When as assessee purchases two flats having a common meeting point such that if modified it will be a single unit or house, the same shall be treated as one residential house for purpose of section 54 and exemption shall be available. As per Finance Act 2019 the exemption of two house property shall be available at some place. However, the case law shall continue to apply for computing number of property. Thye case law of “COMMISSIONER OF INCOME -TAX vs. SYED ALI ADIL ” is the basis.
1. This appeal is filed under Section 260-A of the Income Tax Act, 1961(for short ‘the Act’) by the Revenue challenging the order dated09-09-2011 in I.T.A.No.284/Hyd/2011 of the Income Tax Appellate Tribunal,Hyderabad Bench “B”, Hyderabad.
2. The respondent is an individual assessee. He filed his return of income forthe assessment year 2007-08 on 31-08-2007 with the Assistant Commissioner ofIncome Tax, Circle-VI (1), Hyderabad admitting therein a net income ofRs.43,97,840/-.The said return was processed under Section 143 (1) of the Acton 24-02-2009.Meanwhile, the case was taken up for scrutiny by issuing noticedt.25-08-2008 under Section 143 (2) of the Act.A notice dt.15-06-2009 underSection 142 (1) was issued calling for various details.
3. Before the assessing officer, the assessee offered under the head, long termcapital gains, a sum of Rs.41.00 lakhs contending that he had inherited anancestral house property which was sold during the year under consideration andthe resultant long term capital gains were offered from sale of the said house;that he had taken the sale consideration of Rs.1,99,50,000/- for arriving at thecapital gains even though the sale deed mentioned the sale consideration asRs.2,66,00,000/-; that out of the sale consideration he had purchased two flatsin May Fair Apartment, Banjara Hills, Hyderabad and he is entitled to claimdeduction/exemption under Section 54 of the Act for an amount of Rs.93,80,192/-and that in view of the decision in CIT Vs. AnandaBasappa, 309 ITR 329, even though Section54 mentions that the proceeds should be invested in “a residential house”, itbeing a beneficial provision, it should be construed liberally and the deductioncannot be restricted to only one residential house and it should be extended tothe purchase of two adjacent residential flats.
4. The assessing officer by order dt.25-08-2009 held that the assessee is notentitled to claim exemption in respect of Rs.93,80,192/- but only to the extentof Rs.45,52,860/- comprising of consideration of Rs.42,36,000/- and a stamp dutyof Rs.3,16,860/- utilized for investment on one of the flats by the assessee onthe ground that the inspection report of the I.T.I. deputed by the assessingofficer showed that what was purchased were two residential units separated by astrong wall; that they were purchased from two different vendors under twoseparate sale deeds and as such the deduction under Section 54 has to berestricted to only one flat.
5. Aggrieved thereby, the assessee filed an appeal to the CIT (Appeals), Guntur.He allowed the appeal by order dt.13-10-2010 holding that the assessing officerhad acted too technically and had erroneously denied the assessee the deductionto the extent of 50 percent and that since the assessee had purchased two flats havingadjacent kitchens and toilets which have a common meeting point, he is entitledto 100 percent deduction under Section 54 for both the flats purchased by him.
6. Challenging the same, the Revenue filed I.T.A.No.284/Hyd/2011 to the IncomeTax Appellate Tribunal.By order dt.09-09-2011, the Tribunal dismissed theappeal of the Revenue on the ground that it had consistently taken the view thateven though flats are located at different floors, when they could be combined,it should be construed as a single residential accommodation only; that the saidview is supported by the decisions of the Tribunal reported in K.G.Vyas Vs.I.T.O., 26 ITJ 491 (Bombay), I.T.O. Vs. P.C.Rama Krishna, HUF, 107 ITJ 351 (Chennai) and PrakashBhutani Vs. A.C.I.T, 110 ITJ 440 (Delhi).
7. Challenging the same, the Revenue has filed the present appeal.
8. Heard Sri B.NarasimhaSarma, learned Standing Counsel for the Income Tax Department at the stage of admission.
9. He contended that the deduction under Section 54 of the Act is allowable onlyfor one residential house and not for more than one residential house and thatthe Tribunal erred in holding that the deduction under Section 54 of the Act isallowable for two independent residential flats in the same complex.He alsoplaced reliance on the decision of the Special Bench of the Tribunal in I.T.O.Vs. SuseelaM.Jhaveri, 107 ITD 327 (Mumbai).
10. We see no force in the said contention.As held in D.AnandaBasappa’s case(1 supra) by the Karnataka High Court, the expression “a residential house” inSection 54 (1) of the Act has to be understood in a sense that the buildingshould be of residential nature and “a” should not be understood to indicate asingular number and where an assessee had purchased two residential flats, he isentitled to exemption under Section 54 in respect of capital gains on sale ofits property on purchase of both the flats, more so, when the flats are situatedside by side and the builder has effected modification of the flats to make itas one unit, despite the fact that the flats were purchased by separate saledeeds.This decision was followed by the Karnataka High Court in CIT Vs. Smt.K.G.Rukminiamma, (2011) 331 ITR 211 (Karnataka) where a residential house was transferred and four flats in asingle residential complex were purchased by the assessee, it was held that allfour residential flats constituted “a residential house” for the purpose ofSection 54 and that the four residential flats cannot be construed as fourresidential houses for the purpose of Section 54.Admittedly the two flatspurchased by the assessee are adjacent to one another and have a common meetingpoint.In the impugned order, the Tribunal has also relied upon the decisionsin K.G.Vyas’s case (2 supra), P.C.Ramakrishna, HUF’s case (3 supra) and PrakashBhutani’s case (4 supra) wherein it was held that exemption under Section 54only requires that the property should be of residential nature and the factthat the residential house consists of several independent units cannot be animpediment to grant relief under Section 54 even if such independent units wereon different floors.The decision in SuseelaM.Jhaveri’s case (5 supra) holdingthat only one residential house should be given the relief under Section 54 doesnot appear to be correct and we disapprove of it.We agree with theinterpretation placed on Section 54 by the High Court of Karnataka in D.AnandaBasappa’s case (1 supra) and Smt. K.G.Rukminiamma’s case (6 supra) and thedecisions of the Mumbai, Chennai and Delhi Benches of the Tribunal in K.G.Vyas(2 supra), P.C.Ramakrishna, HUF (3 supra) and PrakashBhutani (4 supra).Wetherefore hold that the CIT (Appeals) was correct in setting aside the order ofthe assessing officer and the Tribunal rightly confirmed the decision of the CIT(Appeals).
11. We hold that no substantial question of law arises for consideration in thisappeal and the same is accordingly dismissed. No costs.