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Income Tax Appellate Tribunal, DELHI BENCH “SMC-1”: NEW DELHI
Before: SHRI R.K. PANDA
PER R.K. PANDA, AM
This appeal filed by the assessee is directed against the order dated 17/11/2016 passed by the Ld. CIT (A) 42 New Delhi relating to assessment year 2012-13.
Facts of the case, in brief, are that assessee is in individual and during the year has derived the income from long term capital gains and income from other source. He filed his return of income on 1st August,2012 declaring total income of Rs. 30,370/-. During the course of assessment proceedings, the AO noted that assessee had declared capital gain income of Rs. 1,00,00,000/- against which deduction u/s 54 was claimed at Rs. 80,02,175/-. He asked the assessee to submit documentary evidence in support of cost of acquisition and sale consideration of the property sold during the year and evidence in support of claim of investment in immovable property claimed exempt u/s 54 of the Act. From the various details furnished by the assessee the AO noted that while claiming deduction u/s 54 of the I.T. Act assessee has purchased two properties of different places. He, therefore, asked the assessee to explain the same. Assessee submitted that as per provisions of section 54 of the I.T. Act the assessee should purchase / construct a residential house. Assessee also relied on the various decisions :-
CIT VII Vs. Gita Duggal 52 taxmann.com.246(SC) 2014
CIT Vs. Khoobchand M Makhija 43 taxmann.com 143 (Kar)(HC)2014
CIT Bangalore vs Smt. K.G. Rukiminiamma 196 taxman 87 (Karnataka) (HC) 2011 CIT Vs. D Ananada Basappa 180 taxman 4 (Kar) HC 2009
However, the AO was not satisfied with the arguments advanced by the assessee distinguishing the decisions cited before him and relied on the explanatory notes to the provisions of the Finance (No.2) Act 2014. The AO held that assessee is entitled to avail exemption u/s 54 of the Act only in respect of acquisition of one residential house property. He, therefore, allowed exemption u/s 54 of the I,.T. Act to the tune of Rs. 58 lacs and made addition of Rs. 22,02,175/- to the total income of the assessee. In appeal, the Ld. CIT(A) upheld the action of the AO by observing as under :-
“6. Finding:
“ I have duly considered the facts of the case and the legal 6.1 position in this regard. The whole controversy on the issue is the difference in interpretation of expression of a "residential house" used in provisions of section 54 of I.T. Act. There are three possible interpretations of expression "a 6.2 residential house" based on various courts judgments is as under.
Word "a" represents only one residential house/unit (i)
Word "a" may represent the multiple residential units (ii) so long as the same are in the same building and contiguous to each other & used as single residential unit.
Word "a residential house" permits use of plural by (iii) virtue of section 13(2) of General Clauses Act. First two interpretations are quite close to each other as 6.2.1 the main thrust is on one residential house and only relaxation in second interpretation is to allow to have multiple units within the same building and contiguous to each other. Hon'ble Delhi High Court in the case of Gita Duggal held that two independent houses within same building can constitute a residential house. The relevant extracts of judgement of Hon'ble Delhi High Court in the case of Gita Duggal (Supra) are reproduced as under:
"As held in B. Ananda Bassappa (SLP dismissed) & K G Rukminiamma, the Revenue's contention that the phrase "a" residential house would mean "one" residential house is not correct. 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. Also, s. 54/54F uses the expression "a residential house" 4
and not "a residential unit". S. 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 fanner 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, requirements and compulsions. 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 postretirement. 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 5
entrance so that it 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. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited." 6.2.2 This interpretation exactly gets covered in second category. Hon'ble Delhi High Court has not endorsed the third variety of interpretation i.e. having multiple residential houses at different locations. Third interpretation of allowing multiple residential houses at different locations is not in tune with the intent of the legislature as clearly brought out in the decision of the Apex Court in the case of Padmasundara Rao (Supra) that while interpreting-statute, legislative intention must be found in the words used by legislature itself.
6.2.3 Further, reference in this regard may be made to explanatory clause of finance act of 1978 which reads as under (Para 47 (a) on page 14 of finance 6
act 1978):
"capital gains arising from the transfer of a house used for personal residence are exempt from tax to the extent that such gains are utilized by the taxpayer, within a period of two years from the date of the transfer, for constructing another house for purpose of personal residence."
It is quite clear from the term "another house" used in 6.3 finance act 1978 that the provisions of section 54 are applicable for constructing another house for purpose of personal residence. It may be noted that the word "another" is singular. Therefore, the intent of legislature was always to allow the benefit of exemption only for investment in one house against the profit earned on sale of residential house.
