SMT.MANJU MAHENDRA GOYAL,MUMBAI vs. INCOME TAX OFFICER 19(2)(3), MUMBAI

आदेश / O R D E R

The assessee is aggrieved by the impugned order dated 24/01/2018 of the Ld. First Appellate Authority, Mumbai.

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assessee. It is noted that this appeal was filed by the

assessee on 21/02/2018 and fixed for hearing for

08/05/2018 when the assessee sought adjournment. On

09/05/2018, again the appeal was adjourned to

04/06/2018. On that date, the assessee sought

adjournment. Again on 07/06/2018, the assessee sought

adjournment. On 16/07/2018, at the request of the

assessee, the appeal was adjourned and the identical is

the situation on 19/07/2017. On 09/10/2017, again the

assessee requested for adjournment. On 13/08/2018,

again the assessee requested for adjournment and thus

the last opportunity was granted to the assessee for

14/08/2018. On that date also, the assessee requested

for adjournment for 04/09/2018. On 04/09/2018 also,

the hearing was adjourned to 06/09/2018 that too at the

request of the assessee. Identical is the situation for

06/09/2018 and 07/09/2018 as the assessee sought

adjournment. Today, i.e. 08/10/2018, the assessee

neither appeared nor moved adjournment petition,

therefore, I have no option but to proceed ex-parte, qua

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the assessee and tend to dispose of the appeal on the

basis of material available on record.

2.1. The first ground raised by the assessee pertains

to rejecting the claim for exemption under section 54 of

the Income Tax Act, 1961 (hereinafter the Act) with

respect to capital gains of Rs.10,02,415/- arose from

transfer of Long Term Capital Asset, being a residential

house. Before the Ld. Commissioner of Income Tax

(Appeal), the stand of the assessee is that the assessee

purchased the residential house within the period

prescribed under section 54 of the Act having satisfied all

the conditions contained therein. On the other hand, the

ld. DR, before me, defended the denial of exemption by the

Ld. Commissioner of Income Tax (Appeal) by inviting our

attention to the provision of section 54 of the Act.

2.2. I have considered the submissions of Ld. DR

and perused the material available on record. Before

adverting further, it is my bounded duty to examine the

provision of section 54 of the Act, which is reproduced

hereunder:-

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(i ) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii ) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.— 12 [Omitted by the Finance Act, 1992, w.e.f. 1-4- 1993.]

2.3. Now, we shall reproduce hereunder section 54F

of the Act as was applicable for the impugned Assessment

Year is reproduced hereunder:-

54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a ) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b ) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: [Provided that nothing contained in this sub-section shall apply where— (a ) the assessee,— (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b ) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".] Explanation.—For the purposes of this section,— 5 [***]

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6 [***] "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of 7 [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.] [(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme 9 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i ) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub- section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the

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new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and (ii ) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid. Explanation.— [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]]

Later vide Finance Act, 2014 w.e.f. 01/04/2015,

section 54/54F was amended and a word ‘a residential

house’ was substituted with ‘one residential house’.

2.4. A plain reading of the provision of section 54(1)

of the Income-tax Act discloses that when an individual-

assessee or Hindu undivided family-assessee sells a long

term capital assets and within a specified period construct

/ acquire residential unit (new asset), the capital gain

arises from the original asset, shall be dealt with in

accordance with the provisions of this section. Such

assessee can invest capital gains for purchase of

residential building/house to seek exemption of the capital

gains tax.

2.5. The Hon'ble Jurisdictional High Court in K.C.

Kaushik vs. Income Tax Officer 185 ITR 499 (Bom) held as

under:

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“1. The petitioner is in the service of the Bank of Baroda. He purchased a flat in Suvarnadeep Co-operative Housing Society Limited (for short "Surnadeep"), Santacruz, Bombay, on March 21, 1973, for a sum of Rs. 49,140 for the purpose of his residence. He was residing in that flat On October 24, 1979, he sold the flat for Rs. 1,25,000 and on same the date purchased another flat in Jai Priyadarshini Co-operative Housing Society Limited at Khar. Bombay (for short "Priyadarshini"), for a sum of Rs. 1,11,000. He resided in the Khar flat from October 24, 1979, to July 25, 1980. On July 26, 1980, he sold the Khar flat also for a sum of Rs. 1,20,000 and purchased another flat on the date in Kalpana Co-operative Housing Society Limited (for short "Kalpana"). Santacruz, Bombay, for Rs. 1,20,000. Thereafter, he started residing in this flat. However, he vacated the flat on May 16, 1981, on being transferred to Baroda. From May 27, 1981, to July 1, 1983, the flat in Kalpana was let out to the Bank of Baroda, his employers.

