2013 (12) TMI 1525 - HC - Income Tax

Exemption under Section 54(1) - Whether the Tribunal committed an error in holding that the assessee would be entitled to claim exemption under Section 54 in respect of two separate residential houses acquired out of the capital gains, when the Section contemplates exemption in respect of a house for the current assessment year? - Held that - 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, as held in the aforesaid Rukminiamma s case, 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 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 by virtue of Section 13(2) of the General Clauses Act. Therefore, we are of the view, 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 is entitled to the benefit conferred under Section 54(1) of the Act. 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. Therefore, in the facts and circumstances of this case, we answer the first substantial question of law raised in favour of the assessee and against the Revenue.

Issues Involved:
1. Entitlement to exemption under Section 54(1) of the Income Tax Act for two residential houses.
2. Entitlement to exemption under Section 54(2) of the Income Tax Act regarding the investment of Rs. 1.70 crores in nationalized banks.

Detailed Analysis:

Issue 1: Entitlement to exemption under Section 54(1) of the Income Tax Act for two residential houses

Facts and Arguments:
The assessee sold a house for Rs. 3,73,00,550/- and claimed a net capital gain of Rs. 2,84,59,683/-. The assessee invested Rs. 1,21,38,530/- in two residential houses and deposited Rs. 1,70,00,000/- in nationalized banks. The Assessing Authority allowed exemption only for one house, valuing it at Rs. 76,91,660/-, and denied the benefit for the second house. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the assessee's claim for exemption on both houses.

Court's Interpretation:
The court examined the term "a residential house" in Section 54(1). It referred to statutory interpretation principles, emphasizing that words in statutes must be understood in context. The court noted that "a" could mean "any" and not necessarily "one." It cited Section 13 of the General Clauses Act, 1897, which states that words in the singular include the plural unless the context suggests otherwise.

Precedents:
The court referenced its previous decision in CIT v. Smt. K.G. Rukminiamma, where it was held that "a residential house" could include multiple units if they serve the same purpose. The court also noted that the legislative intent was not to restrict the exemption to a single house.

Conclusion:
The court concluded that the assessee's purchase of two residential houses fell within the scope of "a residential house" under Section 54(1). It emphasized that the assessee was not evading tax, as unutilized capital gains were offered for taxation. Thus, the assessee was entitled to exemption for both houses.

Issue 2: Entitlement to exemption under Section 54(2) of the Income Tax Act regarding the investment of Rs. 1.70 crores in nationalized banks

Facts and Arguments:
The Revenue argued that the unutilized capital gain should have been offered for tax immediately after the purchase of the residential house. The assessee had deposited Rs. 1,70,00,000/- in nationalized banks before the due date for filing the return, as required by Section 54(2).

Court's Interpretation:
The court examined Section 54(2), which mandates that unutilized capital gains be deposited in a specified account before the due date for filing the return. The provision allows the assessee to utilize the deposited amount within three years for constructing or purchasing a new residential house. If not utilized within this period, the unutilized amount is charged to tax in the year when the three-year period expires.

Conclusion:
The court held that the statute explicitly prescribes that unutilized capital gains should be offered for tax only after the three-year period expires. Therefore, the Revenue's contention that the unutilized amount should be taxed immediately after the purchase of the new asset was untenable. The court upheld the assessee's entitlement to the exemption under Section 54(2).

Final Judgment:
The court dismissed both appeals, affirming that the assessee was entitled to exemptions under Sections 54(1) and 54(2) of the Income Tax Act for the two residential houses and the investment in nationalized banks, respectively.

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