2022 (7) TMI 1300 - AT - Income Tax

LTCG - Deduction u/s. 54 - scope of amendment - one versus a - investment of capital gain into more than one residential units - HELD THAT - It is a fact that section 54 has been amended by Finance Act (2) 2014 w.e.f. 01.04.2015 applicable from 2015-16 onwards, wherein the legislature amended the word one residential house in place of a residential and the said amendment is applicable to the instant case as well. Commissioner though referred the latest provisions of section 54 of the Act, however without giving any definite finding qua applicability of the latest provisions of section 54 as applicable to the case in hand, decided the appeal of the Assessee, while referringsome decisions which admittedly pertains to period prior to amended provisions of section 54 of the Act, as applicable to AY 2015-16 involved in this case. Hence, in our considered view, substantial justice would be met by setting aside the impugned order and remanding the case to the file of Commissioner to decide the issue involved de nova in its right perspective, while taking into consideration the provisions of section 54 as amended by Finance Act 2014 and applicable to AY 2015-16 which is relevant in this case.

Issues Involved:
1. Eligibility for exemption under Section 54 of the Income-tax Act, 1961.
2. Interpretation of "one residential house" under amended Section 54.
3. Burden of proof regarding the residential unit status of the property.

Detailed Analysis:

1. Eligibility for Exemption under Section 54:
The primary issue revolves around the assessee's eligibility for exemption under Section 54 of the Income-tax Act, 1961. The assessee sold a property and claimed a deduction under Section 54, which the Assessing Officer (AO) denied. The AO's denial was based on a field enquiry report indicating that the property consisted of three flats and one basement, each with separate entrances, and thus could not be considered a single residential unit. Consequently, the AO added Rs. 2,42,17,559/- as long-term capital gain to the assessee's income.

2. Interpretation of "One Residential House" Under Amended Section 54:
The AO's decision was influenced by the amendment to Section 54 by the Finance Act, 2014, which changed the wording from "a residential house" to "one residential house." This amendment was applicable from the assessment year 2015-16. The AO interpreted this to mean that the exemption could only be claimed for a single residential unit, which the assessee's property did not qualify as, due to its multiple independent units.

3. Burden of Proof Regarding the Residential Unit Status:
The AO held that the burden of proof was on the assessee to demonstrate that the three flats and one basement constituted a single residential unit. The assessee failed to provide sufficient evidence or certification to support this claim, leading to the denial of the exemption.

First Appeal:
The assessee appealed to the Commissioner of Income-tax (Appeals), who partly allowed the appeal. The Commissioner directed the AO to allow the exemption under Section 54 after making adjustments for the indexed cost of acquisition. The Commissioner considered the property as a single residential house, despite its multiple units, based on judicial precedents, including the case of Gita Duggal, which held that a residential house consisting of several independent units could still qualify for exemption under Section 54.

Tribunal's Decision:
The Revenue Department appealed the Commissioner's decision to the ITAT. The Tribunal noted that the AO had denied the exemption primarily because the assessee did not prove that the property was a single residential unit. The Tribunal also acknowledged the amendment to Section 54, which replaced "a residential house" with "one residential house," applicable from the assessment year 2015-16.

The Tribunal observed that the Commissioner had relied on judicial precedents that predated the amendment to Section 54. Therefore, the Tribunal found it necessary to reconsider the case in light of the amended provisions. The Tribunal set aside the Commissioner's order and remanded the case back to the Commissioner for a fresh decision, taking into account the amended Section 54 applicable to the assessment year 2015-16.

Conclusion:
The appeal filed by the Revenue Department was allowed for statistical purposes, and the case was remanded to the Commissioner for a de novo decision, considering the amended provisions of Section 54. The Tribunal emphasized the need for a thorough evaluation of whether the property qualified as "one residential house" under the amended law.

← Previous Next →