M/S PRAMOD SAHAI BHATNAGAR HUF,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 517/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2014-15 cuke M/s Pramod Sahai Bhatnagar, HUF The ACIT, 2C-703, Akme Harmony, Sarjapur, Vs. Circle-6, Outer Ring Road, Bellandur, Jaipur. Bangalore-560103. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAKHP 3841 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri P.C. Sharma (Adv.) jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 22/01/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03/04/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 12.02.2018 of ld. CIT(A), Udaipur for the assessment year 2014-15. The assessee has raised following grounds:-

“1. The Learned CIT Appeals-2, Udaipur has grossly erred in confirming the restriction of claim u/s 54 of the Income Tax Act, 1961 to Rs. 2,50,00,003/- out of the total investment of Rs.

M/s Pramod Sahai Bhatnagar, HUF vs. ACIT 5,00,00,007/- claimed by the assessee for investment in two flats, one above the other in the same building for flat no. 7103 and 7113 adjacent by roof under the facts and circumstances of the case. The exemption claim u/s 54 covered by various pronouncements of Apex Court, High Courts and Coordinate Bench may please be allowed for the full amount of Rs. 5,00,00,007/- as claimed by the assessee in the return of income and relief may please be granted.

2. The assessee is HUF and filed e-return of income on 21.07.2014 declaring total income of Rs. 5,62,58,190/- which includes net long term capital gain of Rs. 5,55,30,511/- after claiming exemption U/s 54 of the IT Act at Rs. 5,00,00,007/- and deduction U/s 54EC at Rs. 50 lacs. The M/s Pramod Sahai Bhatnagar, HUF vs. ACIT exemption claimed U/s 54 of the IT Act is in respect of the investment made in two new flats. The AO restricted exemption U/s 54 of the Act to half of the investment i.e. for one flat and accordingly made an addition of Rs. 2,50,00,003/- in the long term capital gain. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.

3. Before us, the ld. AR of the assessee has submitted that the assessee has purchased two flats at 10th and 11th floor of the building with the purpose to make a duplex flat in the same building under construction at Bangaluru, therefore, the flats were purchased with the intention to make them one unit. The ld. AR has referred to the purchase documents and submitted that the assessee has booked flat Nos. 7103 and 7113 which are on 10th and 11th floors of the tower of the Gardenia at Bangaluru. The assessee booked these two flats during the construction of the said building so that these two flats can be used as a single house by joining them through stairs. In support of his contention, he has relied upon the decision of Hon’ble Delhi High Court in case of CIT vs. Gita Duggal 214 Taxman 51 and submitted that the SLP filed by the Department has been dismissed by the Hon’ble Supreme Court reported in 228 Taxman 62. Thus, the Hon’ble Delhi 3 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT High Court has held that merely because a residential house consists of several independent residential unit deduction U/s 54/54F of the Act could not be disallowed. He has also relied upon the decision of Coordinate Benches of this Tribunal dated 18.03.2016 in case of Surendra Sharma vs. ITO in as well as decision in case of Jag Mohan Sharma vs. ITO dated 13.03.2018 in ITA No. 1089/JP/2016 and submitted that the Tribunal has held that if two properties are adjacent to each other and to be used by the assessee for residential purpose the benefit of Section 54F of the Act cannot be denied. The ld. AR has then referred to a series of decisions on the point and submitted that when the assessee has purchased two flats which are adjacent to each other and with the purpose to use as duplex flats then the deduction in respect of the investment made in these two flats is eligible for deduction U/s 54 of the Act. He has further contended that the ld. CIT(A) has erred in applying the amended provisions of Section 54 of the Act without considering the fact that the said amendment is prospective in nature and w.e.f. 01.04.2015 and therefore, not applicable for the assessment year under consideration but it is applicable from the subsequent assessment year. Thus, the ld. M/s Pramod Sahai Bhatnagar, HUF vs. ACIT AR has submitted that the deduction U/s 54 of the Act to the extent of Rs. 5,00,00,00/- may be allowed instead of restricted to only one flat.

4. On the other hand, the ld. DR has submitted that the assessee purchase two separate flats which are independent units in the building and purchase through two separate transfer documents. Further, in the plan of the building there is no provisions for passage or any other interconnection between these two flats which are two separate residential units and therefore, do not satisfy the requirement of a single dwelling unit. The decision relied by the ld. AR are not applicable in the present case when the assessee has failed to establish that these two flats are having common passage, common kitchen and to be used as a single residential house. He has relied upon the orders of the authorities below.

