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2018 (5) TMI 1583 - AT - Income TaxGranting exemption u/s 54 in respect of reinvestment made by the assessee in three houses - year of assessment - modified occupancy certificate issued to the assessee considering the entire building as a combined single building - Held that - Prior to the amendment in section 54 with effect from Asst Year 2015-16 onwards as long as the investment is made in residential house/(s) then the assessee would be eligible for exemption u/s 54 for the entire reinvestment subject to the maximum of long term capital gains amount. Only after Asst Year 2015-16 the exemption u/s 54 would have to be restricted to reinvestment in one residential house only and the said amendment cannot be applied retrospectively. - Decided in favour of the assessee.
Issues Involved:
1. Eligibility for Exemption under Section 54 of the Income Tax Act: Whether the assessee is justified in claiming exemption under Section 54 for reinvestment in three residential houses. 2. Interpretation of "a Residential House": Whether the term "a residential house" in Section 54 allows exemption for multiple residential units before the amendment effective from April 1, 2015. Detailed Analysis: 1. Eligibility for Exemption under Section 54 of the Income Tax Act: The primary issue revolves around whether the assessee is eligible for exemption under Section 54 of the Income Tax Act for reinvestment in three residential houses. The assessee, a senior citizen, sold a residential property and reinvested the proceeds in three adjacent plots, constructing three interconnected residential units with common amenities. The Assessing Officer (AO) denied the exemption for two out of the three houses, arguing that Section 54 allows exemption only for one residential house. The AO relied on separate occupancy certificates, electricity bills, and other documents issued for each plot to substantiate that the reinvestment was made in three separate houses. However, the Commissioner of Income Tax (Appeals) [CITA] admitted additional evidence, including a letter from the Directorate General, Town & Country Planning, Haryana, confirming that the three plots were considered a combined single plot with common infrastructure. The CITA concluded that the assessee's reinvestment in the combined plot constituted a single residential house, thereby granting the exemption under Section 54. 2. Interpretation of "a Residential House": The second issue pertains to the interpretation of the term "a residential house" in Section 54. The AO argued that the term restricts the exemption to one residential house. This interpretation was supported by the Special Bench decision of the Mumbai Tribunal in the case of ITO vs. Sushila M. Jhaveri and subsequent approvals by the Bombay High Court. The assessee contended that the term "a residential house" does not restrict reinvestment to a single house. The assessee cited various High Court decisions (Delhi, Andhra Pradesh, Karnataka, and Madras) which allowed exemption for multiple residential units as long as they served the same residential purpose. The Tribunal examined the additional evidence and the modified occupancy certificate, which treated the three plots as a combined single plot. The Tribunal applied the "Doctrine of Relation Back," stating that the modified certificate relates back to the original date, thus considering the reinvestment as made in a single residential house. Furthermore, the Tribunal noted that the amendment to Section 54, specifying "one residential house," applies prospectively from April 1, 2015. Therefore, for the assessment year in question (2012-13), the assessee was entitled to claim exemption for reinvestment in multiple residential units. Conclusion: The Tribunal concluded that the assessee's reinvestment in three interconnected residential units with common amenities constituted a single residential house. Hence, the assessee was eligible for exemption under Section 54 for the entire reinvestment amount. The Tribunal also held that the amendment specifying "one residential house" applies only from April 1, 2015, and cannot be applied retrospectively. Final Order: The appeal of the revenue was dismissed, and the cross-objections of the assessee were dismissed as not pressed. The Tribunal pronounced the order on May 23, 2018.
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