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2024 (12) TMI 265 - HC - Income TaxLTCG - exemption u/s 54F - eligibility to claim exemption only in respect of one flat - Interpretation of a residential house - two flats purchased by the assessee in the one society, located in the same tower, but on different ends of two different floors - ITAT was of the opinion that since the two flats purchased by the assessee were on two different floors and were neither adjacent to each other nor they could have been joined to form a dwelling house, the same could not be considered as a residential house - Whether the benefit provided u/s 54F which uses the phrase a residential house , should be interpreted strictly as applying to a single residential unit, or if it can be construed more broadly to encompass multiple residential units? - HELD THAT - We note that the legislature has used the words new asset , and not new assets , in relation to a residential house . As per the principles of interpretation of statutes, we see that there is no ambiguity in the words a residential house or a new asset . Further, even by going behind the intent of the provision, the said words would essentially mean a singular house or a singular asset and not multiple houses or multiple assets. To conclude, the word a would indicate one or singular item, entity, object, person, etc. and will not indicate more than one or many . In case the legislature intended to use it in plural connotation, it would have used the word assets instead of a new asset , and not used the article a before the term residential house . In the said eventuality, there would have been merit in the contention of the learned counsel for the assessee that she was entitled to exemption u/s 54F even if she had invested in purchasing/acquiring multiple residential flats incapable of being structurally or legally combined and even failing the test of being adjacent. If the argument of the assessee is to be accepted, even different residential units bought in different parts of a city or different states would have to be brought under the ambit of Section 54F of the Act, which was not the intent of the legislature. It is essential to add a caveat that such a decision will depend on the facts of each case. As in the case of Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT the plot of land and the entire house built up on the said land originally belonged to the assessee only, which was demolished and reconstructed by the builder under an agreement. Bench had observed that people can construct their houses in the manner they so desire, and the said observations would also indicate that the assessee in that case was constructing a house as per her own needs, after modifying the original residential house that she owned. Conversely, in the present case, the assessee had bought, and not constructed, two flats which are on two different floors and situated at diagonally opposite ends, in a manner which does not make it feasible for them to be connected structurally as one single unit. This assumes significance in the backdrop of our opinion that the word a used in Section 54F of the Act denotes one singular residence, along with the caveat that in case the floors or houses are so constructed as to be used as one singular unit or capable of being used as such, they may fall within the definition of a residential house. Considering terminology used in Section 54F of the Act, the intent of the provision, and the judicial precedents discussed above, we conclude that the appellant s purchase of two distinct, non-adjacent flats, located on diagonally opposite ends of two different floors, even though in a same tower of a residential society, does not fulfill the criteria for exemption under Section 54F of the Act. While it is true that the words a residential house used in Section 54F of the Act (prior to amendment) were judicially interpreted to allow certain flexibility in cases where more than one residential unit could, in essence, form a single residential house, as seen in Gita Duggal (supra). This was premised on the possible practical use of the residential units as a unified residence, the characteristics which are absent in the present case. No error in the learned ITAT s decision to grant exemption under Section 54F of the Act in respect of only one of the two flats purchased by the appellant. Decided in favour of revenue.
Issues Involved:
1. Interpretation of "a residential house" under Section 54F of the Income Tax Act, 1961. 2. Eligibility for exemption under Section 54F when multiple residential units are purchased. 3. Applicability of amendments made by the Finance Act, 2014 to Section 54F. 4. Judicial precedents relevant to interpreting "a residential house." Issue-wise Detailed Analysis: 1. Interpretation of "a residential house" under Section 54F of the Income Tax Act, 1961: The primary issue was whether the term "a residential house" in Section 54F should be interpreted strictly as a single residential unit or if it could encompass multiple units. The court examined the language of Section 54F, noting that the provision refers to "a residential house" and "a new asset," indicating singularity. The court emphasized that the indefinite article "a" tends to carry the concept of singularity, as opposed to plurality. The court concluded that the legislative intent was to allow exemption for a single residential house, not multiple units. 2. Eligibility for exemption under Section 54F when multiple residential units are purchased: The assessee had purchased two separate flats on different floors of the same tower, claiming them as a single residential house for exemption purposes. The court found that the flats were distinct and separate, as they were located on different floors and opposite ends, making it impossible to combine them into a single unit. The court held that the two flats could not be treated as "a residential house" for the purpose of Section 54F, as they did not meet the criteria of being a unified residential unit. 3. Applicability of amendments made by the Finance Act, 2014 to Section 54F: The court considered the amendment brought by the Finance Act, 2014, which replaced "a residential house" with "one residential house." The court noted that the amendment was introduced to clarify that the benefit was intended for investment in one residential house, resolving any ambiguity that may have existed. The court did not delve into whether this amendment was clarificatory or not, as the facts of the case did not support the assessee's claim even under the pre-amendment provision. 4. Judicial precedents relevant to interpreting "a residential house": The court reviewed various judicial precedents, including the cases of Gita Duggal, D. Ananda Basappa, and Pawan Arya. In Gita Duggal, the court had allowed exemption for multiple units constructed on a single plot as a single house, based on their adjacency and potential for integration. However, in the present case, the court distinguished these precedents, emphasizing that the flats purchased by the assessee were not adjacent or capable of being combined into a single unit. The court concluded that the precedents did not apply to the facts of the present case. Conclusion: The court dismissed the appeal, holding that the assessee was not entitled to exemption under Section 54F for both flats, as they did not constitute "a residential house." The court upheld the decision of the ITAT, which allowed exemption for only one flat, reinforcing the interpretation that "a residential house" refers to a singular residential unit.
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