- Bookmark
- Share
- CaseIQ
Asstt. Commissioner ... v. Ms. Gita Duggal, A-2...
Structured Summary of the Opinion
Factual and Procedural Background
The Revenue filed this appeal against the order of the Learned Commissioner of Income Tax (Appeals) dated 12.5.2010 in respect of assessment year 2007-2008. The assessee owned a property at A-22, Westend Colony, New Delhi, consisting of a basement, ground floor, first floor and second floor from which rental income was derived. During the relevant year, the assessee entered into a collaboration agreement with Thapar Homes Ltd. on 8.5.2006 to develop and construct a new building on the plot.
The Assessing Officer (AO) concluded that section 54 was not applicable and that, under section 54F, exemption could be allowed only with respect to the cost of construction attributable to one unit (treating the remaining two floors as two separate residential properties). The AO estimated the total cost of construction at Rs. 3,43,72,529/- and apportioned it in the ratio stated in the order, resulting in an addition of Rs. 98,20,722/- to the assessee's income as chargeable under long-term capital gains.
On appeal, the Learned Commissioner of Income Tax (Appeals) (CIT(A)) reversed the AO's treatment and held that the assessee was eligible for deduction under section 54 in respect of the basement, ground floor, first floor and second floor, relying on precedents. The Revenue challenged that CIT(A) order before the tribunal. A second issue concerned deletion by CIT(A) of an addition of Rs. 2,78,926/- made by the AO towards portfolio management fees.
Legal Issues Presented
- Whether the Ld. Commissioner of Income Tax (Appeals) erred in deleting the AO's addition of Rs. 98,20,722/- by treating the units as two separate residential properties and refusing/excluding exemption under sections 54/54F for the entire new construction.
- Whether the Ld. Commissioner of Income Tax (Appeals) erred in deleting the AO's addition of Rs. 2,78,926/- towards portfolio management fees.
Arguments of the Parties
Assessing Officer / Revenue (as reflected in the AO's order)
- Section 54 is not applicable to the facts of the case.
- Under section 54F, deduction/exemption would be available only in respect of the cost of construction attributable to the unit retained by the assessee plus any one unit of the remaining two units; the remaining units should be treated as separate residential properties.
- The AO apportioned the total cost of construction (stated as Rs. 3,43,72,529/-) in a ratio shown in the AO's order and added Rs. 98,20,722/- to the assessee's income as long-term capital gains.
Assessee's Arguments
- The assessee relied on decisions of the Karnataka High Court, notably C.I.T. v. Smt. K.G. Rukminiamma (ITA No. 783 of 2008, order dated 27.8.2010), and C.I.T. v. D. Ananda Bassappa, arguing that the expression "a residential house" in section 54 should not be read as mandating a single house in the singular.
- Relying on the cited authority, the assessee contended that the word "a" in the statutory expression does not constrain the interpretation to one unit and that plural buildings/lands can fall within "a residential house", with support drawn from section 13(2) of the General Clauses Act as explained in the cited jurisprudence.
- On the portfolio management fees issue, the assessee's counsel conceded that the disallowance by the AO was rightly made.
Departmental Representative / Revenue before the Tribunal
- The tribunal record states that the Learned Departmental Representative could not controvert the assessee's reliance on the cited Karnataka High Court authorities, and no contrary decision was placed before the tribunal.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| C.I.T. v. Smt. K.G. Rukminiamma (ITA No. 783 of 2008), order dated 27.8.2010 | Holds that the expression "a residential house" in section 54 should not automatically be construed as singular; the indefinite article "a" permits a plural reading in context, consistent with buildings/lands in plural and with s.13(2) of the General Clauses Act. | The tribunal accepted this authority as squarely covering the assessee's case and supporting allowance of exemption under section 54 for multiple floors/units. |
| C.I.T. v. D. Ananda Bassappa (2009) 223 (Kar) 186 : (2009) 20 DTR (Kar) 266 | Interprets "a residential house" in a manner permitting plural structures to be treated as qualifying for section 54; followed in Rukminiamma. | Referenced by the cited K.G. Rukminiamma decision and relied upon by the tribunal to support the assessee's entitlement to section 54 relief for the multiple floors. |
| Prem Prakash Bhutani (decision cited as "Supra") | Not specifically restated in the opinion; cited by the CIT(A) as one of the authorities supporting grant of exemption under section 54. | CIT(A) relied on this decision along with the Karnataka High Court decisions to hold that exemption under section 54 was available to the assessee for all floors; the tribunal noted that CIT(A) had considered this authority. |
Court's Reasoning and Analysis
The tribunal heard the rival contentions and examined the material and precedents relied upon. The assessee's primary legal submission was that the statutory phrase "a residential house" in section 54 does not preclude multiple buildings or units from qualifying, as explained in the Karnataka High Court decisions cited by the assessee (including C.I.T. v. Smt. K.G. Rukminiamma which followed D. Ananda Bassappa).
The tribunal noted the specific reasoning extracted from the K.G. Rukminiamma decision: in context the indefinite article "a" should not be construed as meaning singular, and the expression must be read with the surrounding words "buildings" and "lands," permitting a plural application; the decision also invoked section 13(2) of the General Clauses Act to support this reading. The tribunal found that these authorities squarely covered the assessee's facts.
