Tax Tribunal denies deduction for multiple property purchases under Section 54

The Tribunal upheld the denial of deduction under Section 54 of the Income Tax Act for the purchase of a second apartment by the assessee. The purchase of two flats in different locations was deemed impermissible as they did not constitute a single residential house property. The Tribunal emphasized that Section 54 should be interpreted liberally but clarified that the benefit is intended for properties purchased for the assessee's own residence. The judgment affirmed that the assessee's acquisition of two separate houses in different localities, with one being let out, did not qualify as a single residential house under Section 54.

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Issues Involved:
1. Denial of deduction under Section 54 of the Income Tax Act, 1961, for the purchase of a second apartment.
2. Interpretation of the term "a residential house" under Section 54.
3. Applicability of judicial precedents and amendments to Section 54.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 54 for the Second Apartment:
The primary issue in this appeal is the denial of deduction under Section 54 of the Income Tax Act, 1961, for the second apartment purchased by the assessee. The assessee sold a house property and purchased two flats in different locations, claiming deductions for both under Section 54. The Assessing Officer allowed the deduction for only one flat and taxed the balance capital gain of Rs. 65,39,851, as the purchase of two flats in different locations was deemed impermissible under Section 54. The CIT (Appeals) upheld this view, distinguishing the decisions relied upon by the assessee due to the different locations of the flats, which did not constitute a single residential house property.

2. Interpretation of "a residential house" under Section 54:
The assessee argued that the two flats were purchased due to family requirements and should be considered a single residential house. The assessee relied on several judicial decisions, including CIT Vs. K.G. Rukmaniamma, where multiple flats in the same building were treated as a single residential house. However, the Departmental Representative countered that these decisions were based on peculiar facts, such as the adjacency of flats, which did not apply in the present case where the flats were in different localities and one was let out.

3. Applicability of Judicial Precedents and Amendments to Section 54:
The Tribunal considered various precedents, including CIT Vs. K.G. Rukmaniamma, CIT Vs. Sambandam Udaykumar, and CIT Vs. Khoobchand M Makhija. It was noted that these cases involved unique circumstances, such as flats being in the same building or modifications making them a single unit. The Tribunal emphasized that Section 54 should be construed liberally to achieve its purpose, but the benefit is intended for properties purchased for the assessee's own residence. The Tribunal referred to CIT Vs. Nathu Hansraj, which highlighted that the exemption under Section 54 aims to facilitate the acquisition of a new residential property for the assessee's immediate residential purpose.

In conclusion, the Tribunal found that the assessee's purchase of two separate houses in different localities, with one being let out, did not meet the criteria for a single residential house under Section 54. The Tribunal upheld the orders of the authorities below, restricting the deduction to one house only, and dismissed the appeal. The judgment clarified that the amended provisions of Section 54 by the Finance Act, 2014, are prospective and not applicable retrospectively.

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