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Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee under section 253 of the Income-tax Act (‘the Act’) is directed against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –46, Mumbai dated 14.10.2016 for Assessment Year (AY) 2012-13. The assessee has raised solitary ground of appeal that the lower authorities erred to restrict the deduction under section 54 to one house, contrary to the law and without appreciating the various cited decision before the ld. CIT(A)”.
2. Brief facts of the case are that assessee filed return of income for the relevant assessment year on 23.07.2012. The assessment was completed u/s 143(3) of the Act on 29.03.2015. In the return of income, the assessee claimed deduction u/s 54 of the Act on purchase of two flats in Ghatkopar, Mumbai for Rs. 92,58,900/- and Rs. 94,06,250/- respectively. To verify the facts the Assessing Officer (AO) deputed the Ward Inspector to verify the status of the properties purchased. The Inspector 2 Smt. Girija Singh reported that flat nos. 303 & 304 are two separate units which have been rented out to two different family members. The AO after giving the opportunity of hearing to the assessee restricted the deduction u/s 54 for one property for Rs. 94,06,250/-. On appeal before the ld. CIT(A), the action of restricting the claim of deduction u/s 54 of the Act was sustained. Thus, further aggrieved by the order of ld. CIT(A), the present appeal is filed before us.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR at the outset submitted that the issue raised in the present appeal is covered in his favour by the decision of Mumbai Tribunal in Shri Mahesh Kumar Poddar v/s ITO in ITA No. 1511/Mum/2016 dated 24.06.2016. The ld. DR for the Revenue strongly opposed the contention of ld. AR of assessee and would submit that the facts of the present case are entirely different. The assessee has purchased two different residential houses which are let out by her to different tenants. Thus, ld. DR for the Revenue disputed the contention of ld. AR that issue raised in the present appeal is covered in his favour. The Ld. AR of the assessee was asked to explain and substantiate his claim which is raised in the grounds of appeal before the Tribunal. The ld. AR of the assessee further argued that the word “constructed a residential house” was substituted by Finance Act, 2014 w.e.f. 01.04.2015 by the word “constructed one residential house in India”. It was further argued that the amendment is prospective in nature and became effective w.e.f. 01.04.2015. In support of his submission, the ld. AR of the assessee relied upon the decision of Shri Mahesh Kumar Poddar (supra), decision of Hon’ble Bombay High Court in CIT v/s Godavaridevi Sarat (113 ITR 589) (Bom) and decision of Hon’ble Madras High Court in CIT v/s Smt. V.R. Karpagam (ITA No. 301 of 2014) dated 18.08.2014. On the other hand, ld. DR for the Revenue on merit supported the order of authorities below and would argue that amendment made in section 54 for substitution of word “a” by “One” is clarificatory in nature and thus retrospective in nature as per the decision of Hon’ble Bombay High Court in Glenmark Pharmaceuticals Ltd. (324 ITR 199). The ld. DR for the Revenue further argued that decision of Hon’ble Madras High Court in CIT v/s V.R. Karpagam (supra) is different on facts. In the said case, the assessee received the 3 Smt. Girija Singh property in lieu of portion of surrender of development right and the ration of the decision is not applicable on the facts of the present case.
