ASST CIT 19(3), MUMBAI vs. MUSHTAQ I. MACCHIWALA, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 10/12/2013 of the Ld. First Appellate Authority, Mumbai, on the ground that the Ld. Commissioner of Income Tax (Appeal) erred in allowing the claim of deduction u/s 54 of the Act though the assessee has invested the sale proceeds in a commercial property.

2.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, under the facts, narrated hereinabove, the Bench questioned the ld. counsel for the assessee , with respect to total area of the flats ( six flats) situated on the first floor of the building. The ld. counsel explained that the total area is less than 2000 Sq. Ft. (precisely 1935 Sq. Ft.). We find that while coming to a particular conclusion, the Ld. Commissioner of Income Tax (Appeal) sought remand report dated 30/10/2013, as per which, the Assessing Officer, claimed that it was non- residential property for Financial Year 2007-08. Whereas, the assessee produced the evidence that the status of the property was residential. Before the Ld. Commissioner of Income Tax (Appeal), the assessee filed a paper book dated 26/07/2011, which was also containing additional evidence in the form of meter, Inspector’s report, report from the water Department, letter from the Assistant Engineer, letter from the assessee for assessment of units bearing number 101 to 106, as residential unit (wrongly assessed as commercial). The assessee also filed the reply taken through RTI application dated 11/12/2010, internal note from the assessment department Inspector to Superintendent, building plan, sanctioned as residential. Sale of the property as residential bungalow property, report from the building department and the factual matrix that all the small units were converted into one single unit, having one kitchen, etc. In view of this factual matrix, the Ld. Commissioner of Income Tax (Appeal) took a stand that it was a single unit and granted relief to the assessee. It is also noted that the paper book filed by the assessee was forwarded to the Assessing Officer vide letter dated 23/01/2012 for carrying out necessary verification during remand proceedings, to which, no adverse comment were furnished by the Assessing Officer. The building was constructed as a residential unit and even the report of the Inspector clarified that it was a “residential vacant floor”. The occupation certificate dated 19/09/2009, issued by the BMC also clarified that it was a residential building. Even the report of SE dated 24/12/2010 and internal note/report dated 05/01/2010 clarified that the first floor was occupied by the assessee and there was no office therein and these documents are prior to passing the assessment order, therefore, cannot be said to be created document. Even, on 13/01/2011, the assessee got a single water connection for the residential unit. The assessee also paid the property tax of Rs.1 lakh to the BMC as a residential property and vide letter dated 11/04/2011, the assessee wrote a letter to the Assessor and Collector, BMC with a request to assess the property as a residential from wrongly assessed as commercial. In response to an RTI application dated 21/11/2011, the BMC furnished the inter note dated 11/01/2011 and 21/04/2011, wherein, it was mentioned that the plot was assessed as residential rateable value from 01/01/2008 and the building plan was sanctioned as “residential building” vide note dated 29/09/2009. Before the Ld. Commissioner of Income Tax (Appeal), the assessee also enclosed copy of receipt dated 27/04/2011 for transfer of residential gas Cylinder at the new address. All these documents were made part of the paper book before the First Appellate Authority and also before us. The small units were converted in a single unit (as mentioned earlier the total area of all units is 1935 Sq. Ft.), therefore, in our considered opinion, it is a single unit. It is not the case that all the six flats are having abnormally bigger areas and simply to get the benefit u/s 54 of the Act, a story was concocted by the assessee. The evidences filed by the assessee clearly indicates that small units on the same floor were converted into one habitable unit for a peaceful/comfortable living, thus, the assessee cannot be denied the benefit of exemption.

2.3. It is also noted that the assessee sold its long term capital asset and made the investment of the sale proceeds, within specified time, in the first floor properties of the same building. The stand of the Revenue is that the assessee has purchased six houses, whereas, as per the Act only one house is allowed, for which the benefit of section 54 can be availed. Before coming to any conclusion, we are reproducing hereunder section 54 of the Act for ready reference and analysis:-

“54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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 date39[constructed, one residential house in India], 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 is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as 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 the 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. (2) The amount of the capital gain 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 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.” 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 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. 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. 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 can be followed.

2.4. 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 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. The ratio laid down by Hon'ble Delhi High Court in CIT vs Gita Duggal (2013) 357 ITR 153 (Del.), CIT vs D. Ananda Basappa (2009) 309 ITR 329 (Karn.)(para-3 & 6) and CIT vs Smt. K.G. Rukminiamma (2011) 331 ITR 211(Karn.)(Para 6 & 10) supports the case of the assessee. Hon'ble Delhi High Court in the case of CIT vs Gita Duggal (supra) affirmed the stand of the Tribunal taken in ITA NO.3613/Del./2010, order dated 07/06/2011. Thus, the appeal of the Revenue is having no merit, consequently, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal).

Finally, the appeal of the Revenue is dismissed..

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 17/11/2016.