2022 (5) TMI 545 - AT - Income Tax

Exemption u/s 54 - assessee purchases of two flats for exemption - scope of amendment u/s 54 - whether exemption under section 54 of the Act is available for two flats (houses) in case registration of sale deed is done in AY 2015-16, whereas the amendment in section 54 of the Act was announced in July, 2015 and the sale deed of the property purchased was done in Month of May, 2015, before amendment in section 54 - HELD THAT - We note that flats were purchased by the assessee in assessment year 2014-15 however the sale deed was executed in assessment year 2015-16. Since the assessee has purchased these two flats in assessment year 2014-15 therefore, as per the provisions of section 54 of the Act, the assessee is entitled to claim the deduction. Before amendment in section 54 of the Act, even though section 54 mentions that proceeds should be invested in a residential house , it being a beneficial provision, it should be construed liberally and the deduction cannot be restricted to only one residential house and it should be extended to the purchase of two adjacent residential flats. Therefore, the term a residential house used to interpret prior to assessment year 2015-16, as more than one residential house . In the assessee s case under consideration we note that assessee purchased two flats (house) in A.Y. 2014-15 when the amendment was not in force, therefore assessee is eligible for deduction under section 54 of the Act, for second house also. We note that above section 54 clearly says the assessee has within a period of one year before can purchase the house. In the instant case the amendment in section 54 of the Act was announced in July, 2015 whereas sale deed of the property purchased was done in Month of May, 2015, that is, before amendment in section 54 of the Act. Hence, based on this factual position, the assessee is eligible to claim deduction under section 54 of the Act, on two flats (two houses). Thus assessee is eligible for deduction u/s 54 of the Act, when a residential property is purchased one year before or two years after the date of transfer so the amendment is not applicable, as the assessee purchased two flats in assessment year 2014-15 when the amendment was not in force. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 54 of the Income Tax Act for claiming exemption on the purchase of two flats.

Analysis:
The appeal before the Appellate Tribunal ITAT Surat involved a dispute regarding the interpretation of section 54 of the Income Tax Act for claiming exemption on the purchase of two flats by the assessee. The case pertained to the assessment year 2015-16 and originated from an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The primary issue revolved around whether the assessee was eligible for exemption under section 54 for two flats when the registration of the sale deed was done in the assessment year 2015-16, despite the amendment in section 54 announced in July 2015. The assessee contended that the amendment should not apply as the flats were purchased in the assessment year 2014-15 before the amendment came into force.

The assessing officer disallowed the exemption for one of the flats based on the amended provisions of section 54, which allowed deduction for only one residential house. The assessing officer held that the amendment was applicable from the assessment year 2015-16 onwards. The Commissioner of Income Tax (Appeals) upheld the assessing officer's decision, leading the assessee to appeal before the ITAT Surat.

During the proceedings, the assessee argued that as per the pre-amendment provisions of section 54, the purchase of two flats should be eligible for exemption. The ITAT Surat carefully analyzed the provisions of section 54 and noted that the amendment in the section replaced "a residential house" with "one residential house" with effect from April 1, 2015. Before the amendment, the provision was interpreted to allow for the purchase of more than one residential house. Since the flats were purchased in the assessment year 2014-15 before the amendment, the ITAT Surat ruled in favor of the assessee, directing the assessing officer to grant the deduction for the second flat valued at Rs. 58,07,300.

In conclusion, the ITAT Surat allowed the appeal of the assessee, emphasizing that the factual position supported the eligibility of the assessee for deduction under section 54 of the Income Tax Act for the purchase of two flats in the assessment year 2014-15, prior to the amendment coming into force. The judgment clarified the interpretation of section 54 and the applicability of the amendment, ultimately ruling in favor of the assessee based on the specific timeline of the property purchase and the legislative changes in the relevant provision.