IT exemption cannot be denied merely because assessee purchases 2 house units

By Accommodation Times Bureau
Two flats purchased by the assessee were situated side by side. Builder also stated that he had effected modifications to the flats to make them one unit by opening the door in between the two apartments. The fact that the assessee could not have purchased both the flats in one single sale deed or could not have narrated the purchase of two premises as one unit in the sale deed could not make any difference. In the earlier part of the section 54, the words used are ‘buildings or lands’ which are plural in number and that is referred to as “a residential house”, the original asset. An asset newly acquired after the sale of the original asset can also be buildings or lands appurtenant thereto, which also should be “a residential house”. Therefore, the letter ‘a’ in the context it was used should not be construed as meaning “singular”. But being an indefinite article, the said expression should be read in consonance with the other words ‘buildings’ and ‘lands’ and, therefore, the singular ‘a residential house’ also permits use of plural by virtue of section 13(2) of the General Clauses Act. Therefore, merely because the assessee purchased two units, it could not be said that she was not entitled to the benefit of section 54. The evidence on record also disclosed that the two units were situated side by side, modification were made, the door was opened making it as a single unit and the consideration received from the sale of the residential unit was utilised to purchase those residential units and, therefore, the assessee was entitled to the benefit of section 54. As such, she was not liable to pay the capital gains. The order of the Tribunal was in accordance with law and did not suffer from any infirmity.

HIGH COURT OF KARNATAKA

Commissioner of Income-tax, Bangalore

v.

Smt. Jyothi K. Mehta

IT APPEAL NO. 194 OF 2010

JANUARY 5, 2011

JUDGMENT

N. Kumar, J. – This appeal is preferred by the revenue challenging the order passed by the Tribunal holding that though the assessee purchased two flats out of the income derived from the sale of a residential premises, as she has utilized the same for a single residential unit she is not liable to pay capital gains tax.

2. The assessee and her son sold their property situated at No. 326, Upper Palace Orchards, Bangalore and utilized the sale consideration for the purchase of two flats situated at Nos. 903 and 904, Poorva Atria, Sanjay Nagar, RMV II Stage, Bangalore. The assessee filed a return of income for the assessment year 2006-07 declaring a sum of Rs. 8,60,069. The assessee claimed that she was entitled to exemption under sections 54 and 54F of the Income-tax Act in respect of the sale proceeds.

3. The Assessing Officer held that the assessee was already an owner of a residential flat at Bombay and she has purchased two flats out of the sale proceeds. Hence, the assessee is not entitled to claim exemption from the capital gains. In appeal, the Commissioner held that though the assessee purchased two flats, as the same was intended to be utilised as a common residence, the assessee would be entitled to claim exemption. Aggrieved by the same, revenue preferred an appeal to the Tribunal, which upheld the order of the Commissioner and dismissed the appeal. Aggrieved by the same, the revenue is in appeal.

4. The material on record discloses that the two flats purchased by the assessee were situated side by side. The builder has also stated that he had effected modifications to the flats to make them one unit by opening the door in-between the two apartments. The fact that the assessee could have purchased both the flats in one single sale deed or could not have narrated the purchase of two premises as one unit in the sale deed could not have made any difference. This Court in the case of CIT v. Smt. K.G. Rukminiamma [2011] 196 Taxman 87/[2010] dealing with a similar situation, held that the expression ‘a residential house’ used in section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word “one”. In the earlier part of the section, the words used are buildings or lands which are plural in number and that is referred to as ‘a residential house’, the original asset. An asset newly acquired after the sale of the original asset can also be buildings or lands appurtenant thereto, which also should be ‘a residential house’. Therefore, the letter ‘a’ in the context it is used should not be construed as meaning “singular”. But being an indefinite article, the said expression should be read in consonance with the other words ‘buildings’ and ‘lands’ and therefore, the singular ‘a residential house’ also permits use of plural by virtue of section 13(2) of the General Clauses Act. In fact, this is the view taken by this Court in the earlier case also. Therefore, merely because the assessee purchased two units, it cannot be said that the assessee is not entitled to the benefit of section 54. The evidence on record also discloses that the two units are situated side by side, modification were made, the door was opened making it as a single unit and the consideration received from the sale of the residential unit is utilised to purchase these residential units and therefore, the assessee is entitled to the benefit of section 54. As such, she is not liable to pay the capital gains.

The order of the Tribunal is in accordance with law and does not suffer from any infirmity. Accordingly, the appeal is dismissed.

Courtesy : Taxguru





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