Leena J. Shah vs Asstt. Cit on 10 November, 2005

Leena J. Shah vs Asstt. Cit on 10 November, 2005

Bench: R Tolani, A Gehlot

ORDER A.L. Gehlot, A.M.

1. This appeal is filed by the assessee against the order of Commissioner (Appeals)-III, Baroda dated 15-9-2000 for the assessment year 1998-99.

2. The grounds raised by the assessee are as under:

1. The learned Commissioner (Appeals) has erred in fact and in law in confirming the reopening of the assessment under Section 147 of the Income Tax Act, 1961.

2. The learned Commissioner (Appeals) has erred in fact and in law in confirming non-granting of deduction under Section 54F of the Income Tax Act, 1961.

3. The learned Commissioner (Appeals) has erred in fact and in law in not considering the claim of the assessee for levying tax on interest income at the rate of 15 per cent prescribed under the Double Tax Avoidance Agreement with USA.

3. The first ground has not been pressed, therefore, the same is dismissed, as not pressed.

4. In respect of ground No. 3, it is submitted by the learned authorised representative that the ground was taken before Commissioner (Appeals) but same has not been adjudicated by the Commissioner (Appeals). After hearing both the sides, we send back this matter of ground No. 3 to the file of Commissioner (Appeals) to decide the same in accordance with law.

5. The facts of the second ground are as under:

The assessee is a non-resident and during the year she sold some plots of land for a consideration of Rs. 44,92,170 against the indexed cost of Rs. 1, 11,760 and, thus, she earned capital gain of Rs. 43,80,454. She claimed exemption under Section 54B/54D of the Act. But the assessing officer found that none of these provisions apply in the case of the assessee. The assessing officer has further observed that the appellant has stated that she has made investment in residential house and, therefore, she is entitled to exemption of capital gains. But the assessing officer has observed that she has purchased a residential house in USA i.e., outside India and the investment made was out of mortgage loan from BBNT (USA) of dollar 7,68,000 and out of personal savings of dollar 32,601. The sale proceeds of the plot sold in India was retained in India, which was utilised for giving loan to Smt. Bharti K. Vyas. In view of above, the assessing officer observed that the sale proceeds of the plot of land has not been utilised in acquiring the residential house in USA and moreover, the residential house purchased/ constructed in USA is not subject to tax in India within the meaning of Section 54 of the Act. The assessing officer, therefore, did not allow the claim of deduction of Rs. 43,80,454 and brought this amount to tax.

6. The Commissioner (Appeals) confirmed the action of assessing officer with following observations:

I have considered the facts of the case and submission of the appellant's counsel. There is no dispute on the point that the appellant has sold plot of land in India and has earned capital gain and she has purchased/ constructed a house property in USA, the investment in which is more than the net consideration in respect of the original asset. The assessing officer has denied exemption on the two grounds, one, the sales consideration was not utilised for acquiring the new asset and second, the new asset was purchased outside India and hence, the provisions of the Income Tax Act is not applicable in respect of the new asset. I do not agree with the first conclusion of the assessing officer as Section 54F does not stipulate that the sale consideration should be utilised for acquiring the new asset. The new asset may be acquired out of some other source. So far as the second conclusion is concerned. I tend to agree with the assessing officer. Section 54F was introduced in the Act by Finance Bill, 1982. Memorandum explaining provisions in the Finance Bill, 1982 explains that the exemption in Section 54F is granted with a view to encouraging house construction. This would naturally mean that house construction would be encouraged by provisions of this section in India and not outside India.

7. The learned authorised representative reiterated the following submission which were made before Commissioner (Appeals):

Section 54F (with which your appellant is directly concerned because your appellant has claimed the benefit under that section) and more or less similar Section 54 do not make any distinction between a resident and a non-resident unlike several other sections in which the benefit is clearly and unambiguously denied to a non-resident. Therefore, the benefit of sections 54 and 54F is intended to be available to both the categories of assessee without any discrimination. Any interpretation which militates against this basic principle would not be a just and fair interpretation of the statute and would amount to doing injustice to all non-residents in general and your appellant in particular.

Let us take a few examples to clarify the issue.

