2017 (2) TMI 276 - AT - Income Tax

Disallowance of claim of deduction u/s 54 - manner of construction of house - Held that - Section 54/54F uses the expression a residential house . There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited. The ratio laid down by Hon ble Delhi High Court in CIT vs Gita Duggal (2013 (3) TMI 101 - DELHI HIGH COURT ) supports the case of the assessee. Exemption u/s 54 will be available in respect of any number of long term capital assets, being residential houses, if other conditions are fulfilled. If the sale proceeds of the long term capital asset is not utilised, within specified time, then it will be dealt with in accordance with law. In the present appeal, it is not the case of the Revenue that the proceeds received upon transfer of long term capital asset was not utilised by the assessee. Thus, considering the totality of facts, the appeal of the assessee is allowed.

Issues Involved:
1. Disallowance of claimed deduction under Section 54 of the Income Tax Act, 1961.
2. Interpretation of the term "a residential house" in Section 54.
3. Applicability of exemption for multiple residential houses under Section 54.

Issue-wise Detailed Analysis:

1. Disallowance of Claimed Deduction under Section 54:
The assessee was aggrieved by the disallowance of a claimed deduction of ?63,62,400 under Section 54 of the Income Tax Act, 1961, by the First Appellate Authority, Mumbai. The assessee argued that the issue was covered by previous decisions of the coordinate Bench in similar cases. The Revenue, while defending the addition made by the Assessing Officer, did not contest that the issue was covered in favor of the assessee.

2. Interpretation of the Term "a Residential House" in Section 54:
The Assessing Officer (AO) interpreted the phrase "a residential house" in Section 54 to mean that exemption was available only in respect of the sale of one capital asset and the purchase or construction of only one residential house. The AO referred to the decision of the Special Bench of the Tribunal in the case of ITO vs. Ms. Sushila M. Jhaveri, which held that exemption under Section 54 should be allowed only for investment in one residential house. The AO argued that the statutory provision was plain and unambiguous, requiring a literal interpretation.

3. Applicability of Exemption for Multiple Residential Houses under Section 54:
The Tribunal considered the rival submissions and analyzed the provisions of Section 54. It was noted that the assessee had sold two flats and invested the capital gains in two different flats. The Tribunal held that there was no restriction in Section 54 that exemption was available only for the sale of one residential house. The Tribunal emphasized that the term "a residential house" should be understood to mean a building of residential nature, and the singular term "a" should not be interpreted to indicate a singular number. The Tribunal cited the General Clauses Act, which permits the inclusion of the plural when the singular is used.

The Tribunal also referred to the decision of the Hon’ble Delhi High Court in CIT vs. Gita Duggal, which supported the view that the exemption under Section 54 is available for multiple residential houses if other conditions are fulfilled. The Tribunal concluded that the exemption should be computed considering each set of sale and corresponding investment in one residential house, allowing the combination most beneficial to the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the exemption under Section 54 is available for the sale of multiple residential houses with corresponding investments in residential houses. The decision was based on the interpretation that the term "a residential house" includes multiple residential houses and the provisions of the General Clauses Act. The Tribunal ordered that the indexed gain from the sale of each flat should be considered against the corresponding investment in residential houses, and the combination beneficial to the assessee should be allowed. The appeal of the assessee was thus partly allowed.

Final Order:
The appeal of the assessee was allowed, and the order was pronounced in the open court in the presence of the representatives from both sides on 28/11/2016.

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