2021 (3) TMI 224 - AT - Income Tax

Deduction u/s 54 - mandation of investment made in one residential house - scope of amendment of Section 54( 1) - as per revenue since here the assessee has purchased two different flats on two different dates and, therefore, assessee is not entitled to the deduction u/s 54 in respect of the second flat - HELD THAT - Deduction u/s 54 is restricted to only one residential house by the Finance Act 2014 is prospective in nature and is effective from assessment year 2015-16 and not retrospective in nature and that deduction u/s 54 of the Act in respect of investment made in one residential house can be claimed by the assessee. In this view of the matter we set aside the order of the Ld. CIT(A) and the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Interpretation of the term "a residential house" under Section 54 of the Income Tax Act.
2. Applicability of amendments made by the Finance Act 2014 to Section 54.
3. Eligibility for deduction under Section 54 in respect of investment in more than one residential house.

Issue-wise Detailed Analysis:

1. Interpretation of the term "a residential house" under Section 54 of the Income Tax Act:

The primary issue revolves around the interpretation of the term "a residential house" used in Section 54 of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] interpreted "a residential house" to mean a single residential house, thereby restricting the deduction to one property. The CIT(A) cited various judgments and explanatory notes to support this interpretation, emphasizing that the term "a residential house" should be understood in the singular sense, not allowing for multiple residential units at different locations.

The CIT(A) referred to the Delhi High Court's decision in the case of Gita Duggal, which held that multiple units within the same building could be considered a single residential house. However, the CIT(A) clarified that this interpretation does not extend to multiple houses at different locations. The CIT(A) also highlighted the legislative intent as evidenced by the Finance Act of 1978 and subsequent circulars, which consistently used singular terms like "another house."

2. Applicability of amendments made by the Finance Act 2014 to Section 54:

The Finance Act 2014 introduced an amendment to Section 54, explicitly restricting the deduction to investment in one residential house. The assessee argued that this amendment is prospective, applicable from the assessment year 2015-16, and not retrospective. The CIT(A) upheld the AO's decision, stating that the amendment clarified the legislative intent, which was always to allow the exemption for one residential house.

The Tribunal, however, referred to various High Court decisions, including the Karnataka High Court in the case of Arun Thiagarajan vs. CIT, which held that the amendment by the Finance Act 2014 is prospective and not retrospective. The High Court emphasized that the term "a residential house" could include multiple houses, and the amendment was intended to clarify this interpretation rather than change the law retrospectively.

3. Eligibility for deduction under Section 54 in respect of investment in more than one residential house:

The assessee claimed deduction under Section 54 for two properties purchased at different locations. The AO restricted the deduction to one property, which was upheld by the CIT(A). The assessee relied on various judicial precedents, including the Karnataka High Court's decision in Arun Thiagarajan, which allowed deduction for multiple residential houses purchased before the amendment in 2014.

The Tribunal considered these precedents and noted that the amendment restricting the deduction to one residential house is prospective. Therefore, for the assessment year in question (2012-13), the assessee is entitled to claim deduction for both properties. The Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal, granting the deduction under Section 54 for both residential houses.

Conclusion:

The Tribunal concluded that the amendment to Section 54 by the Finance Act 2014 is prospective and not applicable to the assessment year 2012-13. Therefore, the assessee is entitled to claim deduction under Section 54 for investment in more than one residential house for the relevant assessment year. The order of the CIT(A) was set aside, and the grounds raised by the assessee were allowed. The decision was pronounced in the open court on 3rd March 2021.