Humayun S.Rangila Vs ITO (ITAT Mumbai)
The assessee appealed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2006-07, challenging the disallowance of exemption claimed under Section 54 of the Income-tax Act, 1961. The dispute concerned whether exemption under Section 54 could be claimed where capital gains arose from the sale of more than one residential house and were invested in residential flats acquired by the assessee.
During the relevant year, the assessee sold three residential flats situated at Oshiwara and Bandra, Mumbai. The long-term capital gains arising from the three sales amounted to ₹8,92,781, ₹36,08,400 and ₹4,70,194 respectively, aggregating to ₹49,71,375. The assessee invested the capital gains in purchasing three residential flats in the same building known as Silver Arc, Andheri (West), Mumbai. Two of the purchased flats, Nos. 1101 and 1201, were adjacent and had been converted into a single residential unit. The Assessing Officer accepted this factual position and treated the two flats as one residential house. The assessee contended that exemption under Section 54 was available in respect of each residential flat sold because the total investment in the new residential flats exceeded the aggregate capital gains.
The Assessing Officer, however, interpreted Section 54 to apply only to the transfer of one long-term capital asset, observing that the provision referred to “a long-term capital asset” and not “any long-term capital asset.” Relying on the Special Bench decision in ITO v. Miss Sushila M. Jhaveri, the Assessing Officer held that exemption under Section 54 was available only in respect of the capital gain arising from the sale of one residential house and corresponding investment in one residential house. Since the highest capital gain of ₹36,08,400 arose from the sale of Flat No. 302, Saqib Apartment, exemption was allowed only against the investment in Flats Nos. 1101 and 1201 treated as one residential unit. The remaining capital gains of ₹13,62,975 arising from the other two flats were denied exemption and added to the total income. The Commissioner (Appeals) upheld this view.
