Case Law Details

Case Name : The Asst.Commissioner of Income-tax Vs Sri.N.S.Viswanathan (ITAT Cochin)
Appeal Number : ITA No. 44/Coch/2017
Date of Judgement/Order : 05/04/2018
Related Assessment Year : 2013-2014
Courts : All ITAT (5012) ITAT Cochin (71)

ACIT Vs Sri.N.S.Viswanathan (ITAT Cochin)

Section 54 / 54F of the I.T.Act was amended with effect from 01.04.2015 by the Finance Act, 2014 with the term “constructed one residential house”. Prior to the amendment, the term used in section 54 / 54F of the I.T.Act was “constructed a residential house”. Subsequent to the amendment of law, it is clear that the assessee is not entitled to the benefit of section 54 / 54F with regard to two residential units purchased by him. The co-ordinate Delhi Bench of the Tribunal in the case of Laxman Singh Rawat v. ACIT – ITA No.1668/Del/2013 dated 22.08.2014 and Smt.Rama Vohra v. ITO [(2017) 57 ITR (Trib.) 694 (ITAT-Delhi)] had categorically held the amendment is prospective and is applicable for and from Asst.Year 2015-2016 onwards. In the instant case, the assessment year concerned is 2013-2014 and going by the Co-ordinate Delhi Bench orders cited supra, the amendment does not have application to the facts of the instant case.

Prior to the amendment, there are various judicial pronouncements which have held the exemption u/s 54 / 54F was to be allowed in respect of investments in two adjacent or contiguous units converted into one residential house by having common passage / stair-case, common kitchen, etc. intended to be used as single house for the residence of the family. Undisputedly, the assessee in the instant case had purchased two flats in different locations. One at Warriam Road and the other at Layam Road. Therefore, these two flats cannot be converted to a single residential unit.

CIT(A) is not justified in directing the A.O. to grant exemption u/s 54 / 54F in respect of the second residential house as both house cannot be considered as single residential house for the purpose of section 54 / 54F of the I.T.Act.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal at the instance of the Department is directed against the order of the Commissioner of Income-tax (Appeals) dated 08.12.2016. The relevant assessment year is 2013­2014.

2. The grounds raised by the Department reads as follow:-

“The order of the Commissioner of Income Tax (Appeals-II), Kochi in appeal no. ITA NO.87/NC Circle 2(1)/CIT(A)-1I/15-16 dated 08/12/2016.

The learned CIT(A) erred in holding that the assessee was eligible for deduction u/s 54F without considering the fact exemption u/s 54/54F is restricted to investment in ‘a residential house’. The expression ‘a residential house’ implies ‘one residential house’.

The learned Commissioner of Income Tax(Appeals) erred in allowing the assessee’s appeal relying on the decision of the Hon’ble High Court of Karnataka in the case of Smt. K.G. Ruminiamma (2011 )331 ITR 211 when the facts of the case are distinguishable from the assessee’s case. In the case of Smt. K.G Ruminiamma, the Hon’ble High Court held that the four flats in the same residential building constructed by the builder in the land sold by the assessee to him and delivered to the assessee as per agreement constitute ‘a residential house’. In the assessee’s case, the long term capital gains were invested in two flats which are situated in two completely different geographical locations. The learned CIT (A) failed to appreciate that the two flats at two separate locations cannot be considered as a single residential unit.

The CIT (A) failed to appreciate that the facts of the case in the decision of the Hon’ble Karnataka High Court in the case of CIT vs Late Khoobchand M.Makhija [2014](223 Taxmann189) are distinguishable from the assessee’s case. In the said case the Hon’ble High Court opined that it was open to the assessee to purchase a big residential house out of the sale consideration of one residential house. however, instead of purchasing one big house, having regard to the fact that both his sons are grown up, have families and in order to see that in future there won’t be any litigation or disharmony, he chose to purchase two small residential houses to accommodate both his sons, The hon’ble Court held that it was clear that the assessee was not attempting to evade tax and in the facts and circumstances of the case the acquisition of the two residential houses by the assessee out of the capital gains falls within the phrase ‘residential house’.