1. A resident gets, either by inheritance or bequeath, residential house outside India. He sells the house in the foreign country and makes a capital gain. The capital gains so earned will be taxable, although the capital asset is located outside India and the transaction is completed outside India, because a resident is taxed on his global income. Then within the time period prescribed under Section 54 if he purchases another residential house outside India at a cost exceeding the capital gain made on the original asset (residential house sold), he will be undoubtedly entitled to the exemption under Section 54.

2. A resident gets, either by inheritance or bequeath, a residential house in India sells the same and makes a capital gain. Then, he goes outside India and within the stipulated time purchases a residential house in a foreign country, but continues to remain a resident during the relevant previous year he can legitimately avail of the benefit of Section 54. In fact, even the income from the residential house situated outside India would also be chargeable to tax in India, since he is taxable as resident.

3. Same situation will arise in both the above cases if, instead of the residential house, he sells any other capital asset. He would then be covered by Section 54F exactly on the same rationale.

4. Now, suppose a non-resident gets, either by inheritance or bequeath, a residential house in India, sells the same, makes a capital gain and purchases within the time period prescribed by Section 54 a residential house outside India in the country in which he has settled at a cost equal to or in excess of the capital gain he will be perfectly entitled to the exemption under section 54 because all the conditions laid down by Section 54 are fulfilled and Section 54 is evenly available to both, the residents and non-residents. Denying the benefit to the non-resident is not warranted by the language of the section.

5. From the above submissions it is crystal clear that your appellant's claim satisfies all the conditions laid down by Section 54F and is, therefore, justly entitled to be allowed the exemption claimed. The learned assessing officer's order rejecting your appellant's claim is based on an arbitrary interpretation of the relevant provision of the Act and cannot be sustained by any judicious, rational,just and fair interpretation of the statute.

The learned authorised representative submitted that there is no such stipulation under Section 54F that new residential house must be in India. He further submitted that wherever Legislature found requirement of such stipulation in the section same is provided in that section. For this purpose, he referred sections 54 and 47(iv) of the Income Tax Act. The learned authorised representative submitted that language of section is clear, same is to be read accordingly. The learned authorised representative in support of contention cited following decisions:

1. Padmasundara Rao v. State of Tamil Nadu

2. Kishore B. Setalvad v. CWT

3. Orissa State Warehousing Corpn. v. CIT

4. CIT v. Harijan Evain Nirbal Varg Avas Nigam

8. The learned Departmental Representative relied upon the orders of lower authorities.

9. We have heard the learned representatives of the parties and perused the record and gone through the decision cited by the Id. AR. The crux of the matter whether benefit of Section 54F is available to a residential house purchased out of India. It would be convenient to note statutory provisions, Section 54F for its proper appreciation:

54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house - (1) Subject to the provisions of Sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which transfer took place purchased, or has within a period of three years after that date, constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under Section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall nof be charged under Section 45:

10. Along with above legal provisions, we find useful to refer the important observations made in the judgments cited by learned authorised representative which are as under:

10.1. In the case of Orissa State Warehousing Corpn. (supra), it has been held by the Apex court that a fiscal Statute has to be interpreted on the basis of the language used therein and not de hors the same and court must ascribe natural and ordinary meaning of the words used by Legislature. In the case of Kishore B. Setalvad (supra) the Jurisdictional High Court held as under:

When the Legislature granted exemption under Section 5(1)(xxviii) of the Act in respect of shares in a Co-operative Housing Society, the Legislature intended to grant exemption in favour of all the rights flowing from shares in a Co-operative Housing Society except interest, which the Legislature itself brought in within the tax net by making an express proviso in Sub-section (7) of Section 54 of the Act.

10.2 The Allahabad High Court in the case of Harijan Evam Nirbal Varg Avas Nigam (supra), has held that the constitution is the Supreme law of the land. All other laws, including Income Tax Act, are sub-ordinate to the constitution and must be read and interpreted in the light of constitutional provisions.

