ITO WARD - 30(1), NEW DELHI vs. KUSUM GUPTA, NEW DELHI

This appeal has been preferred by the assessee against the order dated 04.12.2019, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-10, New Delhi (in short “Ld. Commissioner”), u/s. 250 of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2015-16.

[2] 2.1 The AO while considering the claim of the Assessee u/s 54 of the act made the field enquiry through Inspector (IT) who vide inspection report dated 04.12.2017 reported as under :

“Inspector report I, undersigned as directed by ITO Ward 30(1), Delhi visited E-40, Masjid Moth, GK-II, New Delhi-110048 to enquire about whether separable entrance/separably saleable unit exists in above property or not.

Seeing from outside and also talking to Guards there I am of the view that this flat is consisting of Ground Floor, 1st Floor and IInd floor and all these floors are having separable entrances and may be sold separably. It is a corner house and in its right side E-138 is located and on its left side E-39 exists. In E-39, GF ShPrahlads, 1st Floor SriyansNaulakhs and on IInd Floor Sanjay lives.”

2.2 Thereafter the AOvide assessment order dated 18.12.2017 declined the exemption u/s. 54 of the Actand added the amount of Rs.2,42,17,559/- as long term capital gain, in the income of the Assessee, while considering ‘field enquiry /Inspector report’ referred above and the facts that the Assessee had purchased three flats and one basement and did not submit any evidence or certificate to show that three flats and one basement may be treated as one residential units. Hence, the Assessee has failed to discharge its onus to prove that three flats and one basement is one residential unit. The burden to prove that all three units may be treated as single unit is on the Assessee, in which she has failed.

2.3 The Assessing Officer also heldthat section 54 is amended by Finance Act, 2014 and apply in relation to A.Y. 2015-16 and the [3] Legislature inserted the words ‘one residential house’ in place of ‘a residential house’. Hence, on the basis of above mentioned facts, it is crystal clear that section 54 is amended by the legislature and applicable to the A.Y. 2015-16. The Assessing Officer finally held that in view of the above mentioned detailed discussion, it is concluded that the Assessee is not eligible for exemption u/s. 54 of the Act, as she has made investment in more than one residential house situated in India. Hence, the claim of exemption u/s. 54 is denied.

“7.2. I have considered the above facts on record and submissions of Ld. AR. It is noted on perusal of assessment order that in response to show cause notice issued by the AO, vide letter dated 04/12/2017, it was explained by the appellant that the property under question is one single house in the name of single owner, purchased from single seller only, property was purchased jointly with her daughter and son-in- law for self residence purpose only and for the purpose of section 54 it is one residential house and cannot be treated more than one residential house. From the relevant portion of show cause notice, it is noticed that AO was of the view that since assessee has purchased ground, first and second floor

[4] they are separate residential units having separate entrances, therefore the claim of exemption u/s 54 cannot be allowed as per amended provisions of section 54 which have been amended w.e.f. 01/04/2015 w.e.f AY 2015-16.

7.3 Considering the above factual matrix of the case, it is pertinent to reproduce below the provisions of section 54 which provides as under:

“54. [(1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], 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. one residential house in India, 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,—

(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or [5]

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. ” As far as above provisions of section are concerned, it is evident that appellant is found to be entitled to claim exemption accordingly as all the basic condition are found to be fulfilled- i.e. a) That appellant is an individual b) That property sold was residential one c) That during the stipulated period of time, appellanthas purchased anotherproperty d) That appellant has purchased one residential house in India having different unitslocated on the same plot of land at different floors and entire propertyis beingused by the appellant for residential purpose. The only reason for disallowance of claim of exemption u/s 54 is that AO is of the view since the investment has been made by the appellant in respect of different units, above exemption is not allowable since it cannot be treated one residential house.

7.4 Considering the entirety of the facts and circumstances, I place reliance on the judicial precedence on the identical facts and are squarely applicable in the appellant’s case: a) Mrs.SaritaSandhu, New Delhi vsAcit, New Delhi in ITA No. 1777/Del./2017 dated 17 April, 2018, relevant portion of which is reproduced below:

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"7. After hearing both the sides and perusing the materials available on record, we find that the assessee purchased two units, property No. 1601 and 1602 in Block Tulip, Omaxe Forest, Faridabad by one sale agreement with the builder, which are situated opposite to each other on the same floor. As per submissions of the assessee, it is observed that the assessee had purchased properties according to his plans and requirements which were explained before the lower authorities. It is not disputed that the staircase and common passage was not exclusively used by the assessee. The case law in the case of Gita Duggal (supra) is squarely applicable to the present case, wherein it has been held as under: "There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For [7] instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. High Court are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. High Court do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It Is neither expressly nor by necessary implication prohibited, reasons High Court are of the view that the Tribunal took the correct view. No substantial question of law arises for High Court consideration. The appeal is accordingly dismissed with no order as to costs."

