2017 (10) TMI 1392 - AT - Income Tax

Deduction u/s 54 - collective unit - assessee has purchased two separate houses in different localities which are not adjacent to each other and further one of the houses was let out by the assessee - Held that - What is purchased by the assessee are two separate residential houses located in different and separate localities and by any parameter cannot be treated as one residential unit then the decisions relied upon by the assessee would not help the case of the assessee for allowing the deduction under Section 54. So far as the applicability of the amended provisions of Section 54 by Finance Act, 2014 it cannot be applied retrospectively prior to the amendment assessment year. Hence, there is no quarrel on the point that the amendment brought in Section 54 and 54F by the Finance Act, 2014 is prospective and cannot be applied retrospectively. Further the decision as relied upon by the assessee are also binding and applicable so far as pre-amended provisions are concerned however, these decisions are applicable only on the specific facts and not as a general rule. Accordingly, when the assessee has purchased two separate houses in different localities which are not adjacent to each other and further one of the houses was let out by the assessee and was not intended to be used for his residential purpose clearly manifest the intention of the assessee to purchase two separate houses not to be used as one residential house disentitle the assessee to claim the benefit u/s 54 in respect of both the houses. No error or illegality in the orders of the authorities below in restricting the deduction under Section 54 in respect of one house only. - decided against assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 54 of the Income Tax Act, 1961, for the purchase of a second apartment.
2. Interpretation of the term "a residential house" under Section 54.
3. Applicability of judicial precedents and amendments to Section 54.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 54 for the Second Apartment:
The primary issue in this appeal is the denial of deduction under Section 54 of the Income Tax Act, 1961, for the second apartment purchased by the assessee. The assessee sold a house property and purchased two flats in different locations, claiming deductions for both under Section 54. The Assessing Officer allowed the deduction for only one flat and taxed the balance capital gain of ?65,39,851, as the purchase of two flats in different locations was deemed impermissible under Section 54. The CIT (Appeals) upheld this view, distinguishing the decisions relied upon by the assessee due to the different locations of the flats, which did not constitute a single residential house property.

2. Interpretation of "a residential house" under Section 54:
The assessee argued that the two flats were purchased due to family requirements and should be considered a single residential house. The assessee relied on several judicial decisions, including CIT Vs. K.G. Rukmaniamma, where multiple flats in the same building were treated as a single residential house. However, the Departmental Representative countered that these decisions were based on peculiar facts, such as the adjacency of flats, which did not apply in the present case where the flats were in different localities and one was let out.

3. Applicability of Judicial Precedents and Amendments to Section 54:
The Tribunal considered various precedents, including CIT Vs. K.G. Rukmaniamma, CIT Vs. Sambandam Udaykumar, and CIT Vs. Khoobchand M Makhija. It was noted that these cases involved unique circumstances, such as flats being in the same building or modifications making them a single unit. The Tribunal emphasized that Section 54 should be construed liberally to achieve its purpose, but the benefit is intended for properties purchased for the assessee's own residence. The Tribunal referred to CIT Vs. Nathu Hansraj, which highlighted that the exemption under Section 54 aims to facilitate the acquisition of a new residential property for the assessee's immediate residential purpose.

In conclusion, the Tribunal found that the assessee's purchase of two separate houses in different localities, with one being let out, did not meet the criteria for a single residential house under Section 54. The Tribunal upheld the orders of the authorities below, restricting the deduction to one house only, and dismissed the appeal. The judgment clarified that the amended provisions of Section 54 by the Finance Act, 2014, are prospective and not applicable retrospectively.