10.3 The Apex Court in the case of Padmasundara Rao (supra) has held while interpreting- statute legislative intention must be found in the words use lagislature itself.

at oresent legal background, if we see legislative ve notice coriginally the income-tax was first introduced in

-tia in 1860. After lendence the Income-tax Bill, 1961 came out of the legislative anvil L e Income Tax Act, 1961, received the assent of the President on 13th, nber, 1961 and came into force from Ist April, 1962. This Act was ma olicable to the whole of India. Since this Act applicable in India, thei the provisions of this Act are applicable in A idia and same are requ o be read accordingly. Thus Section 54F is

-9 required to read acc gly, the words 'purchase/ construction of 'Aential house' on ph, A simple reading means, the purchase/ construction of a residential house must be in India and not outside India. This view is supported by the above judgments. At this juncture, we would like to refer some important ruling and observations of the Apex Court in the case of Padmasundara Rao (supra).

Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole - appear to be well-settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four comers of the statute itself but at the same time a casus ornissits should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. "An intention to produce an unreasonable result", said Danckwerts L.J. in Artemiou v. Procopiou (1966) 1 QB 878 (CA)" is not to be imputed to a statute if there is some other construction available". Where to apply words literally would "defeat the obvious intention of the legislation and produce a wholly unreasonable result" we must "do some violence to the words" and so achieve that obvious intention and produce a rational construction (per Lord Reid in Luke v. IRC (1964) 54 ITR 692/(1963) AC 557 where at page 577, he also observed: "this is not anew problem, though our standard of drafting is such that it rarely emerges").

The plea relating to applicability of the stare decisis principle is clearly unacceptable. The decision in K. Chinnathambi Gounder AIR 1980 Mad. 251 (FB), was rendered on June 22,1979, i.e., much prior to the amendment by the 1984 Act. If the Legislature intended to give a new lease of life in those cases where the declaration under Section 6 is quashed, there is no reason why it could not have done so by specifically providing for it. The fact that the Legislature specifically provided for periods covered by orders of stay or injunction clearly shows that no other period was intended to be excluded and that there is no scope for providing any other period of limitation. The maxim "actus cruiae neminem gravabit" highlighted by the Full Bench of the Madras High Court has no application to the fact situation of this case.

10.5 In the case of K.P. Varghese v. Income Tax Officer

5. Now, on these provisions the question arises as to what is the true interpretation of Section 52, Sub-section (2). The argument of the revenue was, and this argument found favour with the majority judges of the Full Bench, that on a plain and natural construction of the language of Section 52, Sub-section (2), the only condition for attracting the applicability of that provision was that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent of the value so declared. Once the Income Tax Officer is satisfied that this condition exists, he can proceed to invoke the provision in Section 52, Sub-section (2), and take the fair market value of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. No more is necessary to be proved, contended the revenue. To introduce any further condition such as under-statement of consideration in respect of the transfer would be to read into the statutory provision something which is not there; indeed, it would amount to re-writing the section. This argument was based on a strictly literal relief Section 52, Sub-section (2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of statutory enactment is not a mechanical task. It is more than a mere reading of mathematical furmulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat the famous words of judge learned Hand when he said:

. . . it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning."

We must not adopt a strictly literal interpretation of Section 52, Sub-section (2), but we must construe its language having regard to the object and purpose which the Legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which Section 52, subsection (2), appears, because, as pointed out by judge learned Hand in the most felicitous language:

. . . the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.

Keeping these observations in mind we may now approach the construction of Section 52, Sub-section (2).

6. The primary objection against the literal construction of Section 52, Sub-section (2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but it can certainly help to fix its meaning. It is a well-recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the construction suggested on behalf of the revenue would lead to a wholly unreasonable result which could never have been intended by the Legislature. Take, for example, a case where agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement - and it is quite well known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement - the market price shoots up with the result that the market price prevailing on the date of the sale exceeds the agreed price, at which the property is sold, by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gain's which have not accrued or arisen to him ? It wouli indeed be most harsh and inequitable to tax the assessee on income which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the Legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carries out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income which has neither arisen to the assessee nor has been received by him. If we may take another illustration, let us consider a case where A sells his property to B with a stipulation that after some time which may be a couple of years or more, he shall re-sell the property to A for the same price. Could it be contended in such a case that when B transfers the property to A for the same price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of re-sale, if, in the meanwhile, the market price has shot up and exceeds the agreed price by more than 15%. Many other similar situations can be contemplated where it would be absurd and unreasonable to apply Section 52, Sub-section (2), according to its strict literal construction. We must, therefore, eschew literalness in the interpretation of Section 52, Sub-section (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction: Vide Luke v. IRC (1963) AC 557; (1964) 54 ITR 692. The court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. We think that, having regard to this well-recognised rule of interpretation, a fair and reasonable construction of Section 52, Sub-section (2), would be to read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations which incline us to accept this construction of Section 52, Sub-section (2).