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"54. Profit on sale of property used for residence. - Where a capital gain arises from the transfer of a capital asset to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, 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 greater than the cost of 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 income of the previous year; and

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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

(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."

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1982, on his transfer to Baroda can be said to be a factor that would bring the petitioner within the mischief of clause (i). In the context, it is desirable to refer to the Gujarat High Court decision in the case, CIT v. Tikyomal Jasanmal [1971]82 ITR 95. The facts in that case were that out of the total constructed portion of the house admeasuring 1,389 sq. ft., the assessee had let out an area of 734 sq. ft., i.e., more than half, immediately on completion of the construction. It was held that the new house was not constructed by the assessee for the purpose of his own residence. The court, however, observed that it was not the case of the assessee that the house was originally constructed by him for the purpose of his own residence but by reason of subsequent events or supervening circumstances, it became impossible or impracticable for him to occupy a part of the house for the purpose of his own residence and was let out to tenants for that reason. Such indeed could not be the case of the assessee since no period of time elapsed between the completion of construction of the ground floor and the letting out of a major portion of it to tenant. In the second decision in the case of CIT v. Natu Hansraj [1976]105 ITR 43, the Gujarat High Court held that no single factor including whether or not the property newly acquired by the assessee was wholly or substantially acquired by him for the purpose of his own residence after purchase or construction, as the case may be, would be determinative of the matter. Even if the new property was not substantially put to use for his own residential purposes by the assessee within a reasonable time and if the failure to do so was without any fault on his part, that is, by reason of some unforeseen subsequent events or supervening circumstances, it might still be possible to hold in a given case, provided other circumstances point in that direction, that the real relief, intention or motive entertained by the assessee at or about the time of purchase or construction as regards the use of the newly acquired house property was to occupy it himself.

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reasonable and requires to be accepted. The expression "for the purpose of his own residence", in my judgment, means and refers to a situation where a new capital asset. i.e., the house property, is purchased by the assessee with the intention to use the same as his own residence. If, for some reason over which he has no control or something unforeseen happens as a result of which he has to reside at a place other than the place where such a new capital asset is situate, it could not be held that the new capital asset was not purchased for the purposes of his own residence. In the above view of the matter, both the conditions are satisfied in this case. Accordingly, the petition succeeds. Rule is made absolute in terms of prayer clauses (b) and (d). No order as to costs.”

2.6. I find that Hon'ble Punjab & Haryana High

Court in the case of Pawan Arya vs. CIT [2011] 11

taxman.com 312 (P&H) wherein it was held as under:

“1. This appeal has been preferred by the assessee under Section 260-A of the Income Tax Act, 1961 (for short, the Act) against the order of the Income Tax Appellate Tribunal, New Delhi dated 17.12.2009 in I.T.A. No.2416/Del/2008 for the assessment year 2005-06 proposing to raise following substantial questions of law:- (i) Whether in facts and circumstances of the case, the action of the authorities below in rejecting the claim of the assessee when all the conditions under section 54 of the Act have been fulfilled is legally sustainable in the eyes of law? (ii) Whether in facts and circumstances of the case, the action of the authorities below in rejecting the claim of the assessee without their being any material evidence to rebut the claim of the assessee/appellant is legally sustainable in the eyes of law? (iii) Whether in facts and circumstances of the case, the action of the authorities below in ignoring the ratio of the decision in the case of D. Anand Basapa v/s ITO (2004) 91 ITD 53 (Bang.) wherein the exemption u/s 54 of the Act was granted on the acquisition of two houses out of the proceeds of one residential house is legally sustainable in the eyes of law? (iv) Whether in facts and circumstances of the case, the action of the authorities below, impugned orders Annexure A-1 and A-5 are legally sustainable in the eyes of law? 2. The assessee claimed exemption on capital gains on sale of flat on the ground of acquisition of two houses. The Assessing Officer set off the capital gain against one of the houses but held the claim not to be admissible against second house. However, the CIT(A) upheld the claim of the assessee relying upon decision of Bangalore Bench of the Tribunal in D. Anand Basapa Vs. ITO (2004) 91 ITD 53. The said view has been reversed by the Tribunal as follows:- “6. We have carefully considered the rival submissions in the light of the material placed before us. The facts in the present case are clear. The assessee is claiming exemption in respect of two independent residential houses situated at different locations; one is in Dilshad Colony, Delhi and the other is in Faridabad. The assessee in the Special Bench case had also purchased two residential houses against sale consideration of residential flat at ‘Gulistan’ situated at Bhulabai Desai Road, Mumbai. One residential property was at Varun Apartments at Varsova and the other property was at Erlyn Apartments, Bandra and it was held by the Special bench in the aforementioned case i.e. ITO Vs. Ms. Sushila M. Jhaveri (supra) that the assessee is entitled to get exemption only in respect of one house of her choice. Therefore, the decision of Special Bench is fully applicable to the present case and the assessee can avail exemption u/s 54 in respect of one residential house only. The factual aspect has not been disputed by ld. AR. The only dispute before us is legal proposition that

