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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
PER SAKTIJIT DEY, J.M.
This is an appeal by the assessee directed against the order dated 3rd December 2012, passed by the learned Commissioner (Appeals)–18, Mumbai, for the assessment year 2008–09.
2 Shri Satish Nikam 2. Assessee is aggrieved with the part disallowance of claim of exemption under section 54 of the Income Tax Act, 1961 (for short "the Act").
Briefly stated the facts are, assessee an individual. Assessee was the owner of two residential flats being flat no.42 at The Gulmohar Bandra Co–operative Housing Society Ltd., new MIG Colony, Bandra (West), Mumbai, and another flat no.2025, Gandhnagar Shivam Co– operative Housing Society, Gandhinagar, Bandra (East), Mumbai. During the relevant previous year, assessee sold both the flats and the sale proceeds of the two flats were invested in two new flats purchased by the assessee being flat no.101–B, Lakhani’s Galaxi, Sector–15, CGD Belapur, and flat no.601 “D” Wing, Sai Radiance, Sector–15, CBD Belapur. In the return of income filed for the impugned assessment year, assessee, though, declared long term capital gain from sale of two flats but at the same time, he claimed exemption under section 54 of the Act towards investment of the capital gain in two new flats purchased by him. The Assessing Officer being of the view that as per section 54 of the Act, assessee is entitled for claiming exemption of capital gain towards investment in “a” residential house which in other words would mean “one” residential house, the exemption claimed under section 54 has to be restricted to
3 Shri Satish Nikam “one” residential house and not two flats as claimed by the assessee. Accordingly, after issuing a show cause notice to the assessee and considering the objections raised by him, the Assessing Officer ultimately completed the assessment by holding that exemption under section 54 of the Act will be available only in respect of investment made in one residential flat as the expression used in section 54 is “a” residential house which would mean “one” residential flat. In support of such conclusion, the Assessing Officer relied upon the Special Bench decision of the Tribunal, Mumbai Bench, in ITO v/s Sushila M. Jhaveri, [2007] 292 ITR (AT) 1 (SB). Being aggrieved with part disallowance of claim of exemption under section 54, assessee preferred an appeal before the learned Commissioner (Appeals).
Learned Commissioner (Appeals) also relying upon the Special Bench decision of the Tribunal in Sushila M. Jhavery (supra) rejected assessee’s claim of exemption in respect of the second house holding that as per the provisions of section 54, assessee is eligible to claim exemption in respect of one residential house.
Learned Counsel for the assessee reiterating the stand taken before the Departmental Authorities, submitted, both the Assessing Officer and the learned Commissioner (Appeals) have misinterpreted
4 Shri Satish Nikam the provisions of section 54 while observing that “a” residential house as referred to in sub–section (1) of section 54 would mean one residential house. Learned counsel submitted, the expression “a” residential house appearing in section 54 was interpreted by the Hon'ble Karnataka High Court in CIT v/s Anand Basappa, [2009] 309 ITR 329 (Kar.) and it held that “a” residential house as expressed in section 54 requires liberal interpretation as section 54 is a beneficial provision. The Hon'ble Court held that the word “a” would not mean “one” residential house. He submitted, the same view was again reiterated by Hon'ble Karnataka High Court in CIT v/s K.G. Rukminiamma, [211] 331 ITR 211 (Kar.). He, therefore, submitted that the disallowance of exemption claimed by the assessee by interpreting the word “a” as “one” is not the correct interpretation of the statutory provision. Learned Counsel referring to instruction no.1081(F) no.207/20/76–IT(A)–II dated 3rd August 1977, submitted, as per the said instruction of the Board, assessee is eligible to claim exemption under section 54 of the Act in respect of gain derived from sale of two residential houses used for the purpose of assessee’s own as well as parent’s residence. As far as the Special Bench decision of the Tribunal in Sushila M. Jhaveri (supra), the learned counsel submitted the decision of the Special Bench of the Tribunal has not
5 Shri Satish Nikam attained finality as the appeal against the said order is pending before the Hon'ble Jurisdictional High Court for adjudication.