7. The first consideration to which we must refer is the object and purpose of the enactment of Section 52, Sub-section (2). Prior to the introduction of Sub-section (2), Section 52 consisted only of what is now Sub-section (1). This sub-section provides that where an assessee transfers a capital asset and in respect of the transfer two conditions are satisfied, namely, (1) the transferee is person directly or indirectly connected with the assessee; and (it) the Income Tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains, the fair market value of the capital asset on the date of the transfer shall be taken to be the full value of the consideration for the transfer and the assessee shall be taxed on capital gains on that basis. The second condition obviously involves an understatement of the consideration in respect of the transfer because it is only by showing the consideration for the transfer at a lesser figure than that actually received that the assessee can achieve the object of avoiding or reducing his liability to tax on capital gains. And that is why the marginal note to Section 52 reads: " Consideration for the transfer in cases of understatement". But, it must be noticed that for the purpose of bringing a case within Sub-section (1), it is not enough merely to show understatement of consideration but it must be further shown that the object of the understatement was to avoid or reduce the liability of the assessee to tax on capital gains. Now, it is necessary to bear in mind that when capital gains are computed by invoking Sub-section (1) it is not any fictional accrual or receipt of income which is brought to tax. Sub-section (1) does not deem income to accrue or to be received which in fact never accrued or was never received. It seeks to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset. But since the actual consideration received by the assessee is not declared or disclosed and in most of the cases, if not all, it would not be possible for the Income Tax Officer to determine precisely what is the actual consideration received by the assessee or in other words how much more consideration is received by the assessee than that declared by him, Sub-section (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration for the transfer which has accrued to or is received by the assessee. Once it is found that the consideration in respect of the transfer is understated and the conditions specified in Sub-section (1) are fulfilled, the Income Tax Officer will not be called upon to prove the precise extent of the undervaluation or, in other words, the actual extent of the concealment and the full value of the consideration received for the transfer shall be computed in the manner provided in Sub-section (1). The net effect of this provision is as if a statutory best judgment assessment of the actual consideration received by the assessee is made, in the absence of reliable materials.

8. But the scope of Sub-section (1) of Section 52 is extremely restricted because it applies only where the transferee is a person directly or indirectly connected with the assessee and the object of the under statement is to avoid or reduce the income-tax liability of the assessee to tax on capital gains. There may be cases where the consideration for the transfer is shown at a lesser figure than that actually received by the assessee but the transferee is not a person directly or indirectly connected with the assessee or the object of understatement of the consideration is unconnected with tax on capital gains. Such cases would not be within the reach of Sub-section (1) and the assessee, though dishonest, would escape the rigour of the provision enacted in that sub-section. Parliament, therefore, enacted Sub-section (2) with a view to extending the coverage of the provision in Sub-section (1) to other cases of understatement of consideration. This becomes clear if we have regard to the object and purpose of the introduction of Sub-section (2) as appearing from travaux preparatoire relating to the enactment of that provision. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydons case (1584) 3 Co. Rep. 7a was decided that:

... for the sure and true interpretation of all statutes in general... four things are to be discerned and considered: (1) what was the common law before the making of the Act, (2) what was the mischief and defect for which the common law did not provide, (3) what remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth. And, (4) the true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy.. .

In In re Mayfair Property Company (1898) 2 Ch 28 (CA), Lindley M.R. in 1898 found the rule "as necessary now as it was when Lord Coke reported Heydon's case". The rule was reaffirmed by the Earl of Halsbury in Eastman Photographic Materials Company Ltd. v. Comptroller- General of Patents, Designs and Trade-Marks (1898) AC 571, 576 (HL) in the following words:

My Lords, it appears to me that to construe the statute now in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the latter Act which provided the remedy. These three things being compared, I cannot doubt the conclusion.

