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TMI Blog2024 (12) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... ential house or a new asset . Further, even by going behind the intent of the provision, the said words would essentially mean a singular house or a singular asset and not multiple houses or multiple assets. To conclude, the word a would indicate one or singular item, entity, object, person, etc. and will not indicate more than one or many . In case the legislature intended to use it in plural connotation, it would have used the word assets instead of a new asset , and not used the article a before the term residential house . In the said eventuality, there would have been merit in the contention of the learned counsel for the assessee that she was entitled to exemption u/s 54F even if she had invested in purchasing/acquiring multiple residential flats incapable of being structurally or legally combined and even failing the test of being adjacent. If the argument of the assessee is to be accepted, even different residential units bought in different parts of a city or different states would have to be brought under the ambit of Section 54F of the Act, which was not the intent of the legislature. It is essential to add a caveat that such a decision will depend on the facts of each c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANTA SHARMA, J 1. The appellant [hereafter the assessee ] has preferred the present appeal under Section 260A of the Income Tax Act, 1961 [hereafter the Act ] impugning an order dated 17.09.2018 [hereafter the impugned order ] passed by the learned Income Tax Appellate Tribunal [hereafter the learned ITAT ] in ITA No. 347/Del/2017 in respect of the assessment year (AY) 2013-2014. FACTUAL CONTEXT 2. The assessee had inherited a property, i.e., a Plot no. 128, Jai Jawan House Building Cooperative Society, Jaipur, Rajasthan, [hereafter the Plot ] after the demise of her husband in 2005, which had been initially purchased in the year 1983. The assessee sold the Plot for Rs. 77,75,000/- during the AY 2013-14. From its sale proceeds, the assessee purchased two apartments, i.e. A-1501 and A-1602 in Prateek Stylome, Sector 45, Noida, Uttar Pradesh, for sale consideration of Rs. 44,13,775/- and Rs. 42,39,275/- respectively. 3. On 31.07.2013, the assessee filed her return of income for the AY 2013-14, declaring her income as Rs. 7,37,560/-, comprising income of Rs. 41,565/- as Income from Business, and Rs. 7,05,996/- as Income from Other Sources. The assessee calculated her Income from Capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly; this has duly been confirmed by the purchaser; the assessee has not furnished any evidence to prove that any construction activity was carried out on the said plot; the only expenditure incurred in FY 2001-02 is in relation to the conversion of the property in free-hold; the assessee acquired two flats vide two different allotment letters from M/s. Prateek Buildtech (India) Pvt. Ltd.; the builder in compliance to notice issued s. 133 (6) has affirmed that the two flats cannot be converted into one unit, as claimed by the assessee in reply dated 26.10.2015 reproduced above. 7. The AO, thereafter, deputed an Inspector to make inquiries with regard to the two flats purchased by the assessee. The Inspector submitted his report on 02.11.2015, inter alia, stating that the two flats were located on two different floors at two different ends in the same block/tower of the society. 8. After considering the material on record and the submissions made on behalf of the assessee, the AO passed an assessment order dated 18.01.2016 under Section 143 (3) of the Act and concluded that the two flats purchased by the assessee were not adjacent to each other so as to be converted into one unit. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of exemptions of Long Term Capital Gain U/S 54 on the ground that there was a sale of house property but later on she has made an alternative claim u/s 54F which was based on the background of the inquiry made by the Assessing Officer wherein it was found that the property which was sold was a residential plot and not house property. It is an undisputed fact that the proceeds of the Long Term Capital Gain has been invested in purchase of two flats, viz A-I50 and A-162 in one particular tower AAON for a consideration of Rs. 44,13,775/- and Rs. 42,39,275/- respectively. The assessee has been denied entire exemption u/s. 54F on the ground that, first, two flats were differently located and cannot be converted into one residential house and therefore, same cannot be considered as one house for the purpose of allowability of deduction; and secondly, the construction of the tower was not completed within the period of 3 years. Ld. CIT(A) has denied the exemption U/S 54F even with respect to one flat also on the ground that construction of the tower has not been completed within the prescribed period of three years and assessee has not purchased one residential house but two, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Arya vs. CIT, reported in (2011) 11 Taxmann.com 312. 5. Now coming to the issue, whether exemption can be denied on the ground that two on which the flats were purchased were not found to be completed within the period of three years. On the perusal of the impugned assessment order, it is seen that ITI has reported that the lift was not installed and the project is still not completed, however, if the assessee has made the entire investment in the purchase of the flat and substantial construction has been completed and merely because lift has not been installed it cannot be held that benefit of exemption should be denied to the assessee. Section 54F is a beneficial provision giving benefit to the assessee who has invested the Long Term Capital Gain for a purchase of residential house. The assessee has made the entire payment and flat has been in complete possession of the assessee and simply because certain finishing work has not been done it cannot be held that exemption u/s 54F should be denied. Accordingly, we hold that assessee is entitled for exemption of Section 54F on the higher amount invested in the flat amounting to Rs. 44,13,775/- and Assessing Officer is directed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location, on the same piece of land, and their division into separate units or blocks did not disqualify them from exemption under Section 54F of the Act. The learned counsel for the assessee also relied on the decision of High Court of Karnataka in Commissioner of Income-tax v. D. Ananda Basappa: 2008 SCC OnLine Kar 693. 