In the appellants case no such compelling circumstances have been made out for purchase of two flats at two different locations by the assessee. Moreover, the assessee at the time of computation of income for the purpose of advance tax payment had computed exemption u/s 54F in respect of only one flat but claimed refund in the return of income filed computing exemption in respect of both flats. The learned CIT (A) failed to appreciate that the exemption claimed for the second flat was clearly an afterthought to avoid taxes. The learned CIT (A) failed to appreciate the ruling of the Hon’ble High Court in the case CIT vs Late Khoobchand M. Makhija, that while interpreting the word ‘a residential house’, ‘the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held ‘a’ cannot be read as singular, it also cannot be read as multiple so as to avoid paying taxes under section 45 of the Act. ‘

The learned CIT (A) failed to consider that in the decisions in the cases of CIT Vs D.Ananda Basappa [2009] (309 ITR 329)(Kar. H.C), CIT Vs K.G. Rukminiamma [2011]196 Taxmann 87 (Kar) and CIT Vs Gita Duggal (2013-TIOL-TIOL- 143-(HC-DEL)) all the units were either adjacent or in the same apartment complex or had some common thread for constituting `a residential house’. The learned CIT(A) failed to appreciate that the scope of the expression `a residential house’ is to be restricted to one composite unit and not to multiple and independent units.”

3. Briefly stated the facts of the case are as follows:-

3.1 The assessee is an individual. He had sold his residential property at Annanagar, Chennai for a sum of Rs.5,10,00,000 on 15.11.2012. After indexation of cost of land and building, the total capital gains that has arisen to the assessee was Rs.3,66,71,787. The assessee had invested in REC bonds amounting to Rs.50,00,000. For the balance capital gains of Rs.3,16,71,787, the assessee had invested in two flats, one at Warriam Road, Ernakulam for Rs.78,06,000 and the other at Layam Road for Rs.1,02,81,000. The assessee had claimed exemption u/s 54 of the Income-tax Act for both the flat purchased by him. The balance capital gains of Rs.1,35,84,787, was offered for taxation. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 06.01.2016. In the assessment completed, the Assessing Officer restricted the claim of exemption u/s 54 of the I.T.Act to one of the residential houses. The relevant observation of the Assessing Officer in restricting the claim of exemption u/s 54 of the I.T.Act, reads as follow:-

“The assessee sold his property at Anna Nagar for Rupees 5,10,00,000/- Rupees, and after indexation of cost of land and building, invested Rupees 50,00,000/- out of total capital gains of Rupees 3,66,71,787 I-in REC bonds. For the balance capital gain of Rupees 3,66,71,787/-, he has invested in 2 Flats, one at Warriarn Road Ernakulam for Rupees 78,06,000/- and other one at Layam Road tor Rupees 1,02,81,000/- and claimed exemption 54. For the balance capital gains of Rupees 1,35,84,787/- was offered for Taxation. The assessee was asked to show cause why his claim of 2 flats should not be restricted to One flat as per section 54 of the IT act. Case adjourned.

During the subsequent hearing, the assessee representative appeared and produced sale deed of Anna Nagar property, Cost of Acquisition, Deed and Proof for investment in 2 Flats and also evidence for deposits in REC bonds. For his claim on investment in 2 Flats, the assessee produced submissions quoting Judicial decisions in High court of Karnataka and High court of Delhi. No Judicial decisions pertaining to Jurisdictional court were produced supporting his claim. In the High court case Karnataka CIT vs Khoobchand M Makhija (20] 4) 4·3 Taxmann.com 14·3 (Karnataka) where the assessee sold his residential house and invested sale consideration in purchasing 2 residential house for 2 sons to avoid litigation and disharmony. In the case of this assessee during the course of hearing, the assessee’s representative and assessee had stated that the assessee has one son and one daughter who is married and he wants to give One Flat each to his son and daughter, however the facts of above case does not apply to the assessee as this was done intentionally to avoid capital gain and the judicial decision is only an afterthought.

