SRI ABDUL GAFFAR S/O SRI ABDUL RAHIM vs. THE INCOME-TAX OFFICER

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 17TH DAY OF JULY 2012 PRESENT THE HON'BLE MR.JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA NO.815/2006(T-IT) BETWEEN: SRI.ABDUL GAFFAR, AGED ABOUT 57 YEARS, SON OF SRI.ABDUL RAHIM, BEEDI MERCHANT & REAL ESTATE AGENT, NO.383, BANNIMANTAP ‘C’ LAYOUT, MYSORE. …. APPELLANT (BY SRI.S.PARTHASARATHI, ADVOCATE) AND: THE INCOME-TAX OFFICER, WARD – 2 (1), MYSORE, NO.55/1, SHILPASHREE BUILDINGS, VISWESWARANAGAR, STERLING TALKIES ROAD, MYSORE – 570 008. …RESPONDENT (BY SRI.E.R.INDRAKUMAR SENIOR COUNSEL A/W SRI.E.SANMATHI, ADVS)

2 ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED: 29-03-2005 PASSED IN ITA.NO.844/BANG/2004 FOR THE ASSEMENT YEAR 2000-01, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE BENCH, BANGALORE BEARING ITA.NO.844/BANG/2004 DATED: 29/03/2005, IN THE INTEREST OF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR HEARING THIS DAY, SREEDHAR RAO J., DELIVERED THE FOLLOWING: J U D G M E N T The appellant-assessee sold a site bearing No.389 situated at Alanahalli, Mysore for a sum of Rs.4,08,000/-. The assessee purchased the said site in the year 1996. The long term capital gain from the sale was in a sum of Rs.3,60,000/-. The assessee owned a residential house at the time of sale of the said site. The

3 assessee invested the sale value in improving and remodeling his residential house. The assessee claimed exemption of the said amount towards reconstruction and remodeling of the existing residential house. The Assessing Officer allowed the exemption u/s 54F of the Income Tax Act (hereinafter referred to as ‘the Act’). The CIT, Mysore in exercise of revisional powers u/s 263 of the Act held that the assessee is not entitled to exemption because at that point of time, the investment should be made for purchase of a residential house, if it is not already owned by the assessee and that is exempted. The amount spent towards remodeling or repairs of existing residential house was not within the purview of exemption u/s 54F of the Act. Thus, the order of Assessing Officer was set aside. The assessee filed an appeal before the Appellate Tribunal. The Tribunal confirmed the order passed by the Commissioner for Income Tax in revision. Hence, this appeal.

4 2. The following are the substantial questions of law formulated in this memorandum of appeal: (i) In law, and on the facts and circumstances of the case, whether the Tribunal was justified in confirming the order of Commissioner of Income Tax u/s.263 in denying the benefit of a benevolent provisions u/s.54-F to the appellant? (ii) In law, and on the facts and circumstances of the case, whether the Tribunal was justified in concluding that the expansion/remodeling of existing house would not amount to construction of a house within the meaning of Section 54-F? (iii) In law, and on the facts and circumstances of the case, whether the existing portion of the house which was insufficient for occupation could be considered to be a residential house owned by the appellant at the time of

5 sale to deny the benefit u/s.54-F of the Act? 3. This court admitted the appeal and accepted the questions of law framed in the memorandum of appeal for consideration. 4. After hearing both the sides, precisely the following questions of law would arise for consideration: “Whether the investment of net sale consideration towards expansion/remodeling of an existing residential house would enable the assessee to seek exemption under Section 54-F of the Act?” 5. The provision of Section 54F of the Act for the assessment year 2000 reads as under: 54-F : 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

6 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 changed 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 the assessee owns on the date of the transfer of the original

7 asset, or purchases within the period of one year after such date, 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. 6. The provision of Section 54F of the Act makes it explicit that the exemption is available only if the sale consideration is invested for construction or purchase of a residential house and the exemption was applicable only if the assessee does not own a residential house. In the instant case, the assessee owned a residential house at the time of receipt of sale consideration and the amount is not invested for the purchase or construction of a residential house. The amount is invested for remodeling/expansion of the existing residential house and such investment is not exempted u/s 54F of the Act.

8 7. In that view of the matter, the order of the Appellate Tribunal is sound and proper. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE mpk/-*