Tribunal allows dual exemptions for capital gains, rules four flats as one house

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision, allowing the assessee's claims for exemptions under both Sections 54EC and 54F, dismissing the revenue's appeal. It was held that there is no statutory restriction preventing the assessee from claiming exemptions under both sections for different parts of the capital gain, provided conditions are met. The Tribunal also ruled that the four flats purchased by the assessee should be treated as one residential house under Section 54F since they were merged into one duplex unit before possession, as per the agreement with the builder.

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Issues Involved:
1. Exemption under Section 54EC of the Income Tax Act.
2. Exemption under Section 54F of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Exemption under Section 54EC of the Income Tax Act:

The primary issue here is whether the assessee can claim exemption under Section 54EC after availing exemption under Section 54F. The assessee sold ancestral property for Rs. 3.40 crores, investing Rs. 2.60 crores in a housing unit and Rs. 50 lakhs in REC bonds. The Assessing Officer (AO) denied the claim under Section 54EC, arguing that after availing exemption under Section 54F, the balance amount should not be invested under Section 54EC but rather in a specified account as per the Capital Gain Account Scheme, 1988.

On appeal, the Commissioner of Income Tax (Appeals) allowed the claim, which was upheld by the Tribunal. The Tribunal noted that there is no statutory restriction preventing the assessee from claiming exemptions under both sections for different parts of the capital gain, provided the conditions of each section are met. The Tribunal emphasized that the legislature has not imposed any such restriction in the statute, and thus, the assessee is entitled to claim exemption under both sections without it resulting in double exemption on the same amount.

2. Exemption under Section 54F of the Income Tax Act:

The second issue is whether the assessee can claim exemption under Section 54F for the purchase of four flats. The assessee invested Rs. 2.60 crores in four flats and claimed exemption under Section 54F. The AO allowed exemption only for one flat, considering the four flats as separate residential units with independent kitchens and entrances.

On appeal, the Commissioner of Income Tax (Appeals) allowed the claim for all four flats, referencing the Special Bench decision in ITO v. Ms. Sushila M. Jhaveri. The Tribunal upheld this decision, noting that the agreement between the assessee and the builder indicated that the four flats were converted into one duplex unit before possession. The Tribunal found that if the flats were merged into one residential unit before possession, they should be treated as one residential house under Section 54F.

The Tribunal also rejected the revenue's grounds that the flats were not physically in existence at the time of the purchase agreement and that the exemption should not be allowed. The Tribunal clarified that these grounds did not emanate from the impugned order and were contrary to the accepted facts by the AO. Moreover, the Tribunal noted that it does not have the jurisdiction to enhance the assessment.

In conclusion, the Tribunal upheld the Commissioner of Income Tax (Appeals) decision, allowing the assessee's claims for exemptions under both Sections 54EC and 54F, and dismissed the revenue's appeal.

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