2021 (6) TMI 663 - AT - Income Tax

Exemption u/s 54 - reinvestment of long term capital gain in acquisition of both the flats as one residential unit - HELD THAT - Even though different flat numbers are given, both the flats in Flat No. 802A and Flat No. 802B are adjacent to each other and is a one residential property which has common passage/staircase, common kitchen and common entrance and common amenities as per the project of the builder.The assessee is entitled to claim deduction under section 54 of the Act for the reinvestment of long term capital gain in acquisition of both the flats as one residential unit. Against the alternate plea of the assessee that even if the Department treat the residential unit as two different residential units and the assessee is entitled to claim exemption under section 54 of the Act in view of the decision in the case of CIT v. V.R. Karpagam (supra), we find that even though in V.R. Karpagam's 2014 (8) TMI 899 - MADRAS HIGH COURT , the claim was raised under Section 54F of the Act the said case law would certainly apply to a case under Section 54 of the Act also because a bare reading of Sections 54 and 54F of the Act would reveal that the two provisions are in pari materia with regard to those aspects of provisions of law which we are concerned with in the instant case. While section 54 of the Act deals with capital gains arising out of transfer of buildings or lands appurtenant thereto and being residential house, section 54F of the Act deals with capital gain arising out of transfer of any long term capital asset not being a residential house. Otherwise, in all other aspects of the matter, the two provisions namely sections 54 and 54F are in pari materia. Therefore, the interpretation of 'a residential house' occurring in section 54F cannot be any different for the same phrase 'a residential house' occurring under section 54 of Act. In this regard what applies to section 54F would apply in equal and full force to section 54 also. Therefore, the principles in V.R. Karpagam's case would certainly apply to the facts of the instant case. Thus, we are of the considered opinion that the ld. CIT(A) has rightly directed the Assessing Officer to allow deduction under section 54 of the Act for reinvestment of long term capital gain in acquisition of both the flats. Accordingly, the ground raised by the Revenue stands dismissed.

Summary

Issues:
1. Claim of exemption under section 54 of the Income Tax Act for the purchase of two flats.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the allowance of deduction under section 54 of the Income Tax Act for the assessment year 2009-10. The case involved an individual taxpayer who declared an income of &8377;2,90,72,790 and claimed exemption under section 54 for investing in two flats. The Assessing Officer initially restricted the exemption to one flat, leading to a higher taxable long term capital gain. However, the Commissioner of Income Tax (Appeals) allowed both grounds raised under section 54, following relevant case law. The Revenue contended that the taxpayer was not entitled to claim exemption for more than one house under section 54. The taxpayer argued in favor of the appellate order.

Upon review, the Tribunal considered the factual aspects and case law presented. The taxpayer had purchased two adjacent flats, which were treated as one residential unit with common facilities. Referring to the decision in CIT v. D. Ananda Basappa, where exemption was allowed for the purchase of two flats combined into one unit, the Tribunal found merit in the taxpayer's claim. Despite separate flat numbers, the flats were interconnected and formed a single residential property. The Tribunal concluded that the taxpayer could claim deduction under section 54 for reinvesting in both flats as one residential unit.

Regarding the alternate plea that even if treated as two separate units, exemption should still apply under section 54, the Tribunal invoked the decision in CIT v. V.R. Karpagam. This case law, although under section 54F, was deemed applicable to section 54 due to similarities in provisions. The Tribunal highlighted that the interpretation of "a residential house" in section 54F should align with section 54. Therefore, the principles established in V.R. Karpagam's case were deemed relevant to the present case, supporting the Commissioner of Income Tax (Appeals)'s decision to allow the deduction for both flats. Consequently, the Revenue's appeal was dismissed, affirming the directive to permit the deduction under section 54 for reinvestment in both flats.

In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to allow the taxpayer's claim for exemption under section 54 of the Income Tax Act for the investment in two flats, treating them as one residential unit. The judgment emphasized the applicability of relevant case law and statutory interpretations in determining the eligibility for deductions under the Act.