated 15-1-1988 showing that a sum of Rs. 25,000 was paid by cheque dated 12-5-1984 for booking of a flat in the said property. He also invited our attention to the copy of the minutes of the meeting held on 10-6- 1987 regarding delay in construction of flats plot No. 22, Road No. 75, Punjabi Bagh, New Delhi. The various persons who had booked flats in the aforesaid property had unanimously passed a resolution with a view to peruse the matter with the builders, so as to get possession of the flats as early as possible.

3.11A. The learned Counsel submitted that ultimately the booking of the said flat was cancelled. The assessee received a sum of Rs. 2,95,000 against the booking amount for the flat on First Floor on 22/75, Punjabi Bagh, New Delhi, against his payment of Rs. 1,80,000 made during the years 1983-88. The builder, M/s. Lion Builders Pvt. Ltd. paid an aggregate to Rs. 2,95,000 by three different cheques in the month of March, 1989. The assessee, thus, received a surplus amount of Rs. 1,15,000 for cancellation of the booking of the said flat. The certificate of Lion Builders Pvt. Ltd. dated 6-2-1990 confirming these facts has been placed at page 24 of the Paper Book.

3.12. The appellant received a total sum of Rs. 1,25,000 for cancellation of the booking of other flat in the same building as against a sum of Rs. 25,000 paid by him by a cheque dated 18-10- 1983. A sum of Rs. 1,00,000 was paid as compensation in full for surrendering of the rights in the flat to Shri K.S. Hozooria, the landlord of the land where the flats were proposed to be constructed. This payment of Rs. 1,25,000 was made by cheque dated 11-10-1988. All these facts are verifiable from copy of receipt-cum-agreement executed on a stamp paper of Rs. 2 on 11- 10-1988, a photo copy whereof has been placed at page 26 of the Paper Book.

3.13. The learned counsel for the assessee submitted that the facts of the judgment of Honble Delhi High Court in the case of CIT v. R. Dalmia (Decd.) (1987) 163 ITR 517 (Del) based on an earlier judgment of the Honble Delhi High Court in the case of CIT v. J Dalmia (1984) 149 ITR 215(Del) are clearly distinguishable. In the said judgment, it has been held that the right acquired on Agreement-to-sell is not proprietary right and hence it is not a capital asset. Consequently, receipts attributed to such a right is not assessable to capital gain. He drew our attention towards the various questions referred to the Honble High Court which have been reproduced at page 520 of the said report. The learned counsel submitted that such a view was expressed by the Honble Delhi High Court in a different context. Moreover, in view of judgment of Honble Supreme Court in the case of Podar Cement (P) Ltd. (supra), the learned Counsel submitted that the said view expressed by the Honble Delhi High Court is no longer valid.

3.14. The learned counsel also drew our attention towards judgment of Honble Bombay High Court in the case of CIT v. Vijay Flexible Containers (1990) 186 ITR 693(Bom), in which it was held that the right to obtain a conveyance of immovable property falls within the expression "property of any kind" used in section 2(14) of Income Tax Act, 1961 and is, consequently, a capital asset. The payment of earnest money in order to obtain such a right constitutes its cost of acquisition. Where such a right is given up, there is a transfer of capital asset. He also relied upon a decision of the Income Tax Appellate Tribunal, Delhi in the case of Madan Lal Wahi v. ITO (1983) 5 ITD 533 (Del-Trib) in which it was held that the word held in section 2(42A) should not be taken to mean "held" as a registered owner. The Tribunal relied upon the judgment of Honble High Court in the case of CIT v. Chunilal Khushaldas (1974) 93 ITR 369 (Guj).

3.15. The learned counsel also relied upon the judgment of the Honble High Court in the case of R. Dalmia v. CIT (1982) 133 ITR 169 (Del) but did not indicate the relevant paras of the said judgment on which he wanted to place specific reliance. This appears to have been cited by the learned counsel to corroborate his contention that the facts of the judgment delivered by Honble Delhi High Court in the case of R. Dalmia (Decd.) (supra), which was passed by following the judgment in the case of J. Dalmia (supra) are clearly distinguishable. The judgment of Honble Delhi High Court reported in R. Dalmias case (supra) has been referred in the judgment of CIT v. R. Dalmia (Decd.) (1987) 163 ITR 519 (Del) (App-1).

