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2018 (1) TMI 980 - AT - Income TaxEntitlement towards claim of deduction u/s 54 - claim restricted only in respect of the residential property at Mumbai - scope of amendment - Held that - Hon ble High Court of Madras in the case of CIT Vs. Smt. V. R. Kampagm 2014 (8) TMI 899 - MADRAS HIGH COURT had clearly held in context of a similar amendment that was made available to Sec.54F, that the same was effective from 01.04.2015, which thus made it clear that prior to the said amendment the assessee was entitled the claim deduction in respect of investments made in more than one residential house. We find that a similar view had also been taken by the Hon ble High Court of Andhra Pradesh in the case of CIT Vs. Syed Ali Adil (2013 (6) TMI 278 - ANDHRA PRADESH HIGH COURT). As prior to A.Y 2015-16 no restriction was placed by the legislature in respect of investments in the residential houses that an assessee could make for claiming deduction under Sec. 54 of the Act. We thus are of the view that the claim of deduction raised by the assessee under Sec. 54 in respect of investment made towards purchase of residential house at Mumbai and Pune was well in order. We thus in context of the issue under consideration set aside the order of the CIT and uphold the claim of deduction as was raised by the assessee - Decided in favour of assessee.
Issues Involved:
1. Disallowance of exemption/deduction under Section 54 of the Income Tax Act, 1961. 2. Interpretation of the amendment made by the Finance Act, 2014 to Section 54. 3. Denial of benefits of Section 54 by the CIT(A). 4. General grounds of appeal. Issue-wise Detailed Analysis: 1. Disallowance of exemption/deduction under Section 54 of the Income Tax Act, 1961: The assessee, an architect, filed a return of income for A.Y. 2012-13 declaring a total income of ?59,07,550/-. During the assessment, the AO observed that the assessee sold a residential property in Mumbai for ?5,30,00,000/- and claimed an exemption under Section 54 for the long-term capital gain (LTCG) amounting to ?2,63,81,538/-. The claim included investments in two new properties (one in Pune and one in Mumbai) and an amount deposited in the Capital Gain Account Scheme. The AO restricted the deduction to the investment made in the Mumbai property only, citing that Section 54 allowed exemption for the purchase of one residential house only. The AO also disallowed the claim for renovation expenses and the amount deposited in the Capital Gain Account Scheme. 2. Interpretation of the amendment made by the Finance Act, 2014 to Section 54: The assessee contended that the term "a residential house" in Section 54, as it stood before the amendment by the Finance Act, 2014, did not restrict the exemption to one residential house. The amendment, which substituted "a residential house" with "one residential house in India," was prospective and applicable from A.Y. 2015-16 onwards. The assessee argued that the pre-amended Section 54 allowed investment in more than one residential house for claiming the exemption. 3. Denial of benefits of Section 54 by the CIT(A): The CIT(A) upheld the AO's decision, stating that the benefit of Section 54 could not be extended to investments in two distinct residential houses in different cities. The CIT(A) agreed with the AO that the deduction should be restricted to the investment made in one residential house, specifically the property in Mumbai, which had a higher value. 4. General grounds of appeal: The assessee's fourth ground was a general plea to add, alter, or amend the grounds of appeal. Tribunal's Analysis and Judgment: The Tribunal examined the pre-amended Section 54 and concluded that the term "a residential house" did not impose any numerical restriction on the number of residential houses for claiming the exemption. The Tribunal referred to judgments from various High Courts, including the Karnataka High Court in Commissioner of Income Tax vs. Khoobchand M. Makhija, which supported the view that the term "a residential house" could include multiple houses. The Tribunal noted that the amendment by the Finance Act, 2014, introducing the term "one residential house in India," was prospective and applicable from A.Y. 2015-16 onwards. Therefore, the restriction did not apply to the assessee's case for A.Y. 2012-13. The Tribunal allowed the assessee's appeal, setting aside the CIT(A)'s order and upholding the claim of deduction under Section 54 for investments in both residential houses in Mumbai and Pune. The general ground of appeal was dismissed as not pressed. Conclusion: The appeal was allowed, and the assessee's claim for exemption under Section 54 for investments in two residential houses was upheld. The Tribunal emphasized that the pre-amended Section 54 did not restrict the exemption to one residential house, and the amendment was prospective, applicable from A.Y. 2015-16 onwards.
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