2020 (8) TMI 144 - AT - Income Tax

Exemption u/s 54F - two residential units purchased during the year - whether the assessee can claimed deduction/exemption under section 54F as applicable for the year under consideration for the investment made in more than 1 residential units - HELD THAT - As specified u/s 54F of the Act, the assessee can claim exemption for the investment made in a residential house. The question arises whether a residential house reads as one residential house. To resolve the controversy, we note that different courts have taken different views. Some of them have interpreted the investment in a residential house as limited to one house only whereas some of the courts have taken a view the word a residential house uses under section 54F of the Act does not refer to one residential unit. As decided in favour of assessee in SMT. KG. RUKMINIAMMA 2010 (8) TMI 482 - KARNATAKA HIGH COURT - there was an amendment under the provisions of section 54F of the Act wherein the word a residential house was replaced with one residential house . Such amendment was brought by the Finance Act 2014 which is effective from 1 April 2015 corresponding to assessment year 2015-16. Whether a residential house should be read as one residential house prior to such amendment has been put to rest by changing the language in the provisions of the Act but the same is effective from the assessment year 2015-16. Thus in such a situation we can safely conclude that the assessee prior to such amendment was eligible for exemption under section 54F even he makes the investment in more than one residential properties. There is no ambiguity that the case before us pertains to the assessment year 2014-15 prior to the amendment brought under the provisions of section 54F. Accordingly, we direct the AO to allow the assessee the benefit of exemption under section 54F for the investment made in both the properties. Hence the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Interpretation of section 54F of the Income Tax Act for exemption/deduction of residential properties.

Detailed Analysis:

Issue 1: Interpretation of Section 54F for Exemption/Deduction of Residential Properties

The appeal was filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) concerning the assessment order passed under section 143(3) of the Income Tax Act for the Assessment Year 2014-15. The assessee raised multiple grounds of appeal challenging the validity of the assessment order and the denial of exemption under section 54F of the Act for investment in two adjacent residential flats. The Assessing Officer (AO) disallowed the deduction claimed by the assessee under section 54F, stating that the conditions specified were not met as the flats were considered separate units based on an inspection report and tenant statements.

The assessee argued that the legislative amendment in the Finance Act 2014 replaced 'a residential house' with 'one residential house,' effective from April 1, 2015, for the assessment year 2015-16 onwards. However, the case in question pertained to the assessment year 2014-15, and the assessee contended that the amendment should not be applied retrospectively. The assessee maintained that the investment in two flats should qualify for exemption under section 54F.

The Learned Commissioner of Income Tax (Appeals) upheld the denial of exemption for one of the flats, stating that the deduction should be limited to one residential house. The ITAT Ahmedabad, after considering the arguments and legal provisions, noted that different courts had varying interpretations regarding the term 'a residential house' under section 54F. Referring to a judgment by the Hon'ble Karnataka High Court, the ITAT concluded that the term 'a residential house' did not necessarily refer to a single unit but could include multiple units based on the context and legislative intent.

Given the legislative amendment effective from the assessment year 2015-16, clarifying the term to be 'one residential house,' the ITAT ruled that the assessee, in the assessment year 2014-15, was eligible for exemption under section 54F for investment in both properties. The ITAT allowed the appeal in favor of the assessee, directing the AO to grant the benefit of exemption for both residential properties. The ITAT also noted that no arguments were presented regarding another ground of appeal, which was consequently rejected.

In conclusion, the ITAT partially allowed the appeal of the assessee, emphasizing the interpretation of section 54F for exemption/deduction of residential properties based on the legislative provisions and judicial precedents.