In the case of High court of Delhi CIT vs Gita Duggal (2013) 30 Taxmann.com 230 (Delhi), the judicial decision that several independent houses or residential units can be considered as one residential unit does not apply to the assessee’s case as assessee, has purchased two flats in two separate residential areas that cannot be considered as a single residential unit and moreover the assessee at the time of finalizing the computation of total income had computed capital gain exemption for One Flat and paid advance taxes. But at the time of filing the return of income, claimed exemption for both the flats and claimed a refund of advance tax paid which is an afterthought of judicial decisions of various High courts. Hence it is proposed to restrict assessee’s claim u/s 54 for one flat with higher value ie, Rupees 1,02,81,000/- and disallow the assessee’ claim for second flat at lower value ie Rupees 78,06,000/-.”

4. Aggrieved by the order of assessment restricting the claim of exemption u/s 54 of the I.T.Act, to one of the residential unit, the assessee preferred an appeal to the first appellate authority. The CIT(A) following the judgments of the Hon’ble Karnataka High Court in the case of CIT v. Rukminiamma [(2011) 196 Taxman 897 (Kar.)] and CIT v. Late Khoobchand M.Makhija [(2014) 223 Taxman 189)], decided the issue in favour of the assessee. The relevant finding of the CIT(A) reads as follow:-

“I find that the case of CIT Vs. Rukminiamma [2011] 196 Taxman 87 (Kar.) IS quite similar to the instant case. In this case of Rukminiamma, Hon’ble Karnataka High Court held as under: It was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word “one”.

In a recent judgement in the case of CIT Vs Late Khoobchand M. Makhija, Hon’ble Karnataka High Court { [2014] 223 Taxman 189 } decided as under:

“In the instant case, one residential house is sold. Out of the sale consideration, it was open to the assessee to purchase a big residential house, so as to accommodate both his sons, in which event in terms of section 54(1), he would have been entitled to the benefit of the said section. However, instead of purchasing one big house, having regard to the fact both his sons are grown up, have families and in order to see that in future there won’t be any litigation or disharmony, he chose to purchase two small residential houses to accommodate both his sons.

It is clear that the assessee was not attempting to evade tax. In fact, after purchasing two residential houses, still there remained unutilized capital gain, which he has offered for tax. Therefore, as held in the aforesaid Rukminiamma’s case, the context in which the expression” a residential house” is used in section 54 makes it clear that it was not the intention of the legislature to convey the meaning that it refers to a single residential house. The letter “a” in the context which is used, should not be construed as meaning singular, but being a indefinite article, the said expression should be read in consonance with the other words “buildings and lands” and therefore, the singular, “a residential house” also permits use of plural by virtue of section 13(2) of the General clauses Act.

Therefore, we are of the view, in the facts and circumstances of this case, the acquisition of two residential houses by the assessee out of the capital gains falls within the phrase ” residential house” and accordingly, the assessee is entitled to the benefit conferred under section 54(1) of the Act. However, we make it clear that while interpreting this word, the court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held “a” can not be read as singular, it also can not be read as multiple and so as to avoid paying tax under section 45 of the Act. Therefore, in the facts and circumstances of this case, we answer the first substantial question of law raised in favour of the assessee and against the Revenue”.

I find that facts of the instant case is identical to the one discussed above. In the instant case, the appellant owned a residential house in Chennai, which he disposed off in 2012 and purchased two independent apartments in Cochin as he has one son and one daughter and the wanted to give one apartment to each one of them. For this purpose he has prepared a “Will” bequeathing one flat to son and one to daughter. In spite of buying two apartments, he offered balance amount of Rs.1,35,84,787/- to tax as Capital Gains.

