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Income Tax Appellate Tribunal, ‘C’ BENCH: BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAOShri Avinash Prabhakar Hegde,
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the revenue directed against the order of the CIT(A)-12, Bangalore, dated 31/08/2015 for the assessment year 2012-13.
The revenue raised the following grounds:
1. “The order of the learned CIT(A) is opposed to the law and facts of the case.
Page 2 of 6 2. The learned CIT(A) erred in holding that the assessee is entitled for claim of deduction u/s 54 of the IT Act, 1961, in respect of two properties.
3. The learned CIT(A) erred in relying on the decisions of the Hon'ble Karnataka High Court in the case of D.Ananda Basappa and Khoobchand Makhija since the facts of the case are different in the present case as the assessee had invested in two properties, one at Bangalore and the other at Mumbai.
4. The learned CIT(A) erred in allowing relief and in ignoring the observation of the Hon'ble High Court in the case of Khoobchand M.Makhija (2014) 43 Taxman 143 (Karnataka) wherein before concluding the decision it was held "however, we make it clear that while interpreting this word, the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held "a" cannot be read as singular, it also cannot be read as multiples and so as to avoid paying tax under Section 45 of the Act." 5 For these and any other ground raised at the time of hearing of appeal, it is prayed that the order of the learned CIT(A) be set aside and the order of the Assessing Officer confirmed.”
Briefly facts of the case are that the respondent is an individual and is a non-resident. The assessee filed return of income for the assessment year 2012-13 on 23/07/2012 declaring a total income of Rs.1,57,030/-. After issuing notice u/s 143(2) of the Income-tax Act, 1961 [‘the Act’ for short], the case was taken up for scrutiny assessment and the assessment was completed u/s 143(3) vide order dated 24/12/2014 at a total income of Rs.60,81,778/-. While doing so, the AO denied the benefit in respect of one of the two houses claimed u/s 54 holding that under the provisions of sec.54, the benefit can be claimed only in respect of one residential house. Briefly facts of the case
Page 3 of 6 are that during the previous year relevant to assessment year under consideration, the property in which the assessee had 1/3rd share was sold. The assessee’s share of long term capital gains was Rs.3,93,82,588/-. The assessee claimed the benefit of deduction u/s 54 by investing in two residential houses of Rs.3,93,76,330/- and deduction u/s 54EC of Rs.33 lakhs. However, the AO was of the opinion that the benefit u/s 54 can be claimed only in respect of one new residential building. Hence, restricted the deduction to Rs.3,00,00,810/- thus making addition of Rs.60,81,778/-.
Being aggrieved, an appeal was filed before the CIT(A). The CIT(A), following the decision of the jurisdictional High Court in the case of CIT vs. D.Ananda Basappa (180 taxman 4) and CIT vs. Khoobchand M.Makhija (43 taxmann.143), held that the assessee is entitled to deduction in respect of investment made in two residential houses.
Being aggrieved, the revenue is in appeal before us.
We heard rival submissions and perused material on record. The issue in appeal is whether the assessee is entitled to the benefit of deduction u/s 54 in respect of two or more residential units. The controversy is surrounding in the interpretation of the term ‘residential house’ as occurring in section 54(1) of the Act. The said expression was interpreted by Page 4 of 6 the jurisdictional High Court in the case of CIT vs. D.Anand Basappa (180 taxman.4) (Kar) as follows :
“A plain reading of section 54(1) discloses that when an individual assessee or an HUF assessee sells a residential building or land appurtenant thereto, he can invest capital gain for purchase of a residential building to seek exemption of the capital gain 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. [Para 5] The contention of the revenue that the phrase 'a residential house' would mean one residential house, does not appear to the correct understanding. The expression 'a residential house-should be understood in a sense that building should be residential in nature and 'a' should not be understood to indicate a singular number. [Para 6]”
Similarly in the case of Khoobchand M Makhija, 43 taxmann.com (Kar) (2014), the Hon'ble Karnataka High Court has observed as under: “It is clear that the assessee was not attempting to evade tax. In fact, after purchasing two residential houses, still there remained unutilized capital gain, which he has offered for tax. Therefore, the context in which the expression ‘residential house’ is used in section 54 makes it clear that it was not the intention of the Legislature to convey the meaning that it refers to a single residential house. The letter ‘a’ in the context, which is used, should not be construed as meaning singular, but being a 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
Page 5 of 6 by virtue of section 13(2) of the General Clauses Act. [Para 17]
Therefore, in the facts and circumstances of this case, the acquisition of two residential houses by the assessee out of the capital gains falls within the phrase 'residential house' and accordingly, the assessee was entitled to the benefit conferred under section 54(1).” [Para 18] The Hon’ble jurisdictional High Court in the case of B.Srinivas vs. ITO in dated 4th July, 2014 held as follows:
“7. This Court had an occasion to consider the word, "a residential house" used in Section 54 in the case of COMMISSIONER OF INCOME TAX VS. KHOOBCHAND M.MAKHIJA reported in (2014) 43 Taxmann.com 143 (Karnataka), where after referring to the meaning of the word "a" in the dictionaries and referring to the provisions of the General Clauses Act and also Section 54 of the Act held, the letter "a" in the context, which is used, should not be construed as meaning singular, the singular "a residential house" also permits use of plural by virtue of the General Clauses Act. In that case it was held that acquisition of two residential houses by the assessee out of the capital gains falls within the meaning of "residential house" and accordingly, the assessee is entitled to the benefit conferred under section 54(1) of the Act. It was also made clear that while interpreting this word, the Court or the Tribunal or the Authorities have to keep in mind the facts of the particular case, as it is held in the case "a" cannot be read as singular, it also cannot be read as multiples so as to avoid paying tax under Section 45 of the Act. Therefore, it is necessary to look into the facts of each case and then find out in the circumstances of the said case, where the word "a" has to be read singularly or plurally.
Respectfully following the decision, we hold that the assessee is entitled to the benefit of deduction u/s 54 even in respect of house property in more than one residential house.
Page 6 of 6 7. In the result, the appeal filed by the revenue is dismissed.