3.16. The learned counsel also submitted that the assessee acquired the right to have conveyance of the title in the said flats immediately when he booked the said flats and, therefore, the capital gain derived on extinguishment of that right would be assessable as long-term capital gain. He submitted that the rights in the flats acquired by the assessee would not be treated as residential house and, therefore, the assessee was clearly entitled to exemption under section 54F as the amount of gain derived from extinguishment of such right in the flats was utilized for purchase of a residential house property for Rs. 8,50,000 in Nitin Apartments. He thus strongly urged that the Commissioner (Appeals) has erred in holding that such long term capital gain should be assessed as income from other sources and he has also erred in holding that the assessee is not entitled to grant of exemption under section 54F of the Act.

4. The learned Departmental Representative supported the orders of the Commissioner (Appeals) and relied upon the reasons mentioned in the assessment order. He further contended that the assessee continued to make payments for booking of the flat from the years 1983 to 1987. The said right acquired by way of booking of the flats had been transferred in financial year 1988-89 relating to assessment year 1989-90 and the capital asset was held for a period of less than 36 months immediately preceding the date of its transfer. Hence, it has to be treated as a short-term capital assets, even if the gain is treated as capital gain. He further submitted that the assessee had no right to transfer the booking of flats. In the present case, the assessee had only surrendered his right in favour of the builder. Such cancellation of booking of a flat does not amount to a transfer within the meaning of section 2(47) of the Act. It is an amount received by way of compensation for cancellation of the contract of booking of the flat, which is taxable as income from other sources. He thus strongly supported the order of the Commissioner (Appeals).

5. We have carefully considered the submissions made by the learned Representatives of the parties and have gone through the orders of the learned Departmental Authorities. We have also gone through all the judgments cited by the learned Representatives of both sides.

6. Let us first examine the ratio of judgment of Honble Delhi High Court, which according to the learned Sr. Departmental Representative squarely supports the revenues contention. The Honble Delhi High Court in the case of R. Dalmia (Decd.) (supra) has held that the right acquired on agreement to sell is not a proprietary right and hence it is not a capital asset. Consequently, receipts attributable to such a right is not assessable to capital gain. This judgment relates to the rights acquired by the assessee under the agreement to sell dated 21-5- 1955 and 31-8-1959. The Honble High Court has taken their aforesaid views by following judgment in the case of J. Dalmia (supra). In that case, the Honble High Court has held as under

From 149 ITR 215

"Held, that in order that a receipt or accrual of income may attract tax on capital gains the sine qua non is that the receipt or accrual must have originated in a "transfer". The right to receive damages was a mere right to sue and, whether it was property or not, it could not be transferred in view of section 6(e) of the Transfer of Property Act, 1882. Though the word "transfer" in relation to capital assets had been denied in section 2(47) of the Income Tax Act, 1961, no exception was made therein to the applicability of section 6(e) of the Transfer of Property Act. Since there could not be any transfer of the right to receive damages, the amount of Rs. 1,02,500 received by the assessee as damages was not assessable to tax as capital gains. The damages which were received by the assessee could not be said to be on amount of relinquishment of any of its assets or on account of extinguishment of its right to specific performance under the contract for sale."

It is apparent from aforesaid decision that the Honble Delhi High Court had taken into consideration the definition of "transfer in relation to capital asset" as defined in section 2(47) of Income Tax Act, 1961, as it existed in the relevant previous year. The definition of "transfer" given in section 2(47) of Income Tax Act, 1961 has undergone significant amendments by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985 as well as by the Finance Act, 1987 w.e.f. 1-4-1988. It will be worthwhile to reproduce the provisions of section 2(47) as it existed w.e.f. 1-4-1988

"Section 2(47) : "Transfer", in relation to a capital asset, includes,

(i) the sale, exchange or relinquishment of the asset, or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation: For the purposes of sub-clauses (v) and (vi),"immovable property" shall have the same meaning as in clause (d) of section 269UA:"

6.1. The provisions of section 269UA(d), which have been incorporated in the aforesaid definition of transfer w.e.f. 1-4- 1988 are also reproduced here as under

"Section 269UA(d): "Immovable property" means

(i) any land or any building or part of building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also.