As the facts of this case are identical to one discussed above, in my opinion, both the apartments are eligible for deduction u/s 54(1). Disallowance of Rs.78,06,000/- is hereby deleted.”

5. The Revenue being aggrieved has filed this present appeal before the Tribunal. The learned Departmental Representative submitted that the issue in question is squarely covered in favour of the Revenue by the Special Bench order of the Tribunal in the case of ITO v. Ms.Sushila M.Jhaveri [(2007) 292 ITR 1 (Mum.)]. It was submitted by the learned DR that the Special Bench of the Tribunal has considered the judicial pronouncements on the issue while deciding the issue in favour of the Revenue.

6. The learned AR, on the other hand, relied on the finding of the CIT(A). The learned AR submitted that the Hon’ble Karnataka High Court decision, which has been relied on by the CIT(A) is identical to the facts of the instant case. Therefore, it was submitted that the CIT(A)’s order is to be confirmed.

7. We have heard the rival submissions and perused the material on record. Section 54 / 54F of the I.T.Act was amended with effect from 01.04.2015 by the Finance Act, 2014 with the term “constructed one residential house”. Prior to the amendment, the term used in section 54 / 54F of the I.T.Act was “constructed a residential house”. Subsequent to the amendment of law, it is clear that the assessee is not entitled to the benefit of section 54 / 54F with regard to two residential units purchased by him. The co-ordinate Delhi Bench of the Tribunal in the case of Laxman Singh Rawat v. ACIT – ITA No.1668/Del/2013 dated 22.08.2014 and Smt.Rama Vohra v. ITO [(2017) 57 ITR (Trib.) 694 (ITAT-Delhi)] had categorically held the amendment is prospective and is applicable for and from Asst.Year 2015-2016 onwards. In the instant case, the assessment year concerned is 2013-2014 and going by the Co-ordinate Delhi Bench orders cited supra, the amendment does not have application to the facts of the instant case.

7.1 Prior to the amendment, there are various judicial pronouncements which have held the exemption u/s 54 / 54F was to be allowed in respect of investments in two adjacent or contiguous units converted into one residential house by having common passage / stair-case, common kitchen, etc. intended to be used as single house for the residence of the family. Undisputedly, the assessee in the instant case had purchased two flats in different locations. One at Warriam Road and the other at Layam Road. Therefore, these two flats cannot be converted to a single residential unit.

7.2 On identical facts, the Special Bench of the Tribunal, after considering the judicial pronouncements on the issue, have decided the matter against the assessee. The relevant finding of the Special Bench of the Tribunal in the case of ITO V.  Ms.Sushila M.Jhaveri [(2007) 292 ITR 1 (Mumbai)] reads as follow:-

“7. Rival submissions have been considered carefully. The real controversy is about the true meaning of the expression “a residential house” used by the legislature in ss. 54 and 54F of the Act. According to the Revenue, it means, one residential house while, according to the assessee, the word “a” means “any” which in turn means “one or more than one”. There cannot be dispute to the cardinal rule of interpretation that where the language used by the legislature is plain, simple and unambiguous, then the plain and natural meaning of the words used should be applied in construing the provisions of a statute and, therefore, the Courts should not look into the intention of the legislature. It is also equally true that where the language is ambiguous then the Courts can have recourse to the aids to the interpretation to unearth the intention of the legislature in enacting such provisions. Reference can be made to decision of the Hon’ble Supreme Court in the case of Keshavji Ravji & Co. vs. CIT (1990) 82 CTR (SC) 123: (1990) 183 ITR 1(SC). The relevant observations are quoted below :

“As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature.”

It is, therefore, necessary to see whether there is any ambiguity about the word “a”.

8. According to the Illustrated Oxford Dictionary, it means :

“1. One, some, any (when referring to something for the first time in a text or conversation), 2. one like, 3. one single (not a thing or sight), 4. the same (all of a size), 5. in, to, or far each (twice a year, seven aside).”

