2020 (6) TMI 513 - HC - Income Tax

Exemption under Section 54 - Assessee had purchased more than two houses - scope of expression 'a residential house' - HELD THAT - It is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression 'a residential house' therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. SEE DECISION OF THE SUPREME COURT IN 'CIT VS. NEW DELHI VS. RAMKRISHNA DAS' 2019 (3) TMI 1469 - SUPREME COURT . In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the expression 'a residential house', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house'. The aforesaid amendment came into force with effect from 01.04.2015. Subsequent amendment of Section 54(1) also fortifies the fact that the legislature felt the need of amending the provisions of the Act with a view to give a definite meaning to the expression 'a residential house', which was interpreted as plural by various courts by taking into account the context in which the aforesaid expression was used. See M/S. TILOKCHAND AND SONS 2019 (4) TMI 713 - MADRAS HIGH COURT and GITA DUGGAL 2013 (3) TMI 101 - DELHI HIGH COURT As interpreted the expression 'a residential house' and have held that the aforesaid expression includes plural. The ratio of the decisions rendered by coordinate bench of this court are binding on us and we respectively agree with the view taken by this court while interpreting the expression 'a residential house'. Therefore, the contention of the revenue that the assessee is not entitled to benefit of exemption under Section 54(1) of the Act in the facts of the case does not deserve acceptance.- Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement to exemption under Section 54 of the Income Tax Act for purchasing more than one house.
2. Interpretation of the term "a residential house" in Section 54(1) of the Act.
3. Applicability of the amendment to Section 54(1) by Finance Act, 2014.

Detailed Analysis:

Issue 1: Entitlement to Exemption under Section 54 for Purchasing More Than One House
The primary issue was whether the assessee was entitled to claim exemption under Section 54 of the Income Tax Act for investments made in two residential properties. The assessee sold a residential property and invested the proceeds in two properties in Bangalore. The assessing officer restricted the exemption to one property based on a prior decision, leading to the disallowance of the exemption for the second property. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld this decision, prompting the assessee to appeal to the High Court.

Issue 2: Interpretation of "a residential house" in Section 54(1)
The court examined whether the term "a residential house" in Section 54(1) should be interpreted as singular or plural. The assessee argued that the term should be interpreted to include multiple residential units, citing various judicial precedents where courts had interpreted "a residential house" to mean any number of residential units. The court referred to multiple decisions, including those of the Karnataka High Court and other High Courts, which held that the term "a residential house" includes plural, thereby allowing exemption for investments in more than one residential property.

Issue 3: Applicability of the Amendment by Finance Act, 2014
The court also considered the amendment to Section 54(1) by the Finance Act, 2014, which substituted the words "constructed a residential house" with "constructed one residential house in India," effective from 01.04.2015. The court noted that the amendment was prospective and not applicable to the assessment year in question (2003-04). The explanatory note to the Finance Act clarified that the amendment was intended to restrict the benefit to one residential house, effective from the assessment year 2015-16 onwards.

Conclusion:
The court concluded that the term "a residential house" in Section 54(1) includes multiple residential units based on judicial precedents and the context of the provision. The amendment by the Finance Act, 2014, was prospective and did not apply to the assessment year in question. Therefore, the assessee was entitled to the benefit of exemption under Section 54(1) for investments made in two residential properties. The orders of the assessing officer, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal were quashed to the extent they deprived the assessee of this benefit, and the appeal was allowed.