Explanation :For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA" :

(ii) any right in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building;"

A plain reading of the aforesaid provisions dealing with the definition of transfer in relation to a capital asset clearly indicates that if any rights in or with respect to any building or a part of the building which has been constructed or which is to be constructed, accruing or arising from any transactions by way of any agreement or any arrangement of whatever nature will also be treated as a transfer of a capital asset. In the present case, the rights acquired by the assessee by way of booking the aforesaid two flats situated in a property located at Punjabi Bagh were relinquished in favour of the builder vide agreement for cancellation of booking made in financial year 1988-89 relating to assessment year 1989-90, the year under consideration. Since the transaction of cancellation of the booking of the flats took place in the year under consideration, the point in issue will have to be determined in accordance with the definition of transfer given in section 2(47) as amended with effect from 1-4-1988. In this connection it will be also worthwhile to carefully go through the judgment of the Honble Supreme Court in the case of Podar Cement (P) Ltd. (supra). At page 650, the Honble Supreme Court has considered the impact and effect of amendment made in section 27 of Income Tax Act, 1961 by the Finance Act, 1987 by which the meaning of "owner of house property" used in sections 22 to 27 of the Act have been enlarged. While examining the aforesaid amendment, the Honble Supreme Court have also observed that corresponding amendment have also been proposed in regard to the definition of "transfer" in section 2(47) of Income Tax Act. The Honble Supreme Court thereafter considered as to what would be the effect of such amendment. After considering the various judgments relating to declaratory statute, the Honble Supreme Court has recorded the following findings

"From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987 [see (1987) 165 ITR (St.) 161], it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word "owner" in section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act, it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it relates to section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts in not good law.

We are conscious of the settled position that under the common law, "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income Tax Act, having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, "to tax the income", we are of the view, "owner is a person who is entitled to receive income from the property in his own right".

6.2. In view of the aforesaid amendment made in section 2(47), and the judgment of Honble Supreme Court in the case of Podar Cement (P) Ltd. (supra), it will have to be concluded that the judgment of the Honble Delhi High Court relied upon by the learned Departmental Representative will not be applicable to the facts of the present case relating to assessment year 1989-90. The assessee by acquiring these two flats in the property at Punjabi Bagh , in the years 1983 and 1984, acquired a capital asset, namely, the right to have these two flats transferred in his favour.

6.3. The Honble Bombay High Court in the case of Vijay Flexible Containers (supra) has held as under

"The right to obtain a conveyance of immovable property falls within the expression "property of any kind" used in section 2(14) of the Income Tax Act, 1961, and is, consequently, a capital asset. The payment of earnest money in order to obtain such a right constitutes its cost of acquisition. Where such a right is given up, there is a transfer of a capital asset."

The aforesaid view taken by the Honble Bombay High Court has been given a statutory recognition as a result of amendment made in section 2(47) with effect from 1-4-1988 and such a view is also fortified by the judgment of the Honble Supreme Court in the case of Podar Cement (P) Ltd. (supra).

6.4. In view of the aforesaid facts, the relevant provisions of law and the above referred judgments, we are of the considered opinion that the rights acquired by the assessee in the aforesaid two flats constituted "capital assets" within the meaning of section 2(14) and the agreement for cancellation of the booking resulting in a surplus amount received by the assessee amounted to transfer of such capital assets. The surplus derived by the assessee as a result of such transfer will, therefore, be clearly assessable to tax as capital gains.

