Provision exempting tax should be conferred purposive interpretation

Supreme Court: In the instant case a dispute pertaining to assessment of Long Term Capital Gain under Section 54 of the Income Tax Act, 1961(IT Act) arose when the appellants were not accorded the benefit under the provision dealing with Long Term Capital Gain owing to the reason  that the appellants had transferred the original asset i.e. the residential house on 24.09.2004 whereas the appellants had purchased another residential house on 30.04.2003 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.

Ashok Mahajan, the counsel for the appellants contended that 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 original asset, the counsel also contended that in Section 2(47) of IT Act “transfer” has been given an inclusive definition. Anil Katiyar, the respondent counsel however refuted the contentions of the opposite party.

 Perusing the arguments from both the sides and looking at the definition of “transfer” in Section 2(47) of IT Act, the Court observed that the legislative intent has been that 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 IT Act the taxpayer should not be burdened with tax on the Long Term Capital Gain and thereby exempted from paying income tax on the Long Term Capital Gain. Referring to its previous decision in Oxford University Press v. Commissioner of Income Tax, (2001) 3 SCC 359, the Court observed that a purposive interpretation and harmonious construction of the provisions concerning tax exemption should be given which sub-serve the object and purpose and the legislative intent. Therefore according purposive interpretation to “transfer” in Section 2(47) of the IT Act and on the basis of the facts, the appellants were granted exemption from tax on the Long Term Capital Gain.Sanjeev Lal v. CIT, Civil Appeal Nos.5899-5900 of 2014, decided on 01.07.2014

 To read the full judgment, refer to SCCOnLine

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