[8] relied by the Id. DR. The relevant observations of the Tribunal read as under:

"5. Secondly, in the Revenue's appeal, the decision of the Ld.CIT(A) in allowing the exemption of Rs. 59,18,4967- u/s 54 of the Act claimed by the assessee on account of the investment/cost of construction made in the flats on 9th 10th and 11th floor which are in his possession as his residential house has been agitated. It is pertinent to mention that the Ld.CIT(A) has allowed the claim of the assessee for exemption u/s 54 of the Act by relying on the decision of the Karnataka High Court in the case of CIT Vs. Smt K.G. Rukminiamma 120111 331 ITR 211 (Kar) wherein it has been held! that residential flats constitute 'a residential housel for the purpose of section 54, where profit on sale of property is used for residence and further held that four residential flats cannot be construed as four residential houses for the purpose of section 54, when all are situated in the same building. It has to be construed only as 'a residential housel and the assessee is entitled to the benefit accordingly. As regards the contention of the Revenue placing the reliance on the decision of the Punjab & Haryana High Court in the case of PawanArya v. CIT reported in 2011-TIOL-01-HCP&H-IT, it is pertinent to mention that the assessee'in the said case, has claimed exemption in respect of two independent residential houses situated at different locations namely one in Dilshad Colony, Delhi and the other in Faridabad and the benefit has been restricted by the court to one house since two new/houses were acquired in different locations. However, the facts are distinguishable in the case of the present assessee. It is relevant to point out that the High Court of Delhi in the case of CIT Vs Gita Duggal (2013) 257 CTR 208 (Del) has held that residential house consists of several independent units cannot be permitted to act as an impediment to allow the deduction under section 54/54F of the Act. In the case of CIT v. D. AnartdBasappa f20091 309 ITR 329 (Kar) the High Court of Karnataka has held that "a residential house" as mentioned in section 54(1) of the Act, has to be understood in a sense that the building should be of a residential nature and the word "a" should not be understood to indicate a singular number. This decision has been followed by the Karnataka High Court in the case

[9] of CIT v. Smt K.G. Rukminiamma (supra). The High Court of Andra Pradesh in the recent case of CIT \/s Syed Aii [20131 352 ITR 418 (AP). has also held that the exemption under section 54 only requires that the property purchased by assessee out of sale proceeds should be of residential nature and the fact that residential house consisted of several independent units cannot be an impediment for granting relief under said section, even if such independent units are situated side by side, on different floors or are purchased under separate sale deeds. The High Court of Andhra Pradesh in the said case has agreed with the findings of the decision of the High Court of Karnataka in the case of CIT v. D. AnandBasappa (Supra). Therefore, considering the totality of the facts and circumstances in the light of consistent view of different High Courts, we are of the view that the Ld.CIT(A) has correctly decided that the assessee is entitled for exemption under section 54 of the Act as regards the investments/cost of construction claimed by the assessee in respect of all the flats, in view of that matter, we do not find any justifiable reason to interfere with the decision of the Ld. CIT(A) on this count and the same is upheld." b) BrijBhushanTayal, New Delhi vs ACIT, CIRCLE 19(1) dated 13 October, 2016 in I T.A. No. 3272/DEL/2014, relevant portion of which is reproduced below:

“8.10. However, learned CIT has drawn the adverse conclusion that the substance of the judo merit is that the expression" a residential house" should not be literally taken as a single unit or a single flat and that the deduction should be extended to a residential house consisting of several individual units which have been constructed in the manner that they have independent entrance but in case of future need they can be used as a composite independent house and therefore confirm the disallowance made by the assessee 8.11. However, it is pertinent to note that judgment of Gita Duggal (supra) has made it very clear in para 8 of the order and the 'a' does not mean singular Judgment of Karnataka

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HC CIT vs D. AnandaBasappa (2009) 309 ITR 329 has been followed which reads as under:

"8. It is the correctness of the above view that is questioned by the revenue and it is contended that the interpretation placed by the Tribunal gives rise to a substantial question of law. The assessee strongly relies upon the judgment of the Karnataka High Court (supra) which, it is stated, has become final, the special leave petition filed by the revenue against the said decision having been dismissed by the Supreme Court as reported in the annual digest of Taxman publication. The judgment of the Karnataka High Court supports the contention of the assessee. An identical contention raised by the revenue before that Court was rejected in the following terms:

"A plain reading of the provision of section 54(1) of the Income-tax Act discloses that when an individual-assessee or Hindu undivided family- assessee sells a residential building or lands appurtenant thereto, he can invest capital .gains for purchase of residential building to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding the expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act,

[11] lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT v. Smt K.G. Rukminiamma [20117 196 Taxman 87/[20107 8 taxmann.com 121 (Kar.)."