4. We have considered the rival contention of the parties and gone through the order(s) of authorities below. The AO while framing the assessment observed that during the year, the assessee is sold property in Delhi and earned Long Term Capital Gain (LTCG) of Rs. 1,67,15,000/-. The assessee has purchased two flats i.e. flat no. 303 & 304 in Ghatkopar for Rs. 92,58,900/- and Rs. 94,06,250/-. The assessee was show- caused as to why the deduction u/s 54 should not be restricted to one house, the assessee filed its reply vide reply dated 19.03.2015 and relied upon the decision of DCIT v/s Vikas Oberoi in ITA No. 4362/M/2011. On the basis of decision in DCIT Vs Vikas Oberoi (supra) the assessee explained that in the said case the assessee purchased two contiguous flat that common wall. The Court was of the opinion that flats on different floors being utilized for different purposes also qualify to be considered as ‘a residential houses’. It was also submitted that in the said case the AO was directed to re-compute the exemption u/s 54F by treating both the units as comprising of (A residential house for this purpose). The contention and the reliance made by assessee were not accepted by AO. On relying upon the decision of K.G. Vyas v/s ITO 16 ITD 195 (Bom Trib.) wherein it was held that where the assessee buys more than one flat in the same building for accommodating a large family, maintaining a common kitchen and common ration card and qualify for eligible for deduction and further on the decision of Mrs. Gulshanbanoo R. Mukhi v/s JCIT 83 ITD 649 (Mum Trib.) wherein it was held that statute unambiguously provides for deduction u/s 54 for one residential house only. The AO further relied upon the decision of Hon’ble Karnataka High Court in Anand Basappa v/s ITO 309 ITR 329 (Kar.) wherein adjacent residential units were used as single residential house and was qualified for exemption u/s 54 of the Act. The further AO relied upon the report of Ward Inspector, wherein it was reported that both the flats are two separate units and have been rented out to two different family members. The ld. CIT(A) while considering the appeal of the assessee also relied upon the report of Ward Inspector that there were two separate residential units/houses and were rented out to two different family members and thus, (they) residential unit were not form part of “one 4 Smt. Girija Singh residential house”. The ld. CIT(A) while relied upon the decision of jurisdictional High Court in Sushila Jhaveri confirmed the action of AO.
We may further refer that Special Bench of Mumbai Tribunal in case of Sushila Jhaveri held that benefit of section 54 could be expend to exclude multiple unit, if it is demonstrated that they were adjacent and functioning as one unit. Though, we are conscious that section 54 is a beneficiary legislation. The Capital Gain earned on sale of property used for residence is available only to an individual or HUF. The benefit must be claimed within a period of one year before or two year after the date of transfer of old house. The assessee/ tax payer should acquire another residential house or should construct the residential house within a period of three years from the date of transfer of the house. After the amendment in section 54 and 54F in the Act by Finance Act 2014 effective from 01.04.2015 i.e. from AY 2015-16 the exemption can be claimed only in respect of one residential house purchased or constructed in India. As the words “constructed a residential house” has been substituted by the words “constructed one residential house in India” by Finance Act 2014 w.e.f. 01.04.2015. In the present case, the assessee has purchased residential units which are adjacent to each other i.e. flat No.303 and 304. The residential units are acquired after sale of house property in Delhi. The amendment brought on the statute book is applicable w.e.f. 01.04.2015. The Hon’ble Delhi High Court in CIT v/s Gita Duggal 357 ITR 153(Del.) held that merely because a residential house consists of several units with independent residential units would not take away the benefit of deduction u/s 54 of the Act. Further the Hon’ble Madras High Court in CIT v/s V.R. Karpagam (supra) held that amendment in section 54F came into effect only from 01.04.2015. Prior to said amendment, it is clear that a residential house would include multi/residential unit. We have considered the contention of ld. DR for the Revenue, wherein ld. DR for the Revenue strongly contended that the amendment made in section 54 and 54F is clarificatory in nature and have retrospective effect. However, Hon’ble Madras High Court in CIT v/s V.R. Karpagam (supra) in para 10 of the judgment has held that the legislature has specifically mentioned that the amendment in section 54 takes effect from 01.04.2015 only. Thus, in view of the above discussion and we respectfully following the decision of Hon’ble Delhi High 5 Smt. Girija Singh Court in CIT v/s Gita Duggal (supra) accept the appeal of the assessee and allowed the deduction claimed u/s 54 of the Act.
In the result, appeal filed by assessee is allowed. Parties are left to bear their own cost. No order as to costs. Order pronounced in the open court on this 30th March, 2017. Sd/- Sd/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 30/03/2017 S.K.PS Copy of the Order forwarded to :