The rationale behind introduction of provisions of section 54 6.4 of I.T. Act are that if a person wanted to shift his residence due to certain reason, and hence, he sold his old house and from the sale proceeds he purchased another house. In this case the objective of the seller was not to earn income by sale of old house but to acquire another suitable house. If in this case the seller was liable to pay income-tax on capital gains arising on sale of
old house, then it would be a hardship on him. Section 54 gives relief from such a hardship. Section 54 gives relief to a taxpayer who sells his residential house and from the sale proceeds he acquires another residential house.
The controversy raised by different interpretations by certain 6.5 courts has been put on rest through CBDT Circular no. 01/2015 dated 21st January, 2015 which clearly pointed out that the benefit was always intended for investment in one residential house within India. Accordingly, sub section (1) of section 54 of the income tax Act has been amended to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. The circular also posits that since this amendment is in the nature of clarification and explanatory, therefore, it is evident that the exemption was not at all available at any point of time for investment in more than one residential house.
6.6 The interpretation of expression "a residential house" represents only a single residential house also j^ets strengthen from the fact that if the legislature had intended to allow exemption in respect of investment in more than one house, it would have used the word "any" before residential house. AO in 8
his order highlighted that the word "any" has been used by the legislature in sections 54B, 54D, 54E, 54EA, and 54EB while the word "a" has been used in sections 54 and 54F of the Act. This clearly shows that the legislature intended different meanings to be given to these two words. A closer 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". Section 54E allows exemption in respect of investment in any specified asset. Explanation 1 to sections 54E defines the "specified asset". It includes various assets in which investment can be made by the assessee who are eligible for exemption u/s 54E.
6.7 The assessee has tried to rely on the Hon'ble Delhi High Court judgement in the case of Gita Duggal whereas this judgement does not support the case of the assessee as in the present case, the claim of deduction u/s 54 of I.T. Act is for two distinct houses at two different locations. As per Hon'ble Delhi High Court judgement in the case of Gita Duggal, the Word "a" may represent the multiple residential units so long as the same are in the same building and contiguous to each other & used as single residential house. This shows that the principle of multiple 9
residential houses/units holds good till these units are in same physical location and contagious to each other. Further, Punjab & Haryana High Court in case of Pawan Arya (supra) held that exemption u/s 54 & 54F of I.T. Act is allowable in respect of one residential house only.
In view of the above, the assessing officer has rightly 6.8 allowed the deduction u/s 54 of I.T. Act in respect of only one residential house. Accordingly, ground of appeal is dismissed.”
Aggrieved with such order of the Ld. CIT(A), assessee is in appeal before the Tribunal by raising the following grounds :- “That the Ld. CIT (A) erred both in fact and in law in confirming addition 1. made of Rs 22,02,175/- on account of deduction claimed u/s 54 of the Act in respect of investment made in more than one residential house without appreciating the fact that deduction u/s 54 is restricted to only ‘one’ residential house by Finance Act 2014 with effect from assessment year 2015 - 16 is prospective and not with retrospective effect.
That the Ld. CIT (A) erred both in fact and in law in confirming addition made of Rs 22,02,175/- on account of deduction claimed u/s 54 of the Act in respect of investment made in more than one residential house without appreciating the settled legal position that deduction u/s 54 is 10
allowable in case of investment made in more than one residential house.
That the appellant craves leave to add, amend or alter any of the grounds of appeal.”
Ld. Counsel for the assessee referring to the decision of Hon’ble Karnataka High Court in the case of Arun K. Thiagarajan vs. CIT reported in 117 taxmann.com. 270 submitted that the Hon’ble High Court in the said decision is held that for purpose of allowing benefit of deduction u/s 54(1), expression ‘ a residential house’ included within its ambit plural numbers as well and thus it cannot be construed as one residential house only. He submitted that in that case also the assessee had purchased two different house properties at two different places i.e one property at Koramangala and the other property at Domlur II stage Bangalore respectively on 23rd September 2002 and 23rd October, 2002. The AO denied the claim of exemption u/s 54 of the I.T. Act which was upheld by the Ld. CIT(A) and the Tribunal also dismissed the appeal filed by the assessee. The
Hon’ble High Court held that the amendment brought in Finance (No.2) Act 2014 is prospective with effect from assessment year 2015-16 and not retrospective.