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whether the assessee is entitled to get exemption in respect of two independent residential houses purchased out of sale consideration of another residential house. Therefore, the issue is decided in favour of the department and it is held that the assessee is entitled to get exemption u/s 54 in respect of one property only and no question has been raised by ld. AR regarding the choice of the property or the factual aspect of the matter. 7. So it relates to the decision relied upon by ld. AR of Hon'ble Karnataka High Court in the case of CIT Vs. D. Anand Basapa, it may be mentioned that the said case cannot be applied to the case of the assessee on the ground that in that case the two houses purchased by the assessee were not independent properties and a factual finding has been recorded that the two apartments which were claimed to be exempted against sale consideration were situated side by side and it was also stated by the builder in that case that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. On these facts, the Hon'ble’ High Court has observed that the fact that at the time when Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that apartment is not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could be narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase two flats as one unit. From these observations of Hon'ble High Court, it is clear that while rendering the decision they have kept in mind that the purchase of two flats in the same building which were united for living of the assessee by making necessary modifications made the residential unit as one and, thus, that case could not be applied assessee.........†to the facts of the case of the 3. We have heard learned counsel for the appellant. 4. As regards claim for exemption against acquisition of two houses under Section 54 of the Act, the same is not admissible in plain language of statute. In the judgment of Karnataka High Court in CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Kar), referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation. 5. Learned counsel for the appellant wanted to raise certain other points which have neither been pleaded in the memo of appeal nor raised before the Tribunal. The same could not be allowed merely on the basis of oral submissions. 6. No substantial question of law arises. 7. The appeal is dismissed.”

2.7. The Hon'ble High Court was approached,

against the order of the Tribunal, wherein the decision in

the case of D. Anand Basapa vs. ITO was also considered.

The case decided by Hon'ble High Court throws light on

the issue, wherein the assessee claimed exemption in

respect of two independent residential houses situated at

different locations. In the case of CIT vs. D. Anand Basapa

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there were two houses were purchases by the assessee

and was not independent properties and the builders

made effected modifications in the flat and made it one

unit by opening the door in between two apartments in

that situation a particular decision was taken.

2.8. I further note that Hon'ble Delhi High Court in

CIT vs Gita Duggal (357 ITR 153)(Del.) considering the

decision in CIT vs B. Ananda Basappa (2009) 309 ITR 329

held as under:-

“The revenue has filed the appeal under Section 260A of the Income Tax Act, 1961 against the order dated 07.06.2001 passed by the Income Tax Appellate Tribunal in ITA 3613/Del./2010 for the assessment year 2007-08. 2. The assessee which is the respondent in the appeal is an individual. In the computation of income filed along with the return of income, she declared long term capital gains of Rs. 2,68,25,750/- in the following manner :- "Income from Capital Gain Long Term A 22 WESTEND COLONY Consideration as per Collaboration Agreement 40,000,000.00 Less Index cost for pur. of Rs. 1575000 (Fair Value as on 1-04-81) 8,174,250.00 31,825,750.00 Less : Exemption under section 54EC (REC Bonds) 5,000,000.00 26,825,750.00" While completing the assessment the assessing officer took the view that on the terms of the agreement entered into with M/s Thapar Homes Ltd. on 08.05.2006, the cost of construction of the building incurred by the aforesaid company which was the developer of the property would also be included in the total sale consideration.

