2019 (4) TMI 1293 - AT - Income Tax

Deduction u/s 54 - treatment as residential house for the purpose - HELD THAT - Merely dealing in purchase and sale of residential building/property will not be regarded as a residential house but only when a residential unit is purchased for the assessee s own residential purpose then, it will be treated as a residential house for the purpose of Section 54. There is no dispute that the assessee has purchased two separate flats at two floors 10th and 11th of the building. Therefore, for considering the two flats as a residential house the various aspects are to be taken into consideration as discussed by us in the foregoing part of this order as well as the term residential house discussed in the various decisions. Issue requires a proper verification and examination in light of the above discussion and observation. Accordingly, the matter is set aside to the record of the Assessing Officer for proper examination and verification of the relevant facts and then decide the same in light of the observation discussed by us in this order. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Restriction of exemption claim under Section 54 of the Income Tax Act, 1961.
2. Denial of deduction for the deposit in Capital Gain Scheme Account.
3. Application of amended provisions of Section 54(1) for the assessment year 2014-15.

Issue-wise Detailed Analysis:

1. Restriction of exemption claim under Section 54 of the Income Tax Act, 1961:
The assessee claimed an exemption under Section 54 for an investment of ?5,00,00,007/- in two flats (Nos. 7103 and 7113) located on the 10th and 11th floors of a building, intending to combine them into a duplex unit. The Assessing Officer (AO) restricted the exemption to one flat, allowing only ?2,50,00,003/- and added the remaining amount to the long-term capital gain. The assessee argued that both flats should be considered a single residential unit as they were intended to be combined into one. The assessee relied on previous judicial decisions, including CIT vs. Gita Duggal and decisions from the Coordinate Benches, which supported the view that adjacent flats intended to be used as a single residential unit should qualify for full exemption under Section 54. The Revenue, however, contended that the flats were independent units with no common passage or kitchen, thus not meeting the criteria of a single dwelling unit.

2. Denial of deduction for the deposit in Capital Gain Scheme Account:
The assessee also claimed a deduction for a deposit of ?2,81,77,656/- in a Capital Gain Scheme Account, which was made before the due date of filing the return. The authorities denied this deduction, which the assessee contested as being contrary to the provisions of Section 54.

3. Application of amended provisions of Section 54(1) for the assessment year 2014-15:
The assessee contended that the AO and CIT(A) erred in applying the amended provisions of Section 54(1), which were effective from 01/04/2015 and applicable for the assessment year 2015-16 onwards, to the assessment year 2014-15. The assessee argued that the amendment was prospective and should not affect the assessment year in question.

Judgment Analysis:
The Tribunal examined the relevant provisions of Section 54 and the judicial precedents cited by both parties. It noted that the primary requirement for availing exemption under Section 54 is the purchase or construction of a residential house for the assessee's own residence. The Tribunal acknowledged that the term "residential house" could include adjacent units if they are intended to be used as a single dwelling with common facilities like a kitchen and passage.

The Tribunal referred to the decision of the Special Bench in ITO vs. M/s Sushila M. Jhaveri, which held that exemption under Sections 54 and 54F is allowable for one residential house. However, if adjacent units are combined into one house for residential purposes, the exemption could be granted for the combined unit. The Tribunal emphasized that the interpretation of fiscal statutes should be strict and based on the clear language of the law.

Considering the facts of the case, the Tribunal found that the issue required proper verification and examination of whether the two flats were indeed intended to be used as a single residential house. It set aside the matter to the AO for further examination and verification of the relevant facts in light of the observations made.

Conclusion:
The appeal was allowed for statistical purposes, with the AO directed to re-examine the facts and decide the matter based on the Tribunal's observations. The Tribunal's decision underscores the importance of the assessee's intention and the actual use of the property in determining eligibility for exemption under Section 54.