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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order dated 29.11.2019 of the CIT(Appeals)-7, Bengaluru for the assessment year 2016-17 on the following grounds of appeal:-
“1) That the order of the learned Commissioner of Income-tax (Appeals) in so far it is prejudicial to the interest of the appellant is bad and erroneous in law and against the facts and circumstances of the case. 2) That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts disallowing the deduction of Rs.1,63,03,233/- claimed u/s. 54F of the Act on the ground
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that the appellant has violated the provisions of section 54F of the Act by owning more than one residential house at the time of sale of original asset. 3) That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in applying the amendment brought in Finance (No.2) Act 2014 to the proviso to section 54F(1) of the Act and thereby denying the exemption even though the amendment was made only to sub-section(1) of section 54 and 54F of the Act. 4) That the learned Commissioner of Income-Tax (Appeals) ought to have held that the residential property in Jayanagar has to be considered as one residential house since it is a duplex house containing single Khatha number, single Property Identification (PID) number. Each of the above grounds is independent of one another and the appellant craves leave of the Hon’ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify any of the above grounds either before or during the hearing.”
The facts are that during AY 2016-17, the assessee has declared Income from House Property of Rs.1,05,470/-, Income from Other Sources of Rs.8,87,923/- and Long Term Capital Gains of Rs.NIL. The assessee along with family members has sold vacant site situated at Survey No.34/1, Ekkarajapura Village, Sulibele Hobli, Hoskote Taluk on 22.8.2015. The assessee has received total sale consideration of Rs.1,68,00,000/- as his share. After deducting indexed cost of acquisition, the Total Capital Gains is Rs.1,63,03,233/-. The assessee has claimed deduction u/s.54F of Rs.1,65,00,000/- for purchase of another residential property. The same was rejected by the AO on the reason that assessee is owner of more than one residential house as seen from the statement of income of assessee. The AO observed that the assessee is the owner of two residential houses other than the new asset on the of transfer of the original asset. One house
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is self-occupied and the other house is let out to one Srinivasa Ventagiri from whom the assessee has received rent of Rs 1,54,560 during the year and duly shown as income under the head house property. The AO also deputed the who after visiting the premises reported that there are two residential units each consisting room, hall and kitchen with separate doorways; the ground floor being the residence of assessee and the first floor is given on rent. Therefore, the AO held that section 54F has been amended w.e.f. AY 2015-16 restricting the benefit to one residential house only and thus, he disallowed the claim of deduction u/s 54F. The AO has placed reliance on the decision of Hon'ble Madras HC in the case of VR Karpagam 50 taxrnan.com 55. The assessee does not deny about two residential units consisting of ground floor and first floor and admits that the ground floor is self-occupied and the first floor has been let out on rent. However, the assessee submitted that the house in question is a single house with two entrances having Ground and First Floor with single Municipal Number and single PID number and therefore deduction u/s 54F should not be denied.
On appeal, the CIT(Appeals) confirmed the order of the AO on the reason that the assessee’s building are two separate residential units having bed room, hall, kitchen and separate entrance. The assessee has also let out the first floor of the building and receiving rental income. Therefore, claim of assessee cannot be allowed in view of two separate independent residential units. Against this, the assessee is in appeal before us.
The ld. AR submitted that the AO disallowed the exemption u/s 54F on the ground that the assessee owns more than one residential house on the date of sale of original asset and therefore, the proviso to section 54F is applicable. On appeal, the learned CIT(A) confirmed the disallowance made by the AO. The learned CIT(A) further held that as per the
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amendment made vide Finance (No.2) Act 2014 w.e.f 1.4.2015 (AY 2015- 16), one residential unit has to be considered as one residential house and since the assessee purchased two residential units, he is not eligible for deduction u/s 54F of the Act.