This rule being a rule of construction has been repeatedly applied in India in interpreting statutory provisions. It would therefore, be legitimate in interpreting Sub-section (2) to consider what was the mischief and defect for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of Sub-section (2) or, in other words, what was the object and purpose of enacting that sub-section. Now, in this connection the speech made by the Finance Minister while moving the amendment introducing Sub-section (2) is extremely relevant, as it throws considerable light on the object and purpose of the enactment of Sub-section (2). The Finance Minister explained the reason for introducing Sub-section (2) in the following words:

Today, practically every transaction of the sale of property is for much lower figure than what is actually received. The deed of registration mentions a particular amount, the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted.... It does not aim at perfectly bona fide transactions ... but essentially related to the day-to-day occurrences that are happening before our eyes in regard to the transfer of property. I think, this is one of the key sections that should help us to defeat the free play of unaccounted money and cheating of the Government.

Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are in admissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend injuristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Loka Shikshana Trust v. CIT , the other in Indian Chamber of Commerce v. CIT and the third in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR I (SC) 121 ITR, where the speech made by the Finance Minister while introducing the exclusionary clause in Section 2, clause (15), of the Act was relied upon by the court for the purpose of ascertaining what was the reason for introducing thal, clause. The speech made by the Finance Minister while moving the amendment introducing Sub-section (2) clearly states what were the circumstances in which Sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was son lit to be remedied by the enactment of subsection (2) and why the enactment of Sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that Sub-section (2) was enacted for the purpose of reaching those cases where there was understatement of consideration in respect of the transfer or to put it differently the actual consideration received for the transfer was considerably more" than that declared or shown by the assessee, but which were not covered by Sub-section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of Sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions wherethe consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was the real object and purpose of the enactment of Sub-section (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of Sub-section (2) that there is an understatement of consideration in respect of the transfer and Sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received.

10. But apart from these considerations, the placement of Sub-section (2) in Section 52 does indicate in some small measure that Parliament intended that sub-section to apply only to cases where the consideration in respect of the transfer is understated by the assessee. It is not altogether without significance that the provision in Sub-section (2) was enacted by Parliament not as a separate section, but as part of Section 52 which, as it originally stood, dealt only with cases of understatement of consideration. If Parliament intended Sub-section (2) to cover all cases where the condition of 15% difference is satisfied, irrespective of whether there is understatement of consideration or not, it is reasonable to assume that Parliament would have enacted that provision as a separate section and not pitchforked it into Section 52 with a total stranger under an inappropriate marginal note. Moreover, there is inherent evidence in Sub-section (2) which suggests that the thrust of that sub-section is directed against cases of understatement of consideration. The crucial and important words in Sub-section (2) are, "the full value of the consideration declared by the assessee". The word "declared" is very eloquent and revealing. It clearly indicates that the focus of Sub-section (2) is on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplates case where the consideration received by the assessee in respect of the transfer is not truly declared or disclosed by him but is shown at a different figure. This of course is a very small factor and by itself is of little consequence but along with the other factors which we have discussed above, it assumes same significance as throwing light on the true intent of Sub-section (2).

17. Moreover, if Sub-section (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well-settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with "Taxes on income other than agricultural income" and under which the Incom Tax Act, 1961, has been enacted, Parliament cannot choose to tax as income an item which in no rational sense can be regarded as citizen's income or even receipt. Sub-section (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Sub-section (2) would also be violative of the fundamental right of the assessee under article 19(1)(f) which fundamental right was in existence at the time when Sub-section (2) came to be enacted-since on the construction canvassed on behalf of the revenue, the effect of Sub-section (2) would be to penalise the assessee for transferring his capital asset for a consideration lesser by 15% or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The court must obviously prefer construction which renders the statutory provision constitutionally valid rather than that which makes it void.

11. In the light of above settled rulings of interpretation of tax statutes, we find that a residential house purchased/ constructed must be in India and not outside India, in USA. This interpretation is strongly supported by the marginal note to Section 54F. Section 54F inserted by the Finance Act, 1982, with effect from 1-4-2003. It has been explained in Circular No. 346, dated 30-6-1982 - Explanatory notes on the provisions of Finance Act, 1982 in para 20.2 "with a view to encouraging house construction, the Finance Act, 1982, has inserted a new Section 54F.". (138 ITR (St.) 10).

12. In view of the above, we hold that benefit under Section 54F is not allowable for a residential house purchased/ constructed outside India.

13. In the result, the appeal is dismissed.