As per Webster’s Encyclopaedic Unabridged Dictionary, it means :

“Indefinite article’1, not any particular or certain one of a class or group; a man, a chemical, a horse, 2. another typically representing; 3. one; a certain; a particular: one at a time; two of a kind, 4. (used before plural, noun that are preceded by a quantifier singular in term) : a hundred men; a dozen times, 5. indefinitely or non-specifically: a great many years: a few stars, 6. any; a single: not a one; 7. (when stressed) each, every, per: ten cents a dance, three time a day.”

As per Judicial Dictionary by K.J. Aiyer (8th Edition), it means :

“Sometimes, ‘a’ is reads as ‘the’, sometimes as ‘some ‘ but more frequently as ‘any’. Similar meaning is given by the Law Lexicon”.

Perusal of the above clearly shows that the word “a” is ambiguous as it has no definite meaning. Various meanings are given to the word “a”. It not only means “one” or “any” but it has various other meanings depending upon the context in which it is to be used. Therefore, the cardinal principle of interpretation cannot be applied and consequently, the intention of the legislature has to be discovered by resorting to the aids to the interpretation. One of the rules of interpretation is to find out the context in which such word is used by the legislature.

Before coming to the context in which word “a” is used in s. 54/54F, we would like to mention that much emphasis was made on the word “any”. It has been contended that the word “a” means “any” which in turn means “many” or “more than one”. This appears to be partially true. As per various dictionary meanings, it also includes “one” or “one out of many”. According to Law Lexicon, the word “any” may have several meanings according to the circumstances. It may mean “all”, “each”, “some” or “one or more out of several”. It further says that it is not confined to a plural sense. According to Illustrated Oxford Dictionary as well as Webster’s Encyclopaedic Unabridged Dictionary also, the word “any” has various meanings including “one”. This clearly shows that the word “any” does not always mean more than one. It may also be used to denote “one”. So, both the words “a” as well as “any” are ambiguous and, therefore, the meaning of these words has to be seen with reference to the context in which these words are used.

Let us, therefore, consider the scheme of the exemption under Chapter IV-E relating to the capital gains. Sec. 45 which is charging section uses the expression “transfer of a capital asset”. Here the word “a” means “every” since capital gain of each capital asset has to be computed depending upon the period of holding. Exemption from the levy of capital gain tax is provided in ss. 54, 54B, 54D, 54E, 54EA, 54EB, 54F and 54H as is apparent from s. 45 itself. The relevant portion of these sections are being extracted below :

“54. Subject to the provisions of sub-s. (2), where, in the case of an assessee being an individual or a (HUF), the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head ‘Income from house property’ (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 the transfer took place purchased), or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say ‘..”

“54B. (Subject to the provisions of sub-s. (2), where the capital gain arises) from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say”..”

“54D. (Subject to the provisions of sub-s. (2), where the capital gain arises) from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking (hereafter in this section referred to as the original asset), and the assessee has within a period of three years after that date purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking, then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say”'”

“54EA. (1) Where the capital gain arises from the transfer of a long-term capital asset (before the 1st day of April, 2000) (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any of the (bonds, debentures, shares of a. public company or units of any mutual fund referred to in cl. (23D) of s. 10) specified by the Board in this behalf by notification in the Official Gazette (such assets hereafter In this section referred to as the (specified securities)), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say”.”

“54EB. (1) Where the capital gain arises from the transfer of a long-term capital asset (before the 1st day of April, 2000) (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, at any time within a period of six months after the date of such transfer invested the whole or any part of capital gains, in any of the assets specified by the Board in this behalf by notification in the Official Gazette (such assets hereafter in this section referred to as the long-term specified assets), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say””

“54E. (1) Where the capital gain arises from the transfer of a (long-term capital asset) (before the 1st day of April, 1992), (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the (whole or any part of the net consideration) in any specified asset (such specified asset being 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”..”

“54F. (1) (Subject to the provisions of sub-s. (4), where, in the case of an assessee being an individual or a HUF), 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 the 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”.”