7. The next question which then arises for our consideration is whether the assessee is entitled to grant of exemption under section 54F of the Income Tax Act in respect of profit/gain derived on the sale of interest in the aforesaid two flats situated in the property at Punjabi Bagh. The provisions of section 54F provides that where in the case of an assessee being an individual or HUF, the capital gain arises from the transfer of any long-term capital asset, not being a residential house, 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 the period of three years after that date constructed, a residential house, the capital gain shall be eligible for grant of exemption as provided in section 54F. It will, therefore, be necessary to determine as to whether the capital asset, namely, the interest in the two flats transferred by the assessee can be treated as a residential house and whether such capital asset was a long-term capital asset or a short-term capital asset.

7.1. It is true that the definition of "transfer" in relation to capital asset as given in section 2(47) regards such rights or interests in a building or a part of the building constructed or yet to be constructed comes within the definition of "immovable property" as defined in section 269UA(d) which has been incorporated in the definition of "transfer" given in section 2(47)(v) and (vi) but that by itself would not mean that such an interest, which is deemed to be an immovable property will assume the character of a residential house. The expression used in section 54F which deals with the capital gain arising from the transfer of any long-term capital asset, not being a residential house clearly indicates that the capital gain arising from the transfer of any long-term capital asset, will be eligible for grant of exemption under section 54F, if the amount of such capital gain is invested for purchase or construction of a residential house within the prescribed period. The exemption under section 54F will not apply in relation to capital gain arising from the transfer of a residential house. What was transferred by the assessee, was his interest in the two flats, which had not yet been constructed. The assessee did not acquire possession of those flats. The flats in question were not fit for human habitations. Therefore, such interest in these two flats cannot be treated as transfer of a residential house. If that be so, the assessee will be clearly entitled to grant of exemption under section 54F provided the various other conditions prescribed in the said section have been fulfillled. The assessee acquired a new residential house No. F-3, Nitin Apartments 17, Bela Road, Civil Lines for Rs. 8,50,000 vide Sale Deed executed on 24-1-1989. It is not the case of the revenue that the various other conditions prescribed in section 54F do not stand fulfillled in the case of the assessee. The assessee has invested the amount of capital gain for purchase of the aforesaid residential house within the time prescribed under section 54F. The provisions of section 54F will therefore, be clearly applicable on the facts and circumstances of the present case, if the capital asset, namely, interest in two flats in the property at Punjabi Bagh are held to be long-term capital asset.

7.2. The learned Departmental Representative argued that the payments for booking of the aforesaid two flats were made by the assessee during the period from 1983 to 1988 and each payment would constitute a payment for acquiring the capital asset. Since some payments have been made within a period of 36 months preceding the date of its transfer, the amount of capital gain derived by the assessee should be treated as short-term capital gain as the interest in the flat at Punjabi Bagh was surrendered by the assessee in the year 1988 itself. We are not inclined to accept such a contention advanced by the learned Sr. Departmental Representative on behalf of the revenue. The assessee acquired such capital asset, namely, the rights or interest in the aforesaid two flats at Punjabi Bagh as soon as those flats were booked and the allotment of those flats were made in favour of the assessee by the builders in the year 1983 and 1984. The mere fact that further instalments were paid by the assessee during the years 1983 to 1988, will not lead to the conclusion that the capital asset in question, namely, the right or interest in the said flats was held by the assessee for a period of less than 36 months. The assessee held such capital asset ever since those two flats were booked and allotment of those flats were made in favour of the assessee by the builders in the years 1983 and 1984. Such a view is clearly fortified by the judgment of the Honble Bombay High Court in the case of CIT v. Vimal Lalchand Mutha (1991) 187 ITR 613 (Bom). The head note of the said judgment is reproduced hereunder

"Held that the assessee had entered into an agreement for the purchase of a flat in November, 1977, and had executed a formal agreement in December, 1978. She transferred her right, title and interest in the flat by an agreement to C in April, 1983. The Tribunal was, therefore, right in holding that the rights under the said two agreements of November, 1977/December, 1978, had been held for more than 36 months and that the gains arising from the transfer of her rights under the agreements in April, 1983, constituted long-term capital gains. No question of law arose from the order of the Tribunal."

