2010 (8) TMI 477 - AT - Income Tax

Exemption u/s 54 - LTCG - Two flats - The exemption will be available in respect of sale of any number of residential houses if there are corresponding investments in residential house and all other conditions are fulfilled - In case there are sales of more than one residential houses in our view exemption has to be computed considering each set of sale of residential house and the corresponding investment in one residential house and the combination which is beneficial to the assessee has to be allowed - Since the investment is less than the capital gain difference of Rs.3, 97, 434/- will have to be taxed - In the result appeal of the assessee is partly allowed

Summary

Issues:
Claim of exemption under section 54 in respect of income from sale of two flats.

Analysis:
The appeal concerned the order for the assessment year 2006-07, focusing on the claim of exemption under section 54 regarding the sale of two flats. The assessee sold Flat No.41 and Flat No.51, earning long-term capital gains. The assessee reinvested the gains in two different flats, claiming full exemption under section 54. However, the Assessing Officer (AO) allowed exemption only for one flat, citing the use of the word "a" in the section. The AO relied on precedents and held that literal interpretation should be adopted. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading to the appeal before the Tribunal.

The assessee argued that there was no restriction in section 54 for allowing exemption only for one flat, emphasizing that each sale had a corresponding investment in a residential property. The Departmental Representative supported the lower authorities' decisions. The Tribunal analyzed the dispute, noting that the section does not limit exemption to one residential house. Unlike other sections using "any," section 54 does not restrict the number of assets for exemption. Referring to a special bench decision, the Tribunal clarified that exemption applies to each sale and corresponding investment. The Tribunal rejected the assessee's plea for aggregating gains and investments, instead opting for a case-by-case calculation for each residential house sold. Consequently, the indexed gain for each flat was matched with the investment in a residential property, resulting in partial allowance of the appeal.

In conclusion, the Tribunal partially allowed the assessee's appeal, determining exemption based on individual sales and corresponding investments in residential properties. The decision was pronounced on 13.08.2010.