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The assessee responded by submitting that the entire cost of construction was incurred by the builder and even if it is considered as part of the sale consideration, since it has been fully invested in the residential house itself, the same would be exempt under Section 54 of the Act. The assessing officer did not accept the assessee's submission. He therefore, added an amount of Rs. 3,43,72,529/- which was the cost of construction incurred by the developer to the sale consideration of Rs. four crores received by the assessee and computed the total sale consideration at Rs. 7,43,72,529/-. 3. Dealing with the assessee's contention that in any case the sale consideration should be taken as having been invested in the new residential house and thus exempt under Section 54, which was supported by a judgment of the Karnataka High Court in CIT v. D. Ananda Basappa [2009] 309 ITR 329/180 Taxman 4, the assessing officer held that the two floors which were given to the assessee by the developer and on which the developer had incurred construction cost were independent of each other and self-contained and therefore they cannot be considered as one unit of residence. Accordingly, he held that the assessee was not eligible for the exemption under Section 54. Dealing with the claim for relief under Section 54F, the assessing officer held that the exemption would be available only in respect of one unit, since the two residential units were independent of each other and the assessee cannot therefore claim exemption on the footing that both constituted a single residence. In this view of the matter he recomputed the capital gains by making an addition of Rs. 98,20,722/-. 4. On appeal, the CIT(Appeals) agreed with the assessee's contention and following the judgment of the Karnataka High Court cited above, held that the assessee was eligible for the deduction under Section 54 in respect of the basement, ground floor, first floor and the second floor. He accordingly, allowed the appeal. 5. The revenue carried the matter in appeal before the Tribunal and raised the following ground :- "On the facts and on the circumstances of the case Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 98,20,722/- u/s. 54F of the IT Act, 1961 which the Assessing Officer had allowed in respect of only one unit by treating the units as two separate residential properties. " The Tribunal confirmed the decision of the CIT (Appeals) by observing as under: - "6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that ld. counsel of the assessee submitted that the issue is squarely covered in

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favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of CIT & Anr.v. Smt. K.G. Rukminiamma in ITA No.783 of 2008 vide order dated 27.8.2010 wherein it was held as under :- "The context in which the expression 'a residential house' is 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." 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 Section 13(2) of the General Clauses Act. CIT v. D. Ananda Bassappa [2009] 223 (kar) 186 : [2009] 20 DTR (Kar) 266 followed. " 7. Upon careful consideration, we find that the contentions of the assessee that the issue is covered in favour of the assessee are correct. 7.1 Ld. Departmental Representative could not controvert the above and no contrary decision was cited before us. 8. Accordingly, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals) and hence, uphold the same." 6. In the present appeal before us, the revenue has proposed the following questions as substantial questions of law which in its opinion arise out of the order of the Tribunal. "(A) Whether the Hon'ble ITAT has erred in deleting the addition of Rs. 98,20,772/- under section 54F of the Income Tax Act, 1961 as made by the Assessing Officer? (B) Whether the Hon'ble ITAT has erred in law and facts in holding that the assessee should be given deduction under section 54 of the Income Tax Act, 1961?" 7. We have considered the facts and taken note of the rival submissions. To complete the narration of facts, it needs to be noticed that the assessee was the owner of property at A/22, Westend Colony, New Delhi comprising of the basement, ground floor, first floor and second floor. She was deriving rental income

