Assessee denied exemption for multiple properties under Income-tax Act

The assessee's claim for exemption under section 54 of the Income-tax Act, 1961 for acquiring two residential properties was disallowed by the Assessing Officer and upheld by the CIT(Appeals). The Tribunal affirmed that exemption under section 54 could only be granted for one residential property and not for multiple geographically separate properties. Citing precedents, the Tribunal emphasized that the physical structuring of the house should not impact the exemption if it is for residential use, but in this case, the properties could not be joined to form a single residential house. The appeal was dismissed, and the decision was pronounced in Chennai on July 4, 2013.

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Issues Involved:
1. Eligibility for exemption u/s 54 of the Income-tax Act, 1961 for multiple residential properties.
2. Interpretation of the term "a residential house" in the context of Section 54.

Summary:

Issue 1: Eligibility for exemption u/s 54 for multiple residential properties

Assessee sold a residential house and claimed exemption u/s 54 for acquiring two properties: a new residential house and a land for constructing another residential house. The Assessing Officer (AO) disallowed the exemption for the second property, stating that exemption u/s 54 could be given to only one residential property. The CIT(Appeals) upheld the AO's decision, relying on the decision of the Hon'ble Punjab & Haryana High Court in the case of Pawan Arya v. CIT (2011) 49 DTR 123.

Issue 2: Interpretation of "a residential house"

Assessee argued that the term "a residential house" should be construed in plurality, citing various judicial precedents. However, the Tribunal noted that in all cited cases, the residential units were part of the same building or complex and could be considered as a single unit. The Tribunal referred to the Hon'ble Delhi High Court's observation in CIT v. Gita Duggal, which emphasized that the physical structuring of the house should not affect the exemption if it is for residential use. The Tribunal also considered the Hon'ble Andhra Pradesh High Court's decision in CIT v. Syed Ali Adil, which allowed exemption for two adjacent flats modified to form one unit. However, in the present case, the two properties were geographically disparate and could not be joined to form a single residential house.

The Tribunal concluded that the CIT(Appeals) was justified in confirming the AO's view that the assessee could not claim exemption u/s 54 for two separately located properties. Thus, the appeal filed by the assessee was dismissed.

Order pronounced in the Court on Thursday, the 4th of July, 2013, at Chennai.

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