8.12 I also find that the above judgment of Delhi HC in the case of CIT VsGeetaDuggal (Supra) is affirmed by the Supreme court (2015) 228 Taxman 62 (SC). I also find that this issue came up before I TAT Mumbai in the case of NileshPravinVora and VatinPravinVora (Legal Heirs of Late PravinLaxmidasVora) Vs ITO 2016 (5) TMI 64 and it has been held that held that exemption u/s 54F will be allowed for purchase of more than one residential unit as the amendment to section 54F is effective form 1.4.2015.

"6. The facts being similar, following the same reasoning the Assessing Officer is directed to allow the claim of the assessee with respect to two flats purchased by the assessee as discussed above. It is pertinent to mention here that the hon'ble Madras High Court, in the case of CIT v. Smt. V. R. Karpagam [2015] 373 ITR 127 (Mad), has clearly held that the amendment to provision of section 54F is effective from April 1, 2015, which makes it clear that benefit of section 54F will be applicable to one residential house in India. Prior to the amendment it was clear that a residential house would include multiple residential units. 8.13. I note that in the present case, assessee has sold the property in the next year in AY 2010-11 and withdrew

[12] the exemption claimed of Rs. 7,30,538/-in AY 2009-10 and reduced the same from the cost of acquisition claimed in AY 2010-11. Therefore, the impact of the above action of the assessee is that assessee has taxed the amount of Rs. 7,30,538/- as Long term capital gain and therefore disallowance of exemption in AY 2010-11 will leads to double taxation in the hands of the assessee. Therefore, this issue is squarely covered by the judgment of ITAT Mumbai in the case of NileshPravinVora and YatinPravinVora (Supra) and also the exemption is withdrawn in the subsequent year by the assessee himself exemption claimed by the assessee cannot be disallowed. In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, I decide all the grounds in favour of the assessee and against the Revenue.

7.5. Thus,considering the entirety of the facts as discussed above, extant provisions of section 54 and gist of ratio of decisions, mentioned above including the decision of Hon’ble jurisdictional High Court in the case Gita Duggal, as discussed supra, it is evident that the ratio of the findings given by the Hon’ble High Court is crystal clear that there may be several such considerations for a person while constructing a residential house. High Court are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. High Court do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. Accordingly, AO is directed to allow claim of exemption

[13] u/s 54 to the appellant after making adjustment on account of indexed cost of acquisition after computing the same as directed in respect of first ground of appeal mentioned above, allowing indexed cost of acquisition taking the value of cost of construction of Rs.2,50,000/- as Rs.2,32,000/-.”

5.1 The ld. Commissioner, on appeal, while relying upon various judgments including the decision of Hon’ble High court of Delhi in the case of Gita Duggal (supra), allowed the claim of the Assessee u/s. 54 of the Act by holding that considering the entirety of facts, as discussed above, provisions of section 54 and gist of ratio of decisions mentioned above, including the decision of Hon’ble jurisdictional High court in the case of Gita Duggal (supra), it is evident that the ratio of the Hon’ble High Court is crystal clear that there may be several such considerations for a person while constructing a residential house. . The Hon’ble High Court is [14] therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical should come in the way of considering the building as a residential house. High Court do not think that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F.

5.2 We have given thoughtful consideration the peculiar facts and circumstances of the case and reasonings given in the orders passed by the authorities below. It is a fact that section 54 of the Act has been amended by Finance Act (2) 2014 w.e.f. 01.04.2015 applicable from 2015-16 onwards, wherein the legislature amended the word “one” residential house in place of “a” residential and the said amendment is applicable to the instant case as well. The ld. Commissioner though referred the latest provisions of section 54 of the Act, however without giving any definite finding qua applicability of the latest provisions of section 54 of the Act as applicable to the case in hand, decided the appeal of the Assessee, while referringsome decisions which admittedly pertains to period prior to amended provisions of section 54 of the Act, as applicable to AY 2015-16 involved in this case.

5.3 Hence, in our considered view, substantial justice would be met by setting aside the impugned order and remanding the case to the file of Ld. Commissioner to decide the issue involved de nova in its right perspective, while taking into consideration the provisions of section 54 of the Act as amended by Finance Act 2014 and applicable to AY 2015-16 which is relevant in this case.

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Order pronounced in open court on 28/07/2022.