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from the property. On 08.05.2006 she entered into a collaboration agreement with M/s Thapar Homes Ltd. for developing the property. According to its terms, the assessee being desirous of getting the property redeveloped/reconstructed and not being possessed of sufficient finance and lacking in experience in construction, approached the builder to develop the property for and on behalf of the owner at the cost of the builder. The builder was to demolish the existing structure on the plot of land and develop, construct, and/or put up a building consisting of basement, ground floor, first floor, second floor and third floor with terrace at its own costs and expenses. In addition to the cost of construction incurred by the builder on development of the property, a further payment of Rs. four crores was payable to the assessee as consideration against the rights of the assessee. The builder was to get the third floor. The assessee accordingly handed over vacant physical possession of the entire property along with 22.5% undivided interest over the land. The handing over of possession of the entire property was however only for the limited purpose of development; the undivided interest in the land stood transferred to the developer/builder only to the extent of 22.5% for his exclusive enjoyment. It was on these facts that the assessing officer first took the view that the sale consideration for the transfer of the capital asset should be taken not merely at Rs. four crores which was the cash amount received by the assessee, but the cost of construction incurred by the developer on the development of the property amounting to Rs. 3,43,72,529/- should also be added to the sale consideration. The assessee thereupon claimed that if the cost of construction incurred by the builder is to be added to the sale price, then the same should also be correspondingly taken to have been invested in the residential house namely the two floors which the assessee was to get in addition to the cash amount under the agreement with the builder, and the amount so spent on the construction should be allowed as deduction under Section 54 of the Act. It was at this stage that the assessing officer rejected the claim for deduction under Section 54 on the footing that the two floors obtained by the assessee contained two separate residential units having separate entrances and cannot qualify as a single residential unit. He agreed that the assessee was eligible for the relief under Section 54F in respect of the cost of construction incurred on one unit. He noted that the assessee has retained the ground floor and the basement. He therefore, apportioned the construction cost of Rs. 3,43,72,529/- to have been incurred on the basement, ground floor, first floor and second floor in the ratio of 1:1:1:0.5 for second floor, first floor, ground floor, basement respectively. Since he was allowing the relief under Section 54F of the Act only in respect of one unit, he added Rs. 98,20,722/- which is the figure arrived at by dividing the total cost of construction of Rs. 3,43,72,529/- by 3.5. This is how the assessment was made. What in effect the

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assessing officer had done was to reject the assessee's claim for deduction under Section 54/54F of the Act in respect of the house/units in the first and second floors holding that they were separate and independent residential units having separate entrances and cannot be considered as one unit to enable the assessee to claim the deduction. This was disapproved by the CIT(Appeals) on the basis of the judgment of the Karnataka High Court (supra) and his decision was approved by the Tribunal. The Tribunal expressed the view that the words "a residential house" appearing in Section 54/54F of the Act cannot be construed to mean a single residential house since under Section 13(2) of the General Clauses Act, a singular includes plural. 8. It is the correctness of the above view that is questioned by the revenue and it is contended that the interpretation placed by the Tribunal gives rise to a substantial question of law. The assessee strongly relies upon the judgment of the Karnataka High Court (supra) which, it is stated, has become final, the special leave petition filed by the revenue against the said decision having been dismissed by the Supreme Court as reported in the annual digest of Taxman publication. The judgment of the Karnataka High Court supports the contention of the assessee. An identical contention raised by the revenue before that Court was rejected in the following terms : "A plain reading of the provision of section 54(1) of the Income- tax Act discloses that when an individual-assessee or Hindu undivided family- assessee sells a residential building or lands appurtenant thereto, he can invest capital gains for purchase of residential building to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding 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. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT v. Smt K.G. Rukminiamma [2011] 196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.).

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2.9. The Hon'ble Delhi High Court in CIT vs Ram

Gopal (372 ITR 498)(Del.) held that:-

■ This Court, in the decision as Gulshan Malik v. CIT [2014] 223 Taxman 243/43 taxmann.com 200 (Delhi) had the occasion to, consider what amounted to acquisition of a capital asset - though in the context of a claim that capital gains had accrued due to the sale of the property. The Court was of the opinion that 'capital asset' has been defined in extremely wide terms. A reference to section 2(47), which defines 'transfer', and particularly its second Explanation to clauses (v) and (vi) made it clear that possession, enjoyment of property as well any interest in any of transferable capital asset was included within the ambit of 'capital asset'. The Court held importantly that even booking rights or rights to purchase the apartment or to obtain its letter was also capital asset. [Para 5] ■ In the present case the question is not whether the assessee sold the booking rights and was, therefore, entitled to benefit of capital gains. It is, rather, whether his entering into the transaction and acquiring a property amounted to his acquiring a capital asset. In the light of the definitions of 'capital asset' under section 2(14) and 'transfer' under section 2(47) as discussed in Gulshan Malik (supra), this Court has no doubt that the assessee's contentions were merited. [Para 6] ■ So far as the second issue is concerned, i.e., whether improved cost was deducted, this Court has no manner of doubt that the revenue does not dispute the acquisition of second property. Given that the revenue does not dispute that the second transaction of purchase took place, it has to necessarily follow that the cost of improvement was deductible.