The AR submitted that on the date of the sale of original asset the assessee owned a residential house having two units in the same building i.e, a residential unit in ground floor and in 1st floor. The property has single Katha number, single Property Identity Number (PID No.), single BESCOM connection. These are undisputed facts. Therefore, it has to be considered as one residential house. Hence, the deduction u/s. 54F cannot be denied on this ground. He relied on the decision of Hon’ble Karnataka High Court in Navin Jolly Vs ITO (424 ITR 462). The appellant relies on the following observations of the High Court in paragraph 11 at page 469 of ITR 424 wherein it was held as under:-
“11. Alternatively, we hold that assessee even otherwise is entitled to the benefit of exemption under section 54F(1) of the Act as the assessee owns two apartments of 500 square feet in same building and therefore, it has to be treated as one residential unit. The aforesaid fact cannot be permitted to act as impediment to allowance of exemption under section 54F(1) of the Act. Similar view was taken by Delhi High Court in case of Geeta Duggal wherein the issue whether a residential house which consists of several independent residential units would be entitled to exemption under section 54F(1) of the Act was dealt with and the same was answered in the affirmative. The appeal against the aforesaid decision was dismissed by the Supreme Court by an order reported in (2014) 52 taxmann.com 246 (SC). We agree with the view taken by Delhi High Court.” 6. Further, it was submitted that the Hon’ble High Court was dealing with the sub clause (i) of clause (a) of proviso to section 54F(1). The present assessee’s case involves identical issue. As held by the Hon’ble
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Court, if the residential units are in the same building it has to be treated as one house.
On identical facts, the Hon’ble Bangalore Tribunal in Bhatkal Ramarao Prakash Vs ITO 175 ITD 144 has held that a residential house where ground floor is used for assessee’s own residence and the first floor was let out has to be considered as one residential house for the purposes of S. 54F of the Act though having independent entries, deduction has to be allowed. The relevant portion of the decision is as under:-
“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, section 54/54F uses the expression "a residential house" and not "a residential unit". 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, 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 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 it can be let out. He may even arrange for his children and family to stay there, so that they are
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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.” 8. The Revenue had filed a Miscellaneous petition before the Tribunal in respect of the above decision stating that the decisions followed by the Tribunal are prior to the amendment and also the amendment made vide Finance (No.2) Act, 2014 has not been considered. The Tribunal dismissed the petition holding that the decisions were considered for support and the case has been decided on the fact that the assessee has purchased one residential property. The relevant portion of the judgment is reproduced below:-
“6. We are of the view that there is no mistake, much less an apparent mistake, in the order of the Tribunal. The Tribunal in para 20 of its order has clearly given a finding that the property at N.R. Colony belonged to one owner, Smt. Janaki Iyengar and as per the Will of Smt. Janaki Iyengar, the Ground Floor of the premises which was numbered as Door No.37 was given to Smt. Janaki’s sister, Dr. M. Vaidehi and the 1st Floor numbered as Door No.37/1 was given to Smt. Janaki’s nephew, Shri P. Ramanuja Chari. Both these owners of Ground Floor and 1st Floor sold the property to the assessee. The Tribunal in para 20 of the order clearly observed that the entire property constitutes one residential house, but was bifurcated with two Door Nos. for Ground Floor and 1st Floor with common entrance in Ground Floor only to earmark the share of each beneficiary and that otherwise the property constitutes a single property, though it has two different Door Nos. The Tribunal has reached the conclusion that assessee has purchased only one property and not two
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properties. Though the Tribunal has made a reference to the decisions rendered by the Hon’ble Delhi High Court in the case of Gita Duggal (2013) 30 Taxmann.com 230(Delhi) in which flats located in two different floors were regarded as one property. The Tribunal also referred to decisions of High Court of Karnataka referred to by the Hon’ble Delhi High Court and those decisions were only purely supportive, but the real conclusion of the Tribunal on facts is that the assessee purchased only one house property. In the circumstances, we are of the view that there is no mistake, much less an apparent mistake, in the order of Tribunal.” 9. The above decision of the Hon’ble Tribunal pertains to AY 2015-16 i.e after the amendment.
On identical facts, the Bangalore Tribunal has held similarly in the following cases:-
- Chandrashekar Veerabhadraiah Vs ITO (ITA No. 2293/Bang/19 dtd, 24.9.2021) - Halesh KC Vs ITO (ITA No. 194/Bang/2020 dtd. 24.2.2021 - Shri Ramaiah Harish Vs ITO (ITA No. 789/Bang/2019) dated 24.09.2021 11. The ld. AR submitted that the CIT(A) relied on the decision of Bangalore Tribunal in Shri Ramaiah Harish Vs ITO (ITA No. 789/Bang/2019) dated 04.09.2019 for the proposition that each portion in a floor is a separate residential house and therefore, the deduction u/s 54F has to be denied on the ground that the assessee has purchased more than one residential house. He submitted that the above decision of the Bangalore Tribunal has been recalled vide MP order dated 10.01.2020 and the case has been decided in favour of the assessee on 24.09.2021. The decision relied on by the CIT(A) in Ramaiah Harish is in favour of the assessee and the relevant paragraph is para 6.