Referring to the decision of Hon’ble High Court in the case of Tilokchand & Sons vs. ITO (2019) reported in 105 taxman.com 151 (Madras) he submitted that the Hon’ble High Court in the case has held that where the assessee HUF sold its residential house and invested capital gain in purchasing more than one residential houses within stipulated time limit assessee would be entitled to benefit of exemption u/s 54 of the I.T. Act.
Referring to the decision of Hon’ble Madras High Court in the case of G. Chinnadurai vs. ITO 74 taxmann.com 227 (Madras) he submitted that Hon’ble High Court in the said decision has held that where assessee sold land to developer and for making investment assessee was offered a part of built up area, even if assessee was given five different flats assessee would be entitled to claim section 54F exemption in respect of investment made for all five flats.
Referring to the decision of Hon’ble Karnataka High Court in the case of CIT vs. Khoobchand M. Makhija reported in (2014) 43 taxmann.com 143 (Karnataka) he submitted that the Hon’ble 12
High Court in the said decision has held that acquisition of more than one residential house by assessee out of capital gains would not dis-entitle assessee from availing benefit conferred u/s 54 of the Act.
He also relied on other various decisions filed in the case law compilation and submitted that deduction u/s 54 is allowable in case of investment made in more than one residential house and the deduction u/s 54 is restricted to only one residential house property by the Finance (No.2) Act 2014 with effect from assessment year 2015-16 is prospective and not with retrospective effect.
Ld. DR on the other hand heavily relied on the Ld. CIT(A). He submitted that the issue of exemption u/s 54 of the Act in respect of acquisition of two different residential houses has been decided by the special bench of the Tribunal in the case of ITO vs. Ms. Sushila M Jhaveri and it has been decided in favour of the revenue. So far as the various decisions relied on by the Ld. Counsel for the assessee are concerned, he submitted that those cases are distinguishable from the facts of the present case and not applicable to the instant case. Since here the assessee has purchased two different flats on two different dates and, therefore,
assessee is not entitled to the deduction u/s 54 of the I.T. Act in respect of the second flat.
I have considered the rival arguments made by both the sides, perused the orders of the AO and Ld. CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the assessee is in the instant case declared capital gain income of Rs. 1,00,00,000/- against which deduction u/s 54 was claimed at Rs. 8002175/- in respect of two house properties, the details of which are as under :-
Investment in DLF Magnolilas on 21.07.2011 Rs. 58,00,000/-
Investment in DLF Park place on 08.05.2012 Rs. 47,10,369/-
According to the AO, in view of provision of section 54 of the Act, assessee is entitled to deduction u/s 54 of the Act for one house property and, therefore, he restricted such deduction to Rs. 50 lacs and made addition of Rs. 22,02,175/- to the total income of the assessee. I find the Ld. CIT(A) upheld the action of the AO reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the Finance Act 2014 restricted deduction u/s 54 of the Act to only ‘one residential house’ with effect from assessment 14
year 2015-16 and not retrospective effect. I find the provision of section 54(1) reads as under :-
“[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, 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,—
(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
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 15
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.
[(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 utilized 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 utilized in accordance with, any scheme 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 :
Provided that if the amount deposited under this sub-section is not utilized 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 utilized 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. Explanation.— 12” [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]”
I find an identical issue had come up recently before the Hon’ble Karnataka High court in the case of Arun Thiagarajan vs CIT. In that case assessee sold a property on 9th October, 2002 for a consideration of Rs. 2,68,89,375/- and declared long term capital gain at Rs. 15,44,009/-. After claiming deduction u/s 54 of the Act in respect of two properties purchased in Koramangala and Domlur II stage Bangalore respectively on 23rd September 2002 and 23 October, 2002. The AO held that assessee’s claim for deduction u/s 54 of the Act in respect of investments made in acquiring two residential properties is not admissible in view of the decision of the Tribunal in the case of ITO vs. Ms. Sushila M Jhaveri. He, therefore, restricted to claim of deduction u/s 54 of the Act to acquire one residential building and allow deduction in respect of higher value of investment i.e Rs. 9715652/- which was in respect of property situated in Koramangala. The assessee filed an appeal. Ld. CIT(A) held that since the assessee has
purchased two different residential properties which were situated in two different places in Bangalore, therefore, the benefit of exemption u/s 54 of the Act cannot be granted. The Tribunal agreed with the findings recorded by the Ld. CIT(A) . It pertains to denial of benefit u/s 54 of the Act. On appeal by the assessee the Hon’ble High Court held that assessee is entitled to benefit of exemption u/s 54(1) of the Act in respect of both the residential properties, the observation of the Hon’ble High Court from 10 onwards reads as under :- “10. We have considered the submissions made on both the sides and have perused the record. In order to appreciate the rival submissions made at the bar, we deem it appropriate to reproduce Section 54( I) of the Act, which read, prior to its amendment by Finance (No.2) Act, 2014, as under: 54(1) Subject to the provisions of sub-Section (2), where, in the case of an assessee being an individual ora 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 18
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.
