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TMI Blog2019 (4) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant Hindu Undivided Family is entitled to exemption under Section 54 of the Income Tax Act, 1961 with respect to the investment out of long term capital gains made in one residential house only? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in denying the exemption under Section 54 of the Act, when, unlike section 54F, there is no bar in acquiring more than one residential house to meet the needs of the appellant Hindu Undivided Family? 3.Whether on the facts and circumstances of the case and in law, the Appellate Tribunal's view that exemption under Section 54 is available in respect of one residential house only in accordance with the scope and ambit of Section 54 of the Act? 4.Whether on the facts and circumstances of the case and in law, the Appellate Tribunal's was right in law in denying exemption on the amount deposited in Capital Gains Account Scheme, which is eligible for exemption under Section 54 (2) of the Act?" 3.The facts in brief resulting in the present Appeal filed by the Assessee before us are as under: (i) The Assessee, a HUF, comprising of 11 members, Karta, his wife, two major sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the residential house purchased by the Assessee at the highest of three purchases at Rs. 43,45,000/- viz., the property at No.24, Dhanappa Mudali Street, Madurai, and thus imposed the tax on the balance amount of capital gains which was assessed @ Rs. 57,48,149/-, after deducting a sum of Rs. 43,45,000/- from Long Term Capital Gains on sale declared by the Assessee at Rs. 1,00,93,149/-. 5. The First Appeal filed by the Assessee came to be allowed by the CIT (Appeals) following the decision of the Tribunal in the case of D.Anand Basappa Vs. ITO (91 ITD 53) The relevant portion of the order of the CIT (Appeals) is quoted hereunder for ready reference:- "The appellant relied upon the recent decision of the Incometax Appellate Tribunal B Bench in the case of ITO Vs.P.C.Ramakrishna, which was delivered on 28.07.2006. The facts of the case are more similar to the assessee's case. In the case of K.C.Kaushik there was a number of transactions and the question of law which was referred to the High Court was whether the assessee can enjoy the benefit under Section 54 when he did not reside in the property purchased owning to this transfer to any other place. Here the facts are dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the expression 'a residential house' appearing in section 54 connotes abstract plurality. Respectfully following the Judgment of the Income-tax Appellate Tribunal I hold that the appellant is entitled to claim full exemption under Section 54 of the Income-tax Act in respect of all the three properties purchased which was absolutely necessary to accommodate all the 11 members of the HUF,and investment in CGAS. In other words, the appellant is entitled to exemption of the full amount of long term capital gain of Rs. 1,00,93,149/- The A.O. is directed to modify the assessment order accordingly. 10. As a result, the appeal is Allowed." 6. The Revenue filed Second Appeal before the Income Tax Appellate Tribunal, which allowed the Appeal filed by the Revenue by its impugned order dated 27.02.2009 and restored the order passed by the Assessing Officer. The operative portion of the order passed by the Tribunal is quoted below for ready reference:- "Therefore, in view of the facts, circumstances, relevant provisions of law and ratio of the above decision of the Hon'ble Bombay High Court in the case of K.C.Kaushik V. P.B.Rane, Fifth Income Tax Officer and others [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d period of three years. 8. He urged that prior to amendment with effect from 01.04.2015 words "a residential house" included within its sweep more than one residential house also, because of the provisions of Section 13 of the General Clauses Act, 1897, which stipulates that 'words in the singular shall include the plural, and vice versa'. He submitted that object of Section 54 is to extend the benefit of exemption of deduction in the hands of the Assessee, who invests the realisation on the sale of capital asset in the form of a residential house and which sale proceeds may be invested on one or more residential units depending upon the circumstances of the case like the one in hand, where the HUF comprising of father and two elder sons with their respective families considered it appropriate to buy three different units of residential houses at different addresses in Madurai itself viz., two existing residential houses and one plot of land over which the Assessee-HUF constructed a residential house within the prescribed time frame. He relied upon two decisions of the Karnataka High Court in the case of CIT Vs. Khoobchand M.Makhija ((2014) 43 taxmann.com 143 (Karn)) and CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning furnished by dictionaries. (Principles of Statutory Interpretation by Justice G.P.Singh - pages 279 and 280). It is in this background, it is necessary to understand the meaning of the word 'a' in the context in which it is used in the said Section. 