2012 (7) TMI 431 - AT - Income Tax

Denial of the benefit claimed u/s 54 EC - investment made in REC bonds for a sum of Rs. 50 lakh out of total long-term capital gain of Rs. 3.40 crores - the exemption has been claimed under section 54F - Held that - It is not a case of availing double exemption on the same amount but the assessee has claimed exemption u/s 54F as well as u/s 54 EC for the respective amount of capital gain invested in purchase of new house and REC bonds. Wherever any such restriction is deemed fit, the legislature has provided in the statute a sufficient check but no such restriction in the statute mentioned - The expression the whole or any part of capital gains in the long term specified assets makes it clear that the exemption under section 54 EC is available even when the part of capital gain is invested in specified long-term asset - in favour of assessee. Once the conditions as prescribed under section 54EC are complied with, than the deduction cannot be denied on the ground that the assessee has also availed the exemption under section 54F against the part of the capital gain. Denial of the benefit claimed u/s 54F - Out of the total capital gain of Rs. 3.40 crores arising from sale of ancestral property, the assessee invested Rs. 2.60-crores for the purchase of 4 flats - AO allowed the exemption only in respect of one flat as cannot be said as adjacent flats - Held that - The agreement by which the assessee has purchased these flats clearly stipulates that the building in question consisting of duplex houses on top two floors of 9th and 10th floors of the building. The flat number 9A, 9B, 10 A and 10 B are so situated that the flat number 9A and 9B at 9th floor are just below the flat number 10A and 10B at 10th floor. The agreement clearly mentions that one duplex flat was converted from 4 units. Thus, if the requirement of the assessee family is met-out only by enlarging the residential unit by merging of 4 flats originally planed into one unit and that too prior to handing over of the possession of the said residential unit, then the said converted residential unit will be treated as a residential house as stipulated u/s 54F - in favour of assessee.

Summary

Issues Involved:
1. Exemption under Section 54EC of the Income Tax Act.
2. Exemption under Section 54F of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Exemption under Section 54EC of the Income Tax Act:

The primary issue here is whether the assessee can claim exemption under Section 54EC after availing exemption under Section 54F. The assessee sold ancestral property for Rs. 3.40 crores, investing Rs. 2.60 crores in a housing unit and Rs. 50 lakhs in REC bonds. The Assessing Officer (AO) denied the claim under Section 54EC, arguing that after availing exemption under Section 54F, the balance amount should not be invested under Section 54EC but rather in a specified account as per the Capital Gain Account Scheme, 1988.

On appeal, the Commissioner of Income Tax (Appeals) allowed the claim, which was upheld by the Tribunal. The Tribunal noted that there is no statutory restriction preventing the assessee from claiming exemptions under both sections for different parts of the capital gain, provided the conditions of each section are met. The Tribunal emphasized that the legislature has not imposed any such restriction in the statute, and thus, the assessee is entitled to claim exemption under both sections without it resulting in double exemption on the same amount.

2. Exemption under Section 54F of the Income Tax Act:

The second issue is whether the assessee can claim exemption under Section 54F for the purchase of four flats. The assessee invested Rs. 2.60 crores in four flats and claimed exemption under Section 54F. The AO allowed exemption only for one flat, considering the four flats as separate residential units with independent kitchens and entrances.

On appeal, the Commissioner of Income Tax (Appeals) allowed the claim for all four flats, referencing the Special Bench decision in ITO v. Ms. Sushila M. Jhaveri. The Tribunal upheld this decision, noting that the agreement between the assessee and the builder indicated that the four flats were converted into one duplex unit before possession. The Tribunal found that if the flats were merged into one residential unit before possession, they should be treated as one residential house under Section 54F.

The Tribunal also rejected the revenue's grounds that the flats were not physically in existence at the time of the purchase agreement and that the exemption should not be allowed. The Tribunal clarified that these grounds did not emanate from the impugned order and were contrary to the accepted facts by the AO. Moreover, the Tribunal noted that it does not have the jurisdiction to enhance the assessment.

In conclusion, the Tribunal upheld the Commissioner of Income Tax (Appeals) decision, allowing the assessee's claims for exemptions under both Sections 54EC and 54F, and dismissed the revenue's appeal.