From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression 'a residential house1 therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house. 12. A Bench of this court in case of Smt. KG Riikminicimma {supra) dealt with the meaning of expression 'a residential house' used in Section 54(1) of the Act while taking into account Section 13(2) of the General Clauses Act, 1897 held that unless there is anything repugnant in the subject or context, the words in singular shall include the plural and vice versa. It was further held that context in which the expression 'a residential house1 is used in Section 54 makes it evident that it is not the intention of the legislature to convey the meaning that it refers to a single residential house. It was also held that an asset newly acquired
after sale of original asset can also be buildings or lands appurtenant thereto, which also should be residential house, therefore, the letter 'a' in the context it is used should not be construed as meaning singular, but the expression should be read in consonance with other words viz., buildings and lands. Accordingly, the contention raised by the revenue was rejected. Similar view was taken by a bench of this court in Khoobchand M. Makhijasupra, B. Srinivassupra and in the case of Smt. Jyothi K Mehtasapra. The Madras High Court while dealing with Section 54 of the Act as it stood prior to amendment by Finance Act No. 2/2014 in the case of Tilokchand & Sons supra took the similar view and held that the word 'a' would normally mean one but in some circumstances it may include within its ambit and scope some plural numbers also. The Delhi High Court also took the similar view in case of Gita Duggal supra. 13. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. [See: Decision of The Supreme Court In CITv. Ram Kishan Das 120191 103 taxmann.com 414/263 Taxman 657/413 1TR337. In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the
expression ’a residential house', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house1. The aforesaid amendment came into force with effect from 1-4- 2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income-Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability:- These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16.
The subsequent amendment of Section 54( 1) also fortifies the fact that the legislature fell the need of amending the provisions of the Act with a
view to give a definite meaning to the expression 'a residential house', which was interpreted as plural by various courts by taking into account the context in which the aforesaid expression was used. The subsequent amendment of the Act also fortifies the view taken by this court as well as Madras High Court and Delhi High Court. It is trite law that the principle underlying the decision would be binding as precedent in a case. In Halsbury Laws of England, Volume 22, Para 1682, Page 796, the relevant extract reads as under:
The enunciation of the reasons or principle on which a question before a court has been decided is alone binding as a precedent. This underlying principle is often termed the ratio decided, that is to say, the general reasons given for the decision or the general grounds on which it is based, detached or abstracted from the specific peculiarities of the particular case which gives rise to the decision.
[Also see: 'State of Haryana v. Ranbir @ Rana', [2006] 5 SCC 167 & 'Girnar Traders v. State of Maharashtra[2007] 7 SCC 555], 15. This Court as well as Madras and Delhi High Court have interpreted the expression 'a residential house' and have held that the aforesaid expression includes plural. The ratio of the decisions
rendered by coordinate bench of this court are binding on us and we respectively agree with the view taken by this court while interpreting the expression 'a residential house’. Therefore, the contention of the revenue that the assessee is not entitled to benefit of exemption under Section 54(1) of the Act in the facts of the case does not deserve acceptance. In view of preceding analysis, the substantial question of law framed by this court is answered in favor of the assessee and against the revenue. In the result, the order passed by the assessing officer and Commissioner of Income-tax (Appeals) and the income- tax Appellate Tribunal insofar as it deprives the assessee of the benefit of exemption under section 54(1) of the Act are hereby quashed and the assessee is held entitled to benefit of exemption under section 54(1) of the Act. in the result, the appeal is allowed.”
The various other decisions relied on by the Ld. Counsel for the assessee also supports his proposition that the deduction u/s 54 is restricted to only one residential house by the Finance Act 2014 is prospective in nature and is effective from assessment
year 2015-16 and not retrospective in nature and that deduction u/s 54 of the Act in respect of investment made in one residential house can be claimed by the assessee. In this view of the matter we set aside the order of the Ld. CIT(A) and the grounds raised by the assessee are allowed.
Order pronounced in the open court on 3rd March, 2021.
Sd/- (R.K. PANDA) ACCOUNTANT MEMBER Dated: 03 /03/2021 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi