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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT(A)-4, Bangalore dated 08.03.2019 for Assessment Year 2012-13.
The grounds raised
by the assessee are as under. “1. The order of the lower authority is contrary to law, facts and evidences on record.
2. The lower authorities erred in disallowing the exemption U/s.54 F in respect of sale consideration of Rs.56,22,000/- on the ground that the exemption is confined to only to one property and one transaction.
3. The learned lower authorities failed to appreciate in the facts and circumstances of the case as established by judicial decision, the two adjacent properties has to be considered as one only.
4. Without prejudice to the above the provisions of section 54 F does not place any restriction on owning of nonresidential property /commercial property as it is clear from the proviso to the said section and the provisions of section 54 F is also not confined to one transaction or one property in a year but covers all the transactions in a year.
5. Without prejudice to the above ground the AO has erred in assessing the entire consideration of Rs.56,22,000/- instead of assessing only component of capital gain embedded in it which works out to Rs.42,22,339 only.
6. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.”
The relevant brief facts are that it is noted by the AO in para 7 of the assessment order that this is the stand of the AO that the assessee is not eligible for deduction u/s. 54F because the capital gain in question is arising in respect of sale of two commercial properties purchased by the assessee separately by way of two separate deeds although executed on same date i.e. on 24.09.1998. The AO has reproduced the provisions of section 54F of the IT Act and the AO has stated that as per the provisions of both these sections i.e. section 54 & 54F, if capital gain arises from the transfer of a long term capital asset then deduction is allowable under these two sections. In para 8 of the assessment order, the AO has come to the conclusion that since the long term capital gain in the present case is arising on account of sale of two properties, the assessee is not eligible for deduction u/s. 54/54F of the IT Act. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) but without success and now the assessee is in further appeal before us.
The ld. AR of assessee placed reliance on the Tribunal order rendered in the case of Smt. Hemalatha Chandran Vs. ITO in dated 01.04.2016 for Assessment Year 2011-12 and rendered in the case of ACIT Vs. Shri Mohinder Kumar Jain in ITA No. 5254/Del/2014 dated 04.08.2017 for Assessment Year 2011-12. He submitted a copy of both these Tribunal orders. He also placed reliance on the judgment of Hon'ble Karnataka High Court rendered in the case of CIT & Another Vs. Smt. K.G. Rukminiamma as reported in [2011] 331 ITR 211 (Karn). He submitted a copy of this judgment also and pointed out that this was held by Hon'ble Karnataka High Court in this case that the letter ‘a’ used should not be construed as meaning “singular” but being an indefinite article. In this regard, he drawn our attention to para 10 of this judgment of Hon'ble Karnataka High Court. Ld. DR of revenue supported the orders of authorities below. 5. We have considered the rival submissions. First of all, we reproduce the relevant para from the order of ld. CIT(A) i.e. para no. 6 for ready reference. “6. I have considered the above grounds of appeal, statement of facts and written submissions filed by the appellant and also perused the assessment order. It is evident from the assessment order that the Page 3 of 6 assessing officer has explained the addition made by him in his order dated 13.03.2015, in vide para 6 to 8:- "The case laws relied upon by the assessee can be distinguished. in the case of Sri. D. Anand Basappa V. ITO, the assessee being an HUF has sold a residential house and purchased two residential flats adjacent to each other. In the case of Shiv Narian Chaoudry V. CWT, the issue relates to exemption under sec. 5(1)(iv) of the Wealth tax Act. In the case of Leela P. Nanda, the issue relates to purchase of two contiguous flats converted into a single residential house. In the case of KG. Vyas v. ITO, the issue relates to purchase of four flats in the same building fiolor the purpose of own residence. The case laws relied upon by the assessee relates to sale of residential house and purchase of adjacent flats converted to single single residential units. But in the case of the assessee the issue is completely different.
