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TMI Blog2016 (11) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of indexation as against 3,72,040/- actually incurred and allowable under the provisions of the Act. 4(I) On the facts and circumstances of the case, the Learned CIT(A) has erred both on facts and in law in upholding the action of the AO in not allowing the benefit of Rs. 7,30,539/- being the amount invested in the purchase of the property as eligible under Section 54 of the Act. (ii) That the contention of the appellant has been rejected arbitrarily ignoring the provisions of the Act and the interpretation thereof. 5. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 3. The brief facts of the case are that assessee filed return of income declaring an income at Rs. 20,99,070/- on 28.9.2009. The case was selected for scrutiny. Notice u/s. 143(2) was issued on 27.8.2010 and was duly served upon the assessee. Subsequently notice u/s. 142(1) of the I.T. Act. In compliance thereto, Ld. Counsel of the assessee and Son of the assessee attended the assessment proceedings from time to time. Necessary details / information as called for have been filed by the assessee which were examined by the AO. The assessee is engaged in the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale consideration of Rs. 18,10,000 which was purchase in the financial year 1998-99 for Rs. 3,72,0401-. Assessee has shown if capital gain of Rs. Nil by claiming indexed cost of acquisition of Rs. 6,11,022/- and exemption under section 54 being investment in residential property of Rs. 12,07,539/- against the sale consideration of Rs. 18,10,000/-. 5. Assessee has invested the amount of Rs. 12,07,539 in two residential properties:- i. Purchase of Residential House in AG-587, Shalimar 8agh with 50% share of his son Rs. 4,77,000/- ii. Purchase. of Plot No. 114 in Omaxe Plot in Omaxe City Sonepat-A Residential Plot Rs. 7 30 539/-Rs. 12,07,539/- 6. Total cost of acquisition claimed by the assessee is Rs. 3,72,040/- which includes purchase cost of Rs. 3,00,000/-, Rs. 60,000/-- in respect of renovation and brokerage expenses and Rs. 12,040 towards professional charges which were incurred to transfer the property in the assessee's name. However, out of the above Rs. 72,040 was not allowed by the AO in the absence of documentary evidences and same was confirmed by the CIT(A). The fact that the property purchased by the assessee was too old and renovation charges were necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption only to the extent of amount invested in Residential House i.e., of Rs. 4,77,000/- as section 54 specially mentioned that investment shall be made in residential house and not in residential plot. 8. Assessee placed his reliance on the circular No. 667 dated.18.10.1993 issued by CBDT wherein it has been stated that cost of land is the integral part of cost of residential house and therefore exemption will be available for the purchase of got also.( Pg. 4 Para 3rd) 9. Further it is brought to notice to the AD by the assessee that he has sold the property of Omaxe Plot No. 114 in the FY 2009-10 i.e., before the holding period of three years specified uls 54 and therefore withdrew the exemption claimed uls 54 in AY 2008-09 by paying tax on the same in AY 2009-10 during the year the amount received.(pg.5 Para 2nd) 10. However, learned AD ignoring the impact of the above sale in the subsequent year disallow the exemption claimed uls 54 by Rs. 7,30,539/- 11. Aggrieved by the order of the learned AD assessee preferred an appeal before the Learned CIT(A). 12. Learned CIT(A) has confirmed the addition made by the AD on different footing and issued a show cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsiderations 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. For the above reasons we are of the view that the Tribunal took the correct view. No substantial question of law arises for our consideration. The appeal is accordingly dismissed with no order as to costs. " 14. However, learned CIT has drawn the adverse conclusion that the substance of the judgement is that the expression" a residential house" should not be literally taken as a single unit or a single flat and that the deduction should be extended t a residential house consisting of several individual units which have been constructed in the manner that they have independent entrance but in case of future need they can be used as a composite independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Smt K.G. Rukminiamma [20117 196 Taxman 87/ [20107 8 taxmann.com 121 (Kar.)." 16. The above judgement of Delhi He CIT Vs Geeta Duggal (Supra) is affirmed by the Supreme court (2015) 228 Taxman 62 (SC) 17. In addition to the above, it is pertinent to note that vide Finance Act No. 2 (2014) amendment to section 54 was carried by substituting the words 'one residential house' in place of 'a residential house' w.e.f. 1-4-2015. The memorandum explaining the finance bill reads as under: "CAPITAL GAINS EXEMPTION IN CASE OF INVESTMENT IN A RESIDENTIAL HOUSE PROPERTY The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act. The existing provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude multiple residential units. 20. Further as per the provisions of section 54 it cannot be denied that the new residential House Property purchased / constructed should not be transferred within a period of 3 years from the date of transfer. If the new property is transferred within a period of 3 years from the date of transfer then the benefit granted under section 54 will be withdrawn. The ultimate impact of the restriction is as follows: (i) The restriction will be attracted, if after claiming exemption under section 54, the new house is sold before a period of 3 years from the date of its purchase/completion of construction. (ii) If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under section 54 will be deducted from the cost of acquisition of the new house. 21. In the present case, assessee has sold the property in the next year in AY 2010-11 and withdrew the exemption claimed of Rs. 7,30,538/-in AY 2009-10 and reduced the same from the cost of acquisition claimed in AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xe City Sonepat-A Residential Plot Rs. 7 30 539/- Rs. 12,07,539/- 8.3 Total cost of acquisition claimed by the assessee is Rs. 3,72,040/- which includes purchase cost of Rs. 3,00,000/-, Rs. 60,000/-- in respect of renovation and brokerage expenses and Rs. 12,040 towards professional charges which were incurred to transfer the property in the assessee's name. However, out of the above Rs. 72,040 was not allowed by the AO in the absence of documentary evidences and same was confirmed by the CIT(A). The fact that the property purchased by the assessee was too old and renovation charges were necessary too make the property in use cannot be ignored and brokerage charges are generally incurred to get the property as well as to get the property in own name. 8.4 Further during the assessment proceedings Ld. AO issued a show cause as to restricting the exemption only to the extent of amount invested in Residential House i.e., of Rs. 4,77,000/- as section 54 specially mentioned that investment shall be made in residential house and not in residential plot. 8.5 Assessee placed his reliance on the circular No. 667 dated.18.10.1993 issued by CBOT wherein it has been sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such -a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect understanding The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT v. Smt K.G. Rukminiamma [20117 196 Taxman 87/ [20107 8 taxmann.com 121 (Kar.)." 8.12 I also find that the above judgement of Delhi HC in the case of CIT Vs Geeta Duggal (Supra) is affirmed by the Supreme court (2015) 228 Taxman 62 (SC). I also find that this issue came up before ITAT Mumbai in the case of Niles.h Pravin Vora and Vatin P.ravin Vora (Legal Heirs of Late Pravin Laxmidas Vora) Vs ITO 2016 (5) TMI 64 and it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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