The tribunal further observed that the Learned Departmental Representative did not controvert the cited authorities and that no contrary decision was placed before the bench. On this basis the tribunal concluded that there was no infirmity or illegality in the CIT(A)'s order deleting the AO's addition of Rs. 98,20,722/- and upholding the assessee's claim under section 54.
With respect to the separate issue concerning portfolio management fees of Rs. 2,78,926/-, the tribunal recorded that counsel for the assessee conceded the disallowance by the AO was correctly made; accordingly the tribunal allowed the Revenue's appeal on that point.
Holding and Implications
Core Ruling: The tribunal upheld the order of the Ld. Commissioner of Income Tax (Appeals) with respect to the section 54/54F issue and allowed the Revenue's appeal on the portfolio management fees issue. In the tribunal's words, the appeal filed by the Revenue is partly allowed.
Direct consequences for the parties:
- The deletion of the addition of Rs. 98,20,722/- (relating to alleged ineligibility under section 54/54F) made by the CIT(A) is upheld; the assessee is held eligible for deduction under section 54 for the basement, ground floor, first floor and second floor.
- The AO's disallowance of Rs. 2,78,926/- towards portfolio management fees was conceded by the assessee's counsel; the tribunal allowed the Revenue on this issue, reinstating that disallowance.
The opinion does not purport to set out any broader precedent beyond applying the cited authorities; the tribunal based its decision on existing Karnataka High Court precedents and the absence of any contrary authority before it.
Shamim Yahya, A.M:— This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 12.5.2010 pertaining to assessment year 2007-2008.
2. The first issue raised reads as under:—
“On the facts and on the circumstances of the case Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 98,20,722/- u/s. 54F of the IT Act, 1961 which the Assessing Officer had allowed in respect of only one unit by treating the units as two separate residential properties.”
3. In this case the assessee was owner of the property at A-22, Westend Colony, New Delhi. It was having a basement, ground floor, first floor and the second floor. The assessee derived rental income from the property. During the year under consideration, the assessee entered into a collaboration agreement with a developer, Thapar Homes Ltd. on 8.5.2006 to develop, construct and build a fresh building on the said plot of land. The Assessing Officer, was of the view that the provisions of section 54 were not applicable to the facts of the case. It was also his views that the entire new property would not be eligible for deduction under section 54F. It is mentioned in the order as follows:—
“In view of the above discussion, the assessee is found to be not eligible for exemption under section 54. Even, under section 54F, it would be eligible for deduction with respect to cost of construction incurred on the unit retained by the assessee plus any 1 unit of the remaining 2 units (The 2 units are treated as 2 separate residential properties). The assessee has retained the ground floor along with the basement. Therefore, the total cost of construction of Rs. 3,43,72,529/- is estimated to be incurred in the following ratio:
1:1:1:0:5 for Second floor: First floor: Ground floor: Basement Out of the above, the assessee is on the possession of ground floor and basement for self use. Hence, out of the remaining two floors, exemption would be granted on only 1 unit, as in accordance with the provisions of section 54F of Income Tax Act, 1961. Accordingly, the claim of the assessee to the tune of Rs. 98,20,722/- (Total cost incurred/3.5 i.e 3,43,72,529/3.5) is added to the income of the assessee as chargeable under the long term capital gains.
4. Upon assessee's appeal, Ld. Commissioner of Income Tax (Appeals) considered the submissions and held as under:—
“In the case in hand, the Assessing Officer has only given the benefit of exemption under section 54/54F to the assessee for the basement and the ground floor. He has not given exemption to the assessee for the first floor and the second floor, as they had been given out on rent. Considering the decision of the Karnataka High Court in D. Ananda Bassappa (Supra) and the decision in Prem Prakash Bhutani (Supra), the Assessing Officer should have given the exemption under section 54 to the assessee for the balance floors. As such, it is held that the assessee is eligible for deduction under section 54 for the basement, ground floor, first floor and the second floor.”
5. Against this order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that ld. counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of C.I.T v. Smt. K.G Rukminiamma in ITA No. 783 of 2008 vide order dated 27.8.2010 wherein it was held as under:—
“The context in which the expression ‘a residential house’ is used in s. 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”. As in the earlier part, 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 also can 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 s. 13(2) of the General Clauses Act. - C.I.T v. D. Ananda Bassappa (2009) 223 (kar) 186 : (2009) 20 DTR (Kar) 266 followed.”
7. Upon careful consideration, we find that the contentions of the assessee that the issue is covered in favour of the assessee are correct.
7.1 Ld. Departmental Representative could not controvert the above and no contrary decision was cited before us.
8. Accordingly, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals) and hence, uphold the same.
9. The next issue raised is that on the facts and on the circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 2,78,926/- towards portfolio management fees.
10. On this issue, ld. counsel of the assessee conceded that disallowance has been rightly made by the Assessing Officer. Hence, we allow this issue in favour of the Revenue.
11. In the result, the appeal filed by the Revenue is partly allowed.
Alert