Perusal of the above provisions clearly reveals that the legislature has used the words “a” and “any” with reference to investment of capital gain/sale consideration in certain asset or assets. The legislature was not oblivious regarding the meaning of these two words. The word “any” has been used by the legislature in ss. 54B, 54D, 54E, 54EA and 54EB while the word “a” has been used in ss. 54 and 54F of the Act. This clearly shows that the legislature intended different meanings to be given to these two words. A close reading of these sections shows that legislature intended to allow exemption in respect of investment in more than one asset by using the word “any”. Sec. 54E allows exemption in respect of investment in any specified asset. Expln. 1 to s. 54E defines the “specified asset”. It includes various assets in which investment can be made by the assessees who are eligible for exemption under s. 54E. There is nothing to indicate that investment is restricted to any of the specified assets. Had the legislature intended to restrict investment in any one of the specified assets, it would have used the words

“in any one of the specified assets” instead of “in any specified asset”. This clearly shows that the word “any” has been used where the legislature intended investment in more than one asset. Similarly, in s. 54EB, the legislature has used the words “In any of the assets specified by the Board”. Similar is the position in s. 54EA. Sec. 54B and s. 54D also used the word “any other land” and “any other land and building” respectively. The expression “any other land” is an expression of widest amplitude and, therefore, its meaning cannot be restricted to any one piece of land. On the other hand, the legislature has used the word “a” in ss. 54 and 54F. Had the legislature intended for investment in more than one asset, it could have easily used the words “in any residential house” in ss. 54 and 54F instead of the words “a residential house”. Superfluous words are not used by the legislature. Different words “a” and “any” have been deliberately used by the legislature to convey different meanings. Therefore, in our humble view, the legislature used the word “a” where it intended investment in one residential house only and used the word “any” where it intended investment in one or more assets.

9. Having held that intention of the legislature was to allow exemption under ss. 54 and 54F in respect of investment in one single residential house, it is not necessary for us to deal with the other submissions of the learned senior counsel for the assessee since they lose their significance in view of the above finding.

10. However, we are in agreement with certain decisions of the Tribunal relied on by the learned counsel for the assessee wherein exemption was allowed in respect of investments in two adjacent or contiguous units converted into one residential house by having common passage/stair case, common kitchen, etc. intended to be used as single house for the residence of the family. As already observed, the intention of the legislature is that investment should be made in one residential house. So long as the house purchased is one even after conversion, the exemption would be available. On the other hand, if the investment is made in two independent residential houses, even located in the same complex, then, in our opinion, exemption cannot be allowed for investment in both the houses. However, the choice would be with assessee to avail exemption in respect of any one house as held by the Hon’ble Bombay High Court in the case of K.C. Kaushik (supra). The view taken by us in this para is also justified by the decision of the Hon’ble Calcutta High Court in the case of B.B. Sarkar vs. CIT (1982) 26 CTR (Cal) 13: (1981) 132 ITR 150(Cal), wherein purchase of ground floor of a house and thereafter construction of first floor was held to be an investment in one house only. Their Lordships at p. 156 observed as under :

“If a floor is constructed to the new house or if it is renovated it remains a house and this will not be two houses.”

11. In view of the above discussion, it is held that exemption under ss. 54 and 54F of the Act would be allowable in respect of one residential house only. If the assessee has purchased more than one residential house, then the choice would be with assessee to avail the exemption in respect of either of the houses provided the other conditions are fulfilled. However, where more than one unit are purchased which are adjacent to each other and are converted into one house for the purpose of residence by having common passage, common kitchen, etc., then, it would be a case of investment in one residential house and consequently, the assessee would be entitled to exemption.

12. Coming to the facts of the present case, we find that investment was made in two flats located at different localities in Mumbai. Accordingly, the assessee was entitled to exemption in respect of investment in one house only of her choice. The AO has already allowed exemption in respect of house which permitted higher deduction. Therefore, on the basis of opinion expressed by us, we reverse the order of the learned CIT(A) on this issue and restore the order of AO.