While coming to the aforesaid conclusion, the Hon'ble

High Court considered the decision in CIT v. R.L.

Sood [2000] 245 ITR 727/108 Taxman 227 (Delhi) (para

3), Suraj Lamp & Industries (P.) Ltd. v. State of

Haryana [2012] 340 ITR 1/[2011] 202 Taxman 607/14

taxmann.com 103 (SC)(para 3) and Gulshan

Malik v. CIT [2014] 223 Taxman 243/43 taxmann.com

200 (Delhi). The Hon'ble Madras High Court in CIT vs

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Sundarmal Kothari (302 ITR 286)(Mad.) observed/held as

under:-

“The relevant assessment year is 2001-02. The assessees, Shri Sardarmal Kothari and Shri Shanthilal Kothari, filed their respective returns of income admitting a total income of Rs. 3,02,593 apart from the agricultural income of Rs. 25,000 each. The assessees have claimed exemption of capital gain tax under section 54F of the Income-tax Act. The Assessing Officer rejected the same on the ground that the construction was not completed when he made a personal visit. Against that order, the assessees preferred appeals before the Commissioner of Income-tax (Appeals) who allowed the appeals by holding that the assessees have invested the capital gains in the land and substantially completed the construction and directed the Assessing Officer to grant the benefit to the assessees. Against that order, the Department preferred appeals before the Income- tax Appellate Tribunal and the Tribunal has confirmed the order of the Commissioner (Appeals) and dismissed the appeals. The correctness of the said orders is now canvassed in these appeals by formulating the following questions of law: "1.Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessees are entitled for exemption under section 54F of the Income-tax Act is valid? 2.Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding, when the conditions laid down in sub-section (1) of section 54F and the Board Circular No. 667, dated October 18, 1993 ([1993] 204 ITR (St.) 103), clearly stated that the purchase/construction is to be completed within stipulated time is not mandatory for claiming exemption under the Act?" We have heard the argument of learned counsel for the appellant and perused the materials available on record. There is no dispute about the fact that the assessees have invested the entire net consideration of sale of capital asset in the land itself and subsequently the assessees have invested large sums of money in the construction of the house. The cost of investment in land and the cost of expenditure towards the construction of the houses is not in

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dispute. The one and only ground on which the Assessing Officer has non-suited the assessees for the claim of exemption was that the houses have not been completed. There remains some more construction to be made. The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have also constructed residential houses. In order to establish the same, the assessees submitted before the Commissioner of Income-tax (Appeals) several material evidence, viz., invitation card printed for the house-warming ceremony to be held on July 12, 2003. The assessees have also produced the completion certificates from the Municipal authority on January 30, 2004. On the basis of the above documents, the Commissioner of Income-tax (Appeals) concluded that the requirement of the statutory provision has been complied with by the assessees and that was reconfirmed by the Tribunal in the orders impugned. In the second question of law formulated, a reference is made to the Board Circular No. 667, dated October 18, 1993 ([1993] 204 ITR (St.) 103). On a reading of the circular, we are of the view that the Circular would not in any way advance the case of the Revenue to come to the conclusion that in order to have the benefit under section 54F of the Income-tax Act, the construction should have been completed. The Tribunal has also taken note of its own earlier order in the case of Mrs. Seetha Subramanian v. Asst. CIT reported in [1996] 59 ITD 94 (Mad.), wherein the Tribunal has held that, in order to get the benefit under section 54F, the assessee need not complete the construction of the house and occupy the same. It is enough if the assessee established that the assessee had invested the entire net consideration within the stipulated period. The said view taken consistently by the Tribunal has been applied in these cases also. The Tribunal has distinguished the Delhi High Court judgment in the case of D.P. Mehta v. CIT reported in [2001] 251 ITR 529 , relied on by the Revenue in their favour to non-suit the assessees for exemption. In our view, the Tribunal has distinguished the same rightly because in the cited case, there was a factual finding by the authorities that the assessee himself has admitted that the construction put up was only a garage and service quarters and it was not fit enough for occupation of the assessee. That factual finding is