Learned Departmental Representative justifying the disallowance of assessee’s claim of exemption under section 54 of the Act, submitted there being no ambiguity in provisions of section 54, which refers to “a” residential house, assessee cannot claim exemption in respect of investment made in more than one house. Learned Departmental Representative submitted, the intention of legislature is also made clear by the amendment made to section 54 w.e.f. 1st April 2015 by substituting the word “a” with “one”. Learned Departmental Representative submitted that the amendment made to section 54 would make it clear that the legislature all along wanted to provide the benefit of exemption under section 54 in respect of one residential house. He submitted, in the circumstances, the decision of the Departmental Authorities in restricting the exemption under section 54 to “one” residential house is just and proper.
In the rejoinder, learned Counsel for the assessee submitted, the amendment made to section 54 by substituting the word “one” in place of “a” having been made by the Finance Act, 2014 w.e.f. 1st April
6 Shri Satish Nikam 2015, will apply prospectively and will not be applicable to the impugned assessment year.
We have considered the submissions of the parties and perused the orders of the Departmental Authorities in the light of material available on record as well as relevant case laws cited before us. Undisputed facts are, assessee was the owner of two residential flats used for the purpose of his own residence which were sold by him during the relevant previous year. The gain derived from sale of both the flats were invested by the assessee for purchase of two new flats. In the return of income filed for the impugned assessment year, assessee claimed exemption of capital gain under section 54 of the Act towards the investment made in two new residential flats. However, the Assessing Officer as well as first appellate authority relying upon the Special Bench decision of the Tribunal in Sushila M. Jhaveri (supra) held that assessee is eligible for exemption under section 54 in respect of investment made in one residential flat and not both the flats. Before deciding the issue, it is necessary to look into the provisions contained under section 54 of the Act. On a plain reading of the aforesaid provisions, it emerges that capital gain arising from transfer of long term capital asset being building or land appurtenant thereto to an individual or HUF if invested in construction or purchase of “a”
7 Shri Satish Nikam residential house in India within the prescribed period would be eligible for exemption from payment of capital gain tax. The bone of contention between the assessee and the Department is in respect of interpretation of the word “a” preceding the expression “residential house” as used in section 54(1) of the Act. While the assessee is claiming that the word “a” cannot be interpreted to mean “one” residential house, the Department is of the view that “a” would mean “one”. The Hon'ble Karnataka High Court in D. Anand Basappa (supra), while interpreting the expression “a residential house” used in section 54 has held that the expression “a” used therein would not mean “one”. Only condition imposed under section 54(1) is, the house should be of residential nature. The Court held that the expression “a” should not be understood to indicate a singular number. The Court observed, where the assessee had purchased two residential flats it is entitled to exemption under section 54 in respect of both the flats. The same view was again reiterated by Hon'ble Karnataka High Court in K.G. Rukminiamma (supra). The Hon'ble Andhra Pradesh High Court in CIT v/s Syed Ali Adil [2013] 33 Taxmann.com. 212 (A.P) following the aforesaid decisions of the Hon'ble Karnataka High Court, held that the assessee would be eligible to avail exemption under section 54 in respect of investment made in more than one residential house. As far
8 Shri Satish Nikam as the Special Bench decision of the Tribunal in Sushila M. Jhaveri (supra), the Hon'ble Andhra Pradesh High Court in Syed Ali Adil (supra) disapproved it by holding that it is not the correct proposition of law. As would appear from the aforesaid decision of the Hon'ble Andhra Pradesh High Court and also, decision of different Benches of the Tribunal following decision of Hon'ble Karnataka High Court it is held that an assessee is eligible for exemption under section 54(1) even if the investment on capital gain has been made in more than one house. As far as the contention of the learned Departmental Representative that the amendment to section 54(1) by substituting the word “a” with “one” clarifies the position, we are of the view that such amendment having been made effective from 1st April 2015, would apply prospectively and will not apply to the impugned assessment year. Moreover, the aforesaid amendment brought to the statute by substituting the word “a” with “one” all the more supports the case of the assessee that prior to the amendment the exemption provided under section 54(1) was not restricted to investment made in one residential house. Therefore, following the ratio laid down by the Hon'ble Karnataka High Court and Andhra Pradesh High Court in the decisions referred to above, we hold that assessee is eligible to claim exemption under section 54(1) in respect of investment made in more
9 Shri Satish Nikam
than one residential house. Accordingly, we allow assessee’s claim of exemption under section 54 of the Act.
In the result, appeal stands allowed. Order pronounced in the open Court on 04.03.2016
Sd/- Sd/- SAKTIJIT DEY RAMIT KOCHAR ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 04.03.2016 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Mumbai