10. The words "a" or "an" and "the" are called Articles. They come before nouns. There are two Articles - a (or an) and the. "a" or "an" is called the Indefinite Article, because it usually leaves indefinite the person or thing spoken of. "The" is called the Definite Article, because it normally points out some particular person or thing. The indefinite article is used before singular countable nouns. The definite article is used before singular countable nouns, plural countable nouns and uncountable nouns. The indefinite Article is used in two contexts, firstly, in its original numerical sense of one. Secondly, in the vague sense of a certain. It is also used in the sense of any, to single out an individual as the representative of a class. It is also used to make a common noun of a proper noun. 11. In the Strouds Judicial Dictionary of Words and Phrases dealing with this letter 'a', it is said 'a' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7. When a Hindu undivided family's residential house is sold, the capital gain should be invested for the purchase of only one residential house is an incorrect proposition. After all, the Hindu undivided family property is held by the members as joint tenants. The members keeping in view the future needs in event of separation, purchase more than one residential building;, it cannot be said that the benefit of exemption is to be denied under Section 54(1) of the Income-tax Act. 8. On facts, it is shown by the assessee that the apartments are situated side by side. The builder has also stated that he has effected modification of the flats to make it as one unit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no Substantial Questions of Law arose for consideration by the High Court. The Division Bench of Punjab and Haryana High Court sought to distinguish the Karnatanka High Court judgment and held that both the flats were and could be treated as one house, as both had been combined to make one residential house. The learned counsel for the Revenue submitted that in the present case, where the three purchases in question were admittedly purchased by the Assessee are at different addresses in the same City of Madurai, the benefit of Section 54 cannot be extended to the purchase value of all the three properties in question. She submitted that the Assessee's Appeal deserves to be dismissed and the Substantial Questions of Law shall be answered in favour of the Revenue. 14. We have heard the learned counsel at length and perused the decisions relied by them at the bar. 15. Section 54 of the Act, to its relevant extent, is quoted below for ready reference: "Profit on sale of property used for residence. 54. [(1)] Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under the Income Tax Act, 1961. 17. The purpose of Section 54 appears to allow a deduction to an Assessee, being an individual or HUF, to the extent of investment made in residential house as against the Capital Gains accruing on the sale of original residential house or sold capital asset. The word 'a' has been used in the said provisions of Section 54 (1) of the Act at more than one place and such word 'a' was not replaced by way of amendment by Finance (No.2) Act 2014 with effect from 01.04.2015 at all such places in the said provision. In the first part of Section (1) of the Act, the words 'being a Residential House' coupled with the words 'Buildings or Lands" (plural) appurtenant purchased thereto both clearly indicate the plural sense. The sale being of a residential house does not necessarily restrict the meaning of 'a' to one. If the capital gains arise out of sale of plural of Captial Assets also, including the residential house, it would give rise to taxable capital gains. There is no reason to restrict the benefit of deduction upon investment in residential houses even though such units of residential houses are plural, which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act has been amended to provide that the exemption is available if the investment is made in one residential house situated in India. 20.5.Applicability:-These amendments take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years." 19. A closer and bare reading of the aforesaid Explanatory Notes to the provisions of the said Act, clearly shows that the said amendment was intended to be specifically applied only prospectively with effect from A.Y.2015-2016. It took note of the judicial precedents for the period prior to 01.04.2015, giving a different and contra interpretation. Therefore this amendment cannot be held to be mere clarificatory so as to be applied retrospectively for A.Y.2005-2006 in the present case. 20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D.Ananda Basappa case stated (supra), two flats in question were admitedly adjace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in CIT Vs.D.Ananda Basappa ((2009) 309 ITR 329 (Karn)) & Khoobchand M.Makhija (supra) cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case.
22.The decision of Punjab and Haryana High Court relied upon by the learned counsel for the Revenue, in which the Division Bench of the said Court finding a distinction with D.Ananda Basapaa's case (supra) on facts, without expressing contrary opinion in detail, held that no Substantial Questions of Law arose, renders little help to the arguments advanced by the learned counsel for the Revenue.
23. Therefore, we are of the considered opinion that the present Appeal filed by the Assessee deserves to be allowed and the same is accordingly allowed and the questions of law framed above are aswered in favour of the Assessee and as against the Revenue. No order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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