5. We have considered the rival submissions as well as relevant material on record. The assessee has sold one house property and one piece of land. The long term capital gain computed on sale of house property and on sale of land of Rs. 7,32,34,204/- and Rs. 3,72,96,314/- respectively. The assessee claimed exemption U/s 54 of the Act in respect of the capital gain arising from sale of house property against the investment of Rs. 5,00,00,007/- made in two flats bearing No. 7103 5 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT and 7113 situated at 10th and 11th floors of tower Gardenia at Bengaluru. The disputed is only regarding the deduction claimed U/s 54 of the Act against the investment in two flats was restricted by the AO to one flat. Therefore, the other transaction on sale of land and capital gain is not the issue germaine in the present appeal. The AO while restricting the claim to one flat has relied upon the decision of Special Bench of the Mumbai Tribunal in case of ITO vs. M/s Sushila M. Jhavery 107 ITD 327. There is no quarrel on the point that the amendment brought in section 54(1) of the Act is prospective in nature and is applicable from the assessment year 2015-16 onwards and not for the year under consideration. However, the dispute has to be considered on the basis of existing provisions of Section 54 of the I.T. Act. For ready reference the provisions of Section 54 is quoted as under: “54. 24[(1)] 25[ 26[Subject to the provisions of sub-section (2), where, in the case of an assessee 27 being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 28[***], being buildings or 29lands appurtenant thereto, and being a residential house 29, 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 30[one year before or two years after the date on which the transfer took place purchased 31], or has within a period of three years after that date 31a[constructed, a residential house], then], instead of the capital gain being charged to income-tax as income of the previous year in M/s Pramod Sahai Bhatnagar, HUF vs. ACIT 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 32[is greater than the cost of 33[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 (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. 34[***] 35[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme 36 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : 7 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”

It is also settled proposition of law that the fiscal statute has to be interpreted strictly and further the exemption provisions are required to be interpreted as per the strict language of statute and there is no scope of giving any different meaning to what is indent by the legislature. The language of Section 54 of the Act is plan and unambiguous and the term usesed “a residential house” can be understood as “a residential dwelling”. Therefore, if more than one smaller units are adjacent to each other and are converted into one house for the purpose of residence, having common passage, common kitchen then even more than one smaller units which are so contiguous and adjacent to each other can be used as one residential house are regarded as a residential house as intended by the legislature. The Special Bench of the Mumbai Tribunal in case of the ITO vs. M/s M/s Pramod Sahai Bhatnagar, HUF vs. ACIT Sushila M. Jhaveri (supra) has considered this issue in para 11 and 12 as under:-

“11. In view of the above discussion, it is held that exemption under sections 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.

Therefore, as per the plan and unambiguous language of the Section 54 of the Act the exemption is available only in respect of one residential house. What constitutes a residential house depends on the peculiar facts of each case. The fundamental question is that a residential house varies from person to person and requirement of each M/s Pramod Sahai Bhatnagar, HUF vs. ACIT person however, the scheme and object of the provisions of Section 54 of the Act to provide incentive to the assessee is not in dispute that the capital gain arising from sale of residential house is exempt from tax if the same is invested for purchase of another residential house. Which means the capital gain arising from the sale of the existing asset being residential house is used for purchase or construction of a new residential house within the period prescribed U/s 54(1) of the Act.

Therefore, the purchase or the construction of a house property for assessee’s own residence is the primary requirement for availing incentive U/s 54 of the Act and hence, while considering the residential house the intention of the assessee at the time of purchase or construction of the property is relevant. The residential house is distinct from a residential building and the distinction is only use and purpose of the residential building. The Hon’ble Bombay High Court in case of K.C.

Kaushik vs. P.B. Rane, Fifth Income Tax Officer 185 ITR 499 while considering the term a residential house U/s 54 of the Act and has held as under:-