13. The next issue relates to the disallowance of Rs. 1,51,500 being brokerage paid in computing the capital gain. The AO disallowed the claim merely on the ground that assessee failed to produce the proof of payment. The xerox copy of the brokerage bill was not considered as an evidence. On appeal, the assessee produced proof of payment along with bank statement of assessee. In view of such evidence, the learned CIT(A) allowed the claim of assessee. Aggrieved by the same, the Revenue is in appeal before the Tribunal on this issue.

14. After hearing both the parties, we don’t find any infirmity in the order of the learned CIT(A). The AO has not disputed the allowability of the claim of assessee. The claim had been disallowed on the ground that assessee failed to produce the proof of payment. The learned CIT(A) has allowed the claim after considering the proof of payment. It is also not the case of Revenue that provisions of r. 46A had been violated by the learned CIT(A). Thus no interference is called for.”

7.3 In view of the Special Bench order of the Tribunal, we are of the view that the CIT(A) is not justified in directing to grant exemption u/s 54 of the I.T.Act in respect of both the residential units.

7.4 Before concluding, it is to be mentioned that the learned Counsel for the assessee has strongly relied on the judgments of the Hon’ble Karnataka High Court in the case of CIT v. Smt.K.G.Rukniniamma (supra) and CIT vs Late Khoobch and M.Makhija (supra). As regards the judgment of the Hon’ble Karnataka High Court in the case of K.G.Rukmaniamma (supra), it was a case of Joint Development Agreement (JDA) entered into with the builder. As per the JDA, the assessee was to receive 48% super built up area in the form of residential apartments. The built up area received by the assessee was in the same project in the shape of four flats which were adjacent flats. Accordingly, the Tribunal as well as the Hon’ble High Court had held that these four flats received by the assessee under the JDA in the project will constitute a residential house as per the provisions of Section 54 of the I.T.Act.

7.5 The judgment of the Hon’ble Karnataka High Court in the case of CIT vs Late Khoobchand M.Makhija (supra) is distinguishable from assessee’s case. The Hon’ble High Court in case of CIT v. Late Khoobchand M.Makhija (supra) had decided the issue on the peculiar facts of that case. In the case considered by the Hon’ble High Court, it is not discernable whether two residential units purchased are in the same locality or in two different localities. Moreover, In the case considered by the Hon’ble High Court, there was compelling circumstances for having purchased two residential units, whereas in the assessee’s case, no such compelling circumstances have been made out for the purchase of two flats in two different locations. The assessee at the time of computation of income for the purpose of advance tax payment, had computed exemption u/s 54 in respect to only one flat but claimed refund in the return of income filed computing exemption in respect of both the flats. Therefore, the exemption claimed for the second flat was clearly an afterthought to avoid tax. It was specifically made clear by the Hon’ble High Court that while interpreting the words “a residential house”, the Court observed as follows:-

“the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held `a’ cannot be read as singular, it also cannot be read as multiple so as to avoid paying taxes under section 45 of the Act.”

7.6 As mentioned earlier, in the peculiar facts and circumstances considered by the Hon’ble Karnataka High Court, it was held by the Hon’ble High Court that the two houses was considered as a single residential house for the purpose of section 54 / 54F of the I.T.Act. Therefore, the judgment of the Hon’ble Karnataka High Court cannot be universally applied to all other cases as opined by their Lordships itself in the aforesaid judgment. For the aforesaid reasoning, we are of the view that the CIT(A) is not justified in directing the A.O. to grant exemption u/s 54 / 54F in respect of the second residential house. It is ordered accordingly.

8. In the result, the appeal filed by the Revenue is allowed.

Order pronounced on this 05th day of April, 2018.

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Category : Income Tax (27225)
Type : Judiciary (11418)
Tags : ITAT Judgments (5197) section 54 (137) Section 54F (165)

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