2010 (8) TMI 482 - HC - Income Tax

Capital gains Exemption - residential flats constitute a residential house for the purpose of section 54 - Profit on sale of property was used for residence - residential flats cannot be construed as four residential houses for the purpose of section 54 - It has to be construed only as a residential house and the assessee is entitled to the benefit accordingly

Summary

Issues:
1. Entitlement to deduction under section 54 and capital gains calculation.
2. Interpretation of "a residential house" under section 54.
3. Discrepancy in the value declared by the assessee and assessing authority's decision.
4. Applicability of section 271(1)(c) for furnishing inaccurate particulars of income.
5. Appeal against the order of the Appellate Tribunal by the Revenue.

Entitlement to deduction under section 54 and capital gains calculation:
The case involved a joint development agreement where the assessee transferred a property to a builder and received four residential flats as consideration. The assessing authority initially held the capital gain at Rs. 21,73,880, alleging inaccurate particulars of income declaration by the assessee. However, the appellate authority allowed the deduction under section 54, relying on the judgment in Anand Basappa v. ITO. The Appellate Tribunal also upheld this decision, emphasizing the simultaneous acquisition of all apartments and compliance with section 54 conditions.

Interpretation of "a residential house" under section 54:
The Revenue contended that under section 54, the term "a residential house" should be interpreted strictly to mean only one residential house, not multiple. However, the court analyzed the language of section 54 and the General Clauses Act, concluding that "a residential house" can include multiple units if they form part of the same residential property. The court referred to a previous judgment to support this interpretation, stating that the four residential flats received by the assessee constituted "a residential house" for the purpose of section 54.

Discrepancy in the value declared by the assessee and assessing authority's decision:
The assessing authority found a significant variance between the value declared by the assessee and the actual consideration received, leading to the initiation of action under section 271(1)(c) for furnishing inaccurate particulars of income. However, the appellate authority and the Tribunal focused on the entitlement to deduction under section 54 based on the nature of the property transferred and the consideration received, ultimately dismissing the appeal by the Revenue.

Applicability of section 271(1)(c) for furnishing inaccurate particulars of income:
The assessing authority directed action under section 271(1)(c) due to the alleged inaccurate particulars of income declared by the assessee. However, the subsequent decisions by the appellate authority and the Tribunal centered on the eligibility for deduction under section 54, leading to the dismissal of the Revenue's appeal.

Appeal against the order of the Appellate Tribunal by the Revenue:
The Revenue appealed against the order of the Appellate Tribunal, arguing that the benefit under section 54 should only apply to one residential house, not multiple units. However, the court upheld the decisions of the lower authorities, emphasizing the inclusive interpretation of "a residential house" and the compliance with section 54 conditions in the case at hand. Consequently, the court dismissed the appeal, finding no substantial question of law for consideration.