“Evidently, relief is not available under the section in respect of capital gains arising on the transfer of any and every capital asset. Relief is available only if the capital asset is such that its income is chargeable under the head “income from house property” and which in the two years immediately preceding the 10 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT transfer was being used by the assessee or a parent of his for the purpose of his own or the parent’s own residence. There is no dispute that this condition is satisfied in the present case as the flat in Suvarnadeep was used by the petitioner from 1973 to 1979m for his own residence and income from it, if any, would have been chargeable under the head “income from house property”. The second condition for availing of the relief is that the assessee must within a period of one year before or after the date of transfer of such a capital asset, purchase or within a period of two years after that date, construct a house property for his own residence. In this case, both the house properties, i.e. the flat in Priyadarshini and the flat in Kalpana, were purchase by the petitioner within one year of the date of the sale of the flat in Survarnadeep and both the flats were purchased for the purpose of residence. In the absence of any provision to the contrary, in my judgment, the petitioner is entitled to avail of the relief in respect of the capital gain arising on the sale of his flat in 1979 against the flat purchased in that year as also against the flat purchased on July 26, 1980, and, as held by the Commissioner in his order under section 264 of the Income-tax Act for the assessment year 1980-81, I am inclined to hold that it is for the petitioner to claim relief under this section against the purchase of any one of the flats provided that the other conditions mentioned in the section are satisfied. There being no dispute that the flat purchased by the petitioner in Kalpana on July 26, 1980, satisfies the conditions laid down in section 54, i.e. it was purchased within one year of the sale of the Suvarnadeep flat and for the purpose of his own residence, the petitioner is entitled to seek adjustment of capital gains against the purchase of this flat. However, clause (i) provides that if the new asset for the purchase of which the assessee sought relief of capital gains under section 54 is sold within a period of three years of its purchase or construction, the cost of the new asset will be 11 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT required to be reduced to the extent of relief availed of on account of capital gains earned but adjusted. It is for this reason that it has become important to consider whether the new asset, i.e., the flat in Kalpana purchased by the petition on July 26, 1980, which was admittedly let out by the petitioner to his employer, Bank of Baroda, on and from 27, 1982, on his transfer to Baroda can be said to be a factor that would bring the petitioner within the mischief of clause (i). In this context, it is desirable to refer to the Gujarat High Court decision in the cast, CIT vs. Tikyomal Jasanmal [1971] 82 ITR 95. The facts in that case were that out of the total constructed portion of the house admeasuring 1,389 sq.ft, the assessee had let out an area of 734 sq. Ft., i.e., more than half, immediately on completion of the construction. It was held that the new house was not constructed by the assessee for the purpose of his own residence. The court, however, observed that it was not the case of the assessee that the house was originally constructed by him for the purpose of his own residence but by reason of subsequent events or supervening circumstances, it became impossible or impracticable for him to occupy a part of the house for the purpose of his own residence and was let out to tenants for that reason. Such indeed could not be the case of the assessee since no period of time elapsed between the completion of construction of the ground floor and the letting out of a major portion of it to tenants. In the second decision in the case of CIT vs. Natu Hansraj [1976] 105 ITR 43, the Gujarat High Court held that no single factor including whether or not the property newly acquired by the assessee was wholly or substantially acquired by him for the purpose of his own residence after purchase or construction, as the case may be, would be determinative of the matter. Even if the new property was not substantially put to use for his own residential purposes by the assessee within a reasonable time and if the failure to do so was without any fault on his part, that is, by reason of some unforeseen subsequent events or supervening circumstances, it might still be possible to hold in a given case, provided other 12 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT circumstances point in that direction, that the real relief, intention or motive entertained by the assessee at or about the time of purchase or construction as regards the use of the newly acquired house property was to occupy it himself.” Therefore, the primary requirement for treating a structure as residential house is the purpose for which the same is acquired or constructed by the assessee for the purpose of his own residence.

Hence, if a residential unit is purchase by the assessee but not wholly and substantially for his own residential purpose then, the said residential unit cannot be regarded a residential house. The Hon’ble jurisdictional High Court in case of Rajesh Surana vs. CIT 306 ITR 368 had the occasion to deal with the term of residence used in section 53 and has held in para 13 to 15 as under:-

“13. The other aspect of the matter is, that the word "residence" has been defined in the Blacks Law Dictionary, sixth edition, at p. 1308, as "place where one actually lives or has his house; a person’s dwelling place or place of habitation; an abode, house where one’s home is, a dwelling house". It has further been described that residence implies something more than mere physical presence, and something less than domicile. Then, for the present purposes the term "house" has been defined at p. 739 to mean "structure that serves as living quarters for one or more persons or families". Then, the Shorter Oxford Dictionary, Thumb Index Edition, defines the word "house" for the present purposes, to mean "building for human habitation; a dwelling, a home, a self-contained unit having a ground floor and one or more upper storeys; or part of a building occupied by one tenant 13 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT or family, and so on. Then, the expression "residence" has been defined in the said Shorter Oxford Dictionary to mean, a certain place used as residence suitable for or characterized as private house, and so on.

M/s Pramod Sahai Bhatnagar, HUF vs. ACIT

Thus, merely dealing in purchase and sale of residential building/property will not be regarded as a residential house but only when a residential unit is purchased for the assessee’s own residential purpose then, it will be treated as a residential house for the purpose of Section 54 of the I.T. Act. In the case in hand, there is no dispute that the assessee has purchased two separate flats at two floors 10th and 15 M/s Pramod Sahai Bhatnagar, HUF vs. ACIT 11th of the building. Therefore, for considering the two flats as a residential house the various aspects are to be taken into consideration as discussed by us in the foregoing part of this order as well as the term residential house discussed in the various decisions. Accordingly, we find that the issue requires a proper verification and examination in light of the above discussion and observation. Accordingly, the matter is set aside to the record of the Assessing Officer for proper examination and verification of the relevant facts and then decide the same in light of the observation discussed by us in this order.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 03/04/2019.

Sd/- Sd/- ¼ jes’k lh0 “kekZ ½ ¼fot; iky jko½ (Ramesh. C. Sharma) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 03/04/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Pramod Sahai Bhatnagar, HUF, Bangalore. 2. izR;FkhZ@ The Respondent- ACIT, Circle-6, Jaipur. 3. vk;dj vk;qDr@ CIT 16