7. The assessee has purchased Property No. 1, a commercial property through a Sale Deed dated 24.9.1998 registered as 1392/ 98-98 measuring 696 sqft. He has also purchased another commercial property i.e. Property No.2 by means of a Sale deed dated 24.9.1998 registered as 1390/ 98-99 measuring 695 sq.ft. These two commercial properties have been sold by the assessee by means of two separate Sale Deed vide document No. 2610/ 11-12 dated 27.3.2012 and document No. 2611/ 11-12 dated 27.3.2012. It is pertinent to note here that the properties purchased by the assessee were two different properties purchased by means of two separate Registered Deeds and the sale of the properties is through two separate registered deeds. Hence it cannot be said that there is a single sale on which the assessee is entitled for exemption under sec. 54F for having invested the amount in purchase of residential house. The wordings in section 54 and 54F are quite different. The relevant portion is reproduced as under: Sec. 54: Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a HUF, the capital gain arises mm 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 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 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 provisions of this section; Sec. 54F: Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a HUF, the capital gain arises mm the transfer of a long term capital asset not being a residential house 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 Page 4 of 6 house, then instead of 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 provisions of this section; 8. The section is very clear regarding the fact that it is the capital gain from 'a' long term capital asset and the assessee has claimed exemption on two properties which is not the intention of legislation. In view of the above, the assessee is not entitled for exemption under sec, 54F in respect two properties and the exemption is restricted to one transaction and the exemption claimed amounting on sale of property amounting to Rs.56,22,000/- is disallowed." The assessee relied on the on the Hon'ble ITAT Delhi in the case of ACIT, Circle-27(1), New Delhi Vs. Mohinder Kumar Jain (ITA No. 5254/De1/2014). However, the facts and circumstances in the assessee's case are different. Here it is a clear case, where assessee sold 2 commercial properties with 2 distinct sale deed and wanted to invest in one residential property and claim exemption u/s 54F on the total capital gains received on the sale of the 2 commercial properties which is not permissible under 54F nor is in line with the intention of the law makers. Hence, I do not infirmity in the order passed by the AO and thus grounds raised
are accordingly dismissed. Ground no. 4:- "That the learned Assessing Officer erred in disallowing loss of Rs.37,249/- being the loss from the house property." The AO in vide para 9 of the assessment order had rightly disallowed the loss claimed by the assessee as the assessee had not offered any notional income from let-out property which was vacant. Accordingly, I agree with the AO's observation and the assessee is not entitled to claim loss on this property. This ground is not allowed.”
6. From the above para reproduced from the order of ld. CIT(A), it comes out that as per the orders of authorities below, this is the only objection that assessee has sold two commercial properties with two distinct sale deeds and made investment in one residential property to claim exemption u/s. 54 of the total capital gain received on sale of two commercial properties and it is not allowable because it is not permissible u/s. 54F of the IT Act. Now at this juncture, we reproduce para no. 10 of the judgment of Hon'ble Karnataka High Court rendered in the case of CIT & Another Vs. Smt. K.G. Rukminiamma (supra).
Page 5 of 6 “10. The context in which the expression 'a residential house' is used in s. 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word "one". As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as "a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be "a residential house". Therefore, the letter 'a' in the context it is used should not be construed as meaning "singular''. But, being an indefinite article, the said expression should be read in consonance with the other words 'buildings' and 'lands' and, therefore, the singular 'a residential house' also permits use of plural by virtue of s. 13(2) of the General Clauses Act. This is the view which is taken by this Court in the aforesaid case in IT Appeal No. 113 of 2004, disposed of on 20th Sept., 2008 [reported as CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 : (2009) 20 DTR (Kar) 266—Ed.]”
From the above para of this judgment of Hon'ble Karnataka High Court, it comes out that in this para, Hon'ble Karnataka High Court is referring the use of term ‘a’ in respect of both the properties i.e. the original property on whose sale long term capital gain has arisen and also to the new property in which investment has been made after such sale to claim such deduction u/s. 54/54F of the IT Act. Hon'ble Karnataka High Court has specifically held that with regard to the original property on sale of which the long term capital gain has arisen i.e. the original asset, the term used is a long term capital asset buildings or lands and being a residential house. Based on this, this was the finding of Hon'ble Karnataka High Court in this para that the term ‘a residential house’ used in section 54 makes it clear that it is not to convey the meaning that it refers to a single residential house. Hence in our considered opinion, the issue in the present case is squarely covered in favour of the assessee and against the revenue by this judgment of Hon'ble Karnataka High Court and respectfully following the same, we hold that the authorities below were not justified in rejecting the claim of the assessee for deduction u/s. 54F on this basis that the assessee has sold two commercial properties and claimed deduction u/s. 54F of the IT Act. There is no other objection of the authorities below regarding the assessee’s eligibility for deduction u/s. 54F of the IT Act. But still we feel it proper to restore back this matter to the file of AO to quantify and allow deduction u/s. 54F of the IT Act as per law. If it is found that the assessee has purchased a new eligible residential house property within Page 6 of 6 prescribed time, then it should be held that the assessee is eligible for deduction u/s. 54F and deduction should be quantified and allowed as per law. We order accordingly. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.