PARTHIBAN KALAVATHI,CHENNAI vs. ACIT NON CORPORATE CIRCLE 11, CHENNAI

Coming to the next interconnected issue whether the assessee is entitled to claim of deduction u/s. 54 or 54F of the Act as the case may be, because the assessee has been allotted 4 residential Flats against the sale of her ancestral land or in lieu of development of her ancestral land. We noted that this issue has been considered by the Hon’ble Madras High Court in the case of Tilokchand & Sons Vs. ITO [2019] 413 ITR 189 (Madras), wherein a residential house as occurring in s. 54(1) of the Act can include more than one or plural residential house. The Hon’ble High court has considered even the amendment which is effective from 01.04.2015 and applicable far and from assessment year 2015-16 and the relevant assessment year before us 2014-15. Hence, the amendment will not apply in this case. The Hon’ble Madras High Court has finally considered this issue in para 20 & 21 as under:

“20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D. Ananda Basappa case stated (supra), two flats in question were admitedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M.Makhija (supra), two door nos are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word 'a residential house' to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential house in the given circumstances of availability of such residential houses as per the requirement of the HUF will not alter the position of interpretation.

In our understanding, if the word 'a' as employed under Section 54 prior to its amendment and substitution by the words 'one' with effect from 01.04.2015 could not include plural units of residential houses, there was no need to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y.2015-2016. Once we can hold that the word 'a' employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case. So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. If that be so, the Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in D. Ananda Basappa (supra) & Khoobchand M.Makhija (supra) cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case.”

Respectfully following the decision of Hon’ble Madras High Court in the case of Tilokchand & Sons v. ITO, supra, we direct the A.O to allow the claim of deduction u/s. 54 of the Act as considered by the Hon’ble Madras High Court and allow the claim of the assessee.

In the result, the appeal of the assessee is allowed.