7.3. In view of the aforesaid judgment and the facts, we are of the view that the capital gain derived by the assessee relates to a capital asset held by him for period of more than 36 months and, therefore, the gains arising from the transfer of his rights in the said flats constituted long-term capital gains. We have already held that the assessee would be entitled to grant of exemption under section 54F in respect of such long-term capital gain. The ground No. 1 raised by the assessee in his appeal, therefore, deserves to be allowed. The assessing officer is directed to grant relief accordingly.

8. The second ground raised by the assessee relates to confirmation of the addition of Rs. 1,140 being subscription paid by the assessee. This ground was not pressed by the learned counsel of the assessee at the time of hearing. Hence, the Ground No. 2 of the assessees appeal is rejected.

9. We will now deal with the Revenues appeal. The Revenue has raised the following two grounds

"1. On the facts and in the circumstances of the case the learned Commissioner (Appeals) erred in allowing a deduction of Rs. 8,400 against the property income ignoring the material fact that the interest was paid on money borrowed in repaying the loan taken for construction.

2. Allowing assessees claim of collecting charges of Rs. 12,000 and Bonus of Rs. 1,000 alleged to have paid by the assessee to the persons which was rightly disallowed by the assessing officer because the assessee failed to prove that the payment had actually been paid."

9.1. The learned Departmental Representative relied upon the reasons mentioned in the assessment order. The learned counsel for the assessee supported the order of Commissioner (Appeals) in relation to the aforesaid grounds.

9.2. We have considered the submissions made by the learned representatives of the parties and have perused the orders of the Departmental Authorities.

9.3. The assessing officer had disallowed deduction in respect of interest expenditure to the tune of Rs. 8,400 claimed by the assessee as an allowable deduction against the property income. The Commissioner (Appeals) has observed that out of the total interest paid by the assessee, a sum of Rs. 8,400 was paid in respect of certain loans, which according to the assessing officer could not be linked with the repayment of loans taken earlier for property construction. It was contended on behalf of the assessee before the Departmental Authorities that interest claimed under similar head has been allowed all along in the past after verification of the necessary facts and details. The Commissioner (Appeals)s view of the fact that such deduction was allowed in the previous year after necessary verification, was not disputed by the assessing officer before the Commissioner (Appeals) nor by learned Departmental Representative before us. We, therefore, do not find any justification to interfere with the view taken by the Commissioner (Appeals), which is said to be in conformity with the past history of the assessees case. In our view, the revenues appeal has no merit in relation to this ground. Hence, Ground No. 1 is rejected.

9.4. The assessing officer has disallowed a sum of Rs. 12,000 claimed by the assessee as collection charges. The assessing officer has given elaborate reasons in para 3.2 of the assessment order. The disallowance was made by the assessing officer mainly on the ground that the two persons, namely, Shri Rajesh and Shri Vikram to whom such collection charges @Rs. 6,000 were paid were not produced before the assessing officer. The Commissioner (Appeals) observed that the assessee had produced proof regarding payment of salary to those two persons and had also submitted copies of appointment letters issued to them. It was practically impossible for the assessee to produce those employees who had left the service with the assessee long ago. The Commissioner (Appeals), therefore, directed the assessing officer to allow deduction of Rs. 12,000 claimed by way of collection charges.

9.5. On a careful consideration of the relevant facts and circumstances as elaborately discussed in the order of the Commissioner (Appeals), we are of the view that the Commissioner (Appeals) has rightly directed the assessing officer to allow deduction in respect of the said sum of Rs. 12,000 as collection charges. The amount of collection charges so incurred by the assessee appears to be reasonable in view of the total income from the house property assessed by the assessing officer at Rs. 1,61,652. The Commissioner (Appeals) had rightly directed the assessing officer to allow the same. In view of the aforesaid discussion, Ground No. 2 of Revenues appeal is also rejected.

10. In the result, the assessees appeal is partly allowed and the Revenues appeal is dismissed.