ITO NON CORP WARD 14 (4), CHENNAI vs. SMT. B VATHSALA, CHENNAI

आयकर अपीलीय अिधकरण, ‘‘बी’’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी रिमत कोचर, लेखा सद� एवं �ी धु�ु� आर. एल रे�ी, �ाियक सद� के सम� Before Shri Ramit Kochar, Accountant Member & Shri Duvvuru R.L. Reddy, Judicial Member आयकर अपील सं./I.T.A. No. 1112/Chny/2018 िनधा�रण वष�/Assessment Year: 2008-09 The Income Tax Officer, Smt. B. Vathsala, Non-Corporate Ward-14(4), Vs. No.34/30, Umapathy Street, Chennai. West Mambalam, Chennai – 600 033. [PAN: ACTPB 9534H] (अपीलाथ� /Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri Srinivasa Rao Vana, JCIT ��थ� की ओर से/Respondent by : Shri N. Arjun Raj, C.A for Shri S. Sridhar, Advocate सुनवाई की तारीख/ Date of hearing : 19.11.2019 घोषणा की तारीख /Date of Pronouncement : 27.12.2019 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals)-14, Chennai dated 15.12.2017 relevant to the assessment year 2008-09. The only effective ground in this appeal raised by the Revenue is that the Ld. CIT(A) has erred in directing the Assessing Officer to allow the assessee’s claim of deduction under section 54F of the Income Tax Act, 1961 (in short “the Act”).

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₹.20,21,760/- from house property and other sources. The return of income was processed under section 143(1) of the Act. As per the information available with the Department regarding sale of immovable property at T. Nagar by one Shri B. Sundararajan and Smt. B. Vatsala (mother of Shri Sundararajan) of ₹.45 crores. The total consideration of ₹.45 crores was divided between the two as ₹.25 crores for Shri B. Sundararajan and ₹.20 crores for Smt. B. Vathsala, assessee. Accordingly, the case reopened under section 147 of the act and notice under section 148 of the Act was issued. Upon the request, the assessee was intimated the reasons for reopening of assessment. After considering the submissions of the assessee and disposing the objections, the Assessing Officer completed the assessment under section 143(3) r. w s. 147 of the Act by assessing the total income at ₹. 6,59,56,280/- after making the disallowance under section 54F of the Act of ₹. 6,39,34,520/-. On appeal, by following the decision in the case of CIT vs. Smt. V.R. Karpagam [2015] 373 ITR 127 (Mad.) and CIT vs. Gumanmal Jain [2017] 394 ITR 666 (Mad.), the Ld. CIT(A) directed the AO to allow assessee’s claim of deduction under section 54F of the Act.

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by the ld. CIT(A), the multiple reinvested properties were located in the same building or address and thus, the both the case law have no application to the facts of the present case and pleaded for reversing the findings of the ld. CIT(A). On the other hand, by filing copy of the decision in the case of Tilokchand & Sons v ITO [2019] 413 ITR 189 (Mad), the ld. Counsel for the assessee has submitted that the issue raised in the appeal of the Revenue is squarely covered in favour of the assessee besides, supporting the order passed by the ld. CIT (A).

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Assessing Officer observed by combined reading of sub-section (1) and sub- section (2) of section 54F of the Act that the assessee is eligible for claiming deduction under section 54F of the Act only for one property. Since the assessee purchased two properties on 19.03.2008 one for an amount of ₹.11,97,00,180/- and the other one for an amount of ₹.6,52,39,980/-, the claim of deduction under section 54F of the Act was restricted for only one property in which the assessee invested for ₹.11 crores and disallowed her claim for the second property which was invested for ₹.6.52 crores. In nutshell, the Assessing Officer held that the assessee is entitled to reinvest in only one residential property.

4.1 The AR of the assessee has submitted before the ld. CIT(A) that the assessee reinvested in the assessment year 2008-09 in which there was no restriction that an assessee should reinvest in only one residential property. It was also pointed out that the amendment restricting the reinvestment to one residential property was introduced prospectively w.e.f. the assessment year 2015-16.The AR of the assessee has relied on two decisions in the case of V.R. Karpagam and Gumanmal Jain (supra). By reproducing the head-notes of both the above decisions, the ld. CIT(A) held that both the case law squarely applies to the assessee’s case in her favour and directed the Assessing Officer to allow the claim of deduction under section 54F of the Act for reinvestment in both the residential properties.

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4.2 The contention of the Department is that the reinvestment in multiple properties located in different addresses is not eligible for claiming deduction under section 54F of the Act even before the amendment to the said section. However, as relied on by the assessee in the recent decision in the case of Tilokchand & Sons v ITO (supra), the Hon’ble Jurisdictional High Court has held that profit on sale of property used for purchasing more than one residential houses within stipulated time limit, the assessee would be entitled to the benefit of exemption under section 54 of the Act and relevant portion of the decision is reproduced as under: “14. We have heard the learned counsel at length and perused the decisions relied by them at the bar. 15. Section 54 of the Act, to its relevant extent, is quoted below for ready reference: "Profit on sale of property used for residence. 54. [(1)] 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, one residential house in India, 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

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(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." [Prior to amendment by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 amendment, the aforesaid words in brackets read like this. Constructed, a residential house] 16. We are conscious of the fact that the questions posed for our consideration have to be answered in the context of an Assessee which is a HUF, which has a special character. It is only by deeming fiction of law that a HUF, is treated as a separate assessable entity by including the same in the definition of the word 'person' under Section 2 (31) of the Act. The definition of the word "Assessee" under Section 2(7) of the Act means a 'person' by whom any tax or sum of money is payable under the Act. Thus, the HUF is also a 'person' and a separate assessable entity under the Income Tax Act, 1961. 17. The purpose of Section 54 appears to allow a deduction to an Assessee, being an individual or HUF, to the extent of investment made in residential house as against the Capital Gains accruing on the sale of original residential house or sold capital asset. The word 'a' has been used in the said provisions of Section 54 (1) of the Act at more than one place and such word 'a' was not replaced by way of amendment by Finance (No.2) Act 2014 with effect from 01.04.2015 at all such places in the said provision. In the first part of Section (1) of the Act, the words 'being a Residential House' coupled with the words 'Buildings or Lands" (plural) appurtenant purchased thereto both clearly indicate the plural sense. The sale being of a residential house does not necessarily restrict the meaning of 'a' to one. If the capital gains arise out of sale of plural of Capital Assets also, including the residential house, it would give rise to taxable capital gains. There is no reason to restrict the benefit of deduction upon investment in residential houses even though such units of residential houses are plural, which is not always so. The word 'a' would normally mean one. But it can in some circumstances include within its ambit and scope plural number also. It may be two or three or even more. The very need to amend the later part of Section 54(1) seems to have been to restrict such plurality to be included in word 'a' by inserting word "one residential house" with effect from 01.04.2015. 18. It would be of interest to refer to the Explanatory notes along with the Finance Bill by which the said amendment was incorporated in Section 54, which is quoted below for ready reference:

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“20.Capital gains exemption in case of investment in a residential house property 20.1. The provisions contained in sub-section (1) of Section 54 of the Income Tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of long-term capital asset, being buildings or land appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act. 20.2. The provisions contained in sub-section(1) of section 54F of the Income-tax Act, before its amendment by Act, inter-alia, provided that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. 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. 20.4. Similarly, sub-section (1) of Section 54F of the Income-tax Act has been amended to provide that the exemption 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." 19. A closer and bare reading of the aforesaid Explanatory Notes to the provisions of the said Act, clearly shows that the said amendment was intended to be specifically applied only prospectively with effect from A.Y.2015-2016. It took note of the judicial precedents for the period prior to 01.04.2015, giving a different and contra interpretation. Therefore this

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amendment cannot be held to be mere clarificatory so as to be applied retrospectively for A.Y.2005-2006 in the present case. 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 admittedly 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. 21. 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 CIT Vs. D. Ananda Basappa ((2009) 309 ITR 329 (Karn)) &

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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. 22. The decision of Punjab and Haryana High Court relied upon by the learned counsel for the Revenue, in which the Division Bench of the said Court finding a distinction with D.Ananda Basapaa's case (supra) on facts, without expressing contrary opinion in detail, held that no Substantial Questions of Law arose, renders little help to the arguments advanced by the learned counsel for the Revenue. 23. Therefore, we are of the considered opinion that the present Appeal filed by the Assessee deserves to be allowed and the same is accordingly allowed and the questions of law framed above are answered in favour of the Assessee and as against the Revenue. No order as to costs.” 4.3 The ld. DR could not controvert the above decision of the Hon’ble Jurisdictional High Court by filing higher Court decision having modified or reversed. In view of the above decision of the Hon’ble High Court, the contention of the Revenue is devoid of merits and thus, the ground raised by the Revenue stands dismissed.

Sd/- Sd/- (RAMIT KOCHAR) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 27.12.2019 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.