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He further submitted that the decision in Bhatkal Ramarao Prakash Vs ITO 175 ITD 144 is equally applicable while interpreting the expression “owns more than one residential house” in sub clause (i) of clause (a) of proviso to Section 54F(1). Main section 54F(i) after amendment with effect from Assessment year 2015-16 also uses the same expression “one residential house” and the interpretation of this expression by Tribunal will apply with equal force to sub clause (i) of clause (a) of proviso to section 54F.
He further submitted that the CIT(A)’s reliance on the decisions of the Hon’ble Supreme court in Dilip Kumar & Co., 95 taxmann.com 327 and Novopan India Ltd., 3 SCR 549 is completely misplaced. The Hon’ble Supreme Court held that the interpretation of an exemption notification should be strictly in accordance with the wordings of the notification and any ambiguity in the eligibility clause should be resolved in favour of the Revenue. A perusal of the decisions of Tribunal mentioned above would show that the Tribunal has interpreted section 54F on its own terms and held that multiple residential units in a single building has to be considered as one residential house. The Tribunal did not notice any ambiguity and hence, was not resolving any ambiguity. Hence, the learned CIT(A) clearly erred in law in relying on the decision of Hon’ble Supreme Court in Dilip Kumar & Co. (supra). The above decision is not applicable to the facts of the present case.
In view of the above submissions, the ld. AR submitted that the assessee is entitled to deduction u/s. 54F.
The ld. DR relied on the orders of lower authorities and submitted that the assessee’s premises has been inspected by the Inspector of the department and he has given a report that the premises consists of two residential units each having doorways; Ground floor : 1 flat/residential
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unit BHK and 1st Floor : 1 flat/residential unit BHK. The assessee is residing in ground floor and 1st Floor is let out to the tenant and assessee is having more than one residential house. According to her, the assessee is not entitled to deduction u/s. 54F of the Act.
We have heard both the parties and perused the material on record. In the present case, the assessee is having one building which consists of two units; one was let out and another is self-occupied by the assessee. The contention of the department is that these two units i.e., ground floor and first floor constitute two separate residential units for the assessment year under consideration and as such the assessee is not entitled for deduction u/s. 54F. However, we come across the recent decision of the Tribunal in the case of Shri Ramaiah Harish v. ITO, ITA No.789/Bang/2019 dated 24.09.2021 wherein it was held as under:-
“4. We heard the parties and perused the record. The question, whether each floor of a single stand alone building should be considered as separate house was examined by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash vs. ITO (ITA No.2692/Bang/2018 dated 04-01-2019). The relevant portion of the order in the above said case is extracted below:- “20. As far as the case of the AO that assessee has purchased two properties under Sale Deed dated 28.06.2014 is concerned, we have perused the schedule of the property that was purchased. Actually this was a single piece of property viz., Site No.1 owned by Smt. Janaki Iyengar, Smt. Janaki Iyengar constructed a residential house in ground floor in the year 1937 and the first floor in the year 1962-63 with the ground floor of the property re- numbered as No.37 and the first floor as Door ITA No. 2692/Bang/2018 No.37/1 of 1st Main Road, N.R.Colony. Janaki Iyengar executed a will on 28.5.1975 wherein she bequeathed to her sister Dr.M.Vaidhei with Door No.37 which is Schedule-A of the Sale Deed under which the Assessee purchased this property and the first floor bearing door No.37/1, described in Schedule B in the sale deed under which Assessee purchased the new asset to her
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nephew P.Ramanuja Chari. Janaki Iyengar died on 6.6.1975 and the legatees under the will sold their respective shares in one property to the Assessee. The entire property constitutes single house but was bifurcated with two door numbers for the ground and first floor with common entrance in the ground floor only to earmark the share of each beneficiaries. The property otherwise constitutes a single property, though they have two different door nos. In such circumstances, the assessee has purchased only one property and not two properties. In this regard, the decisions cited by the ld. Counsel for the assessee before us supports the plea of the assessee viz., the decision of the Delhi High Court in the case of CIT Vs. Gita Duggal (2013 30 taxmann.com 230 (Delhi). In the aforesaid decision, the facts were that the assessee entered into a development agreement pursuant to which the developer demolished the property and constructed a new building comprising of three floors. In consideration of granting the development rights, the assessee received Rs. 4 crores and two floors of the new building. The AO held that in computing capital gains, the cost of construction of Rs. 3.43 crores incurred by the developer on the development of the property had to be added to the sum of Rs. 4 crores received by the assessee. The assessee claimed that as the said capital gains was invested in the said two floors, she was eligible for exemption u/s 54. The AO rejected the claim on the basis that the units on the said floors were independent & self- contained and not "a residential house" and granted exemption for only one unit. The CIT(A) and Tribunal upheld the assessee's claim by relying on B.AnandaBasappa 309 ITR 329 (Kar) and K.G. Rukminiamma 331 ITR 211 (Kar). On appeal by the ITA No. 2692/Bang/2018 department, the High Court dismissed the appeal of the revenue. The Hon'ble Court observed that as held in B.AnandaBassappa (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, section 54/54F uses the expression "a residential house" and not "a residential unit". Section 54/54F requires the assessee to acquire a "residential
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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, 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 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 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. 21. We are therefore of the view that the Assessee was entitled to claim deduction u/s.54F of the Act in respect of investment in the property bearing Door No.37 & 37/1, 1st Main Road, N.R.Colony, Bangalore.
