MR.HEMANT DOSHI,MUMBAI vs. ITO - 32(1)(5), MUMBAI

The Appellant is an individual, sold residential flat during the year amounting to Rs. 1,75,00,000/-( Sec SOC value Rs. 1,96,26,500/-)and purchased ( under construction, raw flats even no kitchen was ready and only pipelines were passing from outside), two residential adjacent flats i.e. Flat No. 905 & 906 in Satra Park, Borivali (West) total amounting to Rs. 1,55,00,000/-, claimed deduction u/s 54 of Rs. 1,76,89,650/-and offered capital gain of Rs. 11,48,207/-. In the assessment u/s 143(3) of the Act, the Ld AO disallowed the claim of the Appellant and made addition of Rs. 86,34,475/- thereby computing total income at Rs. 1,00,03,540/- and the same is also Confirmed By The Ld CIT(A).

The Ld AO is erred in thrusting upon the Appellant that" the bigger flats i.e. 3BHK flats were available in the building, if the assessee's requirement was of larger area then he may invest in the single flat of the larger area"

The Appellant prays to delete the addition made on this account and allow the deduction claimed by the Appellant u/s 54 of the Act.

Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A) and also submitted written submissions. The written submissions filed by the assessee before Ld. CIT(A) are contained in 3.2 of its order and the same are reproduced below:-

We have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities.

As per the facts of the present case, the only dispute which arising the present case is as to whether the deduction claimed by the assessee u/s 54 of the Act is allowable or not. The revenue authorities had concluded that the assessee had purchased two separate flats vide separate agreements and both these properties had been registered separately, therefore assessee is not entitled for deduction. On the other hand, the case of the assessee is that even though there are two registration, but the residential property in question is just one unit having common entrance and kitchen. 8. Ld. CIT(A) after considering the case of both the parties, had admitted that section 54 of the Act is a beneficial provision of law and should be interpreted liberally. It is for this very reason that the courts have held that even when two flats have Mr. Hemant Doshi been joint together, then they would constitute to mean one residential house, thus eligible for claim of deduction u/s 54 of the Act. In this respect, we also rely upon the judgment of Jurisdictional Bombay High Court in the case of CIT Vrs. Raman Kumar Suri 212 taxman. 411, wherein the Hon’ble Bombay High Court categorically stated that the benefit of section 54F of the Act should be given if two adjacent flats are joined to one, but have common entrance and kitchen.

Ld. CIT(A) in his order has also mentioned that the facts of the assessee’s case is very similar to the facts of the case mentioned in the case of CIT vrs. Devdas Nayak 366 ITR 12, wherein it was inter alia held that section 54 of the Act- Assessee claimed deduction u/s 54 on purchase of two flats – Though these flats were acquired under different agreements, but map of general lay out plan and internal layout plan indicated that there was only one common kitchen for both flats and both flats were used as a single unit. Thus, it was held that claim u/s 54 could not be denied.

After analyzing the facts of the present case, we find that Ld. CIT(A) had concluded that the assessee had combined two Mr. Hemant Doshi flats but have separate entrance and separate kitchen, thus denied the exemption claimed by the assessee. Whereas on the contrary, Ld. AR submitted that assessee had purchased under construction two raw flats and had placed on record purchased agreements at page no. 38 to 124 alongwith layout plan on page no. 126 of the paper book, which reflects that both the flats are being utilized as one single residential house with common entrance and one kitchen.

We have perused the copy of layout plan of the flat in question which is at page no. 126 of the paper book coupled with Architect certificate at page no. 125 wherein it is mentioned that both the flats i.e. flat no. 905 and 906 are combined by removing internal wall and converted into single residential flat having common single entrance and single kitchen and is thus used as single residential unit only.

In rebuttal, the revenue could not place on record any documentary evidence to substantiate their stand that the flats owned by the assessee are having separate entrance and separate kitchen. Thus in the absence of any rebuttal to the documentary Mr. Hemant Doshi evidences filed by the assessee, we are inclined to reject the contentions of the revenue.

Moreover a bare reading of section 54 (1) of the Act makes it clear that there is no requirement that the house has to be a single residential house. The only requirement of the provision is that the assessee must have purchased a residential house. The expression a residential house used in section 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’.

In the earlier part of the section, 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 can also 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 section Mr. Hemant Doshi 13(2) of the General Clauses Act. Although, 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 the commercial use.

In our view, if there is nothing in the section which requires that the residential house should be built in a particular manner, it seems that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. Thus in our view, the primary requirement for claiming deduction u/s 54 of the Act was fulfilled in the instant case by virtue of the fact that the funds emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time.

The only reason given by AO for not allowing the deduction is, according to AO the assessee has purchased 2 flats and not the bigger flat i.e 3 BHK flats. The assessee states here that no bigger flats were available at that point of time when he was booking and also and his requirement of four bedrooms was not getting satisfied even if flat were available. Even otherwise, Mr. Hemant Doshi the assessee has proved by placing on record a copy of layout plan and certificate of Architect, who shows that the flats of the assessee is a single flat having one entrance and one kitchen.

The Layout of the plan is annexed in the paper book Pg. No. 126 which clearly shows that therein there is only one entrance and one kitchen. Hence flat no. 905 and 906 are to be considered as one flat. The certificate provided by the assessee from architect states that he has physically examined the flat and the flat is one single residential flat which is being used by assessee as residence having common entrance, combined living room, single kitchen and one gas pipeline.

We have also perused the judgment in the case of CIT Vs Gita Duggal (Delhi High Court) Appeal No. 1237 OF 2011, wherein it was held that "the expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should I not be understood to indicate a singular number. Also, section 54/54F uses the expression I 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 Mr. Hemant Doshi 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 independent residence. 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 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 tljt he may use the ground floor for his own residence and let out the first floor having an independert entry so that his income is augmented. It is quito 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

In the case of CIT Vs Syed Ali Adil (Andhra Pradesh High Court) 410 of 2012, wherein it was held that the expression "a residential house’ in section. 54 (1) has to be understood in the sense that the building should be of residential nature and "a" should not be understood to indicate-,a singular number. Where an assessee had j3üihased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, despite the Mr. Hemant Doshi fact that the flats were purchased by separate sale deeds. Deduction is allowable eve if the flats are on different floors. On facts, as th two flats purchased by the assessee are adjacent V-) one another and have a common meeting point, the deduction cannot be denied.

Thus keeping in view the facts and circumstances as well as legal proposition as mentioned above, we allow these grounds raised by the assessee and direct the AO to allow the deduction u/s 54 of the Act to the assessee. It is ordered accordingly.