ITO 16(1)(4), MUMBAI vs. SHASHANKA GHOSH, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated

26/08/2016 of the Ld. First Appellate Authority, Mumbai.

The ground raised pertains to accepting the claim of the

assessee under section 54 of the Income Tax Act, 1961

(hereinafter the Act), wherein, the investment was made by

the assessee in future project and thus did not consider the

allotment letter in proper perspective.

advanced arguments which is identical to the ground raised

by explaining that the property was sold on 11/01/2011 and

out of the sale proceeds, the assessee purchased another

property, whereas, the date of allotment is 20/11/2011 and

the due date of filing of return was 30/09/2011. The crux of

the argument is in support of the addition made by the Ld.

Assessing Officer. Reliance was placed upon the decision of

the Tribunal in the case of Farida A Dungerpurwala vs

Income Tax Officer (ITA No.5169/Mum/2010), order dated

12/09/2014 and another decision from Hon'ble jurisdictional

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High Court in Rasiklal M. Parikh (ITA No.314/ of 2013), order

dated 10/03/2017. On the other hand, Shri Ketan L. Vajani,

ld. counsel for the assessee, defended the impugned order by

claiming that the impugned issue is covered by the decision

from Hon'ble Madras High Court in CIT vs Sardarmal Kothari

302 ITR 286, Kishore H. Galaiya vs ITO137 ITD 229,

Hasmukh G. Gala vs Income Tax Officer 125 DTR 299(Mum.)

and CIT vs Ram Gopal 372 and 498 (Del.). Our attention

was invited to the copy of allotment letter (pages 1 to 11 of

the paper book) and copy of the registered agreement of sale

(pages 12 to 135 of the paper book).

2.1. We have considered the rival submissions and

perused the material available on record. The facts, in brief,

are that the assessee sold residential flat for a consideration

of Rs.1,90,00,000/- and after considering the indexed cost of

Rs.83,31,098/-, declared Long Term Capital Gain of

Rs.1,04,78,902/-. The assessee invested the Long Term

Capital Gain in residential flat, specifying the flat no., wing

and area of the flat etc along with receipt of payment in

support of his claim. The construction of the building was not

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completed within three years from the date of booking,

therefore, the Ld. Assessing Officer disallowed the claimed

exemption under section 54 of the Act on the plea that the

assessee did not enter into an agreement for purchase and

did not receive possession of the flat within stipulated period.

On appeal, before the Ld. Commissioner of Income Tax

(Appeal), the claim of the assessee was allowed which is

under challenge before this Tribunal by the Revenue.

2.2. If the observation made in the assessment order,

leading to addition made to the total income, conclusion

drawn in the impugned order, material available on record,

assertions made by the ld. respective counsel, if kept in

juxtaposition and analyzed, we note that the assessee sold

two flats bearing nos. 402 and 502 of Natraj Building for a

consideration of Rs.1,90,00,000/- and after claiming the

indexed cost, declared capital gain of Rs.1,04,78,902/- which

was claimed exempt under section 54 of the Act on the plea

that the assessee booked new flat no.606, Tower-C, of M/s

Oberoi Realty Ltd. (Oberoi Square). As per the Revenue, flat

no.606 was not purchased before 10/01/2013 and the

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construction was not completed before 10/01/2014 from the

date of transfer of two flats. Before adverting further, it is our

bounded duty to examine section 54 of the Act as was

applicable for the impugned Assessment Year, which is

reproduced hereunder:-

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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 11 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 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,—

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(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 [***] 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 :

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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 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.

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

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

under:

“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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be reduced. Accordingly, he computed the short-term capital gains for the year at Rs. 82,860. The petitioner's appeal thereagainst failed. According to the Commissioner of Income-tax (Appeals), the petitioner had no option or choice. Relief under section 54 was or could be available only against the purchase of the first property for residence after the sale of the residential house capital gains arising on the transfer of which were sought to be adjusted.

"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

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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 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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required to be reduced to the extent of relief availed of on account of capital gains earned but adjusted. It is for this reason that it has become important to consider whether the new asset, i.e., the flat in Kalpana purchased by the petitioner on July 26, 1980, which was admittedly let out by the petitioner to his employer, Bank of Baroda, on and from May 27, 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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2.6. We 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

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aspect has not been disputed by ld. AR. The only dispute before us is legal proposition that 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.

