2018 (1) TMI 986 - AT - Income Tax

Decline of claim of exemption u/s.54F - assessee has purchased more than one residential house out of the sale proceeds of capital gain - Held that - The issue under consideration is squarely covered by the decision in the case of CIT vs. Late Khoobchand M. Makhija 2013 (12) TMI 1525 - KARNATAKA HIGH COURT wherein held that exemption u/s.54 is available even in respect of two house property / flats being acquired out of the sale proceeds of long term capital gain. Applying proposition of law to the facts of the instant case we found that assessee has invested more than the sale proceeds of the industrial gala for purchase of two flats. Respectfully following the decision of Karnataka High Court we do not find any merit for decline of assessee s claim of deduction u/s.54 for investment in two flats out of sale proceeds of long term capital gains within the stipulated period provided in the Act. - Decided in favour of assessee

Summary

Issues:
Appeal against CIT(A) order declining exemption u/s.54F for purchasing more than one residential house out of capital gain sale proceeds.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerns the denial of exemption u/s.54F to the assessee for acquiring two residential flats using the sale proceeds of an industrial gala. The Assessing Officer (AO) disallowed the claim, contending that the two flats were adjacent and thus not eligible for exemption under the proviso to Section 54F. The CIT(A) upheld this decision, emphasizing that exemption u/s.54F was available for only one residential property. The assessee then appealed, arguing that prior to an amendment in 2015, the deduction under section 54F allowed investment in multiple residential properties, citing judicial precedents like D. Ananda Basappa, K.G. Rukminiamma, and CIT vs. Geeta Duggal. The assessee further contended that the purpose of the purchase was for family use, even if the flats were separate. The Karnataka High Court's decision in CIT vs. Late Khoobchand M. Makhija was also relied upon to support this argument.

The Tribunal considered the arguments and relevant legal provisions. Referring to the Karnataka High Court's decision in the case of Late Khoobchand M. Makhija, the Tribunal held that the acquisition of two residential houses by the assessee out of the capital gains falls within the scope of "residential house" under Section 54(1) of the Act. The Tribunal emphasized that the intention of the legislature was not to restrict the term "residential house" to a singular unit, as the context allowed for plural interpretation. Therefore, the assessee was entitled to the benefit under Section 54(1) for investing in two flats out of the sale proceeds of long term capital gains. The Tribunal concluded that there was no merit in declining the assessee's claim for deduction u/s.54 for investing in two flats within the stipulated period.

In light of the above analysis and legal interpretation, the Appellate Tribunal allowed the appeal of the assessee, granting exemption u/s.54F for the acquisition of two residential flats. The decision aligns with the broader interpretation of "residential house" under the relevant provisions and judicial precedents, emphasizing the legislative intent and the specific circumstances of the case.