2003 (10) TMI 251 - AT - Income Tax

Entitlement for deduction u/s 54 - Capital Gains - Investment in a residential house - Whether a residential house should be treated as one residential house or whether more than one residential house can be considered eligible for deduction u/s 54 - HELD THAT - Reading the provisions of section 54 it can be held that there is no bar like section 54F to claim deduction for more than one residential house. If the assessee is holding a residential house called building A and on sale of such house if the assessee acquires property-X the assessee is eligible for deduction u/s 54. Similarly in the same year if the assessee sells residential house B and acquires a house property Y out of such proceeds still the assessee is eligible for deduction u/s 54. This means that there is no bar in acquiring more than one residential house to claim deduction u/s 54 unlike section 54F. If this be the case then it can be held that if the assessee acquires even two adjacent houses to meet his needs out of the proceeds of only one residential house he cannot be denied exemption u/s 54. What is to be examined is whether the conditions of section 54 are satisfied at the time of investment in each property. In the present case it can be seen that both the properties were acquired simultaneously i.e. within the period specified in section 54. To put it in different words when the assessee sold the original property and earned capital gain out of same what is to be seen is whether the sale proceeds of original asset has been utilised in acquiring another house property. We find that both the apartments were acquired simultaneously and hence the conditions for acquiring a residential house within the time specified are complied with. The assessee is therefore eligible for deduction u/s 54 in respect of both the apartments simultaneously acquired. Hence a residential house can contain more than one residential unit and still can be considered a residential house only. It is also observed in Mrs. Gulshanbanoo R. Mukhi s case 2002 (1) TMI 1296 - ITAT MUMBAI that the intention of the Legislature is clear to grant exemption for only one house. We are unable to find any such intention anywhere stated. It cannot be presumed that if the Legislature intended more than one residential unit it could have used the words house or houses . It can equally also be held that if the intention of Legislature is to restrict the deduction for only one house then instead of using the word a residential house the words one residential house would have been used therein. It may also be noted that under General Clauses Act as per section 13 singular shall include plural and vice versa. Reliance placed on the decision of Hon ble Supreme Court in Vegetable Products Limited case 1973 (1) TMI 1 - SUPREME COURT to the extent that if the language of the statute is plain the fact that the consequences of giving effect to it may lead to absurd result is of no effect in interpreting the provisions. However the same decision also holds that if there is ambiguity in interpretation of the provisions the one which is in favour of the assessee should be adopted. The varying decisions at extreme ends can definitely result into saying that there is an ambiguity in the provision. Thus the one in favour of the assessee is to be adopted rather than applying a strict meaning by saying that there is no ambiguity. Thus this issue is decided in favour of the assessee - In the result the appeal is partly allowed.

Summary

Issues Involved:
1. Restriction of benefit u/s 54 for investment in two residential flats.
2. Restriction of agricultural income.

Summary:

Issue 1: Restriction of benefit u/s 54 for investment in two residential flats

The primary issue in this appeal is whether the benefit u/s 54 can be extended to the investment in two adjacent residential flats that were intended to be used as a single large flat. The assessee sold a property and invested Rs. 107.81 lakhs in two adjacent flats, claiming exemption u/s 54 for the entire amount. The Assessing Officer restricted the exemption to Rs. 55.20 lakhs, corresponding to one flat, and this decision was upheld by the CIT(A).

The CIT(A) concluded that the term "a residential house" in section 54 means one house, not multiple units, citing various case laws including the decision in Mrs. Gulshanbanoo R. Mukhi v. Jt. CIT [2002] 83 ITD 649. The Tribunal in that case emphasized that the legislative intent was to allow exemption for one residential house only.

The assessee argued that both flats were intended to be used as a single large apartment and should be considered as one residential house. The counsel cited several decisions supporting the interpretation that multiple units in the same building could be considered as one residential house.

The Tribunal examined whether "a residential house" should be interpreted as "one residential house" or could include more than one unit. It noted that there is no explicit bar in section 54 against claiming exemption for more than one residential house, unlike section 54F. The Tribunal leaned towards the interpretation that adjacent flats intended to be used as a single house should be eligible for exemption u/s 54, referencing decisions like K.G. Vyas and Smt. Fulwanti C. Rathod.

The Tribunal found that the conditions for acquiring "a residential house" within the specified period were met, and thus, the assessee was entitled to exemption for both flats. The Tribunal disagreed with the decision in Mrs. Gulshanbanoo R. Mukhi's case, stating that there was no amendment in section 54 post-1983 that restricted the exemption to one house.

Issue 2: Restriction of agricultural income

The second issue was the restriction of agricultural income to Rs. 5 lakhs against the returned income of Rs. 10 lakhs by the assessee. The counsel for the assessee did not press this ground, and it was conceded. Consequently, this ground of appeal was dismissed.

Conclusion:

The appeal was partly allowed, granting the benefit u/s 54 for the investment in both residential flats while dismissing the ground related to agricultural income.