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 there were two houses

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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. We 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. The assessee responded by submitting that the entire cost of construction was

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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 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 :-

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"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 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

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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 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"

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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.). 9. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. 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

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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 and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, 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. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited. For the above reasons we are of the view that the Tribunal took the correct view. No substantial question of law arises for our consideration. The appeal is accordingly dismissed with no order as to costs.”

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

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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 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

ITA No.6751/Mum/2016 22 Shri Shashanka Ghosh

(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 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

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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 of D.P. the Delhi High Court judgment in the case 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 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 observation made in the aforesaid orders are

analyzed with the facts of the present appeal, we note that

the assessee sold two flats bearing no.402 and 502 and

showed capital gain of Rs.1,04,78,902/- which was claimed

exempt under section 54 of the Act as the assessee booked a

new flat on 12/02/2011 (Flat No.606). The case of the

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Revenue is that simply booking of flat does not entitle the

assessee to claim deduction under section 54 of the Act as

the assessee did not enter into any agreement for purchase of

flat and further the possession was not given in time.

However, the assessee invested the capital gain as per the

terms and conditions of allotment letter dated 28/11/2011

(copy of the allotment letter is available on record). The

decision of the Tribunal in the case of Shri Hashmukh N.

Gala vs ITO (ITA No.7512/Mum/2013) order dated

19/08/2015, relied upon by ld CIT(A) also comes to the

rescue of the assessee. Hon'ble Apex Court in Sanjeev Lal vs

CIT (2014) 46 taxman.com 300(Supreme Court) examined the

provision of section 54 of the Act, where the assessee entered

into an agreement to sell a house to a third party on

27/12/2002 and received Rs.15 lakhs by way of earnest

money and the balance sale consideration of Rs.1.17 crores

(total Rs.1.32 crores) and the sale deed was executed on

24/09/2004. In the meantime, the assessee purchased

another house on 30/04/2003, benefit u/s 54 was denied by

Hon'ble High Court observing that the new house was

ITA No.6751/Mum/2016 25 Shri Shashanka Ghosh

purchased prior to execution of the sale and not within one

year prior to sale of original asset. The Hon'ble Apex Court

allowed the appeal due to inter-se litigation between the legal

heir. The agreement to sell was held to be given some rights

to the vendors by holding that it was sufficient for the

purposes of section 2(47) which define the terms transfer in

relation to a capital asset. In the light of this factual matrix, it

was observed that intention behind section 54 was to give

relief to a person who had transferred his residential house

and purchased another residential house. This case clearly

comes to the rescue of the assessee. Hon’ble MP High Court

in Smt. Shashi Verma vs CIT 224 ITR 106 (MP) and Hon'ble

Calcutta High Court in CIT vs Smt. Bharti C. Kothari 244 ITR

352 (Cal.) held that when substantial investment is made in

the new property, it should be deemed that sufficient steps

had been taken and it would satisfy the requirement of the

section 54 of the Act. As per the Hon'ble High Court, the

basic purpose behind section 54 of the Act is to insure that

assessee is not taxed on the capital gain, if he replaces his

house and spend money earned on the capital gain within the

ITA No.6751/Mum/2016 26 Shri Shashanka Ghosh

stipulated period. The parity of reasoning explained by

Hon'ble Delhi High Court in the case of Kuldeep Singh

squarely covers the controversy of the present appeal. The

builder vide letter dated 28/11/2011 (reference no.OE2-AI-

0117) agreed to allot Flat No.606 and the sale price has duly

been mentioned along with terms and conditions contained

therein (pages 1 & 2 onwards of the paper book). The

agreement to sale is also duly available in the paper book.

Thus, considering the totality of facts and the cases

discussed hereinabove we find no infirmity in the conclusion

drawn by the Ld. Commissioner of Income Tax (Appeals),

resulting into dismissal of appeal of the Revenue.

Finally, the appeal of the Revenue is dismissed.

This order was pronounced in the open court in the

presence of the ld. representatives from both sides at the

conclusion of the hearing on 17/09/2018.

Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 04/10/2018 f{x~{tÜ? P.S/.�न.स.

ITA No.6751/Mum/2016 27 Shri Shashanka Ghosh

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER,

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