2020 (2) TMI 1651 - AT - Income Tax

Deduction u/s 54 - interpretation of the word a residential house - investment in one of the properties, but not in two differently located house properties - assessee made investment in one of the properties, but not in two differently located house properties - deduction denied as investment made in second house property by the appellant as deduction is allowable with respect to investment made only in one residential property - HELD THAT - Hon ble Madras High Court in Tilokchand Sons 2019 (4) TMI 713 - MADRAS HIGH COURT has held that the dislocation of newly purchased residential houses will not alter the position for interpretation of the word a residential house to the effect that it may include more than one residential houses. It also considered the impact of the amendment by Finance (No. 2) Act of 2014 with effect from 1.04.2015 which could operate only prospectively from Assessment Year 2015-16. The present case before us is prior to that. Further the Hon ble High Court has also considered the decision cited by the learned Assessing Officer in para No. 13 of that order. In view of this we hold that assessee is also entitled to deduction under Section 54 of the Act in both the house properties even though they are geographically distantly located in the same city. Further the learned CIT (Appeals) has also failed to appreciate that amendment with effect from Finance Act, 2014 is not a clarificatory amendment and does not operate retrospectively, but prospectively. In view of this both the grounds of appeal of the assessee are allowed.

Summary

Issues:
1. Disallowance of deduction under Section 54 of the Income Tax Act for investment in a second house property.
2. Interpretation of the word "residential house" for claiming deductions under Section 54 of the Act.
3. Applicability of the amendment brought by Finance Act, 2014, with respect to deductions under Section 54.

Analysis:
1. The appellant filed an appeal against the order of the Commissioner of Income Tax (Appeals) disallowing the claim of deduction under Section 54 of the Income Tax Act for the investment made in a second house property. The Assessing Officer allowed the deduction for one property but not for two properties located in different areas. The appellant argued that multiple houses should be considered as residential properties for claiming deductions. The Assessing Officer disagreed and granted deduction for one property only, resulting in a net capital gain assessment. The CIT (Appeals) upheld the Assessing Officer's decision, leading to the appellant's appeal.

2. The appellant contended that the term "residential house" should encompass multiple houses, citing judicial precedents. The Hon'ble Madras High Court's decision in Tilokchand & Sons Vs. ITO supported the interpretation that more than one residential house could be considered for deductions under Section 54. The High Court also clarified that the amendment by Finance Act, 2014, effective from 01.04.2015, operated prospectively. Therefore, the appellant was entitled to deductions for both geographically distant house properties in the same city.

3. The Tribunal, after considering the arguments and precedents, allowed the appeal of the assessee. It held that the appellant could claim deductions under Section 54 for both house properties, even though they were located in different areas within the same city. The Tribunal emphasized that the amendment introduced by the Finance Act, 2014, did not have retrospective effect but applied prospectively. Consequently, both grounds of appeal raised by the appellant were accepted, and the appeal was allowed.

In conclusion, the Tribunal's decision favored the appellant's claim for deductions under Section 54 of the Income Tax Act for investments made in two separate house properties, emphasizing the interpretation of "residential house" and the prospective application of relevant amendments.