(This ITA is filed under
Section 260A of the Income Tax Act, 1961 arising out of order dated: 28/10/2003 passed in ITA No.354/Bang/2003 for the assessment year 1996-97 praying to formulate the substantial questions of law stated therein; and to allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bangalore in ITA No.354/Bang/2003 dated 28.10.2003 and confirm the order passed by the Appellate Commissioner confirming the order passed by the Income Tax Officer, Ward 1, Madikeri etc.)
The respondent assessee is the Hindu Undivided Family. The assessee sold the residential house for Rs.2,12,50,000/- in the year October, 1995. The assessee purchased two residential flats adjacent to each other from M/s. Ormonde Private Developers Ltd., The assessee has however taken two separate registered sale deeds in respect of two flats situate side by side purchased on the same day. The vendor has certified that he has effected necessary modifications to two flats to make it one residential apartment. The assessee sought for exemption under Section 54 of the Income Tax Act.
2. The Assessing Authority gave exemption for capital against to the extent of purchase of one residential flat. It was found in the inspection by the inspector that the residential flats were in occupation of two different tenants disclosing separate enjoyment. Therefore, it is held that Section 54(1) of the Income Tax Act does not permit exemption for the purchases for more than one residential premises. The Commissioner of Income-Tax confirmed the order of the Assessing Authority. The Tribunal. In appeal set aside the order of the Commissioner of Income Tax and held that the purchase of two flats made by the assessee has to be treated as one single residential unit and that the assessee is entitled for full exemption.
3. The following are the substantial questions of law framed for consideration:
a) Whether the Tribunal was correct in holding that out of the sale proceeds of the property bearing No.9, Brunton Road, Bangalore owned by the assessee he could invest the same in two residential flats bearing No.G-01 & G-02, and claim deduction in respect of both these flats in accordance with Section 54 read with Section 54F of the Act for the Assessment year 1996-97.
(b) Whether the Proviso to Section 54F of the Act as it stood prior to the amendment brought about by finance Act, 2000 can be read to mean that for the assessment year 1996-97 the assessee would be entitled to relief in respect of more than one dwelling unit for the purpose of claiming exemption under the head Capital Gains.
4. In the provision of Section 54(1) of the Income Tax Act, the relevant portion is extracted herein for convenient reference:
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 transfer of a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head income from house property (hereafter in this section referred to as the original asset), and 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, then, instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section.
5. A plain reading of the provision of Section 54(1) of the Income Tax Act discloses that when an individual assessee or Hindu Undivided Family assessee sell a residential building or lands appurtenant thereto, he can invest capital gains for purchase of residential building to seek exemption of the capital gain tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural.
6. The contention of the revenue is that phrase A residential house would mean one residential house and it does not appear to the correct 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 lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gain tax, when he invests the capital gain in purchase of additional residential building.
7. When 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 purchases 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 said by side. The builder has also stated that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. The fact that at the time when the inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that the apartment is not a one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could have 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.
9. For the reasons and discussion made above, the substantial questions of law is answered in favour of the assessee. The appeal is dismissed.