16. The learned counsel for the assessee thus submitted that the learned ITAT misinterpreted the decision in Gita Duggal (supra), and overlooked the decision in Gumanmal Jain (supra), and erred in not allowing exemption under Section 54F of the Act in respect of both the flats purchased by the assessee. Submissions on Behalf of the Revenue 17. The learned counsel appearing for the Revenue contended that the assessee had purchased two different flats on two different floors, which were not adjacent or adjoining. It is stated that the requirement of Section 54F of the Act is of a residential house which means one single residential house. It is further stated that the AO had deputed an Income-Tax Officer to make an enquiry with regard to the flats purchased by the assessee, and he in his report had provided that the flats are located in Block-A, on two different fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt within accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) the assessee,- (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of three years after the date of transfer of the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle residential unit. The spatial separation between the flats, which are located on different floors and at opposite ends of the building, reinforces this distinction, and leaves no ambiguity about their status as independent residential houses. To summarize, we are of the view that the two flats are distinct and complete residential units and are incapable of physically or legally being combined together to be used as one single dwelling house. 27. The Revenue, in support of its arguments, had relied on the decision in Pawan Arya (supra) rendered by the High Court of Punjab Haryana. In the said case, the Court was dealing with an appeal filed by the assessee, where the issue was whether there is any restriction on considering more than one residential unit or house for exemption purposes under Section 54F of the Act. The Court held that for the purpose of claiming exemption under Section 54F of the Act, multiple residential houses located in separate cities cannot be regarded as a residential house . The relevant portion of the decision reads as under: 2. The assessee claimed exemption on capital gains on sale of flat on the ground of acquisition of two houses. The Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected modification of the flats to make it as one unit by opening the door in between two apartments. On these facts, the Hon'ble High Court has observed that the fact that at the time when Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that apartment is not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could be narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase two flats as one unit. From these observations of Hon'ble High Court, it is clear that while rendering the decision they have kept in mind that the purchase of two flats in the same building which were united for living of the assessee by making necessary modifications made the residential unit as one and, thus, that case could not be applied to the facts of the case of the assessee 3. We have heard learned counsel for the appellant. 4. As regards claim for exemption against acquisition of two houses under Section 54 of the Act, the same is not admissible in plain language of statute. In the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate floors or sections of the property for flexibility, future income, or family arrangements. 29. In contrast, the present case differs significantly on its facts. Here, the two flats purchased by the assessee are situated on separate floors and on diagonally opposite ends. This distinction is further supported by the builder s confirmation that the two flats cannot be physically or legally combined into a single unit, making it clear that they constitute independent residential houses. Unlike in Gita Duggal (supra), where adjacent floors allowed integration into one cohesive dwelling, the flats in this case are physically and legally separate and cannot be combined. Accordingly, the decision in Gita Duggal (supra) is not applicable to the present case, as the essential factor of adjacency is absent. 30. The learned counsel for the assessee also relied on the decision of High Court of Karnataka in D. Ananda Basappa (supra), and the decision of High Court of Madras in Gumanmal Jain (supra) . We note that in D. Ananda Basappa (supra), the two residential flats purchased by the assessee therein were adjacent to each other and the vendor had certified that necessary modifications h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption was also available if investment was made in more than one residential house. However, the amendment clarified that the benefit under Section 54 or 54F of the Act was intended only for investment in one residential house within India. The relevant extract of the circular dated 21.01.2015 is set out below: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-section (1) of section 54 of the Income-tax Act has been amended to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. 20.4 Similarly, sub-section (1) of section 54F of the Income-tax 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. 35. Thus, it appears from the above that the amendment to Section 54F of the Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting a house as per her own needs, after modifying the original residential house that she owned. Conversely, in the present case, the assessee had bought, and not constructed, two flats which are on two different floors and situated at diagonally opposite ends, in a manner which does not make it feasible for them to be connected structurally as one single unit. 39. This assumes significance in the backdrop of our opinion that the word a used in Section 54F of the Act denotes one singular residence, along with the caveat that in case the floors or houses are so constructed as to be used as one singular unit or capable of being used as such, they may fall within the definition of a residential house. 40. Considering the facts of the case, the terminology used in Section 54F of the Act, the intent of the provision, and the judicial precedents discussed above, we conclude that the appellant s purchase of two distinct, non-adjacent flats, located on diagonally opposite ends of two different floors, even though in a same tower of a residential society, does not fulfill the criteria for exemption under Section 54F of the Act. While it is true that the words a residential house used in S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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