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totally absent in these cases. There is no material to entertain these appeals. The appeals fail and the same are dismissed. Consequently, connected miscellaneous petition is also dismissed. 2.10. If the observations made in the aforesaid orders

are analyzed with the facts of the present appeal, I note

that the assessee sold flat no.404 in Satellite Towers Co-

op. Society and received Long Term Capital Gain of

Rs.10,02,415/- and claimed deductions under section 54

of the Act. The assessee invested the gain in new property

and produced the sale and purchase agreements before

the ld. Assessing Officer. The ld. Assessing Officer

observed that the assessee is a joint holder of residential

property at Pune. The residential property was sold on

19/11/2011 for a sale consideration of Rs.57 lakhs and

thus received his share of Rs.28,50,000/- (50% shares)

and after applying the indexation on the purchase of cost

of the property calculated the Long Term Capital Gain at

Rs.10,02,415/-. The agreement for purchase of the new

property was registered on 06/03/2009 and thus the Ld.

Assessing Officer disallowed the claimed exemption. The

assessee purchased flat No.202 in Spice Building on

06/03/2009 and paid Rs.6,01,697/- on 04/07/2012 and

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Rs.04,86,625/- on 16/07/2012 and got the possession of

the new asset on 26/03/2013. The ratio laid down in

Amritlal B. Shahu & Ors. vs Income Tax Officer (ITA

No.265/Mum/2015, etc) order dated 31/08/2018,

supports the case of the assessee. The Hon'ble

jurisdictional High Court in Mrs. Hila J. B. Wadia (1995)

216 ITR 376 held that booking of flat in an apartment

under construction must also be viewed as constructing

residential tenements and thus the case of the assessee

should be treated as a case of “Construction” and not as a

case of “purchases”. As per section 54, construction of

new residential property should be completed within three

years after the date of sale of property. The case of the

assessee is further fortified by the decision in Mustansir I

Tehsildar vs Income Tax Officer (2018) 168 ITD

523(Mum.). The relevant portion from this decision is

reproduced hereunder:-

“5. We heard the parties on this issue and perused the record. We have earlier noticed that the assessee has booked a flat, which was under construction, and made payments over the year. The final payments were Mr. Mustansir I. Tehsildar made subsequent to the date of sale of old flat. The Ld A.R submitted that the final payment was made on 22-10- 2014 and possession of new flat was obtained on 11-12-2014.

25 ITA No.994/Mum/2018 Smt. Manju Mahendra Goyal

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Thus, following the aforesaid decision, we find merit

in the claim of the assessee, because the assessee made

the investment within the specified period contained in

section 54 of the Act. Thus, this ground of the assessee is

allowed.

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respect to confirming the addition of Rs.5,11,239/- by way

of disallowing interest paid on borrowed funds. It is noted

that the assessee paid interest of Rs.5,11,239/- and the

set off the same against the income received from other

sources. The Ld. Assessing Officer asked for justification

for the claim of deduction under section 57(iii) of the Act.

The Ld. Assessing Officer observed that the assessee use

the funds of the Bank O.D. for investing in bank F.D. and

the interest paid on the overdraft account of the bank are

normally higher than the interest payment made by the

bank on fixed deposits. He also observed that the bank

overdraft facilities were used for offsetting the fluctuation

of the income and rather the short term funds of O.D.

were used for long terms investment like FDs and bonds.

It is a clear cut case of reducing the tax liability without

any justification and thus the nexus between the interest

paid and other sources was not proved, thus, such claim

of interest deduction is not allowable under section 57(iii)

of the Act, resultantly, this ground of the assessee is

having no merit, consequently, dismissed.

28 ITA No.994/Mum/2018 Smt. Manju Mahendra Goyal

interest under section 234B and 234 of the Act.

Considering the totality of facts, this ground is held to be

consequential in nature.

Finally, the appeal of the assessee is partly allowed.

This Order was pronounced in the open court in the

presence of ld. DR at the conclusion of the hearing on

08/10/2018.

Sd/- (Joginder Singh) �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 08/10/2018 f{x~{tÜ? P.S /�नजी स�चव आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai