2016 (3) TMI 1342 - AT - Income Tax

Disallowance of claim of exemption u/s 54 - investment made in more than one residential house - interpretation of the word a preceding the expression residential house as used in section 54(1) - as per AO exemption claimed under section 54 has to be restricted to one residential house and not two flats as claimed by the assessee - Held that - The Hon ble Karnataka High Court in D. Anand Basappa (2008 (10) TMI 99 - KARNATAKA HIGH COURT) 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. Thus 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. - Decided in favour of assessee.

Summary

Issues:
Interpretation of the word "a" in section 54 of the Income Tax Act, 1961 for claiming exemption under capital gain.

Analysis:
The appeal concerned the interpretation of the word "a" in section 54 of the Income Tax Act, 1961, specifically regarding the eligibility of the assessee to claim exemption under this provision. The assessee had sold two residential flats and reinvested the proceeds in two new flats, claiming exemption under section 54 for both properties. However, the Assessing Officer and the learned Commissioner (Appeals) limited the exemption to one residential house based on the interpretation of the word "a" as "one." The dispute revolved around whether "a" should be construed as singular or plural in the context of the provision.

Upon reviewing the arguments and relevant case laws, the Tribunal analyzed the legislative intent behind section 54 and the judicial interpretations of the term "a residential house." The Hon'ble Karnataka High Court in previous cases had held that "a" should not be equated to "one" and that an assessee could claim exemption for multiple residential houses under section 54. The Tribunal also cited the decision of the Hon'ble Andhra Pradesh High Court, which disapproved a Special Bench decision restricting the exemption to one house.

Furthermore, the Tribunal noted that an amendment to section 54, replacing "a" with "one," effective from April 1, 2015, supported the assessee's position that prior to the amendment, the provision did not limit the exemption to one residential house. Therefore, considering the precedents set by the Karnataka and Andhra Pradesh High Courts, the Tribunal ruled in favor of the assessee, allowing the claim for exemption under section 54 for both residential houses.

In conclusion, the Tribunal held that the assessee was entitled to claim exemption under section 54 for the investment made in more than one residential house, rejecting the restrictive interpretation of "a" as "one" by the Departmental Authorities. The appeal was allowed in favor of the assessee, emphasizing the broader interpretation of the term "a residential house" in the context of section 54 of the Income Tax Act, 1961.