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We also notice that the revenue had filed a miscellaneous application against the above said order passed by the Tribunal in MP No. 08/Bang/2020 and the same was rejected by the order dated 09-09-2020 passed by the co-ordinate bench with the following observations:- “4. In this miscellaneous petition, the revenue has contended that since the Tribunal has placed reliance on the decision of the Hon'ble High Court of Karnataka rendered in the case of B. Ananda Bassappa (supra) and K G Rukminiamma (supra) and since by the Finance Act, 2014, section 54F was amended by substituting the words "a residential house" with "one residential house" and since the assessment year in this appeal is after the aforesaid amendment, the conclusions drawn by the Tribunal are incorrect and suffers from an apparent mistake on the face of record and should be rectified suitably. 5. We have heard the rival submissions. The ld. DR reiterated the stand of revenue as contained in the petition. 6. We are of the view that there is no mistake, much less an apparent mistake, in the order of the Tribunal. The Tribunal in para 20 of its order has clearly given a finding that the property at N.R. Colony belonged to one owner, Smt. Janaki Iyengar and as per the Will of Smt. Janaki Iyengar, the Ground Floor of the premises which was numbered as Door No.37 was given to Smt. Janaki's sister, Dr. M. Vaidehi and the 1st Floor numbered as Door No.37/1 was given to Smt. Janaki's nephew, Shri P. Ramanuja Chari. Both these owners of Ground Floor and 1st Floor sold the property to the assessee. The Tribunal in para 20 of the order clearly observed that the entire property constitutes one residential house, but was bifurcated with two Door Nos. for Ground Floor and 1st Floor with common entrance in Ground Floor only to earmark the share of each beneficiary and that otherwise the property constitutes a single property, though it has two different Door Nos. The Tribunal has reached the conclusion that assessee has purchased only one property and not two properties. Though the Tribunal has made a reference to the decisions rendered by the Hon'ble Delhi High Court in the case of Gita Duggal (2013) 30
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Taxmann.com 230(Delhi) in which flats located in two different floors were regarded as one property. The Tribunal also referred to decisions of High Court of Karnataka referred to by the Hon'ble Delhi High Court and those decisions were only purely supportive, but the real conclusion of the Tribunal on facts is that the assessee purchased only one house property. In the circumstances, we are of the view that there is no mistake, much less an apparent mistake, in the order of Tribunal.” 6. The view taken in the case cited above is that an independent building can have a number of residential units and it will not lose the character of “one residential house”. Identical view has been expressed by another co-ordinate bench in the case of Shri Chandrashekar Veerabhadraiah vs. ITO (ITA No.2293/Bang/2019 dated 07-12-2020 relating to AY 2015-16). Accordingly, we are unable to agree with the view taken by the tax authorities that each floor of the individual house/each portion in a floor is separate house property. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and hold that the house property received by the assessee is “one residential house” only within the meaning of sec.54F of the Act. Accordingly, we are of the view that the reasoning given by the AO to reject the claim for deduction u/s 54F is not justified. 7. With these observations, we restore this issue to the file of the AO for allowing the deduction u/s 54F of the Act in compliance with the above decision. 8. In the result, the appeal of the assessee is allowed.”
In the present case also, the assessee owns one independent building which has two units one in ground floor and another in first floor and having two units cannot change the nature of the building, it remains as “one residential house” as in the case of Shri Ramaiah Harish (supra). Thus, we direct the AO to allow deduction u/s. 54F of the Act. The grounds raised by the assessee are allowed.
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In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 27th day of October, 2021.
Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 27th October, 2021.
/Desai S Murthy /
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.
By order
Assistant Registrar ITAT, Bangalore.